Posted: July 19th, 2023

Critique of the IMF’s Role and Policy Conditionality

IMF and Globalization, V

Globalization has had a remarkable effect on both the technological developments and the cultural attributes of a number of companies. Instant global communication is now possible, and individuals know they can instantly communicate with almost anywhere in the world — and at an affordable cost. The more technology improves, the more this global economy, culture, and society develops. Of course, globalization continues to break down societal barriers, and one of the key elements to this is communication (Trening and Estabrooks).

Globalization, or world-trade magnified, is the process in which local ideas and activities are translated into global ones. For example, the term “Think Global, Act Local,” refers to saving energy so that other countries in the world will have appropriate levels. In terms of trade, globalization refers to the idea of unifying all countries and cultures through economic, technological, political, social, and ideological manners. The theory is that if a country is actively trading with another country, sharing economic development, etc. then it will be more likely that those nations will act in harmony politically as well. If economies are then tied together, war is unlikely since it would harm all economies to some degree (See the various articles in: globalization101.org). One of the large changes that has occurred because of the process of globalization — which really became a part of world trends after World War II, is the International Monetary Fund. This organization became necessary due to a strong relationship between world output and world trade — the more globalization occurs, the more countries that have certain industries, be it special foodstuffs, minerals, gems, human resources, etc., and the more those countries want to increase their economic standard of living, the more world trade will remain vital to the global economy. Similarly, the idea of a global economic system is a check-and-balance to recession or inflation, if one major power has drastic problems; it affects most of the world (Crochuer). One European country, for instance France, seems to be moving rapidly towards the idea that globalization is a reality. Franco-America trade, for instance, has increased over 90% since 1990. France has become part of the EU, adopting the Euro, and partnering with the rest of Europe in its view of increasing trade and economic traffic worldwide

We are starting to see the need for a banking and/or funding organization that will help manage some of this disparate growth. Let us imagine a world in which the United States was unable to import any goods from abroad, including Canada and Mexico. There are several consequences to this scenario: automobile ownership would change, since a good percentage of American’s own a foreign car; international travel and business would slow, affecting our economy; foodstuffs, especially those only available from topical countries would cease with the exception of materials brought in from Hawaii; numerous electronic parts would be unavailable, much of America’s clothing industry has been outdated for decades, and would need retooled, and of the most serious nature, America would not have the gasoline/oil to continue utilizing energy without importing product — and in reality, rather than the United States leading the world in service organizations, the entire U.S. economy would need to be retooled to more of a manufacturing paradigm, and wages/costs reaffirmed to a new level. Similarly, countries that are landlocked, like Japan, import a great deal from the United States and abroad. Oil, for instance, much timber, precious metals and minerals, as well as certain technologies that are U.S. propriety (Microsoft and Intel for example). Yet, there still remains a disconnect between the economies of the developed and undeveloped world — and money, or the IMF, is not the only way to solve economic disparity (Payer).

Clearly, without globalization and an aggressive world trade policy, the economic health of the entire world would suffer. And, in fact, the idea of globalization might just be the way the world will unite and become the next “Age” of thinking globally as a citizen of the world (Bhagwati). To fight the quiet crisis of a flattening world, the developed world’s workforce should keep updating its work skills. Making the workforce more adaptable will keep it more employable. This should also translate into greater global inspiration for youth to be scientists, engineers, and mathematicians so that there will be more individuals in the developing world that can cogently make decisions, manage the economy, and even participate in global lending and banking (Friedman).

The IMF (International Monetary Fund) is an international organization system that acts as an overseer of the global economic system by following the macroeconomic policies of its member nations. It concentrates on those members who have the largest impact on the exchange rate, balance of payments, and economic viability. The stated objective of the IMF was to act as an entity designed to stabilize international exchange rates and facilitate global development through education and liberalization of economic policies (Davis). Additionally, the IMF offers highly leveraged loans to developing nations, and has been in recent years, asked to allow many of these to default out of humanitarian compassion (Francis).

The IMF grew out of the global political situation of World War II and the United Nations Financial Conference of 1944. It was formally organized in 1945 with 29 initial countries, but the statutory purposes are identical to the outset (Information and History). The IMF’s influence in the global economic paradigm steadily increased as a combination of events occurred. These included the rise of Asia economically, the Cold War, the collapse of the Soviet Bloc, and the technological and cultural factors that engendered the increase of globalization. Due to the heavier borrowing, debt relief, and economic downturn, however, by 2008 the IMF was faced with a shortfall in revenues. Because of this, the IMF has sold some of its gold reserves, and put into place a 5-year plan that will also result in over 300 staff cuts. Still, as of 2009, world leaders continued to pledge more incoming funds to the IMF to use its low-interest loans as a way to tackle the global financial crisis (G20 Leaders seal $1trillion Global Deal).

