Ricardo Hausmann
CAMBRIDGE
– The International Monetary Fund is, in many places, the organization
that everybody loves to hate. According to some, the IMF is bad for the poor, women, economic stability, and the environment. Joseph Stiglitz, whose influence is amplified by his Nobel Prize, blames the IMF
for causing and then worsening the economic crises it was called on to
resolve. The IMF purportedly does so to save capitalists and bankers,
not ordinary people. Though untrue, this belief does enormous harm and limits the potential good that the IMF can do.
For starters,
consider how the world deals with refugee crises, such as Syria’s, and
the way it deals with financial crises. As its name indicates, the
United Nations High Commissioner for Refugees is a person, not an
institution. He or she heads an “office,” not a full-fledged
organization. This weakness is what forced German Chancellor Angela
Merkel to bully her European Union partners into a more coherent
response to the ongoing influx of asylum-seekers.
By contrast, the
system to prevent and resolve financial crises is anchored by a
full-fledged institution: the IMF. It may not be perfect, but, compared
to areas such as refugees, human rights, or the environment, it is
light-years ahead.
It is easy to misunderstand what the IMF does. The bulk of its efforts are dedicated to crisis prevention. As Franklin D. Roosevelt said
at the 1944 Bretton Woods Conference, where the IMF and the World Bank
were established, “Economic diseases are highly communicable. It
follows, therefore, that the economic health of every country is a
proper matter of concern to all its neighbors, near and distant.”
That is why the 44
countries in attendance, and the 188 that now belong to the IMF, agreed
to “consult and agree on international monetary changes which affect
each other… and they should assist each other to overcome short-term
exchange difficulties.” Operationally, this is expressed in so-called Article IV consultations.
These formal policy discussions between the IMF and member governments,
typically carried out annually, are written up, reviewed by the Fund’s
Board of Executive Directors (representing all 188 governments), and published
for anyone to read online. This is a standard of collective
surveillance and transparency to which organizations addressing other
issues should aspire.
The IMF has been
instrumental in developing the tools with which countries measure,
assess, and improve their current macroeconomic position: fiscal and
monetary policy, as well as financial, currency, and price stability. It
helps countries find better ways to implement measures in all of these
fields, and it seeks to identify broad lessons from the experience of
many countries that may shed light on the options that any particular
country has.
Through dialogue,
research, advice, technical assistance, and training, the IMF has helped
create a global community of practice. Today, it is much easier to be a
central bank president or a finance minister than it is to be a
minister of health or justice. This is not because the challenges are
easier, but because the international community of practice, led by the
IMF, provides a level of support that simply does not exist in other
areas.
The IMF’s most
controversial activities come during times of crisis management and
resolution. Countries ask for IMF financial assistance when they are in
trouble and have lost or fear losing the ability to borrow on
international markets. The IMF can mobilize hundreds of billions of
dollars of member countries’ money to give borrowers the time to get
back on their feet. Its resources dwarf the sums that the international
community can mobilize for other issues, because its money is lent and
is supposed to be paid back.
In exchange for its
financial support, the IMF typically requires countries to address the
imbalances that caused their problems, not only so that they can repay
the money, but also for their own good, so that they can restore their
creditworthiness (and hence their access to capital markets). But it is
too easy to confuse the pain caused by the crisis itself with that
caused by the remedy.
To be sure, the IMF
inevitably makes mistakes, partly because the questions and issues it
must address are constantly changing, so that it never knows whether the
current state of thinking is adequate to new challenges. But it is a
sufficiently open organization that it can and must be responsive to its
critics.
Now consider the alternative. A world without the IMF looks a lot like today’s Venezuela. Hugo Chávez became the darling of IMF bashers, including Stiglitz, when he suspended Article IV consultations
in 2004. As a consequence, Venezuelans lost access to the basic
economic information that the country is obligated to share, through the
IMF, with the world. The break prevented the international community
from expressing its voice as the country undertook truly irresponsible
policies, spending in 2012 as if the price of oil was $197 a barrel, not
$107.
With the collapse in
the price of oil since then, the economy has gone into a tailspin: GDP
is contracting at a record pace, inflation is in excess of 200%, the
currency has plunged to less than 10% of its previous value, and massive
shortages have emerged.
Venezuela has tried to finance itself with the help of the China Development Bank, which does not impose the kind of conditionality that IMF bashers dislike. Instead, the CDB lends on secret terms, for uses that are undisclosed and corrupt, and with built-in privileges for Chinese companies
in areas like telecommunications (Huawei), appliances (Haier), cars
(Chery), and oil drilling (ICTV). The Chinese have not required that
Venezuela do anything to increase the likelihood that it regains
creditworthiness. They merely demand more oil as collateral. Whatever
the IMF’s faults, the CDB is a disgrace.
The tragedy is that
most Venezuelans (and many citizens of other countries) believe that the
IMF is there to hurt, not help. As a consequence, they eschew the
massive resources and wisdom that the international community can offer
at a time of economic crisis to lessen the pain and hasten recovery.
That has left them far worse off than the IMF bashers can bring
themselves to admit.
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