The Imf A Cure or A Curse

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The IMF: A Cure or a Curse? Author(s): Devesh Kapur Source: Foreign Policy, No. 111 (Summer, 1998), pp. 114-129 Published by: Washingtonpost.Newsweek Interactive, LLC Stable URL: http://www.jstor.org/stable/1149382 . Accessed: 04/06/2013 05:26
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The
or a
IMF:
A Cure
Curse?
byDevesh Kapur
Fund (IMF) publication reporting on an IMFsponsored conference in Jakarta trumpeted, "ASEAN's Sound Fundamentals Bode Well for
n November1996, an InternationalMonetary
Sustained Growth." The central of the conference, it stressed, message wasthat"theregionis poised to extenditssuccess intothe twenty-first and that governments still have a majorrole in drivingthis century ... wasrooted in theregion's confidence process.... Participants' strong in macroeconomic of Southeast fundamentals; ASEAN's (Association AsianNations)tradition allocation of of, andcommitment to, efficient andin thewidespread beliefthatthe external environment investment; willcontinue to be supportive." If the IMFwaspublicly confident aboutthe strength of Asia's "funit wasevenmoreenamored withthe virtues of the internadamentals," tionalcapital movements thatwere fueltheregion's remarkable helping Evenas Asia's economic crisis growth. ongoing beganto unfoldin the summer of 1997,the IMF wasstrongly its to amend its pressing members charter the time in its fourth to make the lib(forjust 53-year history) eralization of capital accounts a specific goalof the fund,andto giveit overcapital movements. jurisdiction" "appropriate It tooklessthana yearforthe IMF to decry Asia's "fundamentals" as The it was crisis, argued, severelywanting. "mostlyhomegrown." of urging Instead the prompt dissolution of capitalcontrols, IMF manD EVESH KAPUR is an assistant at Harvard andtheauthor, with professor University Lewis andRichard The World Bank: Its First Half two volumes John Webb, of Century, Institution 1997). Press, (Washington: Brookings
114 FOREIGN POLICY
Kapur
MichelCamdessus begancallingfor "orderly, properly agingdirector and of cautious" liberalization controls on government sequenced flows in and out of countries. money The mistakes didnot deterthe IMF of the past,however, frominterin with zeal. Asia's crisis countries unprecedented But if the vening IMF's were about Asia so itsprescriptions predictions wrong, whyshould be anybetter? Do theyflowfroma technocratic Or do they diagnosis? maskthe institution's own interests andthoseof its controlling merely owners? Forthatmatter, doesthe IMF justexactlywhoseinterests represent? Its actionsduring the Asianfinancial crisisnot only cast the to thesequestions answers in sharp anddisturbing relief,butalsoraise serious doubts aboutthe soundness of the institutional architecture for in and for international economic and globalgovernance general, financial in particular. management LETTING THE RECORD SPEAK
If the IMF hada dollar foreverycriticism of itspurpose androlebythe it wouldperhaps neveragainhaveto Right,the Left,andthe Center, its shareholders for moremoneyto sustainits operations. approach Countless Wall Street editorials havedenounced the institution's Journal "bailouts" andtax-raising asefforts to prop states. proposals up"bloated" Leftwingers claimthatthe fund's are a policies not-so-thinly-disguised interests-a viewunderscored U.S. trade wedgeforcapitalist byformer Kantor's colorful of the institution asa representative Mickey rendering ram" forU.S. interests. A morebanalinterpretation "battering portrays the IMFas a hapless Wizard of Ozfigure, "amythologized contraption which weak human to useone observer's through words, beings speak," whoseeffectsare farmorelimitedthan its champions and its critics wouldhaveus believe. The IMF's actual recordis helpful in sortingout these many overblown andconflicting claims.Founded in 1944 (see box on next a modest but important rolein maintainpage),the institution played ratesin its firsttwodecades. Thisraison colingstableexchange d'etre after moved to a floating 1971, when the majorcurrencies lapsed
exchange rate system.Since then (and especiallyafter 1978, when the second amendmentto the IMF'scharterformallyratifiedthe move to countries floating exchange rates), its engagementwith industrialized has been largelypro forma.By the beginningof the 1980s, with comSUMMER 1998 115
IMF:A Cureora Curse?
