Published on IFIwatchnet, by Bhumika Mucchala of Third World Network TWN, not dated (but told at the spring meetings of the International Monetary Fund IMF and World Bank held in Washington, DC on 25-26 April).
At a time when a devastating financial and economic crisis is calling into question the governance and policies of all the major institutions that constitute the existing international financial order, the International Monetary Fund (IMF) appears to have escaped any such major reevaluation. While a meeting of developing countries held on the eve of the April spring meeting of the Fund has highlighted the need for reforms, the IMF, now financially reinvigorated with a fresh infusion of funds, is still pursuing some of its discredited policies. None more so, as Bhumika Muchhala shows in the analysis below, than the policy conditions it imposes on countries seeking its loans.
THE spring meetings of the International Monetary Fund (IMF) and World Bank were held in Washington, DC on 25-26 April. For the most part, the communiques resulting from the meetings addressed and reaffirmed the same issues and statements as in the communique adopted by the Group of 20 (G20) summit in London earlier that month.
It may be recalled that the IMF was the main beneficiary of that summit of developed and leading emerging economies, which agreed to boost the Fund’s lending resources by $500 billion to $750 billion.
On the eve of the IMF-World Bank meetings, ministers of the Intergovernmental Group of Twenty-Four (G24) also met in Washington. The G24 was established in 1971 by developing and emerging market countries to articulate developing-country positions on financial and monetary issues.
While the G24 ministers supported the G20’s proposal to treble IMF funds, they also highlighted the need for further reforms in lending instruments, conditionality and policies, toward more even-handed and broad-based implementation which better meets the needs of its developing-country members.
On IMF conditionality, the G24 ministers called for additional reforms to ‘focus and streamline conditionality, including the greater recourse to ex ante and review-based conditionality’. However, the pro-cyclical fiscal and monetary conditionalities in the IMF’s crisis response loans, characterised by reductions in public spending and increases in interest rates (see below), were not addressed by the ministers in their communique.
The G24 ministers also called for an ‘urgent and comprehensive reform of the IMF’s financing framework for low-income countries so as to be able to respond more flexibly to their diverse needs’ …
… In the current context of global recession and credit market turmoil, where the developed countries are implementing counter-cyclical macroeconomic policies, the IMF should not be advising developing and emerging market country borrowers to tighten their fiscal and monetary policies in a pro-cyclical manner.
In particular, given that the financial crisis today was in part caused directly by pro-cyclical macroeconomic policies, the Fund should not be prescribing them as a solution now, just as it should not have prescribed contractionary policies during the Asian financial crisis of 1997-98.
The IMF should also not be the primary and dominant vehicle to disburse financial assistance for crisis-affected countries, especially since the required reforms to the Fund have not yet been carried out. (full text).