The IMF: One Size Truly Does Not Fit All
In a world of ever-increasing globalization and interdependent economies, the role of International guardian is occupied largely by two bodies, the IMF and the World Bank. Whilst there are nuances between the exact operations of the two organisations, they were founded on the same premise, to maintain a stable global economic environment. The IMF was founded in the aftermath of the second world war, in which it became apparent that global economic catastrophe was to be avoided at all costs. Primarily the IMF provides loans and technical support to struggling nations using reserves which are collected via a quota system from its 189 members; the wealthier a nation is the larger its quota and voting power with its biggest contributor is the US Treasury. The loans are primarily designed to restore the balance of payments and avoid significant economic crises.
The advantages of the IMF seem to be rather obvious: struggling countries are supported, economies begin to stabilize and global economic progress remains steady. In principle, the IMF should maintain the global economy through moderate levels of guidance and where necessary interference. In its infancy, the IMF was rather successful and the majority of the long term impacts of the IMF up until the 1990s were positive. The IMF maintained the economic Holy Trinity (Current Accounts, the balance of payments and inflation) with remarkable consistency in developing countries. Success stories such as India, Kenya and Mexico in the 1980s have remained the poster boys for the IMFs global marketing campaign and I would not hasten to disagree with this assessment of the IMF’s early forays into global economic oversight. Although, it is important to add that the IMF was initially only a body that sought to monitor pegged exchange rates in global markets and its jurisdiction was not as all-encompassing as it is now. Moreover, the IMF did not have a ‘one size fits all’ approach to economic guidance either, instead, it catered more individually to its beneficiaries.
The Global enigma which we see today was born later during a pivotal change of policy during the Economic Crisis in South America during the 1990s, commonly referred to as the ‘Washington Consensus’. It was decided that IMF aid would be conditional from then on, and its authority over aid recipients increased dramatically. The IMF’s strategies became dominated by Market forces that were encompassed by their strictly imposed economic policies on governments. Governments were forced to impose economic policy based on austerity: lower government borrowing to discourage high fiscal deficits, cuts in government subsidies and lower corporate taxes. It also subjected the economies to freely-floating currency exchange rates, free trade policies, relaxing rules that hamper foreign direct investment and competition, as well as the privatization of public assets. By and large, this approach to repair failing economies was imposed unilaterally and ushered in the era of ‘one size fits all’ IMF aid.
This transition made it apparent that the primary concern of the IMF was no longer to help countries individually but rather to secure its interests and safeguard the return of its capital. This agenda was made most apparent by the crisis in Mexico in 1995. The Mexican government used IMF funds to back the weak currency and fragile central back, which were largely a consequence of illicit banking deals and subpar economic policy. Despite throwing money at the central bank, it collapsed and lost billions of dollars in international reserves. The brunt of the sub-prime loans and 16% plummet in GDP was of course felt by the taxpayers, not to mention hyperinflation to top it off. However, more remarkable than all of this was that this venture was marketed as a success by the IMF because rather unsurprisingly the U.S treasury had not lost a single penny. This gave President Clinton enough confidence to continue to demand large sums of money (18 billion dollars in 1998 alone) from US taxpayers despite the IMF largely failing to address the issue it initially aimed to resolve.
Secondary to the IMF’s failure to appropriately mend the Mexican economy, it also generated speculation amongst other developing nations that the IMF would become a safety net for them and ushered in an era of overzealous and clumsy economic policy in such countries. This is what has been referred to as the ‘moral hazard’ which is enabled by the IMF. Central banks and governments in countries such as Greece and Italy began using interest rates which were unsupported by fundamental risks. This type of lending and influx of low-cost capital often leads to excessive speculation which countries would be wary of if not for the IMFs incessant bailout policies. The ‘one size fits all’ policy allowed countless governments to avoid making their own tough economic decisions due to their overreliance upon foreign aid. Thus moral hazard created uninspired leadership in developing nations melded with uncalculated economic strategies. In one paper published by Professor Barr of Harvard University a rather apt analogy for the IMF was used, _“_No doubt some in Congress were convinced by President Clinton’s argument that the IMF was the world’s fire department, which ought not to be deprived of water while the fire was burning. But a better analogy would be to Ray Bradbury’s Fahrenheit 451, in which the fire department’s mission is to start fires.” 
But what of those countries which genuinely need guidance and help from the IMF. In these cases, it seems that the IMF is far too harsh and can destabilise already struggling economies. A prime example was the issues that Latvia faced with the IMF in the latter part of the previous decade. In one instance it missed a 200 million euro package from the IMF for running a budget deficit which was 2% higher than the one mandated by the IMF thinktank. In the first two quarters of 2009 its GDP had already crashed a total of 28.3% , yet the IMF was unyielding in its ultimatums. Sometimes the IMF can seem so contradictory it is almost laughable until you remember the millions of people whose lives are made worse by its overdosage of neoliberal economic policies. This is evidenced by its dealings with Pakistan whilst it was struggling against serious political insurgency from the Taliban. The IMF imposed an increase in fiscal deficit for the government from 3.4% to 4.6%, lessening its favour with the public, during political turmoil with a group that was also a threat to the IMFs biggest contributors. These policies make democratic government highly unfavourable as they are forced to cut spending on schools and hospitals whilst output and unemployment dwindle. At its core, the IMF seems to be a self-contradicting institution as its uncompromising policies damage the efforts to create sustainable democratic governments in developing countries.
Ultimately, it seems there is a vast disconnect between the objectives the IMF has set in place and the outcome of its interference in international affairs. The head of the IMF Christine Lagarde has on numerous occasions referred to wanting to help the poor and improve the distribution of wealth amongst social classes, yet the IMFs core principles of austerity directly contradict these claims. Its cookie cutter solutions convey a disregard for the idiosyncrasies of each countries dilemma and their political situations. In its current form the IMF seems like a bank masquerading as a soup kitchen. Its near limitless reserves mean it’s the only institution that can occupy such a role and developing countries have no suitable alternative which is ironic considering its free-market allegiances. It is difficult to see the IMF’s merits when time and again it worsens economies by imposing stop-gap solutions and sabotaging policy. It seems apparent that the only valid course of action is for it to re-align its objectives with its outcomes and return to tailor-made economic guidance for each country.