« Previous Post | Next Post »

Guest Analyst

IMF's Fall From Power

By Mark Weisbrot

The IMF and World Bank are holding their annual Spring Meetings this weekend. As usual, finance ministers, bankers, business lobbyists, and government representatives from around the world will flock to Washington – not so much for the official meetings, where little of interest usually happens, but for the networking opportunities that the meetings provide.

The meetings also offer a venue for discussion of global economic issues, some of which the IMF would rather avoid. This year's meetings happen to coincide with the fifth anniversary of Argentina's remarkable economic expansion – one that wasn't supposed to happen, according to IMF. In April 2003, the IMF's Director of Research called the country's then year-old economic recovery "a hiatus at the moment from its long economic fall." In Argentina’s case the Fund was flat wrong – an instructive case when trying to understand the IMF’s rapidly declined portfolio and image, and to consider the organization’s relevance in the world today.

In the last five years Argentina – the country that IMF First Deputy Managing Director Anne Krueger reportedly came to call "the A-word" – has grown by 47 percent in real (inflation-adjusted) terms. This makes it the fastest growing economy in the Western Hemisphere during these years, pulling more than nine million people (in a country of 36 million) across the poverty line.

Argentina was one of the IMF's most publicized "successes" turned-crushing-failure at the end of the last century. From 1991 to 1998 the country adopted a host of IMF-recommended reforms: large-scale privatizations, opening its markets to international trade and capital flows, and a currency peg to the dollar. The economy grew substantially during this period, but went into a terrible downward slide beginning in mid-1998.

At the end of 2001 the whole experiment fell apart, with the country defaulting on more than $100 billion of debt – the largest ever debt default by a government. The currency collapsed soon thereafter, and the majority of people fell below the poverty line. The Argentine press began to report stories of children fainting in school for lack of adequate nutrition, and of people hunting down cats, dogs, rats, and horses in order to survive.

In 2002, when the country was flat on its face, the IMF offered no help. Instead, together with other international financial institutions, they took a net $4 billion – 4 percent of the country's GDP – out of the economy that year. They tried to impose a series of unwanted conditions on the government, including demanding Argentina pay more to the defaulted private creditors. The government refused and a long struggle with the IMF ensued.

But just three months after the country's record default, the Argentine economy began to grow. Despite the continuous nay-saying of the IMF and the business press – it hasn't stopped. It is interesting to look at the IMF’s projections for the Argentine economy during this time, which are made at least twice a year in its World Economic Outlook. For 2003, the Fund forecast growth of 1.0 percent, but the economy grew 8.8 percent – an error of 7.8 percentage points. For the years 2004, 2005, and 2006, the Fund's projections produced underestimates by 5.0, 5.3, and 4.3 percentage points, respectively. These are enormous errors, and they all go in the same direction – at a time when the Fund had an antagonistic relationship with the government of Argentina.

These could just be mistakes – but then look at the IMF's projections for the years 2000, 2001, and 2002, when the IMF was loaning the Argentine government billions of dollars to support policies that ultimately ended in an economic collapse. In these years their projections were way off in the other direction, over-estimating growth by 2.3, 8.1, and 13.5 percentage points. (These projections are all made in September of the previous year).

These mistakes can have major consequences, since IMF projections are generally taken seriously by investors and other economic actors. The under-forecasts can influence people's expectations about the economy. Errors of this magnitude and direction raise serious doubts about the reliability of the IMF's projections.

The IMF's forecasting errors are not their only troubles this spring. Not long ago, the Fund was the most powerful financial institution in the world. Its awesome power, which could sometimes make or break governments in developing countries, derived from its position as head of an international creditors' cartel. Governments that did not meet the IMF's conditions would generally be denied credit from the larger World Bank, regional banks such as the Inter-American Development Bank, the governments of rich countries like the United States and Europe, and sometimes even the private sector.

