The International Monetary Fund: Its Present Role in Historical Perspective*

Michael D. Bordo Rutgers University Harold Ja es Princeton University !ove "er #$$$

Prepared %or the U.&. 'ongressional International Financial Institution (dvisory 'o ission ) For valua"le and ti ely research assistance *e than+ De"a,yoti 'ha+ra"arty. For help%ul co ents on an earlier dra%t *e than+ Ji Boughton. Ta"le o% 'ontents

#. Introduction -. .hat does the IMF do/ 0. 1rigins and 1riginal (i s 2. The IMF3s Role in the Post Bretton .oods 4ra: 45ternalities and Pu"lic 6oods/ 7. The IMF in &earch o% a Mission 8. International Politics and the IMF 9. 'onclusion: &o e Issues in the 'ase %or Re%or Re%erences Ta"les #. (verage Ti e &pent in IMF Progra s "y 'lass o% Borro*ers -. (rrears in the IMF Figures #. IMF :uotas as a &hare o% .orld I ports -. IMF 'harges and 'o ercial Interest Rates

0. Total Fund 'redit 1utstanding to Me "ers 2. ;o* Interest IMF ;ending 7. Transactions o% the International Monetary Fund< #$77 = #$$9

1. Introduction

(%ter 77 years o% e5istence there are strongly con%licting vie*s on the i portance and role o% the IMF %or today3s international econo y< and on its e%%ectiveness. 1n the one hand there are those *ho see the Fund as having adapted *ell to the changing *orld environ ent *ith perhaps the need %or so e re%or s to the International (rchitecture. # 1n the other hand are those *ho "elieve that its use%ul ti e has passed in the environ ent o% e5change rate %le5i"ility and open capital ar+ets.- These radically con%licting vie*s re>uire the need %or a "alanced perspective on the role and per%or ance o% the IMF *ithin the conte5t o% its historical evolution. In this paper *e descri"e *hat the IMF is and *hat it does. .e consider its origins as the guardian o% the Bretton .oods ad,usta"le peg e5change rate syste and %inancier o% te porary current account de%icits %or advanced countries< to its present pri ary roles as develop ent %inancier and crisis anager %or the e erging *orld. .e consider the e5ternalities or ar+et %ailures that the IMF is "elieved "y any to correct and the pu"lic goods that the IMF provides. 'ritics o% the IMF do*nplay the e5tent o% ar+et %ailure and the scope o% pu"lic goods provided. They attach greater i portance to ar+et solutions. .e consider their vie*s as *ell. The reincarnation o% the Fund occurred against the "ac+drop o% a series o% a,or econo ic and political shoc+s: the oil price shoc+s o% the #$9?3s< the de"t crisis o% the @?3s< the collapse o% the &oviet e pire in the late #$@?3s< and the recent e erging ar+et crises in Me5ico and 4ast (sia. These events served as a te plate %or the creation o% ne* Fund responsi"ilities< %acilities and enhanced resources. (s *e docu ent< the e5pansion o% the Fund served di%%erent constituencies: the United &tates< the other advanced countries< the e erging countries and the very poor ;D'3s. Most i portantly< the evolution o% the IMF has re%lected the geopolitics o% the international econo y< *hich *e discuss in &ection 8. .e conclude "y raising so e >uestions that should "e considered in the course o% a serious evaluation o% the IMF3s role at the "eginning o% a ne* illenniu .

# -

&ee e.g. De 6regorio and others A#$$$B. &ee e.g. &ch*artC A#$$@B.

2. What does the IMF do? Most people thin+ o% the IMF as an institution that provides e ergency credits to countries that have %ound the selves in di%%iculties< either as a conse>uence o% poor econo ic policies or through e5ternal circu stances< such as a sudden drop in co odity prices< or a %inancial crisis in a neigh"oring country. In return the country is o"liged to i pose pain%ul austerity policies< usually involving reductions o% "udget de%icits< through spending cuts or increased revenue Ata5ationB< a rise in interest rates to reduce in%lation< and an alteration o% the e5change rate Aa devaluationB. This vie*< *hile not inaccurate< gives only a partial picture o% the reality o% the FundDs operations< or o% *hat it is supposed to do. Its andate< as laid do*n in the %irst (rticle o% (gree ent in #$22 in Bretton .oods< !H< is very general: to pro ote international onetary cooperation< %acilitate the gro*th o% *orld trade< pro ote e5change rate sta"ility< and to help to create a ultilateral syste o% pay ents. In order "alance o% to achieve these o",ectives< the Fund *as supposed to provide short ter pay ents support to countries in need o% additional international reserves. It is no* an al ost universal %inancial institution< having gro*n %ro the 22 states represented at the #$22 Bretton .oods con%erence to #@- countries today. !o* it includes al ost every econo y o% the *orld. AThere are only a %e* e5ceptions: 'u"a< !orth Eorea< Tai*an.B Who runs it? The IMF is o*ned "y the govern ents o% its represented through a Board o% 6overnors. The 6overnor %or each e "er countries< e "er country is

usually the Minister o% Finance or so eti es the 'entral Ban+ 6overnor Ain the case o% the United &tates< the &ecretary o% the TreasuryB. Foting is in accordance *ith the siCe o% a countryDs shareGholding in the Fund Aor H>uotaHB< and any i portant decisions re>uire special a,orities A@7I o% the voteB. There is no atte pt to give an e>ual voice to every country< as there is in the United !ations. Periodically< >uotas are recalculated to re%lect changing econo ic siCe. The United &tates< the largest e "er o% the IMF< currently has #9.9@I o% the vote< and thus can veto any a,or decision o% the Fund it %eels is unaccepta"le. Under the ter s o% its (rticles o% (gree ent< the IMFDs head>uarters are located in the largest e "er country: they have al*ays "een in .ashington D.'..

Meetings o% the %ull Board o% 6overnors are a rather cu "erso e annual eventJ a s aller and in practice ore anagea"le "ody is the soGcalled HInteri 'o itteeH< o% -2 6overnors< *hich eets t*ice a year and is charged *ith reporting to the 6overnors Aand a+ing reco endations *hich stand a good chance o% successB on Hthe onetary syste and on proposals to anage ent and %unctioning o% the international a end the (rticles o% (gree entH. Day to day decisions are e5ception that the %ive largest ade "y an 45ecutive Board. 'ountries are grouped e "ers o% the Board< *ith the e "ers o% the IMF Athe United &tates< 6er any< Japan< into constituencies to elect -2 45ecutive Directors as

France and the United Eingdo B have their o*n 45ecutive Directors. The 45ecutive Board also appoints a Managing Director. The sta%% o% the IMF Acurrently -<88?B is recruited internationally< "ut *ithout any >uotas as to nationality Aas is the practice in the United !ationsB. Ho* "ig is it/ Fund >uotas %or e "er countries are initially deter ined "y a calculation "ased on the siCe o% the national econo y A6DP< current account transactions in the "alance o% pay entsB. They are periodically increased< in response to perceived needs %or the IMFDs operations. The (rticles o% (gree ent provide %or a general revie* o% the >uotas every %ive years. There have "een a total o% #- such >uota revie*s< in 2 o% *hich it *as decided that no increase *as needed. In the other @< there *as a general increase< and so e redistri"ution o% >uotas to re%lect changing positions in the *orld econo y. In the ost recent round o% increases< the total >uota *as raised "y 27I< %ro easured "y the total o% &DR #28 "n. to -#- "n. Aappro5. K-$# G on &epte "er 0< #$$$< &DRL K#.092$2B< *ith the U.&. share "eing set at &DR 09<#2$.0. The siCe o% the IMF< IMF >uotas< easured as a proportion o% *orld trade %ell sharply "et*een #$28 and the

idG#$9?sJ since then this ratio has "een sta"le< and even sho*n a slight increase. Figure #: IMF :uotas as a &hare o% .orld I ports &ince "orro*ing %ro the Fund Aor Mdra*ingN o% >uotas in IMF parlanceB is related to the siCe o% a country3s initial deposit or >uota< the IMF is o%ten seen as

analogous to a credit union rather than a "an+< in *hich there is no such association "et*een lending and deposits.0 .hat does it do/ The IMF has evolved into a correspond directly *ith the realiCing the original andate: #. The IMF still sees its pri ary purpose in pro oting *orld trade< and in securing the general *ellG"eing o% the *orld econo y< through analysis and advice. This advice is ai ed at avoiding inconsistencies "et*een the policies o% its di%%erent o% its e "er states< and policy ista+es "y individual e "ers. The IMF tries to in%luence the policies e "ers< in the "elie% that poor policies have an adverse e%%ect that e5tends "eyond onetary pro"le sH. The national %rontiers. Its (rticles o% (gree ent A(rticle I< #B re%er to the esta"lish ent o% a H achinery %or consultation and colla"oration on international ter used "y the IMF %or this %unction is HsurveillanceH. &urveillance ta+es t*o principal %or s: the %irst is ultilateral< "ased on a general overvie* o% the interGconnections and interGactions "et*een national econo ic policies and per%or ance< and o% %orecasts "ased on a variety o% scenarios. The ost i portant practical e5pression o% these calculations is an e5ercise conducted "y the IMFDs sta%%< and then discussed "y the Board and presented as a pu"lication< the .orld 4cono ic 1utloo+. .orld 4cono ic 1utloo+ aterial is also used in 6G9O6G@ econo ic su its and in the eetings o% the 6G9 Finance Ministers< *here the vie*s o% the IMF are presented "y the Managing Director and "y the Director o% the Research Depart ent. The IMF sta%% also prepare pu"lished assess ents o% *orld capital ar+ets< the International 'apital Mar+ets Reports. These %ocus on ar+et develop ents< not only in advanced econo ies< "ut also uch ore %ully than in the analogous BI& aterial is generally highly regarded< and the in e erging ar+ets A*hich are dealt *ith reportsB. .41 and capital ar+ets reports econo etric a,or in%luence on the develop ent any o% *hich o% the *orld econo y. Its %unctions today include the %ollo*ing<

andate< and others have "een added< *ith the intent o%

odel used is state o% the art< although analysis o% errors in past %orecasting ight sho* the i inence o% currency or "an+ing

in the .41 sho*s a tendency to*ard opti is .2 Recently< the IMF has also conducted research on early *arning signals that
0 2

&ee Eenen A#$@8B. &ee (rtis A#$$8B< and Ja es A#$$8B< Figure #0G-. &uch pro"le s arise in part "ecause o% the unpredicta"ility o% econo ic shoc+s< "ut also in part "ecause o% the ethod o% "uilding up %orecasts M%ro the "otto upN< "y the use o% area depart ent aterial to generate assess ents o% the international econo y as a *hole.

crises: "ut such research G in co

on *ith si ilar acade ic research G tends to sho* the

di%%iculties in %inding relia"le prior indicators o% crisis .7 &econdly< there is a "ilateral surveillance< "ased on regular consultations *ith e "er countries A+no*n as (rticle IF consultationsB. (s a result o% a %eeling in the #$$?3s that so e o% the pro"le s in the international econo y *ere a conse>uence o% inade>uate surveillance< the IMF reverted to a pattern o% annual consultations Aa%ter a period in *hich they *ere less %re>uentB. &o eti es IMF sta%% reports on Mclientis N< in *hich good relations *ith o%%icials and inisters developB. e "er countries are thought to "e insu%%iciently critical A"ecause o% the develop ent o% a sort o% The econo ic "asis o% sta%% papers in preparation %or these consultations have "een pu"lished %or so e years Aunder the title HRecent 4cono ic Develop entsHB. In (pril #$$$< the IMF launched an e5peri ental progra %or the release o% sta%% reports e "er country concerned< su"se>uent to consultations. The results o% the consultations are e5pressed in a paper< *hich is no* pu"lished "y the IMF< given the consent o% the as a HPu"lic In%or ation !oticeH Apreviously< the outco e o% such discussions *as regarded as con%identialB. In #$$$< the IMF "egan to release %ull sta%% reports. .ithin the general %ield o% surveillance< the IMF has a special andate *ith regard to e5change rate policy. This *as the original rationale %or the IMFDs e5istence Asee &ection 0B< and e5change rate policy re ains at the center o% advice to The IMF groups and lists the e5change rate policies o% its policy. 'urrently< the surveillance %unction accounts %or 2-I o% the IMFDs "udget< i% overhead costs are included. -. The IMF is pri arily a %inancial institution< *hich provides credits to e "er countries< +no*n in IMF ter inology as Hdra*ings on the FundH. &uch credits are e5tended in relation to the siCe o% the >uota. &ince the #$7?3s< credit has "een provided in MtranchesN< units corresponding to -7I o% a e "er3s >uota. The %irst tranche is availa"le auto atically< *ithout any discussion o% policy. The larger the credit is in relation to the >uota< in other *ords< the higher the tranche< the higher is the e5tent o% policy re%or
7

e "er countries.

e "ers< and a great deal o% its

research is concerned *ith theoretical as *ell as practical issues relating to e5change rate

re>uired AconditionalityB. These credits are at a rate o% interest calculated "y

&ee Ea ins+y ;iCondo and Reinhart A#$$@B.

the IMF to correspond *ith IMFDs operating costs.

