April 19, 2000
Thousands of protesters who descended on Washington last weekend to voice their distaste for the International Monetary Fund (IMF) may be the most vocal of the institution's critics. But this loose alliance of debt campaigners, anarchists and anti-globalisation organisations is by no means the most serious threat to the IMF's future. Rather, it is politicians in the West who pose the real challenge to the Fund. And if the organisation wants to continue to enjoy almost unparalleled influence over the global economy, it is these protagonists that it needs to convince of its raison d'íªtre.
Why is the IMF increasingly in danger of losing mainstream political support? Partly because it is struggling to cope with an integrated global economy, where policies designed for a world of fixed exchange rates and limited capital flows are frequently downright dangerous. And partly because the IMF has become a lightning conductor for those politicians on the American Right obsessed with cutting support offered to public bodies by the US taxpayer.
Mainstream criticisms of the Fund fall into four main categories: its technical skills, its stance on debt relief, its structure and the scope of its lending activities. The first two of these - technical skills and debt - are causes that have long been championed by the Left and that have, one way or another, found more broadly based political support. The other two are more recent bones of contention. And in all but the first of these four, there are few signs of progress.
As far as technical skills are concerned, the IMF has been roundly criticised for failing to spot in advance either the 1994-95 Mexican crisis or the 1997-98 Asian crises. To be fair, this is a failing the IMF shares with almost every other economic forecaster, be they public or private, although this has not diminished the rhetoric of some of the Fund's critics. In response, the Fund's powerful International Monetary and Financial Committee - chaired by Chancellor Gordon Brown - on Sunday put forward a series of well-intentioned proposals to improve the IMF's surveillance system.
These include promoting the flow of information between the governments and investors, one of the key problems in South-East Asia. And although it would be foolish to claim these changes give the Fund perfect foresight, there are at least an improvement on what went before. There are also moves to improve the flexibility of the rescue programmes initiated by the IMF when it offers crisis-hit countries financial help. There is a greater appreciation of the need to involve the private sector after some of the rescue packages implemented in recent years - particularly that in Russia - appeared to do little more than bail out Western banks. The Fund is also slowly moving away from the mantra that countries with fixed exchange rates must defend them at all costs, a belief that caused extraordinary and unnecessary pain in South- East Asia.
These moves to a more flexible economic approach were welcomed by at least some of the campaigners gathered in Washington at the weekend, who have long argued that the IMF's programmes take insufficient account of individual economic circumstance. For many others, however, the proposed reforms do little to counter their ideological opposition to the Fund. For these campaigners, the IMF's policies are simply imperialism by another name. Away from the Washington streets, more mainstream economic commentators have expressed palpable relief that at long last IMF policymakers appear to be taking a slightly less rigid approach.
On debt relief, a subject that campaigners in Washington and elsewhere have successfully brought to public attention, there has been some encouraging talk, but little action. In particular, the IMF and World Bank have yet to follow the lead of the G7 nations and cancel 100 per cent of debt owed by the world's poorest countries. Quite why the IMF and World Bank have not taken this step is unclear. Officials say it is partly an issue of funding - with US Congress already unwilling to hand over taxpayers' cash to the institutions. But the reality is there is nothing to stop either the Fund or the Bank pledging the cash publicly in an attempt to gee up the politicians. The failure of the IMF, and the World Bank for that matter, to keep up with the momentum of the debt movement seems to many as another example of two institutions out of step with the pace of change.
As far as structure of the Fund is concerned, many believe the IMF is insufficently independent from the interests of its members. The shenanigans in Washington last week, when Fund economists were privately chastised by numerous members for criticising official policy, appears to bear out these fears. Unfortunately - but perhaps not surprisingly - big political players in the IMF have little appetite for attempts at structural overhaul, and moves to give the Fund greater indepedence are likely to come to naught. An unwillingness to change also characterises official reaction to suggestions that the IMF should radically alter is lending activities. In particular, there are growing calls for the IMF to pull back from longer-term lending and concentrate purely on short-term crisis resolution.
There are certainly compelling reasons for the IMF to give up some of its longer-term projects, where there is often overlap with the World Bank and frequently a lack of on-the-ground expertise. One cannot help suspecting that in this area, as in so many others, the Fund is simply resisting all changes which its feels could undermine its power base. Such an approach is myopic. If the IMF wants to be considered a real global player in the future, it has to find its own identity, not blindly cling to the past. The world is changing. The IMF must change with it.
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