This response is part of a strategic dialogue on the IMF. The original essay by Martin S. Edwards is here, and the original essay by Soren Ambrose is here. Ambrose’s response is here.
Soren Ambrose gives us much to think about in his thoughtful essay. I believe that three key points are relevant in our exchange. Ambrose poses two questions: is the Fund a “learning” organization, and is the “new” conditionality an improvement? I believe the evidence strongly points to yes on both questions. Ambrose concludes by suggesting that future development finance reform should be informed by the recommendations of the Stiglitz Commission rather than led by the IMF. In this instance, the cure may be worse than the disease.
Is the Fund learning?
The IMF’s new toolkit demonstrates that it is adapting its lending programs to the needs of its member states. If the IMF had the Flexible Credit Line in 1997, East Asian countries would have sought Fund support earlier, and the economic cataclysm could well have been forestalled. Ambrose himself concedes that the Rapid Credit Facility (which is the low-income equivalent to the Flexible Credit Line) represents an “interesting innovation.” Given the consistent critique (voiced by academics as well as civil society groups such as ActionAid) that Fund programs provide the same medicine for all countries regardless of circumstance, these new programs should be met with more support, not less.
Is newer conditionality better?
Ambrose suggests that the recent moves to relax conditionality in response to the global economic crisis are merely short-term considerations. There are, however, two countervailing forces that challenge this pessimism. First, the IMF is more transparent now than at any time in its history. All of the evidence on programs that Ambrose cites is only available because the IMF is becoming increasingly transparent. This openness can only give civil society groups more leverage. The willingness to be open, even when it poses the danger of critique, tells a great deal about the IMF’s determination to address its legitimacy crisis.
More importantly, the very ownership of the IMF is changing. Brazil, Russia, India, and China (BRIC) are making additional contributions to the IMF’s coffers by purchasing notes backed by the Fund. With this new $80 billion in resources, demands for more voice in the control of the organization are sure to follow. The golden days of the IMF speaking for the developed world to the developing world is about to end.
Why not the Stiglitz Commission?
Ambrose closes his essay with a call to focus on the recommendations from the UN’s Stiglitz Commission. Given his distaste for conditionality, it is hard to fathom how a document that calls for creating a global regulatory framework to supplement extant national efforts to regulate financial markets is at all legitimate. More fundamental, such proposals may have the support of developing countries, but whether this would translate into support from the developed world is an open question. Given the BRIC countries deepening investments in the IMF, the movement to replace one international organization with another seems dead on arrival.