The IMF: Where to in the 21st century? Media coverage of the recent resignation of the IMF managing director, Michael Camdessus, focussed on the competition sparked off between ministries of finance and central banks across Europe over his successor. Even more important than who is going to lead the IMF into the 21st century is where is the fund going? This is particularly important as the IMF ends the millennium beset by controversy over its handling of developing countries' debt crises amid allegations of mismanagement of recent global financial crises.
What exactly is the role of the IMF? Addressing a Debt and Development Coalition Seminar in Dublin in l994, Mr Camdessus presented the organisation as a friendly international credit union. Member states pay into the fund and can draw on its resources if they face temporary balance of payment difficulties. For the people of developing countries, the fund can appear more like an international loan shark extracting debt repayments regardless of the cost. Its articles of agreement tell us that among the fundamental objectives of the IMF is the "promotion and maintenance of high levels of employment and real income and the development of productive resources of all members".
What has gone wrong? As a result of the debt crisis which broke in the early 1980s the IMF got deeply involved in developing countries. It's role has been to feed the debt treadmill, lending countries new money to repay old loans. In return indebted countries must follow IMF economic programmes. In contradiction to the IMF's own aims, its programmes have resulted in massive unemployment following savage cuts in public spending and the over-speedy removal of protective trade barriers. Rather than promote employment, IMF programmes are excessively deflationary as the focus is on reducing inflation and budget deficits at all costs. Nobody is going to argue that deficits and inflation are a good thing. Yet controversy has raged over the impact and effectiveness of the IMF's approach.
Over a decade later when these "short, sharp, shock programmes" have turned into long drawn out agonies, criticism comes from a broader constituency. A recent External Review of the IMF's programmes in low income countries found that the IMF failed to make any analysis of how its programmes were likely to impact on poverty. This is clearly a serious failure given the IMF's long involvement in some of the world's poorest countries.
Dissension has also broken out among the IMF's allies. A World Bank chief economist, Joe Stiglitz, has broken ranks challenging the so-called `Washington Consensus". This is the triple alliance of the IMF, World Bank and US government which prescribes free trade, deregulation and a diminished state as the panacea for economic stability and growth. According to Mr Stiglitz this focus has ignored factors like education, the need to avoid large-scale unemployment and the danger of too much deregulation leading to financial crises like those in East Asia. The most vociferous criticism of the IMF has in fact been in relation to its role in the global financial crises. Critics point out that by imposing its standard deflationary medicine the fund deepened the recession. The financial crisis also exposed a moral vacuum at the heart of the IMF. When faced with the call for cancellation of the debts owed by low income countries, the IMF claim that this would create a `moral hazard' i.e. debtor governments would take this as a licence to run up more debts.
When faced with the Asian financial crises, the IMF rushed in with a $100 bn plus rescue package to bail out the private speculators who'd been major contributors to creating the crisis.
No questions were asked about "moral hazard". Because the IMF had performed the same service for private investors during the l994 Mexican financial crisis, the pressure is now on to find a way of "bailing in" the private sector and forcing it to take responsibility for crises it has helped to create. This is a task which awaits Mr Camdessus' successor.
The IMF is trying to placate critics of its programme in low-income countries by renaming it the Growth and Poverty Reduction Facility. Three quarters of these programmes, formerly known as the Enhanced Structural Adjustment Facility, break down. As access to debt relief is conditional on compliance with these programmes, the debt relief to heavily indebted countries is held up. The proposal now is that poverty reduction strategies drawn up by governments in consultation with civil society groups will form the starting point for IMF programmes. The key question is, will the IMF change its cherished policies when these clash with a country's poverty reduction priorities or is this friendlier approach merely a better marketing strategy for the same old IMF policies. In recent meetings with IMF officials, representatives of the Debt and Development Coalition were not convinced that the IMF had thought through its new strategy. Some officials clung to mantras like "there are certain laws of nature in macroeconomics". Others frankly admitted that no serious consideration had been given to how IMF core programmes will have to change if they are to facilitate poverty reduction.
Earlier this year there was strong opposition to an Irish contribution to ESAF but the necessary legislation was eventually passed by the Oireachtas. As a result Irish taxpayers have become accomplices in these programmes.
Mr Camdessus has shown himself proficient in learning the language of his critics. He now talks fluently on sustainable development, empowerment of poor people, respecting cultural difference, and protection of the environment. The great glaring gap in his discourse is that he offered nothing new in terms of the IMF's contribution to achieving any of these laudable aims.
Jean Somers is co-ordinator of the Debt and Development Coalition, Ireland.