Don’t Fear the IMF

Sep 28, 2015 Ricardo Hausmann

The International Monetary Fund is, in many places, the organization everybody loves to hate. But fear of the IMF is not only wrong; it is dangerous for countries with troubled economies that need the Fund's resources and expertise.

CAMBRIDGE – The International Monetary Fund is, in many places, the organization that everybody loves to hate. According to some, the IMF is bad for the poor, women, economic stability, and the environment. Joseph Stiglitz, whose influence is amplified by his Nobel Prize, blames the IMF for causing and then worsening the economic crises it was called on to resolve. The IMF purportedly does so to save capitalists and bankers, not ordinary people. Though untrue, this belief does enormous harm and limits the potential good that the IMF can do.

For starters, consider how the world deals with refugee crises, such as Syria’s, and the way it deals with financial crises. As its name indicates, the United Nations High Commissioner for Refugees is a person, not an institution. He or she heads an “office,” not a full-fledged organization. This weakness is what forced German Chancellor Angela Merkel to bully her European Union partners into a more coherent response to the ongoing influx of asylum-seekers.

By contrast, the system to prevent and resolve financial crises is anchored by a full-fledged institution: the IMF. It may not be perfect, but, compared to areas such as refugees, human rights, or the environment, it is light-years ahead.

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0 Comments on this paragraph, 6 in all 6 Comments on this article

MK Anon Oct 23, 2015

The author whose opinions I don't sure usually has much better arguments.. Comparison with UNHCR is non-sense, and stating that it's the IMF as is or Venezuela is also such a black and white vision.
He would have done well to state that, out of different streams of thought in economics lead, the neo-liberals /friedmanians are leading that institution and are totally imperialistic in imposing their own remedies. The forced privatisation of national monopolistic companies (at very low price during recession) can only be called an institutionalized robbery, for the profit of big multinationals. In addition, political pressures by board members also promote their own strategic interests.
For sure, the IMF of the 80s and 90s is over and that's a chance, the research dept there has more freedom that it used to. For example, acknowledging that Greece won't make it without debt reduction is a great progress. However, the fundamental role of the IMF is to re-imburse as much as possible those who lend money to unreliable countries (with a high interest rate which was supposed to reflect the risk) and therefore save an international finance system made of too-big-to-fail banks. Why is the IMF restructuring sovereign countries debts, instead of too-big-to-fails banks? Dogma and vested interests...
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Per Kurowski Oct 19, 2015

IMF? Horrible! Like going to the rector's office. You will be harshly disciplined... but, when running away from your own bullies, it might still be the best place to go.
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jagjeet sinha Sep 28, 2015

IMF surgeons prescribe every remedy that keeps the Third World exactly where it must remain.
Not a single Third World nation was ever able to surmount its place in the World order imposed in 1945.
Despite them remaining where they were left high and dry, IMF has kept a semblance of world order.
The argument is that IMF was only designed to achieve a few milestones - not real economic emergence for the Third World.
The CDB on the other hand has demonstrated all the reasons why the likes of India remained lost in Bretton Woods, just as China emerged.
Infrastructure Investments that enabled China to leapfrog was not possible under the Bretton Woods regime - the CDB overcame.
The CDB perhaps understood the limitations of the IMF and went about financing everything that IMF would not.
The CDB linked the value creation of Infrastructure Finance with Asset Values - thereby building a recyclable financial architecture.
The IMF - and most other Bretton Woods - never achieved the link between Asset Values and IMF financing.
Many multilateral challenges need this link so that the activities are not seen as burdensome charity, rather than Investment opportunities.
EBOLA, Climate Change, Schools and Hospitals - can all be Investment opportunities not burdensome acts of charity.
Yet, amidst all that IMF was NIT designed to achieve, it still keeps order in place.
That itself is a tall order.
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stephan Edwards Sep 28, 2015

The IMF has proved over the last 30 years it exists to benefit the creditors not the debtors. The Banks get their money and to hell with the people on the ground.
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John Brian Shannon Sep 28, 2015

Hi Ricardo,

I'm an IMF supporter myself Ricardo and I appreciate your thoughts on that praiseworthy institution.

I also appreciate your paragraph on the UNHCR and the need for Angela Merkel to (again) bully her EU partners into doing the right thing. Perhaps you might consider writing a full essay based on that paragraph and related points.

It's true that the person administering the medicine is often the one that gets the grief, particularly when a person has a self-inflicted wound. (Any ER nurse or doctor can vouch for that!)

And in the Greek debacle, the IMF was unfairly drawn into a drama between some Greek politicians themselves, and was held hostage between some unfriendly parties -- not the normal state of affairs for the IMF which usually does its excellent work quietly and in advance of crises.

Whether rich or poor, all nations have benefited from the IMF, even if they've never received a cent from the IMF.

When dominoes are lined up, if one falls, many fall. Therefore, when the IMF prevents one economy from crashing, it is potentially precluding the possibility of many economies crashing.

Which is why the IMF deserves all of the respect that it gets and a whole lot more respect that it isn't getting now.

As for the CDB, comparing it to the IMF is a bit of a false comparison. There is no apples-to-apples comparison here.

The IMF is an institution of research, development, and finance, while the CDB leans towards being a financier of China's foreign policy goals and a financing option for Chinese business -- which is just fine.

The IMF does what it does; an unbiased research and lending institution -- the CDB furthers China's interests while assisting developing nation economies in the process.

I see no reason why the two can't operate -- even in the same country -- as they bring different qualities to the table and as long as there is open communication between the two institutions, they may even complement each other in the best-case scenario.

Both the IMF and the CDB should create a liaison office to foster better understanding and cooperation between the two institutions.

The relationship between the two will be whatever the IMF head and the CDB head decide that it will be.

Therefore, why not make it the most open, complementary, and productive relationship possible?

I can't think of a reason good enough to not do it.

As always, very best regards, JBS
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