ar+et rates o% principal e "er countries< and to cover the

Figure -: IMF 'harges and 'o

ercial Interest Rates

(t the end o% (pril #$$$< the IMF had &DR 80.8 "n. credit outstanding Aappro5. K @9 "n.B. This ight loo+ as i% it is only a relatively s all share o% the total o% >uota resources Ait is less than hal% o% the preG>uota increase total o% &DR #28 "n.B< "ut in practice not all o% the >uota IMFDs resources can really "e used in support operations Ausing the >uotas paid in national currency "y a s all developing country< or even a larger e erging econo y< even though such currencies out the >uotas paid in "y its richer ay no inally "e converti"le< ight provo+e a pro"le %or that countryJ in practice< the IMF is thus usually li ited in lending e "ers.B In reality< an assess ent o% *hat really constitutes the usa"le resources o% the IMF re>uires very care%ul ,udg ent o% the current state o% international currency ar+ets. ( critical easure ent o% the Fund3s position is the Mli>uidity ratioN< the proportion o% unco itted usa"le resources to li>uid lia"ilities. ost recent >uota The highest ratio recently *as #9?I< in January #$$7. It %ell sharply a%ter the (sian crisis to 27I A(pril #$$@B< "ut has risen to @$I A(pril #$$$B< a%ter the increase. Figure 0: Total IMF 'redit 1utstanding to Me "ers (s sho*n in Figure 0< IMF credit is given in di%%erent %or s and on di%%erent conditions. The standG"y arrange ents assure that a e "er can a+e "orro*ings over a speci%ied period< usually "et*een # and - years< "ut so eti es %or a shorter period and so eti es %or up to 0 years< *ith repay ents scheduled "et*een 0 P and 7 years a%ter the "orro*ing. The e5tended %acility< introduced in the #$9?3s< is availa"le %or a longer period< o% 2 Q to #? years. These %acilities carry an interest rate "ased on an average o% rates in the a,or industrial countries. Thus< inevita"ly< %or each o% the IMF3s a,or net contri"utors o% resources Athe industrial countriesB< depending on the relative state o% the "usiness cycle< rates o% re uneration on resources Athe &DR interest rateB deposited *ith the IMF are so eti es higher and so eti es lo*er than prevailing interest rates in the

national econo y. Thus IMF rates *ere slightly higher than U.&. interest rates in the early #$$?s< and are no* slightly lo*er Asee Figure -B. During the (sian crisis< a ne* %acility Athe &upple ental Reserve FacilityB *as introduced< that rese "led ore closely the traditional notion o% an e ergency lender o% last resort< as envisaged "y .alter Bagehot in his classic *or+ ;o "ard &treet A#@90B. This %acility is ai ed at dealing *ith a"rupt reversals o% con%idence. The a ounts lent are higher< "ut charged at a penalty rate o% 0?? to 7?? "asis points a"ove the IMF3s regular rate o% charge. In the a+ing such loans< the IMF inevita"ly has to consider its o*n li>uidity anner analogous to
8

position< and is o"viously not capa"le o% e5tending in%inite credit in a onetary authority in a national setting.

There are %urther possi"ilities o% lending in response to natural disasters< in postG con%lict situations Asuch as (l"ania< Bosnia< R*anda< Ta,i+istanB< and special %acilities: the 'o pensatory and 'ontingency Financing Facility< %or une5pected and te porary %alls in e5port prices< e5port volu es< or %or increases in the cost o% cereal suppliesJ and the &yste ic Trans%or ation Facility< *hich *as used "et*een #$$0 and #$$7 to support econo ies in transition %ro plan to ar+et. In addition< there is also a possi"ility %or the Fund to "orro* resources outside its >uotas. &ince the #$8?3s the IMF has "een a"le to "orro* additional su s %ro ## large industrial countries Aunder the soGcalled H6eneral (rrange ents to Borro*H< or 6(BB< *hich ay "e lent Hto %orestall or cope *ith an i pair ent o% the international onetary syste H Ait *as intended to deal pri arily *ith potential pro"le s in the a,or reserve centers< the United Eingdo and the United &tatesB. This ne* potential source o% IMF credit "ro+e *ith the previous IMF principle o% operating on the lines o% a credit union< and turned the institution to*ard a role as a "an+. (%ter the end o% the par value syste < the 6(B *as rarely needed as a support %or reserve currenciesJ and the provision had in %act "een inactive %or t*enty years< until it *as resuscitated in July #$$@ to provide resources %or Russia. It *as last enlarged in #$@0< to an a ount o% &DR #9 "n. There is also an additional a ount availa"le under a separate< "ut analogous< agree ent *ith &audi (ra"ia. The 6(B has recently A#$$9B also "een supple ented "y an as yet unused echanis %or "orro*ing &DR 02 "n. %ro a *ider group o% -7
8

e "ers o% the IMF Athe

&ee 'apie A#$$@B.

H!e* (rrange ents to Borro*HB< as a response to the (sian crisis and in order to provide additional %acilities in the event o% syste ic pro"le s in e erging ar+ets.. 0. In so e circu stances< the IMF is a provider o% su"sidiCed credit. &ince the #$9?3s< the IMF has given lo* interest credits to poor countries< *ho at that ti e *ere especially vulnera"le "ecause o% the increased cost o% i ported %uel. The interest su"sidy *as paid through a Trust Fund< %inanced in part in the #$9?3s "y the sale o% parts o% the IMFDs gold reserves. 'urrently< the IMF3s %acilities %or lo*Ginco e e "ers< de%ined principally on a "asis o% per capita inco e and eligi"ility %or the concessional lending o% the .orld Ban+ 6roup under ID( AInternational Develop ent (ssociationB< are +no*n as the 4nhanced &tructural (d,ust ent Facility. The loans are ade availa"le in three install ents over a three year period< carry an interest o% ?.7I< and are repaid over a period %ro 7 Q to #? years a%ter the loan dis"urse ent. (t the end o% July #$$$< the IMF had &DR 8.7 "n. in credit outstanding under this su"sidiCed credit arrange ent Aor #?.-I o% its total outstanding creditB. The su"sidy is paid in part %ro interest %ro the Trust Fund created in the #$9?3s< and in part %ro donations and loans %ro countries . The provision o% lo*Ginterest credit developed in the %ollo*ing *ay: Figure 2: ;o* Interest IMF ;ending &uch credit "rought the Fund into develop ent *or+. It is a tas+ that lay outside the traditional areas o% IMF responsi"ilities. 2. The IMF also has the tas+ o% creating supple entary reserves< in the %or o% the &DR A&pecial Dra*ing RightB. The issue o% &DRs is lin+ed< according to the %irst ( end ent o% the (rticles o% (gree entB< to a general need %or li>uidity. In a *orld o% li>uid capital ar+ets it is hard to see a case %or such a general re>uire ent< short o% a general *orld de%lation< and there has "een no issue o% &DRs since the #$9?3s. The conse>uence is that ore recent e "ers have received no allocation o% &DRs< and in onetary policy. general the &DR plays a relatively inor role in *orld e "er

7. In the course o% surveillance< the IMF collects a great a ount o% data< *hich it has presented in a standardiCed and syste atiCed *ay in such pu"lications as International Financial &tatistics. There has developed an increasing a*areness that surveillance can "e

#?

ore e%%ective i% its results are

ade availa"le to a *ider pu"lic< that is ar+et aterial is also pu"lished. Recently< in #$$8<

participants. The .orld 4cono ic 1utloo+

in response to the Me5ico crisis o% #$$2G7< it provided a syste atic standard %or the presentation o% national data relevant to the operation o% capital ar+ets< the H&pecial Data Disse ination &tandardH. In%or ation supplied is displayed on an electronic "ulletin "oard< and the IMF onitors co pliance. The IMF also pu"lishes regular reports on international capital ar+ets. 8. The IMF provides training and technical assistance through the IMF Institute to e "er countries on "udget in #$$9O@. Ho* uch does it cost/ Un%ortunately a "rea+do*n o% its e5penditures "et*een atters such as the operation o% central "an+s< Finance Ministries< ta5 regulation etc.. This educational %unction accounted %or --.7I o% the IMFDs operating

categories has only "een availa"le since #$$7. For the latest year %or *hich *e have data< #$$@< *e have "ro+en do*n the IMF3s activities into three categories: surveillance *as K-#@.illion and represented 2-I o% the "udgetJ the use o% IMF resources Athe IMF3s illion and 07.7I o% the "udgetJ technical illion and --.7I o% the "udget. The data to e5tend these role as a %inancial institutionB *as K#@2.assistance *as K##9.#

calculations "ac+*ard is unavaila"le. 6eneral overhead costs are allocated to each o% these three activities in accordance *ith their proportionate i portance. The costs o% the IMF Research Depart ent are not sho*n separately. Research is directed to*ard these three categories< and the costs allocated accordingly. 3. Origins and original aims The "est *ay o% thin+ing o% the IMF and its %unctions during the period o% the soG called Bretton .oods regi e A#$27G#$90B is not so uch as an institution< "ut as the institutional e "odi ent o% a syste o% rules Athe IMFDs (rticles o% (gree entB. The construction o% the post*ar international onetary syste < "uilt around the IMF< ca e as a result o% a general agree ent that a repetition o% the econo ic and political nationalis o% the #$0?3s could and should "e avoided.

##

The IMF *as esta"lished in the a%ter ath o% the disasters o% the 6reat Depression to overco e perceived capital %lo*s Ahot ar+et %ailures o% the #$0?3s< including desta"iliCing shortGter oney ove entsB< then the "rea+do*n o% capital ar+ets< the

conse>uent ina"ility to %inance pay ents de%icits in a ti e o% depression< the *idespread i position o% e5change controls< co petitive devaluations AR"eggar thy neigh"or3B< and a turn to trade protection. The (rticles o% (gree ent dra%ted at Bretton .oods< !H in July #$22 represented a co pro ise "et*een the plans o% the U.&. and U.E.< the leading (llied econo ic po*ers during the *ar. For the U.&.< restoration o% a ultilateral pay ents syste "ased %ro the on converti"le currencies *as para ount. The British *anted the %reedo proposed "y Harry De5ter .hite %or a &ta"iliCation Fund

e5ternal constraint to pursue %ull e ploy ent policies. In the end the ( erican Plan odeled in part on the U.&. 45change &ta"iliCation Fund *as do inant. The par value ad,usta"le peg syste *as "ased on the no inal anchor o% gold *ith the U.&. as the reserve center country. The IMF *as designated as the u pire o% the syste *ith an initial Fund o% @.@ "illion dollars to lend to values.9<@ In the vision that lay "ehind the Bretton .oods con%erence o% July #$22< the IMFDs a,or %unctions *ere to: #. %acilitate an end o% e5change controls and transition to current account converti"ility Acountries aintaining controls *ere o"liged to hold regular consultations *ith the IMF re%erred to as (rticle SIF consultationsB. -. deal *ith the %ear o% co petitive devaluations A*hich ay have "een an instru ent o% trade *ar%are in the #$0?3sB in response to the "elie%< "ased on the e5periences o% the #$-?3s< that %le5i"le e5change rates *ere desta"iliCing. It instituted pegged< "ut ad,usta"le< e5change rates "ased on the sta"le no inal rate o% the U.&. dollar or on a speci%ic gold value. (d,ust ent "eyond a certain argin A#?IB re>uired the concurrence o% the IMF. 0. provide short ter %inance to deal *ith te porary "alance o% pay ents the current account< since it *as dise>uili"ria Asuch pro"le s *ere assu ed to arise %ro
9 @

e "ers *hen "alance o% pay ents pressure threatened adherence to the par

&ee Bordo A#$$0B. The .orld Ban+ AIBRDB *as %ounded at the sa e ti e to provide capital to the *ar torn countries o% 4urope and (sia and to the developing *orld.

#-

"elieved that capital %lo*s in the post *ar *ould "e ini al and encouraged capital controlsB. The pursuit o% inappropriate de and "y a

oreover the (rticles anage ent policies

e "er country *ould lead to danger signals< in the %or o% "alance o% pay ents

i "alances. I% the i "alance re%lected a %unda ental dise>uili"riu Anever e5plicitly de%ined "ut generally eaning an unsustaina"le pay ents i "alanceB< the e5change rate *ould "e altered *ith the approval o% the Fund. I% the pro"le *as perceived to "e te porary< the IMF *ould provide %inancial assistance. Through the >uota credit unionB.$ 2. constitute an econo ic e>uivalent o% the United !ations Athe %ive largest >uota holders as calculated at the ti e o% Bretton .oods< United &tates< U&&R< UE< 'hina< France< *ith an auto atic right to seats on the IMFDs 45ecutive Board< correspond to per anent e "ers o% &ecurity 'ouncilB. echanis < the IMF de %acto created an additional pool o% reserves Ait %unctioned analogously to a

The successes and failures of the original vision .orld trade e5panded >uic+ly %ro the #$7?3s. There *as no *orld*ide depression i ediately a%ter the &econd .orld .ar as had occurred a%ter .orld .ar I. The a"sence o% such an econo ic catastrophe had little to do *ith the IMF< *hich actually undertoo+ little activity in the %irst ten years o% its e5istence< "ut *as rather due to the Marshall Plan< the Pa5 ( ericana and the institution o% sta"iliCation policies across the advanced *orld. I ple enting the Bretton .oods (rticles G in particular the attain ent o% current account converti"ility A(rticle FIIIB G too+ a long ti e %or the advanced countries o% .estern 4urope. 1ther parts o% the original vision ran into increasing pro"le s. #. 'urrent account converti"ility in the advanced countries o% .estern 4urope too+ uch longer than had initially "een envisaged< until Dece "er #$7@. It *as achieved through the e%%orts o% the 4uropean Pay ents Union %unded partially "y the Marshall Plan. The attain ent o% converti"ility *as preceded "y a surge o% IMF credit in #$78G9< and "y #$7@ ost 4uropean countries had accepted the relevant article A(rticle FIIIB o% the (rticles o% (gree ent. Japan did so in #$82. Most developing countries ho*ever retained
$

&ee Eenen A#$@8B.

