IMF accused of failing to meet goals

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The Independent Online
WITHIN a few days, a horde of bankers, politicians, officials and journalists will descend on the Sheraton Hotel in a leafy corner of Washington for the annual meetings of two of the most powerful economic institutions, the World Bank and the International Monetary Fund (IMF).

This throng of actual and aspiring influentials, which will include Kenneth Clarke, Chancellor of the Exchequer, will have to plenty to chew over - and it will not be just the cocktails and canapes. A new book* will add spice to the customary agonising over the future of the Bank and the IMF in a world increasingly dominated by vast and unpredictable flows of private money.

Written by Tony Killick, a longtime IMF follower at the Overseas Development Institute in London, the book attacks the IMF for being much less effective in helping poor countries than it claims. Killick accuses the IMF of cooking the books to go on making loans with terms that it never really expects the borrowers to meet. While accepting that the IMF does change, the book says that it is still too secretive and slow to adapt to external trends, and concludes "another decade without further reforms might well erode its international constituency of support beyond recall".

The IMF and the Bank were founded in 1944. They were intended to be pillars of prosperity in the post-war world. Both are owned by their member countries, which now include most of the world's nations, and Britain was a founder member. But they are supposed to have quite different roles.

The Bank makes long-term loans to developing countries for schools, roads, or irrigation. The IMF provides much shorter-term finance to help members overcome theoretically temporary problems, such as a shortage of foreign exchange caused by a balance of payments crisis.

Over the last decade or so, however, the acute economic problems of many very poor countries, notably in Africa, have drawn the IMF into longer- lasting programmes designed to help borrowers make sometimes radical policy changes. Killick questions whether the IMF is going about this in the right way and whether it is succeeding even in its own terms.

Traditionally, the two principal aims of IMF intervention have been to cut balance of payments deficits and inflation. The favoured treatment is to reduce demand in an economy by reducing government budget deficits. But a central conclusion of the book is that there is no systematic relationship between IMF programmes - its credits and the conditions attached to them - and economic results.

Moreover, only about a fifth of special programmes for poor countries (the Enhanced Structural Adjustment Facility) have been completed on schedule, and the number of failures to complete seems to have risen by half since the mid-1980s.

If it wants to serve members better, Killick recommends, its programmes must be more selective. They should pay more attention to economic growth and poverty and stop depending so much on squeezing demand through government budgets.

o IMF Programmes in Developing Countries, Tony Killick, Overseas Development Institute and Routledge.