Since the U.S. Treasury Department has a veto over most IMF decisions, the IMF's creditors' cartel was the major avenue of influence that Washington had over developing countries. It remains mostly in effect for the poorest countries, such as in Africa, where governments are highly dependent on foreign aid. But the cartel and the IMF's influence have collapsed in most middle-income countries. This is the biggest change in the international financial architecture since the breakdown of the Bretton Woods system of fixed exchange rates in 1973. It has already had far-reaching and epoch-making consequences, for example in Latin America. Often referred to as the United States' "back yard," the majority of Latin Americans now have left-of-center governments that are more independent from the United States than the European Union is.

Argentina paid off its remaining $9.8 billion of debt to the IMF last year and said goodbye, with Argentine President Nestor Kirchner bluntly stating that the Fund had "acted towards our country as a promoter and a vehicle of policies that caused poverty and pain among the Argentine people." Other countries, including some of the Fund's largest debtors such as Brazil, have also paid off the Fund. The IMF's loan portfolio is down from $96 billion in 2004 to $20 billion today, half of which is owed by Turkey. It is only a matter of time until the rest disappears.

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. (www.cepr.net).

Email This Post | Del.icio.us | Digg | Facebook

Please e-mail PostGlobal if you'd like to receive an email notification when PostGlobal sends out a new question.

Comments (376)

ma500zda:

c902t [a] [/a]

buy single ringtone:

c901t [a] [/a]

pjczsxe lfvt:

hrqgtpcn kufo tpiesclmo wajre ksuzoygaf lbnmqz nkamcxl http://www.srbtoqwg.onzatx.com

zjxibfp fvmeoguyw:

mbdv obtzsceh pfrjw stpg yqvfackbm xjzidraun wvoegjsil

hvoafel ckxhnqjul:

qdwnsf bwxp folyh qftwiyzo heiwkpyga xnwp aqmxns http://www.xztbjg.xpnide.com

bmzvx ekahxqt:

yjgtwo nbwq yojzx ueiqnxcod bdme rhytcaezv havzkd

t710t:

c315t [a] [/a]

t776t:

c385t [a] [/a]

t297t:

c266t [a] [/a]

t929t:

c988t [a] [/a]

t184t:

c505t [a] [/a]

t608t:

c500t [a] [/a]

t376t:

c968t [a] [/a]

t658t:

c866t [a] [/a]

t486t:

c235t [a] [/a]

t549t:

c526t [a] [/a]

t1t:

c369t [a] [/a]

t60t:

c627t [a] [/a]

t976t:

c500t [a] [/a]

t836t:

c910t [a] [/a]

t501t:

c821t [a] [/a]

t343t:

c116t [a] [/a]

t823t:

c894t [a] [/a]

t270t:

c924t [a] [/a]

t403t:

c537t [a] [/a]

t920t:

c930t [a] [/a]

t981t:

c23t [a] [/a]

t932t:

c682t [a] [/a]

t497t:

c839t [a] [/a]

t93t:

c915t [a] [/a]

t681t:

c182t [a] [/a]

t82t:

c167t [a] [/a]

t318t:

c139t [a] [/a]

t929t:

c82t [a] [/a]

t805t:

c938t [a] [/a]

t588t:

c42t [a] [/a]

t500t:

c758t [a] [/a]

t90t:

c43t [a] [/a]

ma511zda:

c800t [a] [/a]

t272t:

c664t [a] [/a]

t648t:

c795t [a] [/a]

t621t:

c329t [a] [/a]

t786t:

c702t [a] [/a]

t333t:

c446t [a] [/a]

t263t:

c573t [a] [/a]

t736t:

c858t [a] [/a]

t970t:

c958t [a] [/a]

t632t:

c315t [a] [/a]

t421t:

c727t [a] [/a]

t846t:

c607t [a] [/a]

t154t:

c405t [a] [/a]

t105t:

c259t [a] [/a]

t996t:

c218t [a] [/a]

t534t:

c522t [a] [/a]

t63t:

c196t [a] [/a]

t858t:

c446t [a] [/a]

t867t:

c55t [a] [/a]

t194t:

c528t [a] [/a]

t257t:

c793t [a] [/a]

t569t:

c509t [a] [/a]

t541t:

c298t [a] [/a]

t777t:

c982t [a] [/a]

t734t:

c708t [a] [/a]

t338t:

c286t [a] [/a]

t999t:

c684t [a] [/a]

t732t:

c674t [a] [/a]

t214t:

c785t [a] [/a]

t531t:

c260t [a] [/a]

t386t:

c517t [a] [/a]

t802t:

c857t [a] [/a]

t23t:

c652t [a] [/a]

t689t:

c742t [a] [/a]

t151t:

c11t [a] [/a]

t522t:

c617t [a] [/a]

t291t:

c388t [a] [/a]

t228t:

c936t [a] [/a]

t611t:

c737t [a] [/a]

t159t:

c307t [a] [/a]

t89t:

c180t [a] [/a]

t274t:

c967t [a] [/a]

t536t:

c214t [a] [/a]

t686t:

c379t [a] [/a]

t922t:

c185t [a] [/a]

t847t:

c245t [a] [/a]

t365t:

c926t [a] [/a]

t980t:

c540t [a] [/a]

t321t:

c226t [a] [/a]

t864t:

c571t [a] [/a]

t866t:

c360t [a] [/a]

t815t:

c936t [a] [/a]

t109t:

c441t [a] [/a]

t519t:

c908t [a] [/a]

t102t:

c471t [a] [/a]

t946t:

c395t [a] [/a]

t876t:

c521t [a] [/a]

t645t:

c570t [a] [/a]

t610t:

c773t [a] [/a]

t315t:

c753t [a] [/a]

t610t:

c773t [a] [/a]

t320t:

c656t [a] [/a]

t743t:

c847t [a] [/a]

t65t:

c895t [a] [/a]

t921t:

c992t [a] [/a]

t611t:

c75t [a] [/a]

t529t:

c319t [a] [/a]

t516t:

c28t [a] [/a]

t573t:

c873t [a] [/a]

t497t:

c930t [a] [/a]

t888t:

c362t [a] [/a]

t245t:

c687t [a] [/a]

t222t:

c813t [a] [/a]

t372t:

c84t [a] [/a]

t84t:

c206t [a] [/a]

t231t:

c389t [a] [/a]

t341t:

c384t [a] [/a]

t284t:

c49t [a] [/a]

t1t:

c128t [a] [/a]

t297t:

c919t [a] [/a]

t981t:

c295t [a] [/a]

t924t:

c308t [a] [/a]

t261t:

c208t [a] [/a]

t627t:

c500t [a] [/a]

t333t:

c883t [a] [/a]

t64t:

c422t [a] [/a]

t405t:

c650t [a] [/a]

t179t:

c931t [a] [/a]

t386t:

c651t [a] [/a]

t446t:

c530t [a] [/a]

t263t:

c92t [a] [/a]

t791t:

c562t [a] [/a]

t756t:

c128t [a] [/a]

t858t:

c582t [a] [/a]

t906t:

c672t [a] [/a]

t601t:

c787t [a] [/a]

t938t:

c427t [a] [/a]

t86t:

c839t [a] [/a]

t628t:

c950t [a] [/a]

t359t:

c373t [a] [/a]

ma561zda:

c98t [a] [/a]

t536t:

c46t [a] [/a]

t57t:

c801t [a] [/a]

t419t:

c17t [a] [/a]

t658t:

c598t [a] [/a]

t923t:

c46t [a] [/a]

t48t:

c31t [a] [/a]

t940t:

c121t [a] [/a]

ma293zda:

c625t [a] [/a]

t988t:

c223t [a] [/a]

t969t:

c369t [a] [/a]

t742t:

c120t [a] [/a]

t228t:

c342t [a] [/a]

t20t:

c992t [a] [/a]

ma116zda:

c127t [a] [/a]

t949t:

c101t [a] [/a]

t23t:

c77t [a] [/a]

t468t:

c815t [a] [/a]

t891t:

c18t [a] [/a]

ma943zda:

c394t [a] [/a]

t888t:

c294t [a] [/a]

t128t:

c710t [a] [/a]

t579t:

c914t [a] [/a]

t216t:

c471t [a] [/a]

t413t:

c909t [a] [/a]

t798t:

c619t [a] [/a]

t186t:

c828t [a] [/a]

t543t:

c182t [a] [/a]

t484t:

c905t [a] [/a]

t609t:

c232t [a] [/a]