The effectiveness and impact of the IMF are certainly debatable and may be analyzed by looking at several economnic and social indicators. Often, the IMF binds its financial aid to certain contingencies that may or may not be appropriate for the individual countries. Sometimes, too, it insists on telling the country how to raise appropriate revenues in order to repay the loans (e.g. tax increases) that simply do not work. For example, the former Romanian Prime Minister stated that, “Since 2005, the IMF is constantly making mistakes when it appreciates the country’s economic performances”(Cited in:Paul).

Impact on Access to Food — The IMF is so large, so cumbersome that, at times, despite it wishing to impact the world’s population in a positive way, has the opposite effect. Former President Clinton summed this up by saying, “We need the World Bank, the IMF….. But we were wrong to believe that food was like some other product in international trade, and we all have to go back to a more responsible and sustainable form of agriculture” (Clinton).

Impact on Public Health — A 2008 study from Cambridge and Yale universities concluded that strict conditions on the international loans from the IMF resulted in thousands of deaths in Eastern Europe as public health care had to be cut. This is part of the unintended consequence of moving economic policy into social policy (Stuckler, King and Basu).

Impact on the Global Environment — Again, there is the problem of developing countries being forced into rapid industrialization and eco-unfriendly positions in order to support their financial obligations to the IMF. Instead of working with the country to find sustainable methods, the IMF pushes for quick economic recovery and growth. However, in recent years, the IMF has tackled the global warming crisis, and has developed a Green Fund, also pushing for more environmental awareness (Green)

Impact on the free-market — The IMF, typically, supports a monetarist approach to global economic development. This view holds that within the economic variation of a country, the money supply has the major impact on the stability of said country. Supply-side economists, however, see global economic growth more effectively created by lowering basic barries to entry (supply) and allow a freer access of goods and services, even if that means adjusting typical fiscal programs that fund the government. In this case, it may be that the original charter of the IMF is in need of drastic revision; certainly the world in 2010 is not at all like the world of 1945 (Caballero).

Similarly though, both scholars and governmental officials agree that the IMF is facing a serious crisis of legitimacy. The credibility of the organization and its policies are sometimes weakened by a lack of acumen, and even insiders in the IMF are not always sure of the overall strategic plan of the agency. Rarely would anyone disagree with the IMF’s mission to help maintain global economy secuirty, but there remains serious debate about the means to do so. If we consider that the major reason for the IMF was to ensure global financial stablility, the IMF has failed numerous times. The post-World War II global framework did support this function; countries were still very much on a hierarchical basis, communication was not instantaneous, and for a number of countries, the sole issue was survival. Indeed, one of the important issues with the IMF has always been a balance, or lack thereof, between power and responsibility. Who is accountable if loans or investments fail? The IMF? Hardly, they say. With their guidelines, they can see no reason why any project would fail if managed correctly — and, of course, that means management by the IMF manner — with their objectives and their limitations — and even their insistence on return funding methods (Wood).

In some ways, the basic criticism of the IMF is its modus operendi, and its penchant for crisis management without proper crisis management tools. Since the IMF was set up to prevent global economic crisis, it is ironic that it has focused on such throughout its history. And, in the absence of preventative measures, the present system of crisis control is badly skewed. For example, when the IMF fund enters into a country’s fiscal crisis, they often leave a vagueness about debt resolution that puts the debtor country at a losing end or they overmanage that program and do not allow the country to ever get ahead. The processes to receive funding are often vague and dependent upon the “crisis or country du jour.” Countries that become indebted while not in crisis were able to pull out of their issues with the IMF, while countries that were ni minor crisis only fell deeper into debt.This led to a deep recessionary scenario — widely believed caused by the IMF (Khor). Indeed, the financial crises during the 1990s and early 2000s placed the IMF under additional scrutiny for their lending practices. In this, many experts believe that the IMF is at fault because they arbitrarily decided to extend their role far beyond both the original intentions of their charter and what the borrowing company might expect (Bird).

