20% across the nation? I highly doubt it, that's 1 out of 5, kinda steep for a steady field like IM. Maybe your PD is saying that the IM program at your institution received 20% less application and extrapolating data from that.
But at any rate, let's suppose that your statement is true across the nation. Why such a big decrease? and more importantly, how does it affect us applying this year? I would imagine, at least for the USMG's, that it doesn't really matter much because the most competitive, high-strung places are still going to be competitive (ie. all the good applicants are still going to apply to the same places, and competition is still goign to be there), and the less competitive places and lots of community programs wont fill, which for USMG's is not a big deal because pretty much everyone who graduate from US med school can get an IM residency spot. I guess the real benefactor in that scenario is the IMG's.