INTERVIEW RF: How does the IMF’s role differ from the World Bank’s? Rogoff: The two organizations are quite similar Kenneth in some ways. They are both, broadly speaking, United Nations (U.N.) family institutions. But they have different voting structures than the U.N. Votes in the IMF and the World Bank are loosely weighted by size of economic contribu- tion to the global economy, so that the European Rogoff countries, Japan, and the United States have a disproportionately large vote. The IMF and the World Bank also have interlocking boards of The International Monetary Fund (IMF) was founded directors, so some people sit on both boards. in 1945, along with its sister institution, the World As for how they differ, the IMF is charged Bank, in an effort to stabilize the international eco- with trying to promote global financial stability nomic order. In recent years, the IMF has come under and growth, while the World Bank directs its efforts at alleviating poverty. The IMF provides intense scrutiny from a wide range of sources. It has support to the World Bank in working toward been the target of anti-globalization activists, who have that goal, but that is not our primary mission. taken to the streets to protest the organization’s poli- Importantly, the IMF is only allowed to lend to cies, and of the Nobel Prize winning economist Joseph sovereigns, whereas the World Bank does not face any such restriction. It is also worth noting Stiglitz, who has taken the IMF to task on a panoply of that the World Bank is also much larger in terms issues in his book Globalization and Its Discontents. of staff and budget than the IMF. So what does it mean, in practice, to In August 2001, Kenneth Rogoff took a two-year leave of “promote global financial stability”? Part of what absence from Harvard University to become the chief we do is constantly loan paid-in capital to emerg- ing markets and developing countries. For economist at the IMF. (He will rejoin the Harvard faculty instance, in the 1990s we made some large loans in the fall of 2003.) During his academic career and earlier to South Korea, Thailand, and Indonesia, and stints with the IMF and the Federal Reserve’s Board of more recently we have loaned to Argentina, Governors, Rogoff established himself as an expert on Brazil, and Turkey. But there are also many smaller loans out there. It’s not unusual for us international finance, debt, and monetary issues. His to have so-called “programs” going in 30 or 40 1985 article for the Quarterly Journal of Economics, “The countries at one time. The important issue we Optimal Degree of Commitment to an Intermediate look at in assessing the size and structure of a Monetary Target,” spawned a vast literature on central program is whether an individual country’s prob- lems might pose systemic risks to the global bank design. And his textbook, Foundations of Interna- financial system. tional Macroeconomics, co-authored with Maurice Such lending is the headline activity of the Obstfeld, is widely used in graduate classes. IMF, but there is also another big element to what the IMF does. We provide a forum for Rogoff is also an expert chess player, obtaining the life- countries to meet and provide information—both formally and informally—to one another. This time title of International Grandmaster (the highest allows policymakers to exchange ideas about best rank awarded by the World Chess Federation) in 1978. practices during noncrisis periods. In fact, many He retired from tournament competition at the age of of our staff papers deal not with crisis issues but 25 to focus on his economic research. Aaron Steelman instead with more general macroeconomic issues. Finally, of course, every member country must interviewed Rogoff at the IMF’s headquarters in submit themselves to bilateral review of their eco- Washington, D.C., on April 15, 2003. nomic policies every year or two. 32 Region Focus • Summer 2003 RF: When you came to the IMF, were there certain economic issues that you thought should be the focus So what does it of your department’s research? mean, in practice, Rogoff: I think it’s very important, when coming to a job like this, to have to “promote global an open mind and to realize that some of the best ideas come from the financial stability”? bottom up. You have to really listen to people and to give people room to Part of what we do be creative. But, yes, there are some specific issues that I wanted us to is constantly loan work on, such as exchange rates for developing countries. Before I came paid-in capital to to the IMF, I had done a lot of work on industrialized countries but I had emerging markets never really worked on low-income countries, and it quickly became and developing apparent that they have many inter- esting special problems. For instance, countries. the amounts of international aid going to poor countries are very large as a percentage of their overall budgets— SCOTT SUCHMAN we’re sometimes talking 10 or 20 percent. How do you manage this macroeco- nomically? Also, consider Africa. Many of those countries are subject to huge commodity price empirical, policy bent than you would see at a uni- shocks. How do you conduct monetary policy versity seminar series. when your main export—which produces, say, 80 percent of your country’s income—can vary up or RF: The IMF has been attacked from all sides: down by more than 40 percent? These are very from the left for pushing “neo-liberal” policies interesting questions that just never would have in developing countries, and from the right for occurred to me if I hadn’t come here. creating moral hazard problems as a result of its We are also interested, of course, in the inter- lending. How would you respond to such critics? national financial architecture and all that entails: capital controls, the international bankruptcy Rogoff: The most important thing for us to do, court, and other issues. And I’m very interested and it’s the honest truth, is not to respond to the in new open-economy macroeconomics, an inter- critics but to listen to them. Indeed, broadly est that grows out of my work with Maury Obst- speaking, the IMF and the World Bank are quite feld. When I came here, the Fund had a model receptive to criticism and have made some serious that was, I think, very effective at looking at what changes over time. In 1980, for instance, the occurs if there is an oil or global productivity World Bank was not in favor of free trade. Simi- shock. But the model was 20 or 25 years old, so I larly, the IMF was much more Keynesian 25 years wanted to replace it with a newer model, and we ago than it is today. It’s not easy for these insti- have made a lot of progress in that direction. I tutions to move quickly—you need to achieve con- must say, though, that much of what we have been sensus among a large number of board members, able to accomplish is because other places—such some of which represent a large number of coun- as the European Central Bank and the Federal tries—but the critics have made a difference. Reserve Bank of New York—have been refining The second thing that I want to say is that their own models. Not surprisingly, I would say almost everyone in academia has some criticisms that most of the work we do has more of an of the World Bank and the IMF. I sure did. I Summer 2003 • Region Focus 33 wrote some of the first papers on moral hazard Rogoff: I think that it’s a very passionate and and IMF lending in the late 1980s with Jeremy angry book, which is part of its effectiveness. It Bulow. We took a fairly cynical view of the whole is directed at a broad audience and it clearly hits process. I also wrote a paper with Maury Obst- a chord with many people. Certainly if you asked feld called “The Mirage of Fixed Exchange Rates” professional economists if they agreed with some that said it was a disaster to support fixed of the arguments in the book, they would say yes. exchange rates, which was conventional wisdom It covers a laundry list of problems with the IMF, at the time. This view, which has now by and large from the left, from the center, from the right, become the conventional one, is an example of from outer space. And as Jagdish Bhagwati said why one has to resist always trying to come down in his review, if you launch enough missiles, you’re somewhere in the middle on debates, which is a bound to hit some targets. In that regard, I would natural tendency in an institution like this. highlight the issue of premature financial liberal- ization being something that one wants to be very RF: It’s pretty surprising that 25 years ago free wary about. I certainly agree with Joe on that, trade would have been a controversial idea at though I also think that if Asian countries had the World Bank or IMF, since liberal trade poli- genuinely flexible exchange rates in the 1990s, we cies were so widely accepted by the profession might have only seen a mini-Asian crisis instead as a whole. of a full-blown one.