Defending the IMF

“The IMF Strikes Back” by Kenneth Rogoff, in Foreign Policy (Jan.–Feb. 2003), 1779 Massachusetts Ave., N.W., Washington, D.C. 20036.

The International Monetary Fund (IMF), which provides short-term loans to distressed member-nations, has become a favorite target of anti-globalization protesters and other critics. Rogoff, economic counselor and director of the research department at the IMF, rises to its defense.

One common criticism is that the fund imposes harsh economic policies on governments, crushing the hopes and aspirations of their people. But from Peru in 1954 to South Korea in 1997 to Argentina today, governments in developing countries have sought IMF aid because they were already in deep financial trouble. The IMF steps in where private creditors fear to go and offers loans at low interest rates. The fund doesn’t create the austerity, says Rogoff, it lightens it: “The economic policy conditions that the fund attaches to its loans are in lieu of the stricter discipline that market forces would impose in the IMF’s absence.” Even so, he adds, politicians—including those whose economic mismanagement often helped to bring on the crisis—find in the IMF “a convenient whipping boy” when they must finally impose austerity.

To be sure, the IMF insists on being repaid, Rogoff says, but the repayments “normally spike only after the crisis has passed.” If IMF loans were never repaid, there would eventually be no funds to provide to developing countries—unless the industrialized countries were willing to replenish the IMF’s coffers continually.

Critics also accuse the IMF of pushing countries to raise domestic interest rates and tighten their budgets during recessions, the precise opposite of Keynesian policies to stimulate the economy. The IMF does encourage the Keynesian approach “where feasible,” Rogoff counters, but it isn’t feasible with “most emerging markets,” which find it very difficult to borrow during a downturn. The IMF “can only do so much for countries that don’t [build] up surpluses during boom times—such as Argentina in the 1990s—to leave room for deficits during downturns.”