The IMF: Successes and Failures

Presentation at

Warren Wilson College






Robert F. Mulligan, Ph.D.

Department of Business Computer Information Systems and Economics

College of Business

Western Carolina University

Bretton Woods Conference

(United Nations Monetary and Finance Conference, July 1944)

44 allied nations represented


International Monetary Fund

      provide short-term loans to cover temporary (i.e., non-recurring) balance-of-payments shortfalls, facilitating international trade and maintaining fixed exchange rates

      participation in/contribution into IMF price of IBRD development/reconstruction assistance


International Bank for Reconstruction and Development (World Bank)

      facilitate private lending (by minimizing, guaranteeing against, or pooling risk), first for the reconstruction of Europe, later for the developing world, including former colonies

      longer-term lending than IMF (e.g., 30-years)


International Trade Organization

      facilitate negotiation of tariff reduction/removal and arbitrate trade disputes


International Monetary Fund in practice



      governed by 1944 Articles of Agreement


      continues to lend for short term monetary stabilization but has become a development lender to rival the World Bank


      LDC Trust Fund (1976)


      Structural Adjustment Facility (1985) (0.5% for 10 years with 5.5 yr grace period)


      Enhanced Structural Adjustment Facility (1987)


World Bank Group

      International Bank for Reconstruction and Development (IBRD) (market interest, usually greater than 4%)

      International Finance Corporation (IFC)

      International Development Association (IDA) (interest free w/ 0.75% service fee over 40 years w/ 10 year grace period)

      Multilateral Investment Guarantee Corporation (MIGA)


in practice

      also governed by its own 1944 Articles of Agreement

      never facilitated private lending

      "expropriation is the right of any country"

      lends exclusively to governments or SOEs

      Marshall Plan (1948) coopted IBRD's reconstruction role

      adopted redistribution mission under Robert McNamara (1968-1981)


kinds of lending

      Program Loans

      Sectoral Adjustment Loans (SECALs)

      Structural Adjustment Loans (SALs) (limited to 10% of total lending)


International Trade Organization


      lost public support in U.S. over special treatment of Commonwealth


      President Truman declined to submit treaty to Senate for ratification




General Agreement on Tariffs and Trade


World Trade Organization


      tariffs have long been negligible


Development Planning


      borrowers assume e-rate risk


      Bank and Fund often criticized for conditionality: conservative monetary policy needed to guarantee stable e-rate


      lenders choose and design projects


      underlying philosophy hostile to free markets: assumes the market order is amenable to planning and requires planning


      lending exclusively to governments or SOEs


      Asian Development Bank

      African Development Bank

      Inter-American Development Bank

      European Bank for Reconstruction and Development


IMF pre-1973


      supervised system of fixed exchange rates with dollar as reserve currency


      necessary for dollar to be a low-inflation currency


      system collapsed when U.S. increased social and defense spending in 1960s without increasing taxes



1971-1973 "Breakdown of Bretton Woods System"



IMF & World Bank post-1973


      floating e-rates


      IMF became a development lender


      World Bank began providing short-term loans like IMF

IMF in Argentina


       e-rate pegged too high (1 Argentine peso = 1 U.S. dollar) made Argentine exports too expensive


       imposed a foreign trade deficit


       no way to earn foreign currencies needed to service external debt


       $40 b earned through privatization of SOEs


       $155 b external debt by late 2001


       external debt equaled 50 % of GDP by late 2001


       peso devaluation caused massive bankruptcies because many Argentine firms borrowed in dollars


       multinational corporations and the wealthy have been permitted to shelter their wealth abroad


       all bank accounts frozen since January 2002


       20 % unemployment


       two presidents have resigned - political instability drives away foreign investment


IMF in Brazil


       1998 $41 b loan program intended to be preventative rather than curative


       immediately followed by $20 b capital flight


       conditionality: cut government budget $28 b, including layoffs of government employees and privatization of SOEs


       interest rates raised to 32.5 % (overnight benchmark rate), 48.7-84.3 % (commercial bank rates), 150-250 % (consumer lending)


       massive loan defaults, bankruptcies, and bank failures


       17 % unemployment in industrial sector


       "no restructuring, forgiveness, or renegotiation"


       $30 b loan 2002-2003 conditional on large government budget surplus

IMF in Venezuela


       recommended tax increases, devaluation of the Venezuelan Bolivar, modest privatization of SOEs, and increases in user fees for government-provided services


       privatized SOEs were sold as monopolies


       interest rates doubled between 1996-1998, to 68 %


       because Venezuela is a major petroleum exporter, it has a current account surplus even with external debt service



Table 1

Outstanding Development Loans (Multilateral Claims)

as Percentages of GDP and Government Revenue, 2000

(millions of current U.S. dollars)





Gross Domestic Product




Current Account




Government Surplus (+) or Deficit (-)




Government Revenue




Multilateral Claims




Multilateral Claims as % of GDP




Multilateral Claims as % of Gov Rev





IMF International Financial Statistics Yearbook 2001, IMF Balance of Trade 2001, Joint BIS-IMF-OECD-World Bank Statistics on External Debt, Universal Currency Converter