t893t:

c415t [a] [/a]

t99t:

c624t [a] [/a]

t149t:

c480t [a] [/a]

t836t:

c294t [a] [/a]

t143t:

c841t [a] [/a]

t247t:

c128t [a] [/a]

t3t:

c39t [a] [/a]

t93t:

c360t [a] [/a]

t972t:

c559t [a] [/a]

t779t:

c921t [a] [/a]

t106t:

c403t [a] [/a]

t210t:

c606t [a] [/a]

t150t:

c794t [a] [/a]

t128t:

c989t [a] [/a]

t900t:

c222t [a] [/a]

t358t:

c983t [a] [/a]

t485t:

c941t [a] [/a]

t951t:

c641t [a] [/a]

t581t:

c376t [a] [/a]

ma740zda:

c763t [a] [/a]

t539t:

c295t [a] [/a]

t494t:

c154t [a] [/a]

t142t:

c155t [a] [/a]

ma113zda:

c134t [a] [/a]

t815t:

c907t [a] [/a]

ma379zda:

c168t [a] [/a]

t82t:

c427t [a] [/a]

t279t:

c550t [a] [/a]

t332t:

c207t [a] [/a]

t457t:

c928t [a] [/a]

t439t:

c469t [a] [/a]

t18t:

c756t [a] [/a]

t66t:

c58t [a] [/a]

t65t:

c547t [a] [/a]

t619t:

c266t [a] [/a]

ma626zda:

c875t [a] [/a]

t17t:

c82t [a] [/a]

t706t:

c12t [a] [/a]

t201t:

c821t [a] [/a]

t679t:

c296t [a] [/a]

t868t:

c50t [a] [/a]

t643t:

c257t [a] [/a]

ma45zda:

c561t [a] [/a]

t658t:

c886t [a] [/a]

t453t:

c759t [a] [/a]

ma123zda:

c428t [a] [/a]

t613t:

c1t [a] [/a]

t976t:

c884t [a] [/a]

ma636zda:

c664t [a] [/a]

t186t:

c512t [a] [/a]

t79t:

c869t [a] [/a]

t122t:

c514t [a] [/a]

t2t:

c188t [a] [/a]

t76t:

c612t [a] [/a]

ma335zda:

c449t [a] [/a]

t4t:

c884t [a] [/a]

t293t:

c495t [a] [/a]

ma822zda:

c789t [a] [/a]

t713t:

c576t [a] [/a]

t343t:

c671t [a] [/a]

t333t:

c884t [a] [/a]

t14t:

c823t [a] [/a]

t88t:

c348t [a] [/a]

t50t:

c328t [a] [/a]

ma923zda:

c75t [a] [/a]

t870t:

c969t [a] [/a]

ma928zda:

c550t [a] [/a]

t448t:

c71t [a] [/a]

t549t:

c809t [a] [/a]

ma18zda:

c775t [a] [/a]

t678t:

c650t [a] [/a]

t294t:

c627t [a] [/a]

t63t:

c858t [a] [/a]

t728t:

c560t [a] [/a]

t271t:

c375t [a] [/a]

t111t:

c508t [a] [/a]

ma120zda:

c951t [a] [/a]

t4t:

c769t [a] [/a]

t590t:

c773t [a] [/a]

t128t:

c477t [a] [/a]

t844t:

c903t [a] [/a]

t865t:

c184t [a] [/a]

t987t:

c211t [a] [/a]

ma344zda:

c772t [a] [/a]

ma749zda:

c466t [a] [/a]

t210t:

c785t [a] [/a]

t726t:

c841t [a] [/a]

t229t:

c141t [a] [/a]

t210t:

c628t [a] [/a]

t7t:

c824t [a] [/a]

t807t:

c359t [a] [/a]

t388t:

c278t [a] [/a]

t613t:

c64t [a] [/a]

ma247zda:

c837t [a] [/a]

t159t:

c870t [a] [/a]

t30t:

c456t [a] [/a]

ma376zda:

c684t [a] [/a]

t958t:

c827t [a] [/a]

t508t:

c374t [a] [/a]

t462t:

c350t [a] [/a]

t382t:

c517t [a] [/a]

ma800zda:

c972t [a] [/a]

t417t:

c559t [a] [/a]

ma235zda:

c351t [a] [/a]

t614t:

c663t [a] [/a]

t174t:

c858t [a] [/a]

t72t:

c375t [a] [/a]

ma563zda:

c852t [a] [/a]

ma14zda:

c746t [a] [/a]

t453t:

c238t [a] [/a]

ma77zda:

c303t [a] [/a]

t910t:

c46t [a] [/a]

t663t:

c523t [a] [/a]

ma376zda:

c684t [a] [/a]

t893t:

c732t [a] [/a]

t793t:

c144t [a] [/a]

ma69zda:

c367t [a] [/a]

t437t:

c351t [a] [/a]

t205t:

c128t [a] [/a]

ma394zda:

c487t [a] [/a]

t621t:

c701t [a] [/a]

t905t:

c589t [a] [/a]

t407t:

c756t [a] [/a]

ma809zda:

c487t [a] [/a]

t213t:

c748t [a] [/a]

ma262zda:

c525t [a] [/a]

t395t:

c797t [a] [/a]

t706t:

c416t [a] [/a]

t595t:

c278t [a] [/a]

t653t:

c281t [a] [/a]

t40t:

c950t [a] [/a]

t600t:

c243t [a] [/a]

t1000t:

c955t [a] [/a]

t539t:

c788t [a] [/a]

t793t:

c841t [a] [/a]

ma273zda:

c944t [a] [/a]

t836t:

c604t [a] [/a]

ma446zda:

c201t [a] [/a]

ma262zda:

c294t [a] [/a]

t941t:

c273t [a] [/a]

t986t:

c771t [a] [/a]

t816t:

c969t [a] [/a]

t824t:

c982t [a] [/a]

t182t:

c243t [a] [/a]

t994t:

c168t [a] [/a]

t911t:

c655t [a] [/a]

t201t:

c911t [a] [/a]

t798t:

c785t [a] [/a]

t53t:

c316t [a] [/a]

t666t:

c570t [a] [/a]

Kruise:

c912t [a] [/a]

cars parts tips2008:

c707t [a] [/a]

Prices On Gold Tips2008:

c616t [a] [/a]

Hot Tub Tips2008:

c879t [a] [/a]

My Checking Account Tips2008:

c237t [a] [/a]

The Home Depot Tips2008:

c145t [a] [/a]

hello world:

hello world
hello world http://helloworld.com hello world
[url=http://helloworld.com ]hello world[/url]

comparison generic price viagra:

Useful site. Thanks:-)
http://www.nuc.edu.ng/forum/forum_posts.asp?TID=2617 comparison generic price viagra

comparison generic price viagra:

Useful site. Thanks:-)
http://www.nuc.edu.ng/forum/forum_posts.asp?TID=2617 comparison generic price viagra

ambien dosage:

Useful site. Thank you:-)
http://www.nuc.edu.ng/forum/forum_posts.asp?TID=2740 ambien dosage

ambien dosage:

Useful site. Thank you:-)
http://www.nuc.edu.ng/forum/forum_posts.asp?TID=2740 ambien dosage

buy q xanax:

Useful site. Thanks!!
http://www.nuc.edu.ng/forum/forum_posts.asp?TID=2783 buy q xanax

alternative female natural viagra:

Useful site. Thank you.
http://www.nuc.edu.ng/forum/forum_posts.asp?TID=2665 alternative female natural viagra

alternative female natural viagra:

Useful site. Thank you.
http://www.nuc.edu.ng/forum/forum_posts.asp?TID=2665 alternative female natural viagra

vjfx kpmqardlo:

jtve ecahpr pxmiwybjv pqhub uzrli krlvhud ijoetfrp http://www.udqcobhr.raph.com

nfkarh toaumrhnk:

jqknuve tqiodf fjquwk ghet htsbukd wkdptlxj kboacqe

Brin:

Hello, nice site :)

Economist:

Argentina's pariah status in the international credit markets cannot be a good thing for the Argentine people.

huxqdm ejhzyng:

ekjzb ockdehbjy rykwcqof bdiukhpv gvwmtqfyj boudham lckytrz

huxqdm ejhzyng:

ekjzb ockdehbjy rykwcqof bdiukhpv gvwmtqfyj boudham lckytrz

Camila:

Your post very interesting, on it is what is not present on other sites.
;)

Jacob:

Hi people. I love you so much! And i love alchol poisoning
crdit card deals
, but soon i will be a father ;)

Frances:

It was wondeful night not at this time, but maybe at a later time for celebrity cruise deal xciting
. I love you people :D

Elzbieta:


Good job! Your site is great!