How
the
IMF
Works
The International Fund(IMF) and the WorldBank-known as Monetary in 1944. The purpose the BrettonWoodsinstitutions--wereestablished was to promoteinternational of the IMF monetary cooperation, exchange ratestability, andthe expansionof international tradeby actingasa lender of lastresortwhen a membercountryfacedan economiccrisis. In principle,the IMF has a structure akin to a financialcooperative. A membercountry's contributions to the IMF arebased (called"quotas") on its weight in the globaleconomy.This weightalsodeterminesits voting power and borrowing Quotas amount capacity (called "drawings"). to an exchangeof assetswith little directcost to taxpayers. Forinstance, in the case of the United States, its contributionsentitle it to an equal amount of U.S. claims on other currencies. That is, just as other countriescan drawU.S. dollarsfromthe IMF in times of need (such as pressureson the U.S. dollar), the United States can drawtheir currencies (be it the Japanese yen or the Germanmark)for itself.In fact, the United States has drawnon the IMFon 28 differentoccasions,most recently a $3 billion drawingin 1978. the IMF, a membercountryfacinga financialcrisishas By approaching accessto the fund's resources and advice.As a country's become drawings relative its it to must meet more or "conlarger quotas, exactingstandards which typically mean significant ditionalities," changesin economicpolicies to ensure that the country'sdomestic and external deficits are loweredor even eliminated.Failureto meet those conditions drastically in suspension, results or even cancellation of the program. renegotiation, fromabout$9 bilAlthoughthe total sizeof the IMF's quotasincreased lion at its creationto nearly$200 billion in 1997, it has declinedrelative to almost all relevant global economic indicators,whether the size of worldtrade,international or international financialflows. reserves, -D.K.
mercial banklendingin high gear,the IMF's clientelehad shrunk to

those poor countries to which no commercial bank was willing to lend.
andgenerally of shortduration. Loanconditions focused ativelynarrow on currency on the devaluations, cuts,highertaxes,andcurbs budget of credit in the economy. therewasno shorthowever, supply Naturally,
116 FOREIGN POLICY
Until the mid-1980s,fundprograms in these poorcountrieswererel-
Kapur
of all hueslamented Nationalists the lossof sovereignageof criticism. of entailed the IMF More critics by requirements ty programs. tellingly, to budget attention the fund's deficits, single-minded particquestioned its to the realities that led ularly tendency ignore political governments to cut politically forprimary (funds education, expenditures expedient forexample), whileprotecting more interests (those politically powerful of the military and university students). By the sametoken,governmentsdesperate to meetIMF-mandated oftenchoseto impose targets tax increases thatfollowed thepathof leastpolitical resistance-raising salestaxesinstead of property taxes,forexample. In short,criticisms of fundprograms served to maskthe frequently actionsof the same politicians and policymakers who were largely for their countries' best responsible predicaments. Despitethe IMF's the realities of localpolitics oftenresulted in outcomes that intentions, weresocially andonly modestly able regressive, economically myopic, to puta country backon a sustainable A burst of IMF growth path. proin Africaat the endof the 1970s,forexample, grams proved singularly for a continentwhoseeconomicproblems ill-advised stemmed from and social causes. Then fund deep-rooted political again, programs sigthathadviableinstitutional infrastructures nificantly helpedcountries andwerewillingto implement Indone(suchas India, toughdecisions andThailand in the 1970sand 1980s). sia,SouthKorea, THE DEBT CRISIS:
HISTORICAL
PIVOT
The adventof the LatinAmerican debtcrisisin 1982marked a major for the IMF's fortunes. turningpoint Navigatingskillfully through uncharted the fundhelpedto forestall the dangers waters, posedby the crisisto the globalfinancial But its role in the debtcrisisalso system. hadtwo important forthe institution. it First, long-term consequences becamethe equivalent of a debtcollector forcommercial banks. Secitsmandate to promote structural reforms. ond,the IMF expanded The "Creditor Community's Enforcer" andcreditors shared blameforthe 1980sdebt Althoughboth debtors were borneasymmetrically crisis,the costs of adjustment by debtor