#0

current account restrictions until the #$@?3s or #$$?3s. In #$8?< #0I o% the IMF3s e "ers had accepted current account converti"ility under (rticle FIII< in #$9? 0?I< and "y #$$? 27I. By #$$@< ho*ever< o% the IMF3s #@(rticle FIII. -. The strains on the par value syste increased in the #$8?3s. &trains included a continuous tension "et*een countries in chronic de%icit li+e the UE< *hich *as prevented "y e5ternal constraints %ro e5pansion and *as under continuous pressure to devalue. The UE< at that ti e the issuer o% the *orldDs second ost i portant reserve currency< thus %aced al ost continual crisis. The surplus countries< 6er any and Japan< *ho %ound it di%%icult or i possi"le to revalue. In addition< the syste itsel% %aced considera"le strain as the center country the U.&.< ran al ost continuous "alance o% pay ents de%icits and persistent gold drains. !u erous e%%orts to prevent the inevita"le collapse o% the syste included U.&. dra*ings %ro the IMF< and the syste eventually "ro+e do*n in a series o% currency crises "et*een #$9# and #$90. (%ter the "rea+do*n< the threat o% trade *ars increased. 0. (%ter #$9@ no a,or industrial countries dre* on the IMF %or short ter %inance< "ecause the international capital ar+ets no* provided such %unds. The gro*th o% capital ar+ets< *hich had contri"uted to the "rea+do*n o% the %i5ed e5change rate regi e in #$9#G0< surprised everyone. 2. The IMF *as not initially a glo"al institution< as had "een envisaged at the ti e o% Bretton .oods< "ut "eca e a part o% 'old .ar politics. The U&&R had re%used to ,oin in #$27< and the IMF "eca e an institution o% the nonGco unist A%reeB *orld. e "ers< #2- Aor 9$IB had accepted

4. The IMF s !ole in the "ost #retton Woods era$ e%ternalities and &u'lic goods? The decades %ollo*ing the "rea+do*n o% the par value syste in #$90 *itnessed a sea change in the international environ ent %ro that envisioned "y the architects o% the Bretton .oods syste .#? The par value syste *as gone and *ith it the IMF3s e "er countries could %reely choose their e5change rate arrange entsTpegged e5change rates to secure the "ene%its o% a no inal anchor and
#?

ain

%unction as the u pire o% the rules o% the ga e o% that syste . In the ne* environ ent< onetary and %iscal

&ee Masson and Mussa A#$$8B.

#2

discipline< or %loating rates %or policy independence and insulation %ro The policy independence and a reduced need %or international reserves<

e5ternal shoc+s.

ove "y ost advanced countries to*ards %loating< *hich in theory at least provided eant that the only

role see ingly le%t %or the Fund *as surveillance designed to achieve responsi"le e5change rate policies under the a ended (rticle IF. The IMF provided in%or ation and policy advice< and acted as a ediu %or policy coordination. ( second develop ent that had pro%ound i plications %or the IMF *as the increasing integration o% the *orld econo y. This re%lected a reduction in trade and transportation costs and especially %inancial integration.## The dra atic opening up o% private international capital ar+ets< *hich had "een suppressed through the Bretton .oods years "y IMF sanctioned capital controls< i plied that private capital could su"stitute %or o%%icial %inancing o% pay ents i "alances. This indeed "eca e the case %or the advanced countries. The %inal change in the environ ent %acing the IMF *as a dra atic gro*th in e "ership *ith the collapse o% colonialis in the #$8?3s to #$@?3s and the dissolution o% the %or er socialist "loc in the late #$@?3s. !e* 45ternalities In this ne* environ ent the IMF rede%ined its role aided "y a,or political and econo ic shoc+s and the rise o% ne* constituencies %or its services as *e docu ent in section 7 "elo*. ( ne* rationale %or the Fund3s role in the ne* environ ent has "een provided "y the Fund3s sta%% and those *ho see it continuing to ta+e a central part in the institutional structure o% the *orld econo yTne* sources o% e5ternalities A ar+et %ailuresB and ne* pu"lic goods %or the Fund to provide.#The advent o% anaged %loating e5change rates is vie*ed as creating a set o% pro"le s that( in their i pact< are not su"stantially di%%erent %ro those %acing the par value syste : incipient "alance o% pay ents pressures *ere said not to "e s oothly ad,usted to< and e5change rates *ere said to "e prone to overshooting and to have produced su"stantial ad,ust ent costs to the real econo y. These pro"le s dictated the need %or active de and anage ent and IMF policy advice and also the need %or IMF resources and conditionality as "e%ore.
## #-

&ee Bordo< 4ichengreen and Ir*in A#$$$B< 1"st%eld and Taylor A#$$@B. &ee 6uitian A#$$-B< Masson and Mussa A#$$8B< Erueger A#$$@B.

#7

6ro*ing interdependence and especially capital ar+et integration in turn

eant

that the independence %ro e5ternal shoc+s that %loating rates *ould provide *as greatly eroded< again dictating a de and %or IMF surveillance and %inancing. Financial integration *hich serves the *el%are enhancing roles o% allocating resources "oth secularly and cyclically "et*een countries *ith surplus and de%icient savings< and opti al port%olio diversi%ication< ho*ever< "rings perils. These include the %ollo*ing: aB that although private capital could serve as a source o% reserves %or advanced countries in %acilitating ad,ust ent< it *ould "e e5pensive in ti es o% crisisJ "B private capital is only availa"le to advanced countries or iddleGinco e developing Ae ergingB countries and not to lo* inco e or %or er socialist countries. cB private capital %lo*s are su",ect to sudden reversals *hich can precipitate currency crises< costly current account reversals< and serious econo ic hardship. ( nu "er o% stories proli%erate including the role o% asy contagion e%%ects. dB The pro"le o% de"t crises. Fears that a sovereign "orro*er *ill "e una"le to service its de"t can lead to a run< in an environ ent *ithout so e authority providing coordination< "y lenders %ear%ul that they *ill not "e repaid. eB Finally< there has "een an e5panded Fund e "ership "y lo* inco e countries< *hich are too poor< do not have any< or i% they do< have pri itive credit international private capital ar+ets and any o% the transition econo ies. !e* Pu"lic 6oods In the %ace o% these ne* pro"le s a.+.a. Re5ternalities3 o% the R!e* 1rder<3 the IMF is vie*ed as providing ne* solutions and ne* pu"lic goods. Most o% these develop ents pertain to developing countries. For the pro"le s arising %or the ne* international onetary regi e o% %ree choice in e5change rate arrange ents< the Fund no longer is regarded as the u pire o% the rules o% the par value syste "ut as the protector o% the syste %ro insta"ility< Rthe overseer o% the code o% conduct3 A6uitian #$$-B< oreover re>uire ar+ets< and do not structural have the institutions %or sound policy. &uch countries do not have access to the ediu ter loans as *ell as te porary "alance o% pay ents assistance. &i ilar pro"le s %ace etric in%or ation< changing investor ultiple e>uili"ria and senti ent in the %ace o% ne*s that reveals policy inconsistencies<

#8

according to (rticle IF. Fund surveillance includes %ostering policy coordination< policy advice and providing e5tensive in%or ation on the state o% the *orld econo y and o% the individual e "ers. In addition Fund %inancing through stand"y loans and other %acilities can reduce the costs o% ad,ust ent to pay ents i "alances. To alleviate the pro"le s associated *ith increased international integration and capital o"ility the Fund has ta+en on a nu "er o% roles including: ediu ter capital %or lo* inco e Acredit constrainedB aB the provision o% short to countriesJ "B the provision o% a Rgood house+eeping seal o% approval3 or signal to potential private lenders %or sovereign "orro*ers *ho have success%ully %ollo*ed Fund progra s and conditionalityJ cB insurance against shoc+s< including crises %acing countries *hich cannot access private ar+ets< *ith surveillance serving in the role o% Ra %ire arshal3 and conditionality as a %or o% coinsurance. dB an Rhonest "ro+er3 serving as a coordinator o% lenders in a de"t crisis. Here the Fund is to solve a collective action pro"le "y arranging concerted lending. eB a crisis anager "y providing international li>uidity to e erging countries in %inancial crises. %B a crisis preventor "y providing Rearly *arning signals3 and as a Rpolice an3 %orcing disclosure o% in%or ation. Finally to help solve the pro"le s o% the ne* i poverished and institutionally "ac+*ard e "ers< the Fund provides advice and technical assistance on policy re%or %inancial assistance to correct structural i "alances. 'ounterargu ents 'ritics contend that that any o% the IMF3s ne* roles are not necessary in the acro policies and< should environ ent o% e5change rates regi e choice and glo"al %inancial integration. They argue ost countries should and can %ollo* sound independent they do so< can insure the selves against shoc+s "y turning to the private capital ar+ets.#0 Further ore that the private sector.
#0

as

*ell as longer ter

uch o% the Fund3s surveillance activity could "e provided "y

&ee e.g. &ch*artC A#$$@B.

#9

.ith respect to

ediu ter

structural assistance to poor countries< it is argued any IMF clients

that it creates dependency Aanalogous to *el%are dependencyB< *ith

rarely leaving the Fund.#2 Moreover the record on the success o% Fund progra s is i5ed. IMF progra s generally have "een associated *ith i prove ents in the current account< reduced %iscal de%icits< oney gro*th and in%lation "ut at the e5pense o% declining real gro*th %or a nu "er o% years.#7 The proli%eration o% structural ad,ust ent %acilities is also vie*ed as encroaching on the province o% the .orld Ban+ and the case has "een ade %or erging the t*o institutions. The IMF3s role as honest "ro+er in de"t crises is also seen as over"lo*n. In the a"sence o% the IMF it is as+ed *hy couldn3t private lenders and "orro*ers stri+e a deal as they did in crises "e%ore #$#2.#8 Finally< the Fund has "een heavily criticiCed in recent years %or its role as a crisis anager. The rescue loans provided "y the IMF and other authorities to Me5ico and the recent (sian crisis victi s are seen as engendering *ho oral haCard "oth %or policy a+ers ay %ollo* too la5 policies in the +no*ledge that the Fund *ill intervene< and %or assive and rapid intervention as over"lo*n. 'ontagion ay re%lect a

lenders *ho "elieve they *ill "e "ailed out. #9 &uch critics also regard the contagion argu ent %or *a+eGup call that other countries are %ollo*ing the sa e inconsistent policies or have the sa e %inancial sector *ea+nesses as the %irst country attac+ed< or the trans ission o% shoc+s re%lecting co on %unda entals. Finally the Fund3s conditionality has "een criticiCed %or i posing too harsh a "urden on the victi s o% crisis.#@ .ith these issues in ind< *e turn to a description o% the historical evolution o% the IMF %ro its original to its present ). The IMF in search of a mission ission.

