• Critiques and evaluations

Critiques and evaluations

The London Summit of G-20 leaders recently agreed to increase the resources of the International Monetary Fund (IMF) by up to $750 billion, for a total that could reach $1 trillion. But the meeting devoted relatively little time to discussing the ways in which the global body's governance needs to be reformed for greater accountability. Was this a mistake? A new report brought out by the Center for Economic and Policy Research argues that reform at the IMF should in fact precede increased G-20 resource commitments to it.  

According to the report, the IMF was unable to prevent the major economic crises of the 1990s that occured, amongst others, in Argentina, Indonesia, South Korea, Thailand, Russia and Brazil. In these crises, instead of acting as a lender of last resort, it imposed procyclical policies and in some cases, set unrealistic inflation targets.

The report reviews the IMF’s current practices and policy-making to find that it is still prescribing inappropriate policies that could unnecessarily exacerbate economic downturns in a number of countries. In recent agreements with El Salvador and Pakistan, for instance, the IMF has discouraged expansionary fiscal policy even though these countries are experiencing sharp external shocks.

The Fund may also have contributed to the vulnerability of countries in the current crisis, as it did in the run-up to the Asian crisis a decade ago. For example, it has supported the liberalisation of capital flows, as well as inflation targeting, which has made many countries more vulnerable to the current crisis.

Since new resources will help to re-establish an unreformed IMF as a major power in economic and decision-making in low-and-middle income countries, with little or no voice for these countries in the institution's decision-making, the proposed quadrupling of IMF resources is likely to have implications for many years to come, even after the world economy recovers. According to the report, governments that are contributing to this increase in funding should therefore consider the possibilities of making such increases contingent on serious reforms of the IMF, particularly in the areas of governance and accountability.

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