their worsteconomic decline since the Great countries,which suffered Even as the fund's Depression. programs grewin number,its net lending shrank.Particularly for the IMF was the contrastbetween embarrassing
SUMMER 1998 117
Friend
in
Need
the IMF's instituof political abound undermining pressures Examples evidence of clear of gross tionaleffectiveness. misalignment Despite
it wasopenknowledge thatFrance Africa's currency, presFrancophone
suredthe fund to keep it frompushingfor devaluation.The pivotal role
in theMiddle under theUnited East ledtheIMF, from ofEgypt pressure itsloanconditions more A longhistory of to interpret States, flexibly. in Zaire failed to theMobutu wasa particularly regime egreprograms instance of institutional to accommodate gious flexibility major power
and the United interests(in this case, Belgium, France,Germany,
theIMF there are reasons was willStates). Likewise, strong why political to conditions for in a that finesse loan Russia ing corruption-related way it was to doforKenya. notwilling -D.K. the late-1980s in repayments increase byLatinnationsandthe further of their economies. contraction the IMF as the "creditor Describing former Columbia Karin Lisenforcer," community's University professor sakers(now the U.S. executivedirector at the IMF) noted that the behavior of "apolitical suchas the IMF "raises the quesorganization" tion of whichwaywill itsbiases and debtors go"whenplacedbetween creditors. Denunciations Fischer the byMIT professor Stanley (currently firstdeputy of the institution's no"mistaken IMF's director) managing debt-relief wereseconded a respected former Polak, strategy" byJacques research director and laterthe Dutch executivedirector, who comthatthe institution was"being usedbythe commercial in banks plained the collection of theirdebts." Thisdebt-collector roleinevitably undermined the institution's crediItseconomic forexample, became malleable to major bility. projections, shareholder As former Federal Reserve chairman (seeboxabove). pressure Paul Volcker oftheIMF's oncebluntly said in thedebtcrisis, numbers they were in someinstances what former IMF numbers, "negotiated" embracing research director Frenkel called"considerations otherthanpurely Jacob ones." if "therecord shows thatfrank andopendebate Indeed, analytical doesnot takeplacein official andbanking circles" use 1989 (to Fischer's of the Bretton characterization Woodsinstitutions' in the debt behavior a decline in clienttrustis inevitable. crisis),
118 FOREIGN POLICY
Kapur
The Adventof Structural Reforms wasthatthe IMF, chastened of the debtcrisis A secondconsequence by reformulatandpressed results of its programs the modest by its critics, and deficits Rather thanfocus ed itsapproach. juston the sizeof budget needed to the cuts of revenue increases and the magnitude expenditure cutsandincreasescorrect them,the fundbeganto demand specific to and some countries for example, protectsocialprograms pressing of the the travails Africa-and As economic spending. prunemilitary fund IMF's programs very limited successthere-became evident, To counter thatits policies hurt criticisms even moredetailed. became environand the poor,or its biastoward austerity exports encouraged alleviation thefundadded andgovernancemental destruction, poverty to its agenda-a trendreinforced related issues (suchas corruption) by In the East countries thefundat theendof the 1980s. European joining the IMF loan at the of devised conditions behest borrowers, manycases, localofficials whofeltpowerless to swaytheirpolitical leaders whether orpoliticians whousedthe IMF to shieldthemselves from rejecpopular thattheytoo recognized tion of policies asessential. there wasmore rhetoric thanreality to thesechanges in the Although its loanconditions wereclearly fund's merely approach, beyond moving An equally fiscaland monetary clearand more adjustments. requiring trend in the IMF's wasitsgrowing mission hubris. troubling implicit creep on the of its internal demands owners and the Spurred by principal of itstechnocrat thefund to assume activism thatallthat managers, began wasdeemed for a of should also be its As a mandate. good country part with its its Bretton Woods the World result, overlap sister, Bank,grew. Andwiththemajor a "very view" relative to the powers holding pro-Fund Bank World to useFischer's theadvice from the words), (again, emanating Bretton Woods institutions to have an IMF flavor. began increasing
