IMF Programmes in Developing Countries

Design and Impact

Tony Killick

• Publisher: Routledge
• Year: 2003
• eBook ISBN: 9781134791941
• Edition: 1
• Topic: Scienze fisiche
• Subtopic: Geografia

The International Monetary Fund is the centre of a global financial system that encourages budgetary discipline and full integration into world trade to facilitate development and alleviate poverty.Yet this policy 'conditionality' of the IMF is highly controversial. Critics state that fifty years of IMF existence has been 'fifty years too long', and that its doctrinaire policy must change or Fund programmes will have only limited ability to achieve their objectives.This book examines the arguments, tracing the extent of Fund adaptation, presenting major new evidence on the consequences of Fund programmes, and considering its future role.

1
STARTING POINTS

THE FIRST BITE AT THE CHERRY

This book and its companion revisit a topic first examined (with Graham Bird, Jennifer Sharpley and Mary Sutton) in the early 1980s (see Preface). The back-drop to that study was one of acute global economic turmoil and fierce controversies about the policies of the IMF and their consequences. The second oil shock of 1979– 80 (whose consequences for oil-importing developing countries were far more severe than the first, 1973, price explosion) and an associated recession among industrial countries had contributed to acute balance-of-payments difficulties in many developing countries. The world was marked by huge but rapidly changing payments disequilibria; large but unstable private banking flows; and uncertainties about the role of the IMF in an era of large imbalances and volatile exchange rates. The international financial system thrust much of the burden of adjustment to these forces upon deficit developing countries with no parallel leverage to exert upon those earning the counterpart surpluses, thus threatening the well-being of peoples already living below or close to the poverty line.

The IMF’s attempts to help deficit countries were, at the same time, bitterly criticised as rigidly doctrinaire, forcing domestic adjustment in response to internationally generated difficulties, holding back development and imposing self-defeatingly harsh policy conditions. Macroeconomic management had been neglected in the literature on development, and it was still often seen as standing in opposition to long-term development.

The results of our study, published in 1984 as The Quest for Economic Stabilisation: The IMF and the Third World (hereafter TheQuest), questioned whether the fierceness of these controversies was justified by the facts. While agreeing with the IMF on the importance of macro management as an input into the development effort, it found that Fund programmes had limited impact in developing countries. They were subject to frequent breakdown, appeared to bring only moderate improvements to the balance of payments and were not systematically linked with trade liberalisation or with any strong deflationary effects. The IMF was shown as having difficulty in securing compliance with its policy conditions and as wielding only slight revealed influence on key policy variables. There was no more than a moderate connection between implementation and the achievement of programme objectives. Overall, to mix our Shakespeare, the sound and fury of the controversies about Fund programmes seemed much ado about nothing.

Since developing countries remained in urgent need of more effective balance-of-payments policies, the question arose whether there was not a better, lower-cost way of going about this task. The case for change was strong. The Fund’s traditional emphasis on the control of aggregate demand was likely to be a high-cost solution to payments deficits originating in the gyrations of the world economy and/or from weaknesses in the productive structures of deficit countries. Conventional, short-term programmes were not well designed to cope with such ‘structural’ problems.

The changing geography of the Fund’s lending added strength to the case for change, for an increasingly large share of all Fund programmes were in low-income developing countries, for whose circumstances the Fund’s traditional short-term approach was least well suited. The case for change was further argued by recalling the Fund to its own Articles of Agreement, which specify the maintenance of high levels of employment, income and economic development as ‘the primary objectives of economic policy’ which it can assist through balance-of-payments support.

But while the case for change was strong, The Quest found only limited flexibility in the Fund. The IMF had sought to adapt to the problems caused by the oil shocks and world recession by the creation of new facilities, some movement towards longer-term lending and some easing in its conditionality, but it had done little to change the nature of its programmes. In any case, these experiments had been put sharply into reverse at the beginning of the 1980s, ‘so that by 1982 its conditionality seemed rather similar to that of the 1960s’ (The Quest: 222). There had been some attempt to adapt but we described this as a ‘constrained flexibility’ and drew attention to the strength of internal and external resistances to change.

We saw the costs of adjustment as the essential problem and urged the Fund towards a cost-minimising ‘real economy’ approach. This would place greater weight on supply-side measures intended to stimulate output and productivity, and go beyond conventional macro aggregates to include measures of a more microeconomic kind in order to resolve bottlenecks and rigidities within the productive system. It would, of course, entail longer-term programmes and more supporting finance.

THE CASE FOR A SECOND BITE

That was how we saw things, writing in the early 1980s. Ten years later there seemed good reason to take a second look. For one thing, the decade had seen major developments in the international monetary system. Instability had increased in the exchange rates of the major currencies, with attendant costs to world trade. There had been important developments in currency arrangements, notably in the European Monetary System. In 1982 the ‘debt crisis’ had struck, forcing heavily indebted countries into years of hardship and inducing large shifts in the geographical pattern of international bank lending, including a steep fall in commercial lending to developing countries. The USA had emerged as the world’s largest debtor country, with considerable world-wide consequences. International liquidity creation had become effectively privatised, causing the near-demise of the SDR. A number of these developments ca...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Tables
• Preface
• Abbreviations
• 1: Starting Points
• 2: Continuity and Change in IMF Programme Design, 1982–92
• 3: Programme Effects: What Can We Know?
• 4: Issues in the Design of IMF Programmes
• 5: Conclusion
• NOTES
• Bibliography