Pro-cyclical Fiscal and/or Monetary Conditions Have Been Attached to IMF Agreements During the World Recession
For Immediate Release: October 5, 2009
Contact: Dan Beeton, 202-239-1460
Washington, D.C. - A new discussion paper from the Center for Economic and Policy Research finds that 31 of 41 countries with current International Monetary Fund (IMF) agreements have been subjected to pro-cyclical macroeconomic policies that, during the current global recession, would be expected to have exacerbated economic slowdowns. The pro-cyclical conditions noted in the report are either pro-cyclical fiscal or monetary policies.
"More than a decade after the Asian Economic Crisis brought world attention to major IMF policy mistakes, the IMF is still making similar mistakes in many countries," CEPR Co-Director and lead author of the paper, economist Mark Weisbrot said. "The IMF supports fiscal stimulus and expansionary policies in the rich countries, but has a much different attitude toward low-and-middle income countries."
The paper, "IMF-Supported Macroeconomic Policies and the World Recession: A Look at Forty-One Borrowing Countries," shows that in some cases, the IMF had relied on overly optimistic growth forecasts – significantly underestimating the impact of the world recession on borrowing countries. The paper also notes that in some cases the Fund later loosened its policy conditions after the economic performance was much worse than anticipated.
"It is time for the Fund to re-examine the criteria, assumptions, and economic analysis that it uses to prescribe macroeconomic policies in developing countries," the paper states.
The paper arises out of discussions with the International Monetary Fund (IMF) over the Fund's recommended macroeconomic policies during the course of the current world recession. In a panel discussion held on June 19, 2009, there was disagreement between the IMF and CEPR over whether or to what extent the IMF has supported pro-cyclical policies in borrowing countries during the current world recession. CEPR agreed to take a comprehensive look at current IMF agreements, as a prelude to further discussions with the Fund on this issue.
The papers' authors do have praise for the IMF's actions in one area: making available for borrowing some $283 billion of Special Drawing Rights (SDR's - IMF reserve assets that can be exchanged for hard currency) to member countries without conditions. The IMF's unconditional lending and injecting liquidity into the world economy with the SDR's, in a time of world recession, represents an unprecedented step forward.
"The next step should be to eliminate harmful conditions attached to other IMF lending facilities," the paper states.
The paper examines IMF agreements with the countries Afghanistan, Armenia, Belarus, Bosnia and Herzegovina, Burkina Faso, Burundi, The Central African Republic, Republic of the Congo, Costa Rica, Côte d'Ivoire, Djibouti, El Salvador, Gabon, The Gambia, Georgia, Ghana, Grenada, Guatemala, Haiti, Hungary, Iceland, Kyrgyz Republic, Latvia, Liberia, Malawi, Mali, Mozambique, Mongolia, Niger, Pakistan, Romania, São Tomé and Príncipe, Senegal, Republic of Serbia, Seychelles, Sierra Leone, Tajikistan, Tanzania, Togo, Ukraine, and Zambia.