MEXICO 1994:
A MODEL CRASHES
of the 1980sdebtcrisis The aftermath led to a consensus among policymakers thatlessdeveloped countries should reliance (LDCs) placegreater on market forces. When coupled with soundmacroeconomic policies lowbudget liberalized financial markets would deficits), (especially produce stronger of marmechanisms growthand enablethe self-correcting ket disciplineto work.Countriessuch as Mexico,which sharply reduced their budgetdeficits,privatized state-ownedenterprises, and welcomed
SUMMER 1998 119
werepraised and rewarded foreigninvestment, by the fundand Wall asstar whocould Street dono wrong. to thecontrary Evidence was pupils orpooh-poohed to uphold determined andspread its by an IMF ignored model of economicreform. So when financialcrisishit Mexico in December and 1994,the IMF(not to mentionWallStreet,the media, mostacademic was,to putit mildly, analysts) caught offguard. The massive the that IMF for $40 billionfinancial package organized Mexicoin 1995-at the timeits largest ever-was onlypossipackage ble because Mexicoborders the IMF)slargest shareholder. The package a default and allowed Mexicoto regainaccessto financial prevented whilelimiting the impact of thecrisis on othercountries in the markets, But it set also a At the it region. precedent. veryleast, heldoutthe likelihoodthatforeign creditors couldexpectto be bailed out in similar situations.And although severalrecentcommentaries have hailedthe IMF'sintervention as a "success," sucha characterization over glosses the somber that real in below reality wages Mexicoarestillone-quarter theirpre-crisis levelsof morethanthreeyears ago. The IMF's of the Mexican crisis concluded not thatthe postmortem fundwaswrong, butthatit lacked the wherewithal to be right.It identifieda generic LDCs-alackof transparency-and problem afflicting askedits shareholders for additional and resources to policingpowers correct it. Persuading nations to make morefinancial information available to international institutions suchas the IMF (andto the public) woulddoubtless crises. Buttherearelimitsto this help avertor defuse Even if the IMF had more relevant it would have information, approach. to remain discreet in the faceof an emerging since financial problem, markets havea tendency to makeevennot-so-dire predictions by such institutions And the moreinformation thatthe IMFasks self-fulfilling. arelikelyto be ableto provide for,the lesscountries it, at leastwithin the rapidtime framethat markets when global move,and especially senseloomingproblems. it is not the availmoneymanagers Finally, of information thatmatters There ability perse, butits interpretation. arenone so blindas thosewho will not see;andstaring at the proverbialpot of goldcanbe blinding. A morecurious to the pesocrisis wasthe fund's enthusiasm response for unfettered markets. That globalfinancial markets globalfinancial
is well established.But since the poor bringhigh risksand high rewards have less capacityto bear risk, the IMF might have been expected to move cautiouslyin integrating poorcountriesinto globalfinancialmar120 FOREIGN POLICY
Kapur
the highpotenkets,despite tial rewards. As Larry Summersput it whenhe waschief economist at the WorldBank,in as "free banking in nuclear plants, Butarguing entryis not sensible." that the benefits of freecapital movements were substantial, the fundbeganits campaign to bringthe promotion of account liberalizacapital tion under its mandate and jurisdiction a barely yearanda halfafterthe Mexicocrisis.Of course, another factorbehindthe fund's viewsmayhave been the sentiment subsequently in his expressed by Summers current as seccapacity deputy of the U.S. retary Treasury: that "financial liberalnamely, both domestically and ization, is a critical internationally partof the U.S. agenda." ASIA 1998:
KEMCHS MAS UNO UNO
Mexico City MEXICO
0 .S
DEJA VU WITH A DIFFERENCE