Bando* and Fas>ueC A#$$2B. 4d*ards A#$@9B< Ehan A#$$?B< Ehan and Ul Ha>ue A#$$@B< 'on*ay A#$$2B. #8 &ee e.g. Bulo* and Rogo%% A#$$?B *ho argue that coordination pro"le s a ong private sector "an+s "loc+ed e%%iciencyGenhancing de"t *or+outs in the ;atin ( erican de"t crisis o% the #$@?3s. &ee 'hari and Eehoe A#$$@B. #9 MeltCer A#$$@B< Fried an A#$$@B< &ch*artC A#$$@B< &hultC A#$$@B. #@ &achs and Radelet A#$$@B.
#2 #7

#@

Ho* ade>uately< and *ith *hat results< has the IMF "een a"le to pro"le s raised "y the ne* e5ternalities in the *orld o% %or internal "ureaucratic sel%Gpreservation/#$

eet the

o"ile capital/ .hat interests

shaped the develop ent o% the IMF/ To *hat e5tent *as it si ply driven "y an instinct .ith the end o% the par value syste < it appeared that the IMF had lost its especially France and Japan G pressed %or a return to par values. ( H'o ittee o% a,or

purpose as the guarantor o% an e5change rate syste . For so e ti e< so e countries G T*entyH discussed proposals %or a ne* international onetary order. In #$9@< the &econd ( end ent o% the (rticles o% (gree ent set out a care%ully *orded co pro ise *hose %unction it *as to indicate that there *ould "e no return to %i5ed e5change rates in the near %uture. The ne* (rticle IF &ection # spo+e o% the o"ligation o% Fund Ai.e. not Ha syste o% sta"le e5change ratesHB. 45pectations that "et*een the *orldDs e "ers Hto assure orderly e5change arrange ents and to pro ote a sta"le syste o% e5change ratesH a,or currencies *ould ove ents "e relatively sta"le against each other *ere disappointed< and there *ere large

a,or currencies< the dollar< Japanese yen and the 6er an ar+. In a,or original %unction.

any case< the IMF *as no longer at the center o% an institutionaliCed e5change rate regi e< and thus co pletely lost its corresponded to to the The IMF survived as a %inancial institution< and %our surges in lending a,or upheavals in the international syste : the oil crisis o% the #$9?3s< the developing country de"t crisis o% #$@-< the transition o% %or erly planned econo ies ar+et< and the #$$9 (sia crisis. The ne* activity *as e5plained in ter s o% di%%erent and in part inco pati"le suggestions %or ne* directions %or the IMF< including the %ollo*ing: #. The "rea+do*n o% the par value syste *as >uic+ly %ollo*ed "y a dra atic increase in petroleu prices< and a,or ne* i "alances in the international %inancial syste . (ccording to one suggestion< the ne* surpluses o% the #$9?3s arising %ro the oil price hi+e AsoGcalled petroGdollarsB should "e deposited at the IMF and then relent to countries %acing "alance o% pay ents pro"le s as a result o% their increased i port prices. In #$92 the IMF esta"lished %or this purpose an Hoil %acilityH. .ho *anted this %unction %or the Fund/ The oil %acility *as an initiative o% the Fund< and its Managing Director< Johannes .itteveen. The U.&. Ford ad inistration *as
#$

This is the case

ade

ost %orce%ully "y Fau"el A#$$2B.

#$

initially s+eptical< "ut supported so e sort o% oil %acility. Initially it pre%erred the idea o% *or+ing through the 14'D. But "oth the oil producers and the private any developing country de"tors pre%erred to use ar+et. (n attraction o% the international capital ar+ets lay in the a"sence o%

any policy control< and developing country %inance inisters reacted against atte pts o% the IMF to *arn against overG"orro*ing. The result *as a lending "oo < and su"stantial gro*th in any developing countries Aespecially in ;atin ( ericaB. In the #$9?3s< the overall proportion o% developing countriesD current account de%icits %inanced "y the IMF *as actually lo*er than it had "een in the #$8?3s. -. (nother possi"le ne* role o% the IMF *as as an international policy coordinator. The shoc+s o% the #$9?3s G the oil price hi+es< recessions< increased in%lation G posed a,or challenges to policy. &uch discussion also too+ place in other institutional settings< in the 67O69 eetings o% Finance Ministers Athere *ere in%or al eetings %ro su its A*hich "eca e an annual %eature a%ter the Ra "ouillet #$97B< and "ilaterally< and "y other institutions. The need %or international policy coordination is less evident than ight at %irst sight appear. There have "een phases in international %inancial history since #$90 o% al ost no coordination A#$@#G@7B< and periods o% >uite intense e%%orts at coordination A#$9@< #$@7G@$B. It is not clear that the phase o% no coordination *as the previous or su"se>uent periods.-? In addition< "oth Ha "itious international de and ;ouvre A#$@9B ore unsta"le than a,or e5ercises in coordination le%t #$90B< in econo ic eeting in !ove "er

su"stantial resent ents. (%ter #$9@ 6er any and Japan re,ected *hat they ter ed anage entH.-# The phase "et*een the PlaCa A#$@7B and eetings o% the 69 Finance Ministers *as "la ed in retrospect in Japan as onetary policy and a

"eing at the origin o% the disastrous H"u""leH econo y< "ecause o% the pressure placed on Japan in these e5ercises "y the United &tates to pursue a looser devaluation o% the yen.-.ho *anted the Fund to "e a policy coordinator/ There *as so e institutional o entu : the IMF *as loo+ing %or a role that it ight play in a *orld in *hich rules

-? -# --

&ee Feldstein A#$$2BJ Fran+el A#$$2B. &ee 6uth A#$@@B p.-##. &ee Funa"ashi A#$@$B.

-?

Athe par value ruleB had "eco e less i portant and in *hich ore roo ore policy choices see ed to "e open to national govern ents. The govern ents o%

%or

aneuver and

a,or countries %ound it use%ul to have a %oru that *as less its< %or assessing the li+ely outco e o% a countryDs

directly political than the 69 su

econo ic policy on the *orld econo y< and pressing %or changes: e.g. %or greater Japanese or 6er an e5pansion A#$99G9@< #$@9B< a reduction o% U.&. de%icits A idG #$@?3sB. But it can hardly "e said that the IMF and its advice contri"uted greatly to the solving o% any o% these pro"le s. 0. The ost use%ul %unction that the IMF contri"uted to the de"ate a"out policy ight "e used as a "asis %or such policy discussions. More coordination *as through the provision o% data and %orecasts< in the .orld 4cono ic 1utloo+ e5ercise< that recently< the IMF e5tended its role in the coordination process via the supply o% a *ide range o% national data through the institution o% the &pecial Data Disse ination &tandard. There are t*o co a,or argu ents as to *hy the IMF rather than another< private sector< agency should play this role. 1ne is concerned *ith the desira"ility o% a general or on standard %or data provision as a pu"lic good. The second is that "ecause the IMF provides %inancial and other assistance to govern ents< these are li+ely to have incentives to provide the IMF *ith >uic+ and accurate data. (nne Erueger concludes that HIt is at least as li+ely that< in the a"sence o% the other relationships "et*een the ultilateral institutions and individual govern ents< the data *ould "e %orthco ing later< in less relia"le %or < and "e less accessi"le %or researchers and other users.H-0 There have "een so e pro inent cases in *hich countries< especially "orro*ers< have supplied isleading data or deceived the Fund: Hungary and Uugoslavia in the #$@?3s< and &uch e5periences suggest that the penalties i posed %or the supply o% *rong data "e su%%iciently deterrent. 2. The IMF also developed as a purveyor o% policy advice< in regular consultations *ith e "er countries A(rticle IF consultationsB< *hether or not these e "ers *ere ost currently involved in a %inancial progra . (lready under the Bretton .oods syste < the IMF had given policy advice< and conducted consultations *ith govern ents. The in%luential and e%%ective policy advice< ho*ever< *as given as part o% IMF progra s< and
-0

ost ay not

recently Russia in relation to its %oreign e5change reserves in #$$8 and su"se>uently.

&ee Erueger A#$$@B p. #$$9.

-#

*as thus

uch

ore di%%icult to ignore than si ilar advice given %or instance "y the oney "ehind its ore care%ul< and less li+ely to "e Hin%luenced "y political

14'D. Moreover< the %act that the IMF as a lender has to put its o*n advice should a+e it de andsH.-2

It is hard to ,udge the e5tent to *hich the policy advice given in such cases produced a positive outco e in ter s o% Hgood policyH and enhanced gro*th. The *illingness to ta+e outside advice varies greatly "et*een countries. 1ne e5a ple o% a long ter success is Eorea< *hich had annual progra s *ith the IMF %ro #$87 to #$97< and then again in the early #$@?3s. These HstandG"y arrange entsH involved %unds< *hich *ere o%ten not actually dra*n< "ut *hich provided a signi%icant ele ent o% support %or a trade li"eraliCation progra . This constituted an i portant ele ent in EoreaDs spectacular econo ic success in this period. The response to the ;atin ( erican de"t crisis o% the #$@?3s also involved a co it ent to li"eraliCe trade and to dis antle overGe5tended pu"lic sectors< and such ade any ;atin ( erican econo ies uch ore ro"ust. 'hile< *hich *as policies have

a longGstanding "orro*er %ro the Fund< and had progra s %ro #$@0 to #$$?< in particular< constituted a odel o% success. 4ven repeated %ailures in progra s are not *ill also %ail. Tur+eyDs success%ul clients necessarily an indicator that the ne5t progra

ad,ust ent in #$@?< %or instance< had "een preceded "y nu erous %ailures. 1n the other hand< so e countries G o%ten very poor econo ies G "eca e longGter o% the IMF< *ith little policy re%or . Asee Ta"le #B Here policy advice *as clearly ine%%ective. The a,or criticis o% the IMFDs e%%ectiveness at %irst in the #$9?3s and early character o% IMF support< *hich could not "e an progra s. In response to this criticis < sustained re%or #$@?3s concentrated on the shortGter ade>uate "asis %or longer ter the IMF developed longerGter

pac+ages Asee "elo*B.

Ta"le #: (verage Ti e &pent in IMF Progra s "y 'lass o% Borro*er In assessing the overall success o% the IMF in policy re%or < it has proved e5tre ely di%%icult to separate the in%luence o% the IMF %ro %inance< and to
-2

that o% other sources o%

a+e counterG%actual calculations o% *hat *ould have happened in the

&ee Rodri+ A#$$7B p.#92< Erueger A#$$@B p.#$$$.

--

a"sence o% IMF progra s and advice.-7 Fre>uently< the criticis has "een ade that Fund progra s are HantiGgro*thH and that they hurt especially poor people.-8 The antiGgro*th co plaint is apparently "orne out "y research that sho*s shortGter reductions in "alance o% pay ents de%icits acco panied "y lo*er output gro*th as a characteristic outco e o% IMF progra s.-9 But these progra s are o%ten the response to the dra atic %ailures o% previous policies< and it is un%air to attri"ute the pain e5perienced si ply to the re edy rather than the underlying sic+ness. 1n the poverty issue< there has "een an increased sensitivity to the need to acco pany re%or *ith sa%ety nets. .ho *anted this consultancy %unction %or the Fund/ (dviceGgiving is part o% the sel%Gi age o% the IMF< and has long "een a po*er%ul concern o% Fund sta%%. It %ollo*s %ro the logic o% the provision o% %unds conditional on policy criteria AconditionalityB. For *hose "ene%it is such advice provided/ Follo*ing good policy ay "e thought to "e in the interest o% a country concerned as a *hole. It countries *ould do "etter to hire consultants< *ho closely attuned to the concerns o% a particular country. The argu ent against such a privatiCation o% advice is a atter o% pu"lic policy on on an international level. The interests o% a country and its population as a *hole do not coincide *ith those o% its elites or its govern ent. To ta+e one e5a ple that *as co to policy de"ates in any developing countries: any countries e5change rates< *hich they de%ended "y e5change controls. The govern ent could then allocate to its pre%erred clients %oreign e5change at cheap prices< *hich ight "e used to i port cheaply %oreign %ood Ato paci%y ur"an populationsB or lu5ury goods %or the elite. Devaluations as reco ended "y the IMF in conse>uence %re>uently hurt po*er%ul unities< ore as a result o% the e5change rate alteration. &uch gro*th: one e5a ple is 6hana in the #$@?3s. political lo""ies< "ut raised the inco es o% politically underGrepresented rural co *hose products "eca e *orth easures created a potential %or longer ter aintained overGvalued ight *ell "e argued that strategies ore ight devise re%or progra s *ith antiGpoverty easures and

In general< "ecause o% the inco e redistri"ution associated *ith the politics o% devaluation< private consultants hired "y and responsi"le solely to the national govern ents concerned
For a "alanced atte pt to state the IMF vie*< see Ehan A#$$?B and Ul Ha>ue and Ehan A#$$@B. (lso 6uitian A#$$7B. -8 Bando* and Fas>ueC A#$$2B. For a criti>ue %ro a di%%erent political angle< 6eorge A#$$-B. -9 4d*ards A#$@$B and ite s cited in %ootnote -? a"ove.
-7

-0

ight *ell "e less li+ely to reco econo ic gro*th.

end a policy that in the long run is li+ely to enhance unity can a%%ord to go against the

The IMF as a tool o% the international co i

ediate and direct interest o% individual e "er govern ents in giving policy advice. ar+et providers Aconsultancies< or invest ent "an+sB *hich give use%ul advice on any

In doing this< it should ai to address a general interest< *hich is not provided "y other aspects o% govern ent policy. 7. (n e5tension o% the surveillance %unction *as that %ro the idG#$@?3s the IMF "eca e increasingly popular as a purveyor o% %inancial credi"ility< or a provider o% a good house+eeping seal o% approval. In the era o% %i5ed e5change rates and the gold standard< "e%ore the First .orld .ar< lin+age to the etallic standard had provided such a seal o% o"ility< any countries approval.-@ In the *orld o% %loating rates< and increased capital

sa* the IMF as a provider o% credi"ility. The IMF thus had a %unction that *ent *ell "eyond its o*n relatively odest resources. This interpretation is supported "y the increased popularity o% Mprecautionary progra sN< underta+en *ithout an i intention o% "orro*ingJ and especially "y the steady decline since the ediate idG#$@?3s in the

ratio "et*een actual and potential "orro*ing. 'urCio 6iannini has %or ulated the point in a stri+ing *ay: that at the sa e ti e as this ratio has reached a historic lo* Ai.e. countries are concluding progra s "ut not using the %inancial resourcesB< Mthe nu "er o% countries *ith IMF progra s has risen to allGti e pea+sN.-$ ( potential corollary o% the current situation is that a seal o% approval ight "e given %or policies or econo ies that are not as strong as ight "e desired. This pheno enon produced the suggestion that< as a %urther con%idenceGinducing easure< the >uic+ provision o% IMF resources in a crisis should "e lin+ed to the prior co pliance *ith a tough set o% regulatory re>uire ents.0? This proposal *as realiCed in (pril #$$$< in the creation o% 'ontingent 'redit ;ines< providing shortGter support in the case o% a sudden and disruptive loss o% ar+et con%idence.