Over and over again we hear that the IMF may not be a legitimate body for the 21st century. However, several countries that are developing and wish to become global partners are in need of just the type of funding programs set up by the IMF. Leaders of numerous countries, in an unprecedented show of at least congeniality and willingness to discus economic issues that affect everyone are rapidly trying to stem the global financial crisis and bring stablility to the world. Most experts also say that much of the failures in IMF policy between 1970 and 1990 had to do with mitigating economic and international policy between the world’s largest democracy and clients (the United States and the EU) and the world’s most populace country (China). China, of course, was solidly opposed to most of what theWest offered at that time, and the IMF was stuck in the middle. Speaking to a panel of experts on international economics, one scholar positied that the IMF did not need to be sacked, just reorganized, rethought, and reinvigorated for contemporary economic concerns. It is not just up to the IMF, though, all countries must agree to accept the concept and rules of multilateralism, “One has to start from the fundamental view that if you accept public policy and you accept the interconnectedness of the global economy, then you need an institution appropriate to its regulation” (Andersen).

Thus, overall, the IMF success record is perceived as limited and remains controversial. While it was actually created to help stabalize the global economy, critics maintain that since 1980 over 100 countries have experienced a banking collapse that was serisious enough to potentially destabalize the government, and certainly far more than anytime in Post-Depression history. The IMF is a large bureaucracy, and it is difficult for it to deal quickly with crisis. Still, one might ask if having the IMF, even at marginal effectivness, is part of the process of global economic cooperation. It took a few centuries for capaitalism to develop and mature; should we expect anything less of an organization designed to bring economic development to an ever-changing and quite volatile world? The criticisms of the IMF seem fair and cogent. But the solution is likely not to continue to sell of their assets, but to change their own internal paradigm with the times, with technological development, and truly become a global organization that is in line with the WTO and other global entities. It is importat that the world have a strong and effective organization like the IMF as the major multilateral organization responsible for international economic and financial stability. However, a combination of public relations repair along with a new set of strategies and modus operendi of doing business will be necessary in order for the IMF to reinvent itself, and thus take its place as the organization it was originally to become (Truman).

REFERENCES

Andersen, C. “Future Role of IMF Debated As Financial Crisis Takes Toll.” 16 October 2008. International Monetary Fund. .

Bhagwati, J. In Defense of Globalization. Oxford: Oxford University Press, 2004.

Bird, G. The IMF and the Future – Priorities for Development Economics. New York: Rougledge, 2003.

Caballero, R. “The Future of the IMF.” 7 January 2003. Social Science Research Network. .

Clinton, W. “United Nations World Food Day.” 13 October 2008. Clinton Foundation. .

Crochuer, S.L. Globalization and Belonging: The Politics of Identity in a Changing World. New York: Rowman and Littlefield, 2004.

Davis, B. “IMF’s Sweeping Demands Signal Shift.” 3 May 2010. The Wall Street Journal. .

Francis, D. “Why it Pays to Forgive Poor Nations’ Debts.” 13 January 2005. The Christian Science Monitor. .

Friedman, T. The World Is Flat. New York: Farar, Straus and Giroux, 2006.

“G20 Leaders seal $1trillion Global Deal.” 2 April 2009. BBC News. .

Green, R. “IMF Proposes 100-Billion Dollar Climate Fund.” 25 March 2010. Global Issues. .

Hoekman, B., et.al., eds. Development, Trade and the WTO. Geneva: World Bank Publications, 2002.

“Information and History.” 2010. International Monetary Fund. .

Juppe, A. “France and Globalization.” 26 October 2000. The Carnegie Council. .

Khor, M. “A Critique of the IMF’s Role and Policy Conditionality.” June 2001. Third World Network – Global Economy Series Number 4. .

Paul, R. “Secret Plan for IMF.” 10 November 2008. Daily Paul. .

Payer, C. The Debt Trap: The International Monetary Fund and the Third World. New York: Monthly Review Press, 2004.

Sampson, G. The WTO and Sustainable Development. New York: United Nations University Press, 2005.

Stuckler, King and Basu. “IMF Programs and Tuberculosis Outcomes.” 7-5 2008. PLOS Medicine. .

Trening and Estabrooks. “The Globalization of Telecommunications.” Journal of Economic Issues 16.3 (2005): 16-44.

Truman, E. A Strategy for IMF Reform, Volume 77. Washington, DC: Institute for International Economics, 2006.

Wood, A. “Power Without Responsibility?” Carin, B. And A. Wood, eds. Accountability of the International Monetary Fund. Ottowa: Ashgate Publishers, 2005. 67-87.

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