IMF

IMF Plans to Cut Jobs
By 15%, Lift Income
Moves by New Chief Are Part
Of Bid to Remake Lender;
Cashing In on Gold Hoard
By BOB DAVIS

WASHINGTON -- The new chief of the International Monetary Fund, in his initial bid to remake the institution and reduce its deficits, plans to cut the staff by as much as 15%, including the first significant round of layoffs since the IMF was founded in 1945.

The planned cuts are part of an effort by Dominique Strauss-Kahn to keep the IMF relevant at a time when developing nations are growing rapidly, often have fat reserves and have little need for IMF aid. The cuts are also part of his strategy to win U.S. and European backing for a plan to sell part of the IMF's gold hoard and invest in income-producing assets, to put the IMF on a sounder financial footing.

"All this is possible only if...I have the commitment by different governments" to boost IMF income, Mr. Strauss-Kahn said in his first extensive interview since taking office on Nov. 1. "If not, nothing is done."

Referring to the IMF, the 58-year-old former French finance minister, known for his bluntness, said: "This institution works well, with dedicated people and very high-level staff, but it is a factory to produce paper."

During the interview, Mr. Strauss-Kahn, who is trying to turn the IMF into a force in global economic policy making, dived into several controversies. On currency questions, he said the euro is "probably on the strong side," and described the sinking dollar as moving "in the right direction." Echoing calls in the U.S. and Europe, he said China should let its currency appreciate, but said that wouldn't be sufficient to restore balance to the world economy.

"If we had a magic stick to solve the question of the Chinese currency today it wouldn't settle world imbalances," Mr. Strauss-Kahn said. China needs to boost domestic consumption as well as to diminish economic inequality at home, he said, adding that he will press that argument with Chinese leaders when he meets them in February.

The IMF also has an important role in assuring that sovereign-wealth funds -- huge, state-owned funds that are increasingly investing in the U.S. and Europe -- act in a market-friendly fashion, he said. Critics worry that some nations -- such as China, Saudi Arabia and Russia -- will use such funds to boost their political power. "The question is not privately owned or publicly owned investment, the question is do [the funds] act as the markets expect them to do."

Mr. Strauss-Kahn made sharp distinctions, though, between sovereign-wealth funds owned by Saudi Arabia, Norway and other oil-rich nations, and those owned by China. Countries with natural resources are building investment funds to provide for future generations when those resources run out. "If we criticize and isolate them, they just have to keep their [wealth] in the ground" by producing less, he said.

China's $200 billion sovereign-wealth fund, however, is benefiting from an export boom partly powered by an undervalued yuan. "In this case, you have less argument that those sovereign-wealth funds are well founded," he said. The IMF is putting together a code of "best practices" to guide sovereign-wealth funds. It is in the interest of the funds to follow such rules to avoid being shut out of Western markets, Mr. Strauss-Kahn said.

On revamping the IMF's finances, Mr. Strauss-Kahn said the fund is facing an annual deficit of $400 million around 2010, assuming loan demand doesn't pick up. He would reduce the deficit by one-fourth, about $100 million, by cutting the IMF staff of 2,634 by 300 to 400 positions. He said he doubted that "voluntary separation" offers would be enough, so layoffs would be necessary. Past IMF staff cuts have been tiny -- 20 job cuts in 1980; 86 in 1986.

Trimming the IMF bureaucracy should produce a lot of savings, he figures. He also said he expects to cut the number of economists, now 1,269, and replace some of them with hires from financial markets who have a better feel for how markets operate.

In exchange for these savings, he wants support from the U.S. and other large shareholders to boost the IMF's income, as recommended by an outside panel this year. He would sell 400 metric tons of gold from the IMF's stock of 3,217 tons to create an endowment, whose earnings would boost IMF income. He also would invest IMF reserves in higher-yielding instruments. Both changes require approval by the U.S. Congress and other countries' parliaments. The gold sales are opposed by mining interests, which worry the sales could depress prices.

U.S. Treasury Secretary Henry Paulson said in October that "it's time to roll up our sleeves on the expenditure side" before looking into additional income for the IMF. Mr. Strauss-Kahn was responding to that call and similar ones by other financial leaders.

Yesterday, a Treasury spokeswoman said, "We look forward to working with Strauss-Kahn and other member countries at the IMF" on IMF financing, but she didn't comment specifically on the planned job cuts.

Although Mr. Strauss-Kahn said he would cancel the cuts if he didn't also get approval for the increase in income, it would be hard for him to make the threat convincing. The IMF's members are likely to force him to go through with the job cuts anyway.