Blaming the IMF Masks Development Complexities

Walk through the main glass doors and into the imposing---but somewhat drab-looking---building that constitutes the headquarters of the International Monetary Fund on 19th Street and you are, undoubtedly, struck by the sheer power that exudes from the world’s premier international financial institution. For good reason: The role of the IMF in the global financial system is one of executive decision and bottom lines; such detached professionalism is often deemed necessary to do the hatchet job of bringing the world’s governments---or more precisely their fiscal budgets and macroeconomic policies---in line with financial reality.

Contrast this to the carefree, unspoiled, and almost surreal nations that the Fund is routinely on mission to. Countries such as Nicaragua, Jamaica, and Argentina could not be more removed, both literally and metaphorically, from the ethos and style of the IMF. Yet the Fund sees it fit to march into these third world countries, enforce their conditionalities and structural adjustment programs, and bend the will of reluctant governments. The ultimate losers, of course, are the poor; the destitute on the streets of Buenos Aires, the homeless sleeping on the beaches of Treasure Beach, and poverty-striken patients such as those that Jenn Siewertsen met in Lenin Fonseca.

This story is both plausible, and believable. Unfortunately, it also masks the enormous complexities involved in international development policy.

For starters, the IMF does not unilaterally waltz into developing countries and impose structural programs for their benefit. Like any international lender, the Fund is only involved in a country when the country itself approaches the IMF. What this means is not only that the country has made a purposeful decision to enter into an agreement with the Fund; it also means that the country is often in dire straits to begin with, otherwise it would not have gone to the IMF in the first place. This selection bias virtually gurantees that the participants of IMF programs are not the healthiest economies. It seems hardly fair to blame the country’s economic malaise, or its remediation measures, on the IMF---any more than it would seem fair to blame a doctor for prescribing bitter medicine to help the ailing patient in his or her clinic.

Second, like any lender with a prudential responsibility to its depositors, the IMF has a right---and some would argue a moral duty (to its donors)---to ensure that its lenders change their behavior in order to make repayments feasible. And while nobody likes being told how to run their house, IMF programs do contribute to bringing government budgets in line with available sources of funds, and to bringing some sorely-needed external discipline into the policymaking process. This may, of course, involve painful cuts in precisely the areas where developing countries need to spend the most on; areas such as public health programs and universal education. There is clearly an underlying paradox here, but this does not negate the importance of fi scal rectitude. Historically, developing economies have more often than not been guilty of profligate government spending.

In addition, we must not forget that some of the blame must rest on the shoulders of the elected---or as is often in these cases, the dubiously elected or unelected---officials that make up the government of these countries. Jenn is right to point out that the economic policies pursued by the Nicaraguan government does not fully refl ect the wishes of the Nicaraguan people. Nicaragua displays a culture of corruption that permeates through the highest levels of government. In a 1999 survey of independent risk consultancy agencies, Nicaragua ranks 61 (out of 85) in perceptions over the level of corruption among public officials---lower than Robert Mugabe’s Zimbabwe and Joseph Estrada’s Philippines. Like many other developing countries, powerful native elites are just as responsible for perpetuating underdevelopment for their own gain as the IMF is for enforcing erroneous reform programs. There is also a more subtle point: Sometimes, placing the blame of politically unpopular policies on an external agent (such as the IMF) may be a rational strategy by long-sighted, reform-minded governments to effect economic change.

Now, this is not to say that the IMF is universally right, or that all the policies that it has pursued have been uniformly successful. I am not an apologist for the Fund. But to make an unequivocal claim that the “IMF hurts [the] poorest in developing nations” is to gloss over the enormous complexities involved in understanding the pressures and problems that both the IMF as well as developing countries face. This, in and of itself, would be innocuous, if not for the fact that clear thinking is precisely what is required to make real progress in terms of understanding the underlying problems faced by the majority of the world’s population.

Are developing countries then doomed to remain forever indebted and poor, trapped in their miserable circumstances? One would hope not. As Jenn suggests, transparency in negotiations will go some way toward ensuring that the status quo is not simply preserved. But just as important is the increased involvement of civil society in development policymaking, an increased ownership of antipoverty programs by the developing countries themselves, efforts at curbing public-sector corruption, and the patience and understanding of the developed world in offering odious debt forgiveness and measured technical policy advice. Only by working together can we truly make progress in this war on global poverty---a just war, if there ever was any.

This article was first published in the Aug 5, 2007 issue of The Cento, as IMF Not Evil.