The consequences of the IMF's experience in earlier crises aremanifest in its unfolding rolein the Asiancrisis. As before, the fund's diagnosis hasemphasized the internal rootsof the problem: the failure to control the explosion in property andfinandeficits; large balance-of-payments cial markets; rate mismanaged exchange regimes; rapidly expanding financial thatwere andanunwillingness to act systems poorly regulated; once confidence waslost. decisively focus on in-country factors hasdeflected But,as in the past,thefund's attention from bothitsearlier firm endorsement ofthesecountries' policies anditsunbridled on removing the barriers cheerleading impeding globalization. andThailand hadthrived foryears, Indonesia, Korea, Malaysia,
SUMMER 1998 121
andnumerous external weak financial events, destabilizing systems despite dollar of the early of the 1970sandthe soaring the oil shocks including in a hadthrived as well-if anything, 1980s. And,yes,cronycapitalism and markets Now the IMF international rather capital transparent way. to findthattheregime's claimed shocked, imprestheywere justshocked, were builton suchdodgy foundations. achievements siveeconomic the worstwas did makeegregious The countries mistakes-perhaps on wassomehow based thattheirsuccess theiroverconfidence uniquely not their economies were undone "Asian values." Inreality, quasi-magical of the global butbythe unforeseen internal flaws, capiimpact byvisible macroecotal flowsthat the IMF soughtto set free.The conventional wellwithin countries were nomicindicators of theAsiancrisis prudential whosepoliciesyielded norms. Thesewerenot profligate governments were Current accountdeficitsin Thailand and inflation. largedeficits were a secret. there that was In but hindsight, hardly extremely high, in Korea andThailand; in exchange rateregimes, cracks yet especially rates werenot excesat the time,andexchange theywerenot apparent inflows withhigh Butthecombination of hugecapital sivelyovervalued. executives business and rates domestic savings tempted inexperienced
MOUTH-To-MoUTH
RESUSCITATION
HENG
LIANHE ZAOBAO
Singapore SINGAPORE
122
FOREIGN
POLICY
Kapur
whenthestateimplicitandincompetent politicians, particularly corrupt the financial of private institutions. ly stoodbehind speculations When a domesticasset bubblebursts,the consequences can be In of the the the case painful. Capitalflightseverely amplifies pain. circle Asiancrisis, a vicious set in.As capital flooded rates out,exchange anda waveofbankruptcies unable to paytheir collapsed, byfirms foreign debtsengulfed the private the countries at the mercy of sector, leaving lenders and obdurate official ones. panic-stricken private The IMFassembled a mammoth financial package-$17 billionfor and$57 billionforKorea-with $43 billionforIndonesia, Thailand, resources drawnfromthe IMFitself,togetherwith the WorldBank, the AsianDevelopment Bank,andleading governments. Despitethe shown by financialmarkets(differences in interest poor judgment ratesbetweenAsian andU.S. sovereign of the reladebt,a measure tive risksthat markets attached to thesecountries, had continued to narrow until the firsthalfof 1997,shortly before the crisis),resources disbursed have been usedby the crumbling Asian by fundprograms economies to payoffforeign creditors. But the disbursements were linked to the countries' meetinga of mandate. range conditionsthat seemto go well beyondthe IMF's Two decadesago, fund programs typicallyimposeda dozen or so or strictures. But the Asian countries have had to sign requirements that look more like Christmas trees than with contracts, agreements from50 to 80 detailed conditions from anywhere covering everything the deregulation of garlicmonopolies to taxeson cattlefeedandnew environmental laws. of the these conditions are laudable. Many objectives underlying lack of institutional selfUnfortunately, they also reflecta troubling restraint. to fund conditions such as the one sources, According asking Korea to speedup the openingof its automobile andfinancial sectors reflectedpressures frommajorshareholders (Japanand the United detailed conditions related to the banking sector States).In Indonesia, were imposeddespitethe fund'slimitedexpertisein this area. In November shut16banks at theIMF's 1997,the Indonesian government insistencewithoutproviding firm assurances that the government would standbehindthosebanks thatremained. The resulting bankrun
almostdragged down the entire Indonesianbankingsector.By the IMF's own admission,a fragilesystem was pushed over the brink-a tragic illustration of the folly of institutionaloverreach.
