New Paper Finds IMF Lending Still Requires Harmful and Inappropriate Economic Conditions
For Immediate Release: April 21, 2009
Contact: Dan Beeton, 202-239-1460
WASHINGTON, D.C. - The Center for Economic and Policy Research (CEPR) released a new paper today that finds that the International Monetary Fund (IMF) is still prescribing inappropriate policies that could unnecessarily worsen economic downturns in a number of countries. The paper, "Empowering the IMF: Should Reform be a Requirement for Increasing the Fund's Resources?" examines conditions tied to the IMF's new lending to El Salvador, Pakistan, Ukraine and other countries and finds the IMF is requiring macroeconomic conditions that can unnecessarily exacerbate the effects of the global economic recession on these countries.
"New funding should not be provided to the IMF unless the institution is subject to important reforms that will prevent the Fund from continuing and repeating the serious errors that they made in the last major crises of the 1990s," said Mark Weisbrot, co-Director of CEPR and lead author of the paper.
Among the harmful conditions cited in the paper are agreements that unnecessarily tighten fiscal and monetary policy in countries facing declining output and negative external economic shocks. The IMF has at the same time advocated the passage of economic stimulus packages and expansionary monetary policy in developed economies such as the U.S., Europe, and Japan.
"The main purpose of the IMF's lending and the increased resources for the Fund right now is supposed to be to help low-and middle-income countries do what the high-income countries are doing - stimulate their economies," said Weisbrot. "It defeats the purpose to require them to do the opposite."
The authors also find that Fund-supported policies may 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.
The paper concludes that governments allocating new resources to the IMF should first ensure that there is sufficient reform of IMF governance and past IMF practices, and that accountability mechanisms are put in place at the Fund.