IMF, The Myth

Is it legitimate for the IMF to impose policies and courses of action to borrowing countries? Should it impose clauses that result, to any extent, in waiver of sovereignty by the borrower?

Should the IMF’s prime concern be that of rescuing countries in critical moments? Should it operate as a hospital’s emergency ward rather than as a health preservation unit?

How effective can the IMF be as a firefighter in the financial crisis? How big is it? Is its contribution substantial? What has been the outcome of its interventions? Have the borrowing countries effectively acquired a culture of ‘good economic judgment’ or have they returned to the customary populism after IMF’s withdrawal? To what extent are the sponsoring countries also keeping ‘good governance’ practices? Are they also drifting towards inconsequent populism and fiscal irresponsibility? To what extent are budgeting and spending criteria taking into consideration the burdens that may be being slyly transferred to future generations? Are the present rulers concerned with sustained stability and growth or committed only to immediate electoral advantage? Are the sponsoring countries in a moral position to impose austerity upon others? Does the IMF have the competence to follow up on the economics of different countries and to provide them with reliable economic guidance?

It may not be legitimate to impose any conduct but it may be legitimate to patronize good governance based on ongoing results:

• Balanced budget
• Level of maintenance and investment in infrastructure
• Size of government
• Rate of inflation
• Economic growth
• Debt level
• Tax burden
• Free trade indicators
• standards of productivity and competitiveness
• Respect for contracts
• Respect for patents

If it is the sovereign decision of a country to follow these standards and if the country has shown the ability to do so during its recent history, then it qualifies to be patronized. Then it qualifies to receive loans that do not condition it to waive its sovereignty.

It is a crooked outlook on the world to defend that public and preferred funding should be restricted to benefit the fallen, the unsuccessful, and the victims of the crisis. Why not benefit those who are dedicated to preventing falling, achieving success, and to avoiding crisis. Why should the emphasis be on bailing out rather than providing support for the sustainable maintenance of good governance? Why not provide incentives to sound conduct rather than stuffing bitter remedies down the throat of those who irresponsibly exposed themselves to catching the plague. To guard countries against global risks is a noble objective but it does not need to be achieved through acts of charity, combined with presumption and arrogance, at the moments when bad governance has already led to the proximity of disaster.

It will be argued by the romantic liberals that this will make the rich richer and will not help the poor. Wrong. It will help those that are really developing nations, (in opposition to those that would classify in the politically incorrect category of underdeveloped nations). Hypocrisies aside, it must be faced that a great number of countries are best defined today by the terms ‘backward’ and ‘underdeveloped’. All that is needed to confirm this statement is to take a careful look at the present situation of countries that were, in the past, assisted by the IMF. In how many of them, after full disbursement of the loans, have the good governance practices prescribed in the loan agreements been kept by the local rulers. Where exactly did the impositions of the IMF become local culture?

The attitude of the IMF is very much like that of a ministry of planning that draws an elaborate, artfully justified, detailed, and, of course, bulky plan, and then hands it out to the other ministries to execute. It is not difficult to conceive why it will all have been a waste, even if we consider that the ministries of planning employ some of the best economists in the country and that the President will personally support the plan.

It is time for the brilliant economists employed by the IMF and, of course, the sponsoring nations, to face the facts. There is no evidence whatsoever that conditioning loans to the practice of sound economics have perpetuated that practice in any country. They should also face the fact that the IMF is not so relevant to the world economy that its change in conduct will result in any kind of disaster. Its total assets, of approximately US$ 450 billion, are peanuts compared to those of the European Central Bank, of approximately 3.1 trillion Euros. For the sake of comparison, the assets of the IMF are only slightly bigger than those of the Brazilian Development Bank alone.

So, a proposition of change in conduct appears to be very reasonable: past failure should lead to such consideration.

Of course, the IMF is still a respected institution and its officers and employees enjoy good financial compensation and even prestige in the international community. They will fight to the last penny of their salaries against any change that removes the aura of glamour from their jobs. Also, nations like to be thought of as charitable institutions, providing aid to the poorer. Even in the countries where, during public demonstrations, posters are displayed by the masses summoning the IMF to go home, there is a certain reverence for supranational institutions and a certain way of viewing their conduct as messianic. And there is, no doubt, among the ideologists, the romantics, the artists, and the inexperienced in general, the myth of sanctification of poverty and the demonization of success. In sum, the average voter of most third-world countries will not perceive value in the change nor will they support the candidates that advocate it.