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Stronger IMF

DPA news agency (ls)November 14, 2008

As world leaders gather for a key financial summit in Washington, one of the most likely outcomes is a strengthened role for the International Monetary Fund to help countries pull themselves out of the crisis.

IMF logo
The IMF could take on a stronger supervisory role in the futureImage: DW

The IMF has already agreed to provide emergency loans to countries in dire need of cash, including Iceland, Ukraine, Hungary and Pakistan, as the financial crisis spread from the United States to the rest of the world.

The crisis lender has also made $100 billion, about half of its total reserves, available through a new, faster short-term lending program.

IMF Managing Director Dominique Strauss-Kahn has called for more resources, and leaders at the G20 summit in Washington are likely to agree. Japan is reportedly ready to offer $100 billion, and other countries could follow suit.

Dominique Strauss-Kahn in Paris, France, on May 29, 2007
Strauss-Kahn says the lender has learned from its mistakesImage: picture-alliance/dpa

Though many developing countries are desperate for cash in the current credit environment, not everyone is looking forward to the prospect of a richer and emboldened IMF.

Bad reputation

The organization's reputation has suffered in many parts of the world due to a poor track record in managing past economic crises, including the Asian crisis in the late 1990s and Argentina's economic collapse in early 2000.

Others blame the IMF for exacerbating the economic problems of many poor countries by attaching policy conditions to loans that restrict spending and give countries little flexibility to tackle poverty.

Until the current crisis, that reputation led many countries, particularly in Asia and Latin America, to shore up their own reserves and turn to neighbors and regional banks for help, instead.

"For the last 10 years, you've seen the IMF basically excluded from lending to almost all middle-income countries," said Mark Weisbrot, co-director of the Centre for Economic and Policy Research. "This is a very huge historic reversal that's taking place."

A collection of civil society groups on Thursday called on the IMF to "exit the development business" altogether and stick to its core responsibility of ensuring economic stability.

Joanne Carter, head of the Results Educational Fund that joined in the civil society call, said the group was "deeply concerned" about the assumption that the IMF should be a key player in the financial crisis.

"The IMF has a long and unfortunate track record of policy conditions and guidance that have constrained the ability of countries ... to support domestically led development and to protect their vulnerable populations," Carter said.

Developing countries shut out

Another part of the problem is that developing countries have struggled to gain a voice in the Washington-based organization, created at the fabled Bretton Woods summit of 1944, which refounded post-World War II international financial structures.

Both the IMF and its sister organization, the World Bank, are heavily controlled by the United States and Europe. Efforts to reform the organizations' voting procedures have only marginally shifted the balance of power.

Strauss-Kahn has said that the lender has learned from mistakes in past economic crises, and the IMF has eased restrictions on some of its more recent loans. The new short-term loan facility created last month has none of the usual policy conditions attached but will only be available to countries with a history of sound fiscal policy.

The sun rises over the U.S. Capitol on Wednesday Oct. 15, 2008.
The day will hopefully bring clear results in Washington at the G20 World Finance SummitImage: AP

Removing the usual conditions is a good step "in principle," said Robert Weissman, director of Essential Action, an advocacy group that has been heavily critical of the IMF in the past.

He warns that the IMF could still be selective in choosing which countries get the new loans. In other words, there may be an "implicit condition" that the country has followed IMF policies in the past.