SUMMER 1998 123
RESTORING
THE BALANCE
of the IMF's of the last50 years, the Asian history Againstthe backdrop crisis fourconclusions: financial suggests is that, as Federal The firstand most evidentconclusion Reserve chairman Alan Greenspan remarked the financial recently, global system seemsto facilitate "thetransmission of financial disturbances far moreeffectively thaneverbefore." now sharethe view Manyanalysts thatforeign be regulated financial flowsshould in someway. The questionishowto make to the world's less markets perilous. openness capital needto openupto theworld's marAlthough undoubtedly capital LDCs be welladvised to do so at a pacecommensurate with kets,theywould theircapacity to developsoundregulatory andinstitutional structures. In particular, limitson short-term tighter foreign borrowing--especially bybanks-maywellbe essential. This needforgreater on the partof LDCs is underscored prudence of various to protect nationsfromthe bythe failure proposals designed full force of globalfinancialflows (such as a tax on international financial transactions orfinancier Soros's fora pubGeorge suggestion funded international insurance In whena licly organization). theory, financial crisis doesoccur, thereshould be an international equivalent of domestic codes that would a create venue forcredbankruptcy legal itorsanddebtors to resolvetheirdifferences, and allowboth sidesto avertfinancialpanicsand to stop shirking theirresponsibilities. But the majoractorsin international financialmarkets dislikethe idea. can be Perhapsthis is becausethey are awarethat more pressure onto the IMF than LDCs brought through througha judicial"due muchgreater lossesin major industrialized process." Barring countries, foranyof theseproposals is unlikely. support A second conclusionis that "moral hazard"-the propensity in bothborrowing countries andcreditors to takeexcessive risks because of the implicitinsurance offered as by bailouts-appliesto the IMF well as to borrowers andcreditors. Inthecaseofborrowers, costs to their citizens andpolities exceed vastly financial inflows from the bailouts. countries Thus,to saythatborrowing
will misbehave in hopesof being"bailed out"is to missthe point.The hazard (moralor otherwise)is that LDCleaderswill use the IMF and other externalforcesto steerdomesticdiscontentawayfromtheirown machinations.There is perhaps "moral hazard" greater amongcreditors, particu124 FOREIGN POLICY
Kapur
muchcomofthefinancial sector-a subject in thebanking segment larly on in recent mented years. and on the partof the IMF is a certain moral hazard Moreworrisome institutional of The steady shareholders. itsmajor objectives expansion countries beara because hasoccurred (andloanconditions) borrowing of risks financial and the share of economic, political, disproportionate fund's the for to these is downside There little IMF programs programs. IMF-led or staff. Financially, its management, majorshareholders, sincethe fewnet costson the industrialized bailouts countries, impose to the arrears of Sudan, beenrepaid fundhasalways (withthe exception The damthathave imploded). IMFexistonly in the caseof countries secof the Indonesian from theIMF's banking mishandling ageresulting that ortheboard torwasentirely borne bythecountry-not bytheIMF multilatThe IMF's onto theseconditions. hadsigned apexroleamong counmeans thatit is the firstto go intocrisis institutions eralfinancial risks. its financial tries-but alsothe firstto get out-furtherreducing crisesthat the various the fund's Instead of underscoring limitations, an aggranandmandate, itsresources haveenlarged LDCs haveafflicted to the world's threats of "systemic" drivenby the bogeyman dizement financial system. ANDY STAR the political THE If the financial risks arefewforthe IMF, Johannesburg to irrelevant The fundis largely risks areeven fewer. SOUTH AFRICA rela- y4 managing economic .. tions among major V economic , powers. 'YOAyW l YoR As a result,its coun- You ~LAIL yOUoT.! member triesaredivided IFFS into"structural" creditorsand Yo, SC1 debtors,
D OffR WOERI -suM

SUMMER 1998 125
