|Courting the IMF|
|Written by Asad Badruddin|
|Tuesday, March 17, 2009 12:11 AM|
Criticized by free-market proponents and socialists, by dictators and parliaments, by the right and the left, it could very well be one of the most thankless jobs in the world, as well as one of the most controversial economic bodies of the last century. The International Monetary Fund came into existence at the end of the Second World War and since then has undergone many reforms to evolve into the body it is at present. Its agenda, as its website claims, is to “survey, lend and assist.” To supplement these activities it also gathers information to provide research data and statistics.
The IMF has been widely blamed for the Asian crisis of 1997. Most commonly, it is accused of making the problem much worse. Its infamous policy of “One Size Fits All” and its emphasis on public spending cuts and fiscal discipline (which in layman’s terms is increasing taxes and/or reducing spending by the government) have given headaches to many world leaders trying to negotiate terms that would be beneficial for their respective countries. Its contracts with governments reduce their ability to make independent decisions and have sparked violent protests in many developing countries.
Further, the IMF has been widely criticized for failing to anticipate the current financial crisis on Wall Street. Critics also smugly point out that the IMF’s advice to the U.S. government would have been exactly the opposite of the bailout Congress eventually passed. A Third World country at the IMF’s mercy with large debts and current account deficits would never have gotten a go-ahead with a similar plan. The silence of the IMF about the bailout, at a time when anyone remotely familiar with economics has been commenting on it, has been surprising. Indeed the IMF is perceived to be a puppet of the United States helping to further its capitalist conquest of world markets.
But hold on. There’s another side of the story. The IMF does not force anyone to take its money. Countries usually approach the IMF, so do they really have a right to complain? There is a reason these countries are in a hole right now, and maybe more discipline is what’s needed. Consider the analogy of a beggar who has a drug problem. Giving him money will not solve his problems. He would probably spend it on drugs instead of food. And the worst part is that the next day he will be back asking for more money. The IMF needs to make sure such a situation doesn’t arise. Indeed they place an emphasis on not ordering caviar when all you can afford is the salmon. Moreover governments are fond of blaming their shortcomings on the IMF in order to get more political mileage.
The IMF needs more imagination and more compromise. It needs a thorough and honest evaluation of its performance, especially its many failures. It needs to adopt a softer approach to many of its policies and it needs to consider the input of economists from developing countries who haven’t been brought up with the western Friedman mantra. This would go a long way in giving the IMF credibility and flexibility, and would also address the concerns many countries have about its programs.