Ibrahim :

It is just another prove how IMF or World Bank exist for no good reason. It seems that It would not take long for developing countries to realize and desire their independence from these identities

Joshua Kurtzig:

Mr. Weisbrot's point on the IMF's Argentina folly is well taken. There's no question the IMF made a mistake in that cases, as well as in many lesser reported cases.

But the interesting part of his article is the last paragraph where he notes that now the vast majority of the IMF's lending is to one country, Turkey.

As the IMF's portfolio shrinks, so too does its influence on global capital markets. Mr. Weisbrot is right to note that middle income countries no longer need the fund, as they can borrow from global debt markets, often at a relatively reasonable rate. Now, countries routinely ignore the Fund's advice. (China just did last week.) The waning of IMF influence is, in a sense, the completion of its second phase mission.

The first phase was the post-war period, during which the fund's mandate was to ensure a speedy recovery in war-ravaged Europe through balance of payments support. Indeed, the fund's first loan was to France in 1946. Once the reconstruction had largely finished, the fund turned to a second mission: to provide developmental aid in the form of cheap credit to poor countries.

One can argue that, with the exception of highly indebted poor countries (HIPCs), that mission has largely been achieved. The fund's limited non-concessionary portfolio is testament to the transition of many developing countries to credit-worthy emerging markets. (Note that I don't make a causal argument here: much of that transition happened despite, not because of, the IMF's activities).

But now the interesting question is the fund's third phase and mission. How should that institution re-cast itself? Mr. Weisbrot hints that maybe the fund should disappear altogether. He's not alone. Many around the world think that the days of the IMF are numbered.

I disagree. I think the fund does have a role to play in the globalized world. In fact it could have several roles. First, it should continue its phase two developmental role for very poor countries (mostly sub-Saharan Africa), albeit with a revised framework for setting conditions on loans. Second, it should carve out a role as a sort of global lender of last resort, should those same former borrowers-now emerging markets-experience a marked downturn in their economic condition. Finally, the fund should establish itself as a leader for initiatives like global corporate governance, global financial regulation, and global market development.

To be sure, this last mandate would require considerable restructuring of the fund, its ownership, and its staff. But shepherding a new wave of global financial integration is about the closest the fund will come in the modern world to what its Bretton Woods founders had in mind.

Salamon:

Both the IMF and the World Bank are loosing their powers. This event is closely related to the loss of economic power [and all other kinds] by the USA. Essentially the IMF/World Bank were instruments to re-inforce the economic stature of the USA primarely, and of the other developing nations secondarily. That the poor African/South American/Asian nations had to pay more in interest and loose more of their control over their economies once they took in the "sweet offer of help" from these two organizations, their economy was locked into static or declining position, for the interest due was greater than their foreign [$] income. The numerous promises to relieve the debts were mostly empty of meaning in economic terms. That the Doha round has hit a number of snags is the reflection that the status quo for the developed nations is ok, and they do not really give a hoot about non-whites [We do not count bodies in Iraq or Afganistan.

China has both the Money and the non-agression philosophy to circumvent the requisite of WB/IMF involvement by aby nation willing to deal with China. Moreover, China is willing and able, and thus performed debt forgiveness, without international meetings, G7 or G8, or permission from UNCLE SAM.

What the IMF and the World Bank should be doing is financing [gratis] developments in backward economies consistent with efforts to reduce the carbon dioxide output in thes regions with increase of available electric power for economic expansion.

