Scientific adviser: Ekaterina E.Petrova

CRITICISM OF THE IMF GETS LOUDER

Author: Lidia Sidorova, group 1301

scientific adviser: Ekaterina E.Petrova

The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

The IMF plays an important role in trying to alleviate and stabilize financial instability. However, its role has come under intense scrutiny, it has been criticized for variety of reasons and from a range of different sources. These are some of the main criticisms of the IMF:

1. Exacerbates Economic Problems. It is argued that the conditions of IMF loans cause more harm than good. For example, in the Asian crisis of 1997, many countries such as Indonesia, Malaysia and Thailand were required by the IMF to pursue tight monetary policy (higher interest rates) and tight fiscal policy to reduce the budget deficit and strengthen exchange rates. However, these policies caused a minor slowdown to turn into a serious recession with mass unemployment.

In 2001, Argentina was forced into a similar policy of fiscal restraint. This led to a decline in investment in public services which arguably damaged the economy.

Henry Kissinger, winner of the Nobel Peace Prize, suggested that shortcomings such as cronyism and corruption were little more than the "cost of doing business" in these countries. In fact, they were the rot at the core of economies that appeared almost unblemished on the surface. Competitiveness and confidence in Asia had already begun to slip as insolvencies at banks and Korean business groups became known. But that decline reached Mach speed after governments failed to take decisive action. Temporizing measures taken primarily to defend pegged exchange rates soon proved ineffective.

2. One Size Fits All. The IMF frequently argues for the same economic policies regardless of the situation. For example, devaluation of the exchange rate may help many countries, but, it doesn't mean that this is always the solution. Policies of privatisation and deregulation may work better in developed countries in the West, but, may be more difficult to implement in the developing world.

3. Decline in Public Services. Arguably the insistence on spending cuts (fiscal responsibility) leads to decline in public services. One report suggests the IMF spending cuts are responsible for a resurgence of health problems amongst countries which received aid. (IMF linked to higher tuberculosis rates) (IMF linked to Cholera). The IMF is frequently criticised for ignoring the impact of its policies on the poor, concentrating only on macro economic data.

3. Takes away political autonomy. Countries such as Jamaica argue that the IMF takes away the ability for countries to decide their national policy. Instead they have to follow the economic dictates of an unelected body, with a perspective skewed by free market ideology and the interests of the developed world.

4. Moral Hazard. The IMF has also been criticized by free market economists arguing that they do too much. They argue that intervention creates moral hazard (encourages countries to be reckless because they can rely on IMF loans). The intervention is often based on poor information and fails to deal with the economic problems. It is argued that rather than the IMF, countries should take personal responsibility.

Talking of criticism, let me indicate the main impacts of IMF’s policies. First of all, the impact on access to food. A number of civil society organizations have criticized the IMF's policies for their impact on people's access to food, particularly in developing countries. In October 2008, the former US President Bill Clinton joined this chorus in a speech to the United Nations World Food Day, which criticized the World Bank, an international financial institution that also provides loans, and the IMF for their policies on food and agriculture:

“We need the World Bank, the IMF, all the big foundations and all the governments to admit that, for 30 years, we all blew it, including me when I was President. 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”, - Former US President Bill Clinton, Speech at United Nations World Food Day, October 16, 2008.

Secondly, the impact on public health. In 2008, a study by analysts from Cambridge and Yale universities published in the open-access Public Library of Science concluded that strict conditions on the international loans by the IMF resulted in thousands of deaths in Eastern Europe by tuberculosis, as public health care had to be weakened. In the 21 countries to which the IMF had given loans, tuberculosis deaths rose by 16.6%.

In 2009, a book by Rick Rowden titled “The Deadly Ideas of Neoliberalism: How the IMF has Undermined Public Health and the Fight Against Aids”, claimed that the IMF's monetarist approach towards prioritizing price stability (low inflation) and fiscal restraint (low budget deficits) was unnecessarily restrictive and has prevented developing countries from being able to scale up long-term public investment as a percent of GDP in the underlying public health infrastructure. The book claims that the consequences were chronically underfunded public health systems, leading to dilapidated health infrastructure, inadequate numbers of health personnel, and demoralizing working conditions that have fueled the "push factors" driving the brain drain of nurses migrating from poor countries to rich ones, all of which has undermined public health systems and the fight against HIV/AIDS in developing countries.

Thirdly, the impact on the environment. IMF policies have been repeatedly criticized for making it difficult for indebted countries to avoid ecosystem-damaging projects that generate cash flow, in particular oil, coal and forest-destroying lumber and agriculture projects. Ecuador, for example, had to defy the IMF advice repeatedly in order to pursue the protection of its rain forests, though paradoxically this need was cited in the IMF argument to support that country. The IMF acknowledged this paradox in a March 2010 staff position report which proposed the IMF Green Fund, a mechanism to issue Special Drawing Rights directly to pay for climate harm prevention and potentially other ecological protection as pursued generally by other environmental finance.

All of these ideas are likely to become part of the consensus on international monetary reform that I expect to see emerging in the coming months. Thus, we can look forward with confidence to a sounder global financial system to guarantee greater prosperity in the 21st century.

References:

1. http://en.wikipedia.org/wiki/International_Monetary_Fund - article about IMF on Wikipedia.

2. David Vines, “The IMF and its Critics”, University of Oxford, 2004.

3. Gumisai Mutume, “Criticism of IMF gets louder”, TWN News, March 18, 2001,

4. http://www.brettonwoodsproject.org/item.shtml?x=320869 – Bretton Woods Project, critical voices of World Bank and IMF.

5. http://www.imf.org/external/np/vc/1998/111298.HTM - article Michel Camdessus, Managing Director of the International Monetary Fund (IMF), “The IMF and Its Critics”, The Washington Post, November 10, 1998.