An IMF Report Card

It has been six years since the east asian crisis began — a sudden collapse of the currencies followed by recession and depression. From East Asia, it spread around the world until some feared the global economy itself might be approaching collapse. The International Monetary Fund (IMF) came charging to the rescue, but its programs did little to fix the problem. In fact, critics such as myself argued that IMF policies — particularly its insistence on premature "liberalization," or forcing recipient nations to open up their financial markets to often volatile short-term capital flows — had helped bring on the contagion, and that its "medicine" had made the patients far sicker. Eventually, even the IMF agreed that it had imposed contractionary fiscal policies, and that premature capital market liberalization might expose countries to risks. Three years later protesters stormed the annual International Monetary Fund/World Bank meeting in Prague and, with a couple of exceptions, those meetings have continued to be marked by protest, as the one taking place in Dubai this month may be. These events sparked a worldwide debate about the need to reform the world's economic and financial architecture. Now it is time to take stock: Has there been reform? Have the protests made a difference?

At first glance, there have been enormous changes. Public pressure has worked. True, efforts at improving transparency have done more to improve the websites of international financial institutions than to improve public access to decision making. But the IMF has been subject to far more scrutiny, and calls for reform have even come from President George W. Bush as well as myriad officials around the world. These calls for increased accountability and oversight have brought at least seven changes for the better.

Conditionality The IMF had long been criticized for its excessive "conditionality" — dozens of requirements imposed on countries as a condition for their receiving assistance. In the East Asia crisis, countries in desperate need of funds had to acquiesce to conditions that had nothing to do with the crisis and which, in some cases, were of dubious economic merit. While in the U.S., the Federal Reserve focuses on inflation, growth and employment, the IMF insisted that Korea focus exclusively on inflation — even though Korea did not have an inflation problem (unemployment was a more pressing concern). Conditionality not only undermined democratic processes, but the huge number of conditions made it difficult for countries to focus on the most urgent needs. The IMF has now recognized that it pushed conditionality too far, and in some cases has cut back.

Ownership and participation One of the reasons for the failure of so many IMF programs was that the governments that had to implement them felt no sense of "ownership" over them. Programs were imposed on reluctant governments, who often accepted them over enormous public opposition. That meant that as soon as the country was less in need of IMF money, the reforms were abandoned. This is precisely what is happening today in Thailand; as soon as it paid back the last of the money it borrowed during the 1997 crisis, it announced a program to reverse key changes imposed upon it. (For example, a bankruptcy law widely viewed within Thailand as too friendly to creditors was effectively imposed in 1998; today Thailand is moving toward adoption of a law that balances creditor and debtor interests.) Ownership requires participation in the decision making; as World Bank president James Wolfensohn has put it, the "country should be in the driver's seat." While critics have said that effective control remains in the hands of the instructor (the IMF and World Bank), the fact is that — especially in many of the World Bank's country programs — there has been a real change in the relationship. Today, even the IMF recognizes the importance of ownership. The Fund's poverty-reduction strategy papers introduced in 2000, for example, which are supposed to guide government economic programs, require widespread participation by ngos and civil society. In principle, no longer is economic policy to be left to deal making between the IMF and the Ministry of Finance.