The Imf: A Bird's Eye View of Its Role and Operations

Abstract

The International Monetary Fund (IMF) is the world's premier international financial institution with 184 member countries and active programmes in a significant number of them at any one time. The Fund attracts a great deal of attention, much of it critical. But the discussion is often polemic in style. Strongly held, but frequently opposing, views are expressed. This survey attempts to examine, in an objective way, the theory and evidence relating to the Fund's operations. Many aspects of the empirical research are relatively recent and a universal consensus is yet to emerge; as a consequence there is scope for disagreement to persist. However, the research is also gradually clarifying many important issues. The format for the survey is to examine the life cycle of IMF arrangements. What makes a country turn to the Fund for assistance? Should the IMF be lending? What influences the outcome of negotiations and the design of programmes? Are IMF programmes effective? And why do some countries make prolonged use of IMF resources? For completeness there is also some discussion of the history of the IMF, the extent to which Fund policies have been influenced by advances in economic theory and the Fund's systemic role. Important organisational and governance issues are also covered briefly. Although primarily adopting an economist's perspective, the survey reflects the growing recognition that in order to understand the IMF's operations, economics has to be combined with politics. Examining the IMF is an exercise in applied political economy.

Sovereign borrowing, financial assistance, and debt repudiation

“…The requirements of this conditionality are aimed at resolving the balance of payment and government debt problems of the borrower. They include macroeconomic and structural measures (Bird, 2007). An additional rationale for imposing conditionality is to alleviate debtor moral hazard problems (Guitián, 1995).…”

Institutional Quality, Macroeconomic Stabilization and Economic Growth: A Case Study of IMF Programme Countries

“…For instance, Bird (2007) found the criticism to be legitimate since it found IMF programmes to be 'over simplistic'. Moreover, Buira (1983) called on the Fund to revisit its financial programming techniques for certain cases.…”

“…At the same time, it has been pointed out that too much focus of the IMF on the demand side of the economy, at the cost of supply side, has led to the impact of IMF progra mmes at most being neutral (and in some countries even negative) on economic growth of programme countries (Haque and Khan, 1998;Bird, 2001;Bird, 2007;Arpac et al, 2008). NIE (New Institutional Economics) literature, on the other hand, indicates that countries which saw improvement in institutional quality, also witnessed their per capita incomes improving (Acemoglu and Johnson, 2005;Afonso and Jalles, 2011).…”

Determinants of Institutional Quality: A Case Study of IMF Programme Countries

“…On the other hand, Fund programs have been criticized for focusing too much on initiatives to reduce aggregate demandcurtailment of investment more than boosting savings to overall reduce absorption to deal with macroeconomic imbalances, while it has not pushed that much on improving the supply side -to bring economy to an equilibrium which reflects its true potential; in turn hurting economic growth in many programme countries (Haque and Khan, 1998;Bird, 2001;Bird, 2007;Arpac et al 2008). …”