Figure 7: Transactions o% the International Monetary Fund< #$77 = #$$9

Bordo and Roc+o%% A#$$8B. The restored gold standard also served as a good house+eeping seal o% approval in the inter*ar period: Bordo 4delestein and Roc+o%% A#$$$B. -$ 6iannini A#$$$B< p.7?. 0? 'alo iris A#$$@B.
-@

-2

8. The IMF developed as a lender at su"sidiCed interest rates to very poor countries< *here there e5isted no hopes o% ar+et access Asee Figure 2B. In practice< it thereby uch o% the de"ate a"out "eca e in part an aid agency. &uch %inancing has given rise to .ho *anted this %unction %or the Fund/ The IMF on a %unction that ter progra sB. It %or the Fund to "e li+e a credit cooperative< *ith short ter oved "eyond shortGter

the e%%ectiveness o% IMF policyGadvice outlined in the previous section. oved into a vacuu < and too+ ad hoc support and no long easure as a response to any "elieved it *as not *ell prepared %or Athe original intention *as progra s in large

*idespread political Aand also acade icB criticis that such arrange ents *ere illGsuited to the encourage ent o% longGter instigation o% the IMFDs policy re%or . This develop ent o%ten occurred at the echanis o% giving support at ar Ds length< e "ers< especially o% so e o% the large industrial countries

AFrance and the UEB< *ho loo+ed %or a to a "elie% that

*ithout a direct involve ent. In the United &tates< too< the e5perience *ith U&(ID led ore e%%ective policy support< and an avoidance o% duplication in aid ultilateral approach. e%%orts< could "e achieved through a

In #$97< a ne* 45tended Fund Facility *as esta"lished ai ed at a longer ti e %ra e*or+ %or the ad,ust ent process. Dra*ings Ai.e. "orro*ingsB occurred over three years< *ith repay ent over 2 to @ years. &o e o% the earliest progra s under the %acility *ere unsuccess%ul< in so e case "ecause o% the a"sence o% policy re%or AEenyaB and "ecause %avora"le e5ternal circu stances AMe5icoB. &uch progra s did not deal *ith very lo* inco e countries< in *hich de"t service at conventional interest rates *as i possi"le. In #$@8< the IMF created the &tructural (d,ust ent Facility A&(FB< *ith a concessionary rate o% interest A?.7IB *ith repay ent over 7G#? years a%ter a 7 year grace period. In #$@9 larger %unding %or such progra s ca e *ith the 4nhanced &tructural (d,ust ent Facility A4&(FB. These %acilities "rought the IMF into *hat had traditionally "een the do ain o% the .orld Ban+. Most 4&(F cases *ere in su"G&aharan (%rica< and re>uired< as part o% the pac+age< de"t relie%. In so e 4&(F cases< re%or has "een e%%ective< and so e private %unds "egan to %lo* A6hana< Bangladesh< &ri ;an+aB. But there are also produced ore radical de ands %or de"t relie%. any disappoint ents< *hich have ade the IMF and its advice appear unattractive

-7

;ongGstanding arrears in a+ing repay ents to the IMF have arisen cases o% states *ith

ostly in the

a,or political pro"le s: civil *ar< disintegration< or a transition to

uncooperative and aggressive dictatorship Apariah statesB. In (pril #$$@< the %ollo*ing had arrears overdue "y ore than si5 onths: (%ghanistan< De ocratic Repu"lic 'ongo< Ira>< ;i"eria< &o alia< &udan< Uugoslavia A*hich is currently no longer a IMFB. In other cases< arrears have "een dealt *ith "y a "ilateral and outstanding credit. Ta"le -: (rrears to the IMF 9. In the #$$?3s< the IMF "eca e a %or er socialist countries into anager or %acilitator in the transition o% the e "er o% the and i5ture o% policy re%or

ultilateral assistance. In (pril #$$@< arrears a ounted to 2I o% the IMF3s

ar+et oriented econo ies. The IMF *as not really unist econo ies A'hina< Poland< HungaryB.

prepared %or this role< "ut already in the #$@?3s< the IMF had played an i portant part in i ple enting li"eraliCation strategies in co Many re%or ers "elieved that the IMF *ould "e valua"le as an e5ternal source o% advice. In #$@7< %or instance< the o%%ice o% the Polish underground opposition &olidarity organiCation sent a essage to the IMFDs Managing Director stating that the ove ent *elco ed Polish e "ership o% the IMF< "ut that only He5tensive< allGe "racing econo ic re%or sH could hope to "e success%ul. (%ter the political changes o% #$@$G$#< econo ic re%or planned econo ies *as acco panied "y a su"stantial co reco IMF in the %or erly centrally it ent o% IMF resources. 0#

Individual aspects o% IMF advice have "een criticiCed. For too long< the IMF ended a single currency< a ru"le "loc< %or %or er &oviet Repu"lics. In #$$-< the ay have "een too cautious in Russia< and issed the opportunity to support a %arG odel success%ully adopted "y Poland in #$@$G$?.0- Most o% the

reaching re%or on the

criticis o% the IMFDs Russian progra s has %ocused< in our vie* rightly< not on overG tough "ut rather on too la5 conditionality.00 1verall< ho*ever< the IMF played a signi%icant role in the transition to ar+et econo ies.

0# 000

Ja es A#$$8B p. 789. &achs A #$$7B. MeltCer A#$$@B.

-8

In the success%ul cases< such progra s %it *ell *ith the IMFDs original ission o% encouraging converti"ility o% currencies< and shortGter ore generally a path o% li"eraliCation. ( ar+et con%idence< period. easure o% support is needed *hen there is as yet no

perhaps "ecause o% a preGe5isting de"t overhang dating "ac+ %ro the preGre%or old de"t and access to ar+ets.

The support is li ited to a relatively short duration< and is %ollo*ed "y a renegotiation o% The 'entral 4uropean e5perience in the #$$?3s gives a good odel o% ho* IMF and nothing

support should *or+. Poland used IMF resources in this *ay %ro #$$?G8< and Hungary had Fund progra s %ro #$$? to #$$@< "ut dre* little in the #$$0G@ progra con%idence. .ho *anted this %unction %or the Fund/ (t %irst< the ain de and %or this %unction co es %ro re%or ers in the countries concerned the selves< *ho *anted e5ternal support %or their policies. .ith the political changes o% #$@$G$#< such support "eca e an o",ective o% the large industrial countries. @. The ne* role o% the IMF that has attracted the ost attention G especially a%ter the e5perience o% Me5ico in #$$2G7 and (sia a%ter #$$9 G is as a crisis anager. Here its clients are countries *here there *as access to the private capital ar+ets that *as suddenly cut o%%. In cases *here con%idence *as aintained< there *ould "e su%%icient li>uidity %ro private sources. Ho*ever< "ecause their trac+ record as good "orro*ers or as e5a ples o% %inancial pro"ity *as not as good as in the advanced countries< nor had they set up a contingent line o% credit< so that in the event o% a crisis< the %unds *ould not "e availa"le %or the .02 In such cases *here con%idence disappeared< it *as argued that the Fund should "eco e a su"stitute %or the private lender o% last resort. 07 There are t*o *ays o% providing such assistance. The %irst< i the case o% a li>uidity crisis< in order to %orestall an i ediate support in inent collapse o% the %inancial ar+et< as a *ay o% %inancing i "alances and restoring e5pectations o% sta"ility: in short< as a reserve center or as a in the #$$8G@ progra . (n IMF setting *as used in these cases to achieve ar+et

ar+ets< is conventionally underta+en in a national setting "y central "an+s or conceiva"ly< internationally "y the central "an+ersD central "an+< the Ban+ %or International &ettle ents ABI&B. The second< in *hich policy changes as *ell as persuasion o% %inancial ar+ets that
02 07

(t least at tolera"le rates o% interest. &ee %or instance Eindle"erger A#$9@B.

-9

a ne* lea% has "een turned are re>uired in order to restore con%idence< a%ter a collapse has already ta+en place< has "een the do ain o% the IMF. This intervention re>uires the longerGter supply o% resources than could "e possi"le %or the BI&. a,or "an+ lenders< and In the #$@- developing country de"t crisis< the IMF sa* itsel% acting as a crisis anager< as an honest "ro+er in preventing a creditor panic "y the G in the eyes o% so e G as a su"stitute %or the a"sence o% a genuine international lender o% last resort. This %unction *as replayed in cases *here there *as %ear o% contagion< in #$$2G7 in the Me5ican crisis< and in the a%ter ath o% the #$$9 (sia crisis. In the late su e5ternal de"t led i er o% #$@-< the announce ent o% di%%iculties in servicing Me5icoDs ediately to %ears o% a syste atic collapse o% the international "an+ing any a,or "an+s. (t this point< the IMF *as >uite a+es decisions in its 45ecutive Board< su",ect to

syste < since e5posure to Me5ico and other trou"led de"tor countries a ounted to su"stantially ore than the capital o% the %ace o% a sudden crisis. The IMF ill prepared to act as crisis anager. To do so *ould re>uire >uic+ and decisive action in voting "y 45ecutive Directors *ho consult their national authorities Aand< in the case o% the elected 45ecutive Directors< usually a su"stantial nu "er o% national govern entsB. These decisions< as in the Me5ican case< depend on an o%ten lengthy negotiation o% the re%or progra *ith the "orro*ing country. 1n the other hand< central "an+s< *ith their traditions o% secrecy and clear operational guidelines< are a"le to act very speedilyJ and< in the Me5ican crisis< "oth the U.&. Federal Reserve and the central "an+ersD central "an+< the BI&< did act e5tre ely pro ptly in (ugust #$@-. But they *anted assurance that they *ould not "e le%t on their o*n< and that their shortGter o"iliCe the rest o% the %inancial co unity. ar+et. First< the IMF echanis o% U.&. assistance *ould "e used to

In the #$@- de"t crisis< the IMF *as at the center o% a triangular con%lation o% the %unctions o% an international ar"iter< a do estic regulator< and the "an+ing. ;in+age o% co had "eco e< %or practical purposes< a part o% the do estic regulatory

ercial "an+ loans *ith IMF progra s could o%%er a *ay o%

avoiding the conse>uences o% nonGaccruing or nonGper%or ing loans. The de%initions o% *hat constituted sound "an+ing *ere "eing re*ritten in accordance *ith the re>uire ents o% the *orld %inancial syste as a *hole. &econdly< the "an+s the selves "eca e part o% the IMFDs international lending e5ercise. Their %unds greatly enhanced the %acilities that the IMF could hold out as the re*ard to a country %or the success%ul co pletion o% a

-@

progra

G in e%%ect %or re,oining the international %inancial syste . (n agree ent *ith the the selves: negotiate

IMF *as supposed to have a HcatalyticH e%%ect on the private sector. Finally< the IMF *ould do the *or+ that the "an+s had hitherto neglected to per%or sound criteria %or the use o% %unds< *hich *ould a+e econo ic sta"iliCation and

ad,ust ent possi"le and *ould allo* %or "an+s to "e repaid. In order to get this service< ho*ever< the "an+s *ould have to pay the price o% putting up additional resources. By acting in this *ay< the IMF ensured that lending continued< and that the cutting o%% o% e5ternal credit did not produce a *orld depression o% the type e5perienced in the past. The #$@- crisis highlighted a %ailure o% "an+ing supervision to ta+e account o% the internationaliCation o% capital ar+ets. It *as no* thought that "an+ing supervision should "e carried out internationally in a out in the %ra e*or+ o% the Basle 'o ore syste atiCed and open *ay than the ittee on Ban+ing Regulation and &upervisory tentative< in%or al< and secret coordination and e5change o% regulatory e5perience carried Practices A*hich had "egun %unctioning in #$92B. Part o% the pressure ca e %ro do estic opinion in the United &tates and %ro the *idespread %ear that a solution to the international de"t pro"le *ould involve a "ailout o% the "an+s. The conse>uent reluctance o% the U.&. 'ongress in #$@0 to increase IMF >uotas Aas part o% the 4ighth 6eneral Revie*B< in the *a+e o% the ;atin ( erican de"t crisis< could only "e overco e through a legislative easure *hich e5tended control o% "an+ing. The International ;ending &upervision (ct A!ove "er #$@0B gave U.&. regulatory authorities the legal right and the o"ligation to Hcause "an+ing institutions to achieve and to aintain ade>uate capital "y esta"lishing ini u levels o% capital.H It also included a re>uest %or U.&. regulators to pursue a convergence o% international "an+ capital standards. &u"se>uent negotiations< %irst *ith the United Eingdo < then *ith Japan and the other 6G#? produced a set o% standards e "odied as the Basle (ccord o% #$@@. 08 Unli+e #$@-< #$$2 *as not pri arily a pro"le o% co ercial "an+ credit. The crisis o% #$$2G$7 %ollo*ed a period o% euphoric con%idence in Me5icoDs prospects and a surge o% %oreign direct invest ent "ut also o% port%olio %lo*s. This ne* Me5ican H iracleH raised very intricate pro"le s o% ho* the %inancial sector and the e5change rate should "e anaged. In particular< *hen the return o% %light capital and the resu ption o% capital in%lo*s "rought up*ard pressure on the e5change rate< and the e5change rate *as
08

e "ers<

&ee 'ohen A#$@8B< !orton A#$@$B< 6ranirer A#$$2B< 6oldstein et al A#$$-B< pp. #?G#7.

