Framing the IMF debate
Published: Thursday | July 16, 2009
John Rapley - FOREIGN FOCUS
I have often thought that the International Monetary Fund (IMF) is the best friend of Third-World governments. Not Third-World people, who have laboured under its stringent 'conditionalities', but Third-World governments.
That's because the fund, unlike the World Bank, has never maintained much of a public relations department. It's filled with technocrats who think that good economics speaks for itself. So, governments forced to run cap in hand to Washington find that they can blame inconvenient decisions on the fund, knowing that nobody will call them out.
However, comparative research has shown that in many cases where governments blame the IMF for decisions thrust upon them, they actually made the decisions independently. In a surprisingly high number of cases, IMF conditions have simply been ignored by borrowing governments. And, of course, there are governments which have avoided the fund's embrace altogether, by manag-ing their finances in ways that prevent them facing the sort of crisis we face.
Our own experiences with the IMF are instructive. When Jamaica turned to the IMF in the 1970s, it faced a choice. Michael Manley's economic advisers had crafted an economic blueprint which involved, among other things, a sharp reduction in imports. Manley judged it impractical, and opted to go the IMF. It might have been a most unpleasant choice, but it was a choice.
Today, we wouldn't need IMF help if we all stopped driving, using cellphones, watching cable television, or air conditioning our offices. Oh, and a few other lifestyle adjustments. To date, though, I haven't seen queues in village squares as everyone returns to story-telling as entertainment. We can't eat our cake, and have it.
There's nothing wrong with wanting cake. But we have to pay for it. At the moment, we aren't. Our economy isn't generating enough in foreign earnings to cover our import bill. So we must either cut our spending - which, given an island economy's natural import-preference, necessarily involves foreign spending - or we must produce and sell more. That, in turn, means harder work, higher savings, lower relative wages ... at least until we get the economy on track.
Now we can make that choice ourselves, and go it alone. Or we can make that choice, and see if the fund will support it. Either way, we have a bitter pill to swallow.
Has the IMF changed? A bit, inasmuch as the fund's experiences in the 1980s taught it that structural adjustment programmes must be tailored to minimise their hardest effects on the poor, lest the programmes become politically unsustainable. But we'd be fooling ourselves if we think a kinder, gentler fund will turn the other way while we continue to spend more than we earn. The IMF is like the world's banker of last resort. No banker worth trusting is going to allow any client to run up ever larger debts without eventually cutting up the credit card.
Is the IMF an imperfect institution? Most definitely. It actually needs more, not less, power, so that it can discipline not only debtor but creditor nations, thereby helping manage global trade. I would also argue that it was, in the Clinton years, manipulated by the US Treasury to advance American interests. But the issue being debated is principally whether the IMF demanding conditions is a bad thing. It's neither good nor bad; it's just the way the world works.
The IMF did not bring us to this economic impasse. Nor do we have no choice about whether we turn to the IMF to get us out. But anyone who declares that there is an alternative solution that doesn't involve a whole lot of pain, is lying.
John Rapley is president of the Caribbean Policy Research Institute (CaPRI), an independent research think tank affiliated with the University of the West Indies, Mona. Feedback may be sent to email@example.com.