LDCs countries with the lattergroupcomprising and, morerecently, from central to market economies. planning makingthe transition as a cooperative has With thisdivision,the essenceof the institution fromthe IMF, that they wereunlikelyto borrow dwindled. Knowing havehadfewerqualms aboutcontinually the major economicpowers and role. For members its example, manyEuropean expanding power forgreater of the IMF on to conditions labor market flexsigned calling to reflect on the situation in their own in Asia without pausing ibility have in where labor markets resulted countries, extremely rigid soaring has less to do with an apparent This contradiction unemployment. of manyEuropean nations double standard thanwiththe unlikelihood to IMF everbeingsubject strictures. of the IMF's A thirdconclusionis that the continuedexpansion is badfordebtor nations,forthe globalfinancial powerandmandate forthe IMF itself.The increasing and,ultimately, system, scopeof loan conditions that a financial the IMF shouldtake crisis, implies during over moreand moreof a country's without decision-making process, increase in accountability. Put in a different any commensurate way, the absenceof risksharing meansthat theseconditions amountto a formof politicaltaxation withoutrepresentation. in today's rootedeconomiccrises, Moreover, financially expanding the IMF'sagenda(and its associated loan conditions)can be selfUnlikethe slowburning "oldstyle" economiccrisescaused defeating. financialcrisescan spreadglobally imbalances, by macroeconomic like wildfire. to bringthem Quick and decisiveaction is necessary under control.The widening of loanconditions results in a invariably lossof precious whether or time, during negotiation implementation, a badsituation worse. making The long-term to the IMFitselfshould alsonot be underestidamage mated. In the absence of rules to ensure itsstaffself-restraint, designed like that of any otherbureaucracy-will always pushthe fundtoward that give themgreater and influence. policyprescriptions prominence ofgovernmental Observers bureaucracies havelongrecognized thata mulof missions bureaucratic effectiveness and erodes institutiplicity impairs tional autonomy. The IMF's wideningagendahas made it both less effective andmorevulnerable to politicization, thustarnishing the technocraticreputation that is essential to the credibility of itsprescriptions. As its goals increase,the criteria for "success" become moreelusive,leading the institutionto tout its own "achievements" ever moreardently--with
126 FOREIGN POLICY
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Ignorance
versus
Hyperbole
The United States is the IMF's greatest financial supporter,with a fee"-that accountsfor roughly18 percent of quota--or "membership total IMF funds. But lately U.S. leadershiphas seemed to be at best a mixed blessing.The acute hostilityof the U.S. Congresstowardthe IMF (indeed, towardalmostall multilateral institutions)is matchedonly by its abysmalignoranceof how the IMFactuallyworks. Congressional attitudes are driven by an idie fixe that these institutionsimposesignificantcosts on U.S. taxpayers. Yet, as Secretary of the Treasury RobertRubinrecentlypointedout, U.S. participation in the IMF"hasnot cost the taxpayer one dime."In fact,IMFmanaging director Michel Camdessusarguesthat over the last 15 years,the United States has actuallymade a small profit (of a little under $100 million in the institution. annually)frommembership of Camdessus RepublicanSenate leaderTrentLott'scharacterization as "asocialistfromFrance" should hence be and his insistence (who fired) that U.S. contributions IMF to the waste"taxpayers' money"couldbe dismissedas uninformed if suchcommentsdidnot have major demagoguery, forIMFfundingandpolicy.Butnot only doesCongress have repercussions the powerof the purseover U.S. quota increases,it can-and increasinglydoes-use that powerto attachconditions(such as a ban on fundthat support the rightto an abortionoverseas)to U.S. ing organizations that would finance the Recent debateover the "abortion IMF. legislation in the of House Representatives, for example,has stalledU.S. provision" of $18 billion in new financingfor the IMF. approval Meanwhile, in order to sell quota increasesto Congress,the U.S. to buttressits case) exaggerates what (and the allies it marshals Treasury the fund can do not just for developing nations but for the "national interest."As one such boosterrecently testifiedbeforethe Senate, the IMF "is in fact one of the best possibledeals we could ever imagine:Its cost us nothing yet it providesenormousbenefitsforour econprograms omy and our foreignpolicy."This kind of rhetorichardlyhelps policymakersin crisis-ridden countries who must defend fund programsto nationalists who suspicious deplore U.S. hegemony.And later, when these unrealisticexpectationsarenot met, the IMF's credibilitysuffers. -D.K.