-$

used as an antiGin%lationary instru ent< a ris+ arose that the result

ight "e a reappearance

o% the old pro"le s o% an e5ternal rate su%%iciently high to serve as a deterrent to do estic activity and a disincentive to e5porters. The di%%iculties *ere e5acer"ated "y an e5pansionary onetary policy. (t %irst< the Me5ican authorities tried to conceal the e5tent o% the di inution o% their %oreign e5change reserves through the issue o% dollarG deno inated de"t. The political sta+es attached to the has o%ten characteriCed pegged rate syste s. .hen< at the end o% #$$2< the Me5ican authorities atte pted to correct the e5change rate overGvaluation *ith an illGprepared devaluation< at the sa e ti e as a large >uantity o% pu"lic sector shortGter dollarGdeno inated instru ents Athe teso"onosB needed to "e rene*ed< a ne* %inancial crisis sho*ed the e5tent o% the insta"ility o% the %inancial syste . The large current account de%icit Aover @ percent o% 6DPB that in #$$2 had "een %inanced "y private capital in%lo*s no* appeared unsustaina"le. The to other e erging econo ies< in a increase to other agnitude o% the de%icit *as a deterrent to %urther in%lo*s. Me5ico also produced a +noc+Gon "lo* anner analogous to the spread o% the #$@- de"t iddleGinco e developing countries. In early #$$7 there *as a Hte>uila aintenance o% the e5change rate produced a ta"oo on discussion o% the parity in the Me5ican ad inistration G a ta"oo that

e%%ectH as speculators sold the currencies and %inancial assets not only o% ;atin ( erican econo ies *ith large current account de%icits and si ilar pro"le s to Me5ico< "ut also in 4ast (sian e erging ar+ets. The Me5ican crisis *as "y progra et "y a K#9.@ "illion IMF standG Aa ounting to an unprecedented 8@@ percent o% Me5icoDs >uota in the IMFB<

in co "ination *ith K-? "illion %ro the U.&. &ta"iliCation Fund and K#? "illion %ro the 6G#?< a%ter intense high level diplo acy involving chie%ly the U.&. Treasury and the IMFDs Managing Director. The IMF ter ed the peso crisis Hthe %irst %inancial crisis o% the t*entyG%irst centuryH.09 The speed *ith *hich the IMF progra had to "e put together in January #$$7 illustrates the *ay in *hich glo"aliCation re>uires %aster responses: the IMF progra *as already %ully in place "y Fe"ruary #< #$$7. The #$@- crisis "eca e pu"lic in (ugust #$@-< "ut the discussions *ith the "an+s a"out the IMF progra !ove "er and Dece "er. In #$$7 greater co
09

only occurred in uch greater. It *as

uch ore rapid action *as re>uired< and also a

it ent o% %unds< "ecause the nu "er o% actors *as so

Boughton A-???B.

0?

i possi"le to use the strategy o% #$@-< and corral the %oreign investors A*ho *ere no* not "an+s< "ut instead *ere represented in innu era"le utual and pension %undsB. There *as a %ear o% a glo"al contagion< and a "elie% that the only *ay to li it such contagion lay in the e5tension o% so e protection to investors. These considerations i posed a greater i ediate "urden on the IMF and the U.&. govern ent to act to li it the crisis. Ho*ever ore >uic+ly than had the ulti ate "ene%iciaries o% the rescue *ere holders o% the teso"onos *ho *ere "ailed out. The siCe and the speed o% the pac+age ended the crisis uch "een the case in #$@-< and Me5ico very soon *as a"le to return to international capital ar+ets as a "orro*er. The IMF and U.&. Treasury loans *ere >uic+ly paid o%% in the %irst >uarter o% #$$9 "y the Me5ican govern ent< "orro*ing at higher rates< largely %ro 4uropean "an+s. (ccording to the conventional vie*< the Me5ican pac+age *as a success although the real econo y has yet to %ully recoverJ "ut it created a precedent and e5pectations. The Me5ican peso crisis provided a pattern %or crisis anage ent using "oth glo"al and regional sources o% rescue %unds. By "ailing out the holders o% teso"onos it also planted the seeds o% R oral haCard3 *hich ay have increased the li+elihood and severity o% the ne5t set o% crises. The Me5ican odel %ro #$$2G7 guided the initial response to the #$$9 Thailand crisis< *here again there *as a speedily asse "led IMF progra through its 45portGI port Ban+B< "ut also %ro the AK 2 "n.B< together *ith assistance not only %ro the near"y econo ic great po*er AJapan put up another K 2 "n. a,or players in the region: (ustralia< Hong Eong< Malaysia< &ingapore. This approach in turn *as e5tended in an initial response to the Indonesian crisis< *ith a K#? "n. contri"ution %ro the IMF< *ith additional %unding through the .orld Ban+< the (sian Develop ent Ban+< and IndonesiaDs a,or trading partners. But the rapidity "y *hich crises ,u ped "et*een (sian countries underlined the li its o% regional action and the pro"le o% the %inite resources o% the IMF. The ensuing Eorean crisis< ho*ever< in *hich "an+s needed to "e persuaded to roll over %oreign currency deno inated de"t< rese "led uch ore the Me5ican crisis o% #$@-. The out"rea+ o% a generaliCed (sian crisis produced a general H%light to >ualityH that *orsened "orro*ing conditions %or e erging ar+ets and sensitiCed investors to issues that they had previously ignored< such as poor %iscal per%or ance in countries such

0#

as BraCil and Russia. The Russian de%ault and devaluation on (ugust #9< #$$@< triggered rene*ed capital %light %ro BraCil and (rgentinaJ and in the onths that %ollo*ed there o ent AJanuary *ere %ears o% a *idespread crisis. The negotiation and announce ent in !ove "er #$$9 o% an IMF pac+age %or BraCil postponed the BraCilian devaluation to a #0 #$$$B *hen it did less da age to the international %inancial syste . In the de"t crisis o% the #$@?3s< the involve ent o% the private sector had "een a crucial part o% the IMFGled *or+out A%irst through the o"ligation to put up ne* o% the #$$?3s< it *as less easy to The oneyJ then through the de"t reduction proposals syste atiCed in the Brady PlanB. In the crises anage the private sector contri"ution to the *or+out. oney %eature o% the #$@ultiplicity o% creditors precluded a repetition o% the ne*

pac+ages. &hareholders too+ su"stantial losses in the #$$?3s. Fi5ed interest de"t re ained a a,or pro"le < and one proposed solution involves a re*riting o% "ond contracts to include a possi"ility o% de%erred repay ent under negotiated circu stances.0@ 1ne response to criticis s that IMF rescue pac+ages constitute "ailouts< in *hich private investors are not appropriately penaliCed %or having ta+en high ris+s< is that so e IMF progra s Anota"ly in U+raineB have "een ade dependent on a renegotiation or restructuring o% the conditions o% "onds. &uch an innovation< *hich clearly i poses costs on the private sector< has "een highly controversial.0$ .ho *anted the crisis anage ent %unction %or the Fund/ The %inancial co unity *anted and then ca e to e5pect a "ailout. The response to the crisis in #$@-< "ut especially in #$$2G7 in Me5ico< created a precedent< and encouraged investors to "elieve that an international rescue pac+age *ould protect the against loss. Russia *as "elieved "y investors to "e in a specially protected category< "ecause o% the security i plications o% any Russian collapse Athis *as the doctrine o% Htoo nuclear to %ailHB. To this e5tent< past responses to crisis< and the e5istence o% the IMF< has created haCard. It is *orth noting that since oral ost o% the in%lo*s to (sian and ;atin ( erican

econo ies *ere private sector credits< they *ere not protected "y IMF rescues< e5cept to the e5tent that national govern ents used IMF resources to rescue do estic %inancial institutions *ith de"ts to %oreign creditors.2?

0@ 0$ 2?

&ee De 6regorio A#$$$B. &ee &ie"ert A#$$$B. &ee 'hinn< Dooley and &hresta A#$$$B.

0-

6overn ents in industrial countries did not *ant a generaliCed %inancial crisisJ "ut in addition *ere especially sensitive to the pro"le s caused "y %inancial collapses in their region. It is possi"le to thin+ o% the crisis anage ent %unction as capa"le o% "eing privatiCed. For uch o% the nineteenth century< the international "an+ing %a ily o% the a+ing Rothschilds played a role in crisis anage ent >uite analogous to the IMF< lending %unds to countries as *ell as co panies that *ere in te porary di%%iculties< and ,udg ents a"out the appropriateness o% %iscal re%or the &*edish Match Trust too+ on such a %unction %or initiatives.2# In the inter*ar period< any o% the e erging ar+ets o% the ore prosperous

ti e in central and southern 4urope< *hile J.P. Morgan dealt *ith

developed countries< such as Belgiu < France and the United Eingdo . But in order to "e a"le to ta+e on such a role< a private %ir *ould need to "e so large as to have a clearly recogniCa"le longGter sta+e in the %inancial sta"ility o% the syste as a *hole A*hat Mancur 1lson re%erred to as a HsuperGenco passing interestHB. 2- In the event< there *ere pro"le s *ith the e5ercise o% such po*er: the &*edish Match Trust *as %raudulently run< and its %ounder< the speculator Ivar Ereuger< +illed hi sel% in #$0- as the e5tent o% his de%alcation e erged. In the do estic setting< also< a po*er%ul individual or "an+ could %ul%ill the lender o% last resort %unction Ain the United &tates< J.P. Morgan played this part in the #@$?s and #$??sB. &uch solutions ran into *idespread criticis "ecause they see ed to o%%er the possi"ility o% an a"use o% po*er "y a private individual. The result o% such criticis *as a de and %or a pu"lic institution: in the U.&. do estic conte5t< the Federal Reserve &yste . In the #$$?3s< so e countries Anota"ly (rgentinaB have e5peri ented *ith preG arranged AstandG"yB credit lines %ro co alternative to IMF support. .hile these ercial "an+s< *hich represent a private sector ight "e a use%ul support in the case o% a

localiCed crisis< in the case o% a general or glo"al %inancial panic the o%%er o% such credits %aces the sa e pro"le o% a li ited supply o% resources as does the IMF. ( crisis coordinator< even *ith li ited %inancial resources in co parison *ith the overall volu e o% glo"al %inancial ar+ets< *ill "e >uic+ly to
2# 2-

ore use%ul i% it is a"le in an e ergency

o"iliCe o%%icial resources. It is

ore li+ely that an accounta"le pu"lic sector

organiCation< such as the IMF< can ta+e this role< although the history o% do estic central
&ee Ferguson A#$$@B and Bordo and &ch*artC A#$$$B. Mc6uire and 1lson A#$$8B.

00

"an+ing suggests that i% it does it should lend on the "asis o% sound collateral at a penalty rate. For private institutions to assu e this %unction on a large scale *ould raise the >uestion o% the a"use o% private po*er as it did at the "eginning o% this century. But s aller institutions are unli+ely to per%or panic situation. The this %unction< "ecause o% the ris+ o% loss in a ar+et providers G that they *ill "e ain attraction o% private

penaliCed "y "an+ruptcy in the case o% %ailure G is an attraction only in nor al circu stancesJ in a crisis or panic situation that strength is a *ea+ness. Ho* %ar does the e5istence o% the IMF distort the operation o% providing crisis lending at less than the penalty rates that a ar+et ar+ets "y ight charge/ To ounted "y a

ans*er this >uestion ade>uately< it *ould "e necessary to i agine a counterG%actual *orld *ithout an IMF< in other *ords *ithout the security that a rescue *ould "e lender *hose de"t en,oys a %ar higher easure o% legal protection than that o% other

AprivateB creditors. The preG#$#2 *orld provided so e o% the ele ents o% such a counter%actual. In that era sovereign de"t< even gold deno inated< in any e erging countries %or e5a ple (rgentina< 'hile< and BraCil< paid higher ris+ pre ia in ;ondon in nonGcrises periods than did the recent (sian crisis victi s "e%ore #$$9.20 The precedent o% the earlier Me5ican "ailout< "ut To su ore i portantly< the very e5istence o% the IMF< provided a security "lan+et that did not e5ist "e%ore ..I. ariCe this long section< the reincarnation o% the IMF in the three decades a%ter the end o% the par value syste re%lected a supply response "y a *illing and co petent "ureaucracy to the de ands o% "oth large and s all constituents. *. International "olitics and the IMF It re ains to e5a ine a %inal< and controversial< area< in *hich the IMF has undou"tedly played a role *hich has "een use%ul %or the general national interest o% the United &tates< "ut *hich ay on occasion lead to con%lict *ith the i plications o% the e5istence o% an institution such as the IMF/ The IMF *as originally largely a creation o% the United &tates< otivated "y the "elie% that G as Treasury &ecretary Morgenthau put it *hen addressing the inaugural
20

ore narro*ly

conceived econo ic rationale %or the IMF. .hat are the general political and security

&ee Bordo and Roc+o%% A#$$8B.

