I am a frequent IMF critic, so when the IMF gets something right, I should acknowledge it. The IMF has, at last, recognized the failure of its big bailout policies - failures all too evident in Thailand, Indonesia, Korea, Russia, Brazil, and most recently, in Argentina. Three cheers for the IMF.
Big bailouts allowed countries to briefly maintain over-valued exchange rates, which in turn allowed the rich in these countries to get their money out at more favorable terms than they might have done otherwise. These bailouts also allowed Western banks that engaged in imprudent lending to get repaid. Meanwhile, as overvalued exchange rates - even if maintained for only a short period - further depressed the economy, the country was left with the burden of repaying billions of dollars in IMF loans.
Nowhere was the problem more evident than in the 1998 Russian bailout, where only after the "failure" - after the ruble's devaluation - did growth resume. The billions lent to Russia quickly wound up in the Swiss and Cyprus bank accounts of Russia's oligarchs. All of this was evident at the time the money was lent in July 1998, but it is Russia's people that today must pay for the IMF's mistakes.
Argentina provided the coup de grace to the IMF's big bailout strategy. I, and others, had argued for years for a greater reliance on standstill agreements, restructurings, and bankruptcy. Finally , the IMF has come around. But it should have been clear all along that the IMF, as a major creditor, could not itself be the bankruptcy judge. The conflicts of interest were glaring.