The IMF Fails Again

It is six years since the IMF's fateful meeting in Hong Kong, just before the global financial crisis. I was there. What a peculiar meeting it was. To those paying attention, it was clear that a crisis loomed. Capital market liberalization was the culprit, exposing countries to the vagaries of international capital flows--to both irrational pessimism and optimism, not to mention the manipulation of speculators.

Yet the IMF was still lobbying to change its charter in order to force countries to liberalize their capital markets, ignoring the evidence that this did not lead to enhanced growth or more investment, but only to more instability. The crises that erupted later that year undermined confidence in the IMF and led to discussions about "reforming the global financial architecture."

Now six years later, we can say that those discussions did not lead to much real change. Some suggest that the fancy term "reforming the global financial architecture" was a dead giveaway. The US Treasury and the IMF knew, or at least hoped, that with the passing of the crisis, global attention would turn elsewhere. While wrong about what to do in the crisis, on this point they were right.

But change has occurred, though sometimes more in rhetoric than reality. Today the IMF is more aware of the impact its programs have on poverty--though it still does not produce a "poverty and unemployment impact" statement when it presents a program. The Fund has recognized the importance of participation and ownership. No longer are programs simply a matter between the IMF, central bank governors, and finance ministers. The IMF has recognized that there was excessive conditionality, and that these conditions led to a lack of focus.