SUMMER
1998
127
as demonstrated in the 1980s, and results, by the debtcrisis discrediting the Mexican crash. 1994-95 by peso again is thatbyplacing The finalconclusion the onusof adjustment solely the fund's relieveanypressure on debtor actions on creditor countries, countries to changethe status the creaky architecture of quo,whether set 50 an rate international organizations up years ago, exchange regime or the increasingly whosegyrations ineffective countries, trapweaker of international finance. the for regulation Today, principles whichthe IMF claims to stand areincreasingly atodds withthewayin whichit conits ducts ownaffairs. Itpromotes the virtues of democracy-while deemif not downright for multilateral ing them impractical, dangerous, It derides anddiscourages stateintervention in economic governance. affairs-while on its to restructure from to the insisting right top bottom economies of the LDCs. Andit rejects theneedforinternational controls on capital asinvidious-while the need for those on labor to be asserting obvious. Thiswelter of contradictions serves to highlight thecorrosive impact of a longseries of adhoc solutions on an increasingly dilapidated system of global governance.Ultimately,the limitationsof multilateral institutions suchasthe IMF reflect the limitations of thosenation-states that created them.And, if as a normative principle powershouldgo hand-in-hand withresponsibility, thenthosestates withthemostpower in theseinstitutions mustbearthe blamefortheirfailings andassume the greatest for their responsibility rejuvenation. WANT TO KNOW MORE?
Forviewson the IMF's rolein international see monetary cooperation, HaroldJames'International since Bretton MonetaryCooperation Woods(Washington: OxfordUniversityPress, IMFand New York: Garritsen de Vries' Balanceof Payments 1996)andMargaret Adjustment, 1945 to 1986: The IMFExperience IMF, 1987). (Washington: A morerecentperspective on the IMF's mandate is MichelCamdessus' speech,"TheRole of the IMF:Past,Present,andFuture" (Washington:AnnualMeetingof the Bretton WoodsCommittee, 13, February 1998). Twobalanced treatments of IMF in developing countries programs areTonyKillick's in Countries: Design IMF Programmes Developing
128 FOREIGN POLICY
Kapur
Bird's New York: and Impact(London; 1995)andGraham Routledge, and Issues Evidence IMFLending to Developing Countries: (London; New York: 1995). Routledge, isJohnWilliamson, bookon IMF The classic ed.,IMF conditionality for International Institute Economics, (Washington: Conditionality nature of IMF of the evolving condition1983).An eleganttreatment official The Changing Nature senior isJacques Polak's alitybya former Princeton Press,1991). (Princeton: of IMF Conditionality University canbe foundin Manuel A morerecentinstitutional Guitperspective ian's"Conditionality: Present and IMF Future"(Washington: Past, StaffPapers, December 1995). Thereare innumerable of the IMF. A sampling fromthe critiques can be in found Bandow and V Ian isquez, eds.,PerpetuatDoug Right The World World Bank, The IMF,and the Developing ing Poverty: CatoInstitute, collection of cri1994).A representative (Washington: from the Left is Kevin Years Is The Danaher, ed., Fifty tiques Enough: CaseAgainstthe World Bankand the International Fund Monetary SouthEndPress, (Boston: 1994). in moreon the origins Readers interested of the Asia crisisshould consultSteven Radeletand Jeffrey Sachs'"The Onset of the East Asian FinancialCrisis"(Cambridge: Harvard Institute for InternationalDevelopment, March1998). Fora thoughtful fundperspective on its role in the Asia crisis,see Fischer's "The and the Asian Crisis"(Forum Funds LecIMF Stanley tureat UCLA on March Bank's 20, 1998).On the World role,referto "The Role of International Financial Institutions in Joseph Stiglitz's the CurrentGlobalEconomy" to the Council on (Address Chicago 27, 1998). Criticalviewpoints include, ForeignRelations,February Allan H. Meltzer's "AsianProblems and the IMF"and Charles W. Calomiris' "The IMF'sImprudent Role as Lenderof LastResort," Winter1998) and Martin the (CatoJournal, Feldstein's, "Refocusing IMF"(Foreign 1998). Affairs, March/April Forlinksto relevant Websites,as wellas a comprehensive indexof related access articles, www.foreignpolicy.com.
SUMMER
1998
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IMF:A Cureora Curse?

mercial banklendingin high gear,the IMF's clientelehad shrunk to

Until the mid-1980s,fundprograms in these poorcountrieswererel-

IMF:A Cureora Curse?

IMF:A Cureora Curse?

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DEJA VU WITH A DIFFERENCE

IMF:A Cureora Curse?

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IMF:A Cureora Curse?

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