International Monetary Fund (IMF)
The IMF came into existence at the end of 1945, with 29 countries signing onto the Articles of Agreement. Throughout the 1946-1947 period, the organization began expanding membership and beginning financial operations. Initially, the IMF’s aim was to ensure the stability of the international monetary system and clamp down on exchange rate restrictions. For the first 20 years of the organization, the focus was on maintaining the Bretton Woods System, a web of economies with fixed exchange rates based on a gold standard. When this system collapsed in the early seventies, the IMF shifted focus to broader macroeconomic stability including helping economies recover from oil price shocks.
Focusing on poorer countries with struggling institutions, the IMF expanded its portfolio of conditional loans designed to nudge governments into implementing reforms. These efforts go awry, however, when political goals trump economic considerations. During the Asian Financial Crisis in the late nineties, IMF officials insisted that Indonesia boost its currency (rupiah) shortly after the collapse of the Thai baht. The organization argued, “the floating of the rupiah, in combination with Indonesia’s strong fundamentals, supported by prudent fiscal and monetary policies, will allow its economy to continue its impressive economic performance of the last several years.” Despite the inability of the policy to stem a massive run on the currency, the IMF continued to pressure Indonesian President Suharto to hold firm with the float, and threatened to withdraw billions in support if the government implemented alternative currency ideas. This no-win situation contributed to a regime change shortly thereafter, furthering IMF and Clinton Administration goals.
Political considerations at the expense of economic ones have continued in recent years, with dire consequences. Historic loans from the IMF have bolstered the far-left government in Greece (led by Prime Minister Alexis Tsipras), even as the country showed little sign of curbing fiscal imprudence. Despite regular, billion-dollar loans to the beleaguered economy, the Greek government refused to implement basic pension and tax reforms until the most recent round of negotiations. As the first developed country in history to default on IMF loans, Greece seeks to demonstrate to the international community that it is working to overcome the debt crisis. Despite underwhelming sales figures driven by chronic delays in the process, the International Monetary Fund won’t take future debt relief off the table.
And, despite IMF claims that global taxpayers are actually benefiting from these transactions, money tied up in the Fund would have earned far higher returns elsewhere. For continued access to taxpayer funds, the IMF should significantly tighten conditions for future aid.