BERKELEY – The International Monetary Fund has been one of the few beneficiaries of the global economic crisis. Just two years ago, it was being downsized, and serious people were asking whether it should be closed down. Since then, there has been a renewed demand for IMF lending. Members have agreed to a tripling of its resources. It has been authorized to raise additional funds by selling its own bonds. The Fund is a beehive of activity.
But the crisis will not last forever. Meanwhile, the IMF’s critics have not gone away; they have merely fallen silent temporarily. The Fund only encourages their criticism by failing to define its role. It needs to do so while it still has the world’s sympathetic ear.
The IMF’s first role is to assist countries that, as a result of domestic policies, experience balance-of-payments crises. Their governments have no choice but to borrow from the Fund. To safeguard its resources – that is, to be sure that its shareholders are paid back – the Fund must demand difficult policy adjustments on the part of these borrowers.
The problem is that the IMF has bought into the rhetoric of its critics by agreeing to “streamline” its conditionality. In fact, where structural weaknesses are the source of problems, the Fund should still require structural adjustment as the price of its assistance. By seeming to give ground on this point in the effort to win friends and influence people, the IMF has created unnecessary confusion.