02

session o% the Bretton .oods con%erence G HProsperity< li+e peace is indivisi"le. .e cannot a%%ord to have it scattered here or there a ong the %ortunate or to en,oy it at the e5pense o% others.H22 The institution *as a *ay o% pro,ecting a particular *ay o% thin+ing a"out the *orld. Behind this thin+ing lay the calculation that a a li ited %inancial price. &ince the collapse o% co unis < the "asic vision o% Bretton .oods has "eco e a uch atter o% a glo"al consensus. In the #$$?3s< a *idespread recognition developed that econo ic sta"ility and political sta"ility go together. 27 But this lin+age is interpreted ore precisely than at the ti e o% Bretton .oods: this eans a and at the sa e ti e interest o% the United &tates to pro ote this develop ent. The collapse o% the co trans%or ation into unist econo ies< or Ain the case o% 'hinaB their ar+et econo ies *as the last stage in the creation o% the ne* ove to*ard the ar+et ore prosperous *orld *ould also "e a sa%er *orld< and that the transition to such sta"ility *as *ell *orth paying

oves to*ard de ocracy and accounta"le institutions. It is in the

consensus. The conse>uence has "een an increasing ho ogeneity o% political outloo+< as *ell as o% the econo ic order. Indeed< one +ey insight is that the t*o are lin+ed: that econo ic e%%iciency depends on a %unctioning civil society< on the rule o% la*< and on respect %or private property. Thus in the #$$?3s< the IMF Aand the .orld Ban+B have "eco e intensely concerned *ith pro"le s o% governance.28 &uch issues raise >uestions o% political costs and li itations that ay not al*ays coincide *ith econo ic rationality< ho*ever. There is a strategic or geoGpolitical ele ent to so e o% the *or+ o% the Fund. (ttac+ing e5cessive ilitary e5penditure< corruption< and unde ocratic practices is easier %or international institutions in the cases o% s all countries< such as 'roatia< Eenya or Ro ania< or even in isolated states such as Pa+istan or !igeria. But it is li+ely to "e hard and controversial in large states *ith su"stantial ilitary and econo ic potential< %or instance< in say Russia or 'hina. The pu"lic position is that e5pressed "y the IMF3s Managing Director *hen he recalls telling President Ueltsin that the IMF *ould treat Russia in e5actly the sa e *ay it treated Bur+ina Faso. 29 But
United !ations Monetary and Financial 'on%erence< Bretton .oods< !e* Ha pshire< July # to July --< #$22: Final (ct and Related Docu ents A.ashington D.'. U.&. 6overn ent Printing House< #$22B. 27 &ee %or instance< the 'hair an3s state ent at the end o% the 6G9 Hali%a5 su it< June #9< #$$7: MDe ocracy< hu an rights and good governance are indispensa"le co ponents o% develop ent.N 28 For instance< 'a dessus A#$$@B. &ee also Pauly A#$$@B. 29 &ee 'a dessus A#$$$B.
22

07

Russia< and its strategic sta"ility< are clearly o% direct concern to the United &tates< and to other co a,or countries< in a *ay that Bur+ina Faso is not. During the 'old .ar era< there *as political pressure %ro the international unity Ai.e. the .estB to support %inancially particular states %or %oreign policy reasons< "ecause they *ere essential to the sta"ility o% a particular region A4gypt< or VaireB. In these cases< IMF progra s *ere concluded on the "asis o% *ea+ conditionality and the a"sence o% e%%ective re%or . Fro the point o% vie* o% the interests o% the United &tates< increased sta"ility ay have "een *orth the price o% a *asted progra . &uch operations had little e%%ect on %inancial ar+ets< "ecause the countries that received such support generally had little ar+et access. In the postG'old .ar era< ho*ever< strategic a,or oral haCard pro"le < and security considerations have led to support operations< %or states that do have access to capital ar+ets< nota"ly to Russia. Here the result *as a *hich in the su er o% #$$@ produced a threat to glo"al %inancial sta"ility. Foreign

invest ent in Russia %re>uently *as ,usti%ied "y the Aas it proved in (ugust #$$@B eventually erroneous "elie% that the IMF *ould never let Russia collapse. Russia had "eco e in the #$$?3s "y %ar the largest user o% IMF resources< and o"tained access to IMF loans "y concealing the reserve position o% its central "an+ %ro the IMF. The IMF3s o*n ,usti%ication o% its Russian policy is also %re>uently presented in the light o% the *ishes o% the Minternational co unityN.2@ The i5ing o% strategic policy and econo ics has had un%ortunate e%%ects< not only in encouraging inappropriate private sector in%lo*s to Russia. The rationale %or the Russian policy has also created a precedent and an incentive %or other states< nota"ly in the Indian su"Gcontinent< to develop nuclear capacity as a *ay o% o"taining attention Aincluding %inancial supportB %ro the international co unity. ( su"stantial part o% the oral haCard pro"le < *hich has "een particularly acute the purely %inancial role o%

in the Russian case< should "e recogniCed as deriving< not %ro

the IMF< "ut %ro the *ay in *hich security perceptions have led to an e5tension o% that role. This trou"leso e develop ent< ho*ever< has %ollo*ed directly %ro the original ission and vision o% the Bretton .oods con%erence< in *hich *orldG*ide econo ic *ellG "eing *as ,usti%ied pri arily as a *ay o% preserving *orld peace and sta"ility.
4.g. 1dlingG& ee A#$$$B< p.-90: MThe *orld co unity< through the e "ers o% this institution< has clearly e5pressed the vie* that Russia continues to deserve support as long as it is ta+ing appropriate steps to tac+le the di%%icult pro"le s it %aces.N
2@

08

+. ,onclusion$ -ome Issues in the ,ase for !eform (%ter 77 years *ith the IMF *here are *e/ The IMF *as set up %or an e5plicit purposeGGto anage the ad,usta"le peg e5change rate syste . It lost its original ission in #$90 *ith the collapse o% the Bretton .oods syste and has reincarnated itsel% as the protector o% the %inancial sta"ility o% and %inancier %or the e5pansion o% the e erging *orld and as the %ont o% in%or ation %or the glo"al econo y. Ho* success%ul has the Fund "een in its ne* role/ There appear to "e so e clear successes including the provision o% in%or ation and surveillance< and the esta"lish ent o% credi"ility. There appear to "e so e i5ed successes including the handling o% the de"t crisis in #$@-< the trans%or ation o% the socialist *orld Ahighly success%ul in 'entral 4urope< "ut uch ore pro"le atical %urther eastB and the ad,ust ent %inancing progra s %or e erging countries A*here again the e5perience o% countries varies very *idelyB. (nd there appear to "e so e >uestiona"le activities including capital ar+et crisis anage ent< the incursion into longerGter lending to very poor countries and the incursion into the econo ic a%%airs o% A#B A-B e "er countries. icroecono ic and nonG

This leads to the perennial case %or re%or . .hat are so e o% the issues/ &hould the IMF "e a develop ent agency/ .hy not turn the *hole %unction over to the .orld Ban+ or erge the t*o institutions/2$ &hould the IMF "e a crisis anager/ .hy can3t central "an+s deal *ith their o*n national li>uidity crises or *hat a"out a strengthened BI&/ 1r perhaps IMF crisis anage ent should "e run on the lines o% a Bagehotian central "an+ lending to solvent "ut illi>uid "orro*ers at penalty rates on the "asis o% sound collateral/ Ho* can such a role "e reconciled *ith the prior esta"lish ent o% credi"ility that ission o% a ight %orestall %inancial crises/ The

>uestion also arises< *here *ould it get the unli ited %unding re>uired to act as a central "an+ %or the *orld/ (lso ho* could the IMF3s governing "ody act li+e that o% a central "an+. Perhaps< as De 6regorio et al. A#$$$B propose< the 45ecutive Board should "e run si ilar to that o% an independent
2$

(s has "een suggested "y the UE 'hancellor o% the 45che>uer.

09

central "an+< li+e the F1M' at the Federal Reserve< to insulate it %ro political pressure. (lternatively< as so e have argued< perhaps the IMF3s role as honest "ro+er in resolving de"t crises should "e e5tended and the IMF should ta+e on the role o% an international "an+ruptcy court/ A0B Ho* uch o% the IMF3s in%or ation services and surveillance activities< *hich account %or 2-I o% its #$$@ "udget really could "e provided "y the private sector or "y national authorities/ .ould they do a "etter ,o"< or *ould they "e unduly in%luenced "y national co petitive considerations/ A2B .e ne5t raised the issue o% the IMF and international politics and the lin+ "et*een the IMF and the international policy ai s o% the United &tates and other "locs. Ho* did this deter ine the has undergone/ .ould the IMF "e institution< in its core A7B a,or trans%or ations that the IMF a,or ore e%%ective as an econo ic

andate< i% it *ere not charged "y its

shareholders *ith the tas+ o% preserving geoGpolitical order/ Finally *hat a"out the recent incursions "y the IMF into the nonGtraditional icroecono ic issues o% icrostructures and %inancial sector re%or and the political issues o%: corruption< property rights< and govern ents in general/ In the *a+e o% the (sian crisis< it "eca e clear that it *as dangerous to open the short ter capital account in countries *ith *ea+ %inancial syste s. The andate and does it re%lect IMF started to give advice on "an+ing re%or and on corporate governance. .as such an incursion *arranted "y the Fund3s the IMF3s co parative advantage/ .e raise these >uestions as possi"le topics %or serious discussion concerning the %uture role o% the IMF and other International Financial Institutions.

0@

Re%erences (rtis< Michael T.A#$$8B< Ho* (ccurate are the IMF3s &hortGTer Forecasts/ (nother

45a ination o% the .orld 4cono ic 1utloo+< IMF .or+ing Paper .PO$8O@$. Bordo< Michael D. A#$$0B< MThe Bretton .oods International Monetary &yste : ( Historical 1vervie*N in Michael D. Bordo and Barry 4ichengreen AedsB. ( Retrospective on the Bretton .oods &yste : ;essons %or International Monetary Re%or . 'hicago: University o% 'hicago Press Bordo< Michael D. and Hugh Roc+o%% A#$$8B< MThe 6old &tandard as a R6ood House+eeping &eal o% (pproval3N< Journal o% 4cono ic History 78O-< pp. 0@$G2-@. Bordo< Michael D.< Michael 4delstein and Hugh Roc+o%% A#$$$B< M.as (dherence to the 6old &tandard a R6ood House+eeping &eal o% (pproval3 During the Inter*ar Period/N< !B4R .or+ing Paper 9#@8 AJuneB. Bordo< Michael D.< Barry 4ichengreen< and Douglas Ir*in A#$$$B MIs 6lo"aliCation Today Really Di%%erent that 6lo"aliCation a Hundred Uears (go/N !B4R .or+ing Paper !o. 9#$7. June Bordo< Michael D.< and (nna &ch*artC A#$$$B< MUnder .hat 'ircu stances< Past and Present< Have International Rescues o% 'ountries in Distress Been &uccess%ul/N Journal o% International Money and Finance Fol. #@< !o. 2 A(ugustB pp. 8@0G9?@ Boughton< Ja es M. A-???B< RFro 4cono ic Journal. Pp.#G#$. Bulo*< Jere y and Eenneth Rogo%% A#$$?B. M'leaning Up Third .orld De"t .ithout Being Ta+en to the 'leaners.N Journal o% 4cono ic Perspectives 2 A.interB pp. 0#G2&ueC to Te>uila: The IMF as 'risis Manager3<

0$

'alo iris< 'harles .. A#$$@B< MBlueprints %or a !e* 6lo"al Financial (rchitectureN< Federal Reserve Ban+ o% 'hicago 'on%erence on (sia< 1cto"er @G#?< #$$@. 'a dessus< Michel A#$$@B< MThe IMF and 6ood 6overnanceN< (ddress at Transparency International< Paris< January -#< #$$@. 'a dessus< Michel A#$$$B< M!ous ne pouvons suivre cha>ue dollar >ue nous dW"oursonsN
Aintervie*B< ;e Te ps< (ugust 0#< #$$$.

