Maria Vietz
Calvin Chiu
Guys, (IMF)ine!
Since its creation in 1948, the International Monetary Fund has faced a
considerable amount of criticism from various sectors, often serving as a convenient
scapegoat for policy makers in countries trying to enact harsh economic reforms but
unwilling to bear the burden domestically. Nonetheless, the IMF has continued to
serve a crucial role in maintaining global financial stability. We proceed by
discussing the role of the IMF as a lender of last resort, and as a promoter of sound
macroeconomic policies, arguing that the IMF continues to be a crucial player in the
international system by continuously reforming itself as it adapts to international
crises. This is demonstrated in the frequently underrepresented cases of Poland and
Jordan.
The IMF continues to “ensure the stability of the international monetary and
financial system. It helps resolve crises, and works with its member countries to
promote growth and ending poverty.”1 The IMF uniquely serves as the lender of last
resort for the global economy—it is the only institution with the financial muscle
and capability to provide emergency funds to countries on the brink of financial
crises. Regardless of its controversial policies, the IMF has resolved waves of
international financial crises since its implementation by offering countries an
alternative to defaulting on their sovereign debt. To compensate for its limited
budget and institutional constraints, the IMF substantially increased its lending
capacity through reforms in 2008/092, making its loans more attractive to countries
on the brink of crisis—therefore, strengthening its role as the world’s lender of last
resort. Having a viable lender of last resort strengthens the international economy
by reducing volatility in financial markets since it embellishes private investors’
confidence. By increasing investor confidence, there is a decreased likelihood of
rapid capital outflows.
Secondly, the IMF promotes stability and growth by encouraging countries to
adopt sound economic and financial policies. Through its policies of conditionality—
attaching requirements to the favorable loans it offers to borrowers – the IMF
promotes sound macroeconomic policy aimed at maintaining stability, which is a
“precondition for sustainable economic growth and development”3. Contrary to
popular criticism, the IMF no longer strongly strictly adheres to conservative
Washington Consensus policies such as mandatory fiscal contraction. In fact, recent
IMF programs have supported the need for expansionary fiscal policy. The IMF no
longer imposes blanket conditionality restrictions, as seen by their 2010 institution
of the Poverty Reduction and Growth Trust to make financial support more flexible
and narrowly tailored to the diverse situations of countries in crisis, appealing in
particular to low-income countries. It now provides three lending windows offering
"About the IMF: Overview: How We Do It." About the IMF: Overview: How We Do It. N.p., n.d. Web. 25
Sept. 2013.
2 Bird, Graham, and Dane Rowlands. "The IMF and the Challenges It Faces." World Economics 11.4
(2010): 131-56. Print.
3 "About the IMF: Overview: How We Do It." About the IMF: Overview: How We Do It. N.p., n.d. Web. 25
Sept. 2013.
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Maria Vietz
Calvin Chiu
loans: an extended, standby and rapid credit facility4. These windows each have
different qualities and procedures so that countries can get loans according to their
needs. This sustainability-oriented program will increase flexibility and access to
funds.
Thirdly, the IMF has taken long strides to reform its voting and
organizational structure. Taking into consideration common criticism over G7
dominance in IMF decision-making, the IMF has actively been reforming its voting
structure to reflect the growing role of emerging economies in the global system.
James Wolfensohn, former World Bank president argues that the BRICS will replace
the G7 in the leadership of the IMF5—in 2010 the IMF did in fact make a 6% shift in
funding quotas to dynamic emerging markets. Despite objections from the US
Congress, traditionally seen to be exerting its influence on the IMF behind the
scenes, the IMF is insisting that the US approve its recent reform decisions, which
include making China its third largest member6.
While critics often focus on the IMFs deficiencies in high-profile crises such
as in Russia and Southeast Asia in the 1990s, we would like to discuss the often
under-reported successes of the IMF in Poland and Jordan.
Through Jordan’s fifteen-year relationship with the IMF, it managed to
transform its structural weaknesses—such as an over-reliance on remittances and
aid from neighboring countries—by implementing IMF-prescribed economic
reforms. Jordan managed to balance macroeconomic reforms such as reducing
public debt and controlling inflation, with key social policy objectives, such as
improving living standards and expanding employment opportunities7. The
eventual departure from IMF reliance in 2004 proved the sustainability of the
policies.
Poland offers a more recent example of the IMF’s success. By accessing the
IMF’s flexible credit line, Poland managed to retain investor confidence in the
markets. It became the only country in the EU to escape a recession during the
crisis8. By embracing the IMF’s advice, Polish policymakers had considerable room
for counter-cyclical monetary and fiscal policy, contributing significantly to their
ability to withstand the financial crisis.
In summary, the IMF still has a relevant role in stabilizing the world
economy, and is continuing to conduct reforms to adapt to an ever-changing world
economy that has been battered with crises In order to delegitimize the IMF, critics
must offer not only viable criticisms but provide an alternative structure, because
Ibid.
Young, Holly. "The Brics Have a Very Serious Claim on IMF and World Bank Leadership'"The
Guardian. N.p., 26 July 2013. Web. 25 Sept. 2013.
6 Yukhananov, Anna. "IMF Urges U.S. to Bury Budget Hatchet, Back Fund Reforms."Reuters. Thomson
Reuters, 19 Sept. 2013. Web. 25 Sept. 2013.
7 Dimou, Antonia. "Jordan: Success Story of the IMF." Worldpress.org. N.p., 19 Aug. 2010. Web. 25
Sept. 2013.
8 Andersen, Camilla. "IMF Survey: Poland: European Success Story but Challenges Ahead." IMF Survey
Magazine: Countries and Regions. N.p., 26 Mar. 2010. Web. 25 Sept. 2013.
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Maria Vietz
Calvin Chiu
the IMF is the best option we have. As IMF historian Graham Bird states, “the basic
case for having the IMF is that the world economy is better with it than without it”9.
Bird, Graham, and Dane Rowlands. "The IMF and the Challenges It Faces." World Economics 11.4
(2010): 131-56. Print.
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