The International Monetary Fund

The International Monetary Fund

Distinguishing Reality from Rhetoric

Graham Bird and Dane Rowlands

There is no shortage of opinion about the International Monetary Fund (IMF). Some see it as the agent of austerity, being manipulated by wealthy nations and forcing poorer countries to pursue economic policies that suppress growth and development. A sharply contrasting view regards it as bailing out such countries with large amounts of soft finance, allowing them to avoid necessary adjustment. The challenge is to evaluate the alternative arguments and to distinguish reality from rhetoric. In this book, the authors undertake a careful and detailed empirical analysis of the underlying issues, covering participation in IMF programs, their implementation and effects on economic growth, and on the willingness of international capital markets to lend.

Chapter 1: Introduction and overview: the purposes and operations of the IMF

Graham Bird and Dane Rowlands

Subjects: economics and finance, financial economics and regulation, international economics, politics and public policy, international relations

Extract

The International Monetary Fund (IMF or ‘the Fund’) is the world’s premier international financial institution. In 2015 it had a total of 188 member countries spanning all geographical regions of the world and all levels of economic development from the richest economies to the poorest. For many years after it was established in 1946 it was not the subject of widespread academic study. Isolated studies certainly existed covering various aspects of the Fund’s operations, but there was not a large or comprehensive research literature to which reference could be made. This paucity of academic research did not prevent people from having firmly held views about the institution. The views were diverse and frequently diametrically opposed. Those on the political ‘right’ saw the Fund as bailing out countries that had been seriously mismanaged by providing them with relatively ‘soft’ low cost financial assistance. To these critics, the IMF often caused more problems that it cured by sustaining such regimes and postponing necessary economic reform. In contrast, those on the political ‘left’ saw it as imposing austerity measures on vulnerable countries and as having a negative impact on economic growth and development. They perceived the Fund as an institution dominated by advanced countries and as representing their political and commercial interests usually to the detriment of poorer countries.