'apie< Forrest A#$$@B M'an There "e an International ;ender o% ;ast Resort/N International Finance. Fol. #< !o. -. Dece "er. pp. 0##G0-8 'hari< F.F. and Patric+ Eehoe A#$$@B M(s+ing the Right :uestions a"out the IMF.N Federal Reserve Ban+ o% Minneapolis #$$@ (nnual Report 'hinn< MenCie D.< Michael P Dooley< &ona &hrestha A#$$$B M;atin ( erica and 4ast (sia in the 'onte5t o% an Insurance Model o% 'urrency 'rises.N Journal o% International Money and Finance Fol. #@< !o. 2. (ugust. pp. 87$G8@'ohen< Ben,a in J.< In .hose Interest/ International Ban+ing and ( erican Foreign Policy A!e* Haven: Uale University PressB< #$@8. 'on*ay< Patric+ A#$$2B MIMF ;ending Progra s: Participation and I pact.N Journal o% Develop ent 4cono ics Fol. 27: pp. 087G0$# De 6regorio< JosW< Barry 4ichengreen< Ta+ahashi Ito< 'hares .yplosC< A#$$$B< 6eneva Report on the .orld 4cono y I: (n Independent and (ccounta"le IMF< 6eneva: 'entre %or International Monetary and Ban+ing &tudies. 4d*ards< &e"astian< MThe International Monetary Fund and the Developing 'ountries: ( 'ritical 4valuationN< 'arnegie Rochester 'on%erence &eries on Pu"lic Policy 0#< #$@$< pp. 9G8@.

2?

4ichengreen< Barry A#$$$B< To*ard a !e* International Financial (rchitecture: ( Practical PostG(sia (genda. .ashington< D.'.: Institute %or International 4cono ics Feldstein< Martin A#$$2B M( erican 4cono ic Policy in the #$@?s: ( Personal Fie*N< in Aed.B Martin Feldstein< ( erican 4cono ic Policy in the #$@?s< 'hicago: University o% 'hicago Press< pp. #G9$. Feldstein< Martin A#$$@B MRe%ocusing the IMF.N Foreign (%%airs 99 AMarchO(prilB pp. -?G -0 Ferguson< !iall A#$$@B< The .orld3s Ban+er: The History o% the House o% Rothschild< ;ondon: .eiden%eld and !icolson Fran+el< Je%%rey A#$$2B< MThe Ma+ing o% 45change Rate Policy in the #$@?sN< in Aed.B Martin Feldstein< ( erican 4cono ic Policy in the #$@?s< 'hicago: University o% 'hicago Press< pp. -$0G02@. Fried an< Milton A#$$@B MMar+ets to the Rescue.N The .all &treet Journal 1cto"er #0. Funa"ashi< Uoichi A#$@$B< Managing the Dollar: Fro the PlaCa to the ;ouvre<

.ashington D.'.: Institute %or International 4cono ics. 6eorge< &usan A#$$-B< The De"t Boo erang: Ho* Third .orld De"t Har s Us (ll Boulder: .estvie* Press. 6iannini< 'urCio A#$$$B< M4ne y o% !one "ut a 'o Finance !o. -#2< June #$$$ 6oldstein< Morris< et al. International 'apital Mar+ets: Develop ents< Prospects and Policy Issues A.ashington< D.'.: International Monetary Fund< #$$-B. on Friend o% (llN/ (n International

Perspective on the ;enderGo%G;astGResort Function< Princeton 4ssays in International

2#

6ranirer< Daniel< R( Modern 6reat Po*er 'oncert: !e* Uor+< To+yo< and the Political 4cono y o% International Financial Regulatory 'ooperation3< Princeton PhD #$$2. 6uitian< Manuel A#$$-B< The Uni>ue !ature o% the Responsi"ilities o% the International Monetary Fund. IMF Pa phlet &eries !o. 28 6uitian< Manuel< M'onditionality: Past< Present< and FutureN< IMF &ta%% Papers 2-:2< #$$7< pp. 9$-G@07. 6uth< .il%red A#$@@B in 6uth AedB 4cono ic Policy 'oordination< .ashington D.'. IMF #$@@. P. -## Ja es< Harold< International Monetary 'ooperation &ince Bretton .oods A!e* Uor+: 15%ord University Press< #$$8B. Ea ins+y< 6raciela< &aul ;iCondo and 'ar en Reinhart A#$$@B< M;eading Indicators o% 'urrency 'risesN IMF &ta%% Papers 27O#< pp. #G2@. Eenen< Peter B. A#$@8B< Financing< (d,ust ent and the International Monetary Fund. .ashington< D.'.: Broo+ings Institution Ehan< Mohsin &.< MThe Macroecono ic 4%%ects o% FundG&upported (d,ust ent Progra sN< IMF &ta%% Papers -9:-< #$$?< pp. #$7G-0# Eindle"erger< 'harles A#$9@B Manias< Panics and 'rashes. !e* Uor+: Basic Boo+s Erueger< (nne 1. A#$$@B M.hether the .orld Ban+ and the IMF/N Journal o% 4cono ic ;iterature SSSFI. Masson< Paul and Michael Mussa A#$$?B< The Role o% the IMF: Financing and its Interactions *ith (d,ust ent and &urveillance. IMF Pa phlet &eries !o. 7?

2-

Mc6uire< Martin '. and Mancur 1lson< MThe 4cono ics o% (utocracy and Ma,ority Rule: The Invisi"le Hand and the Use o% Force.N Journal o% 4cono ic ;iterature 02O#: pp. 9-G $8. MeltCer< (llan A#$$@B M.hat3s .rong *ith the IMF/ .hat .ould "e Better/N Federal Reserve Ban+ o% 'hicago. 1cto"er. !orton< Joseph Jude< R'apital (de>uacy &tandards: ( ;egiti ate Regulatory 'oncern %or Prudential &upervision o% Ban+ing (ctivities/3 1hio &tate ;a* Journal< 2$< #$@$. 1"st%eld< Maurice and (lan Taylor A#$$@B MThe 6reat Depression as a .atershed: International 'apital Mo"ility over the ;ongGRun.N In Michael D. Bordo< 'laudia 6oldin and 4ugene !. .hite AedsB The De%ining Mo ent: The 6reat Depression and the ( erican 4cono y in the T*entieth 'entury. 'hicago: University o% 'hicago Press< pp. 070G2?1dlingG& ee< John A#$$$B< MRussia3s current econo ic policies are deserving o% IMF supportN IMF &urvey -@O#9 A(ugust 0?B< pp.-90G2. Pauly< ;ouis A#$$9B< .ho 4lected the Ban+ers/ Ithaca !U: 'ornell University Press< #$$9. Pauly< ;ouis A#$$@B< MInternational Financial Institutions and !ational 4cono ic 6overnanceN< paper presented at Princeton University con%erence< (pril #8O#9< #$$@. Rodri+< Dani< M.hy is there Multilateral ;ending/N in Aeds.B Michael Bruno and Boris Ples+ovic< (nnual .orld Ban+ 'on%erence on Develop ent 4cono ics< .ashington< D.'.: .orld Ban+< #$$7 &achs< Je%%rey D< A#$$7B< M.hy Russia has %ailed to sta"iliCeN< in Aed.B (nders (slund< Russian 4cono ic Re%or at Ris+< ;ondon: Pinter< pp. 70G80.

20

&achs< Je%%rey D. and &tephen Radelet A#$$@B< MThe 4ast (sian Financial 'risis: Diagnosis< Re edies< ProspectsN< Broo+ings Papers on 4cono ic (ctivity< #< pp.#G92. &achs< Je%%rey A#$$@B MDo .e !eed an International ;ender o% ;ast Resort/N Harvard University Mi eo &ch*artC< (nna J. A#$$@B MTi e to Ter inate the 4&F and the IMF.N 'ato Journal A#$$@B &hultC< 6eorge< .illia &i on and .alter .riston A#$$@B M.ho needs the IMF/N The .all &treet Journal< Fe"ruary 0. &ie"ert< Horst A#$$$B< MI proving the .orld3s Financial (rchitecture: The Role o% the IMFN< Eiel: Institut %Xr .elt*irtscha%t Discussion Paper 07# Ul Ha>ue< !adee and Mohsin Ehan A#$$@B MDo IMF &upported Progra s .or+/ ( &urvey o% 'rossG'ountry 4 pirical 4vidence.N IMF .or+ing Paper .PO$@O#8$ Fau"el< Roland A#$$2B MThe Political 4cono y o% the IMF: ( Pu"lic 'hoice (nalysis.N In Doug Bando* and Jai e Fas>ueC AedsB. Perpetuating Poverty: the .orld Ban+< the IMF and the Developing .orld. .ashington< D.'. The 'ato Institute.

22

Table 1. Average time spent (in years) in IMF programs by Class of Borrower A: Stan by Arrangements !e"a e 1()1*+, 1(+1*., 1(.1*1, 1(11*(, 1((1*(( Ma#or In $strial %"onomies ,.) (,.-+) 1.) (,.++) ,.) (,.-+) , , &t'er In $strial %"onomies ,.. (,.(-) ,.(,.-,) ,.1 (,.10) ,.(,.)/) ,.1 (,.11) !eveloping %"onomies ,./ (,.(0) 1.1 (0.),) 1.(1.-,) 0.1 (1.1/) ,.. (1.-1) Transition %"onomies , ,.1 (,.)/) ,.0 (,../) ,.) (1.0)) 1.+ (1.-))

B: %2ten e Arrangements (3$ly .)*!e" (1) !e"a e 1(.1*1, 1(11*(, 1((1*(( Ma#or In $strial %"onomies , , , &t'er In $strial %"onomies , , , !eveloping %"onomies ,.(,..1) ,.+ (1.0/) ,.) (1.-/) Transition %"onomies , , 1.1 (1.)()

C: Str$"t$ral A #$stment (A$g1+*!e"(1) !e"a e 1(11*(, 1((1*(( Ma#or In $strial %"onomies , , &t'er In $strial %"onomies , , !eveloping %"onomies 1 (1.)/) ,.0 (,.+() Transition %"onomies , ,

27

!: %n'an"e Str$"t$ral A #$stment (3$ly 11*!e"(1) !e"a e 1(11*(, 1((1*(( Ma#or In $strial %"onomies , , &t'er In $strial %"onomies , , !eveloping %"onomies ,.(,.1.) 0.1 (0.1,) Transition %"onomies , 1.0 (0.1()

All IMF programs !e"a e 1()1*+, 1(+1*., 1(.1*1, 1(11*(, 1((1*(( Ma#or In $strial %"onomies ,.) (,.-+) 1.) (,.++) ,.) (,.-+) , , &t'er In $strial %"onomies ,.. (,.(-) ,.(,.-,) ,.1 (,.10) ,.(,.)/) ,.1 (,.11) !eveloping %"onomies ,./ (,.(0) 1.1 (0.),) 1.+ (1.++) -.. (0...) -.(0.(/) Transition %"onomies , ,.1 (,.)/) ,.0 (,../) ,.) (1.0)) -.1 (0.)()

So$r"e: International Monetary F$n 4 Ann$al 5eports 6ote: 6$mbers in parent'eses in i"ate stan ar eviations

28

Table 0. Arrears to t'e IMF of Co$ntries wit' &bligations &ver $e by More t'an Si2 Mont's (End of Financial Year: April 30 ) 7ear 1(1+ 1(1. 1(11 1(1( 1((, 1((1 1((0 1((1((/ 1(() 1((+ 1((. 1((1 6$mber of members 1 1 ( 11 11 ( 1, 10 ( 1 + . . Amo$nt (in millions of S!58s) /1(., 1411+.14(/).0 041,1.) -40)1.1 -4-.... -4/(+., -4,,+./ 04(11.04(10.+ 041./.( 04010.0 040+10.0

So$r"e: International Monetary F$n 4 Ann$al 5eport 1((1

29

#?

#-

#2

#$2@ #$7? #? ##2 #$2@ #$7? #$7#$72 #$78 #$7@ #$8? #$8#$82 #$88 #$8@ #$9? #$9#$92 #$98 #$9@ #$@? #$@#$@2 #$@@ #$$? #$$#$$2 #$$8 #$$@ #$@8 #$@@ #$$? #$$#$$2 #$$8 #$$@ 2 8 @ #$7#$72 #$78 #$7@ #$8? #$8#$82 #$88 #$8@ #$9? #$9#$92 #$98 #$9@ #$@? #$@#$@2 #$@8

&ource: Ja es A#$$8B< updated "y the IMF.

Figure #. IMF :uotas as a &hare o% .orld I ports AIn percentB

2@

Figure -. IMF 'harges and 'o AIn percentB

ercial Interest Rates

14 U.S. 3months T-bill rate SDR rate 12 A e !"# basi$ rate

10

0 1970 1975 1980 1985 1990 1995 2000

&ource: Ja es A#$$8B< updated "y the IMF.

2$

Figure 0. Total Fund 'redit 1utstanding to Me "ers AIn billions of SDRs; end of periodB

&ource: Ja es A#$$8B< updated "y the IMF. # Including Trust Fund< &(F and 4&(FJ %inancial years ended (pril 0?< #$92G#$$@.

7?

Figure 2. ;o* interest IMF lending AIn millions of SDRsB

5000 SA# 4500 %SA#

4000

3500

3000

2500

2000

1500

1000

500

0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

&ource: International Monetary Fund< (nnual Report #$$@.

7#

Figure 7. (ctual and Potential Borro*ing %ro the IMF< #$77G#$$9. AIn percentB

&ource: 6iannini A#$$$B

7-