Mike Collier in Riga -
The image of the grizzled cowboy coming reluctantly out of retirement for one last shoot-out in Dodge City may not immediately spring to mind when one meets the smiling countenance of the International Monetary Fund's Mark Allen, but it's surprisingly apt.
Having joined the IMF in 1974 after studies at Cambridge and Yale, Allen put in nearly four decades of fancy trouble-shooting before riding off into the sunset in 2008. But no sooner had he put away his pearl-handled six-shooter and settled into a sharecropper's rocking chair than he was called back for one last showdown. With the IMF's tin star pinned to his lapel, Allen was asked to run out of town bothersome varmints such as recession, bank illiquidity and the serious possibility of a wave of currency collapses. "It was too interesting a crisis to miss," jokes the IMF's senior regional representative for Central and Eastern Europe in conversation with bne in February.
The IMF has been lucky to have such an experienced hand available while it's been thrust into the limelight. Having brokered big loans in Latvia, Hungary and Romania that seem to have averted a complete catastrophe, Allen says the organization hasn't received as much credit as it is due. "I have been with the Fund for 40 years, so it's not the first time we've seen the messenger being blamed for the bad news. The Fund came into this crisis with considerable financial resources which cushioned the necessary adjustments. It's hard for people to really see what it would be like without the IMF money. It's quite easy to associate the adjustment somehow with the Fund," he says.
Just as the Sheriff rarely gets the thanks of the townspeople once he's prevented the bandidos marauding through town, so the IMF has the difficult task of explaining that things could have been an awful lot worse without its intervention. He says that much of the discussion in 2009 was about the possible domino effect, which would have seen an awful lot more misery, unemployment and losses if it hadn't been contained. "The fact is the Fund reduces the amount of immediate adjustment that has to be made. Of course it also has to be repaid, but it rearranges the adjustment over time. That act is of considerable value," he maintains. "What the Fund has done in this part of the world is move very rapidly and be instrumental in preventing contagion from one country to another. We really deserve some credit for having prevented knock-on effects to other parts of the region."
An extremely affable conversationalist, the only time bne suspects Allen's trigger finger is getting itchy is when it brings up the controversial theory held by economist Mark Weisbrot that the IMF's concern over CEE was really rooted in a desire to protect western banks from their own over-exposure to the region. "We were concerned about the exposure of western European banks in this region, which could have had a knock-on effect into Western Europe. Again the actions that were taken both to coordinate bank exposure and to ensure that countries had the resources to function normally has meant that the west European parent banks have had more time to adjust to the problems," he says. "We helped prevent a collapse of the Western European banking system by preventing a collapse of the Eastern European banking system. You can't say the only beneficiaries of this were shareholders in western banks. They have benefited from it, but only because the mechanism for enforcing a loss on those people would have been huge burdens on other people in Central and Eastern Europe and taxpayers in Western Europe. So I don't buy the theory that anything is alright to promote the collapse of capitalism!"
Despite rapidly rising sentiment across CEE, Allen is concerned that the recovery taking place is based largely on public action - ie. both the keeping of interest rates very low by central banks and the fiscal stimulus packages that have been put together by governments - which hasn't yet been converted into sustainable consumer demand. Also, he notes that it's difficult to have sufficient bank credit available for really supporting a very strong recovery unless sharper action is taken to correct bank balance sheets. "On one hand, you want animal spirits to rise again and people to take certain risks, but you want it to be in moderation - if people were just capitalising on extremely low interest rates that would be a mistake."
The CEE economies may have been among the hardest-hit in the world, but they may now be ahead of others in terms of facing new economic realities, Allen thinks. That's particularly true of the Baltic states, which have opted for painful austerity packages to rebalance budgets instead of the "spend, spend, spend" approach of fiscal stimulus. "We have seen other countries trying internal devaluation, so it's not unprecendented, but we also know it can be hard in terms of what happens to unemployment rates, for example. But we're going to see a lot more of this because the experience of the Baltic states is not totally unique. That is what we are now seeing in some of the other European countries in the south who had a similar boom and bust phenomenon which is having to be corrected." "It would be remarkable if some lessons weren't learned from the crisis."
And with a barely-audible jangle of spurs, he heads back out onto the range.
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