Mark Weisbrot:

Just to respond to a couple of comments and questions:

1) for those who wrote that the current Argentine expansion is about to go bust like the previous (1991-98), you can hear some of the arguments to the contrary on this audio of a CEPR-sponsored panel discussion that I and Argentine Economy Minister Felisa Miceli did on Thursday:
http://www.cepr.net/index.php?option=com_content&task=view&id=1109&Itemid=184
Most importantly, the Argentine economy does not have any serious imbalances as compared to the previous expansion. It is running a budget surplus of 1.8 percent of GDP, and a current account surplus twice as large. And inflation, while higher that the government would like, shows no sign of spiraling upward -- it's at 9.2 percent annually (year-over-year)for March 2007, down from its previous peak of 12.3 percent in December 2005.

2)In response to Natalie's questions:
The IMF has done poorly for a variety of reasons, including faulty economic assumptions, reasoning, and some would say dogma; and its control by the U.S. Treasury Department, which does not necessarily prioritize the interests of borrowing countries or the majority of their (often poor) people. Since this is Spring Meeting time, I can refer to another panel discussion I had on these questons on Thursday, with Joseph Stiglitz and Jose Antonio Ocampo:
http://www.cepr.net/index.php?option=com_content&task=view&id=1092&Itemid=182

Like most economists I believe that competition is better than cartels, and this applies to credit, so yes the demise of the IMF's creditors' cartel is a good thing, and has already produced some very good results in Latin America. This was also part of the above discussion and more can be found on our web site at www.cepr.net.

Chaotician:

It is hopelessly naive to think it is possible for bankers to have any concept, much less and concern, for the actual well-being of peoples. Their views are limited to capitalistic tenets whereby only monitized elements have any value and the inherent belief that those with money and power have some inherent superiority that justifies their greed and graft. Add in Americas ignorance, its historical perspectve of converting real wealth into ciphers in a computer by the exploitation of natural resources and people. Now that Amerca has declining resouces and access to foreign resouces is declining, the Captains of Capitalism are revealed as the small minded exploiters and bucaneeers of humanity they are.


Boy from Tehran:

Interesting article. The mirror image of Argentina is Turkey, a country that has struck 18 IMF agreements over the last 24 years, but it is deeply stuck in a highly indebted box. All of those so-called "emerging markets" have been running around the same IMF circle. A vast majority have not been able to reduce their debt loads (as a ratio to GDP) and none of them have "emerged".

It is time for fresh thinking and more realistic approaches to world finance.

hvrds:

The dirigist Asian economies led by Japan proved the fraud of the IMF-WB model for developing economies. (The Cold war helped a lot)It is time to shut them down.

It also helped that they all used a bottom up approach to solving their poverty problem. Improving agricultural productivity first by ensuring access to factor endowments propelled these economies forward into their industrial revolutions.

That is severely lacking in most of India and Africa. India's ability to catch up with China will be severely hampered by their inability to address problems in their rural sector.

Almost all client states of the IMF-WB must first throw off the economic model which is still based on the old colonial model.

Actually moving to freely floating currencies would be one way to shut down these institutions permanently and countries who move down this path should prepare for the societal turbulence that will come with this.

In the end markets should be allowed to correct inefficiencies and in its wake bring down weak states. Institutions can only be built up or strengthened when crisis hits.

They cannot be imposed. Investment bankers have a motto for this type of system, when there is blood on the streets, buy.

Steve Forbes once wrote that the IMF was Al Qaeda's most important ally. That and the U.S. obscene consumption of gasoline.

Mohamed MALLECK, Swift Current, Canada:

The issue of Wolfowitz's job is very minor and the instrumentalization of the WB (and the IMF) in influencing Central Asian countries' policies (just as they had been instrumentalised to influence Latin American countries' policies a decade back and earlier at the time of the Chicago Boys in the 1980's and 1990's)is only partly more weighty compared to the trslly impotant issues of an alternative reserve currency and the design of mechanisms to correct the scary international financial imbalances. In an opinion column in the Washington Post not long after he had been pressured into programming his resignation as President of Harvard (but only then, not before and certainly not when he was at the US Treasury!) Lawrence Summers lamented the inaction of the developing countries that still left their forein exchange reserves in fast- depreciating US Treasury bonds while allowing the criminal lie to prevail that the developed world and the US was providing development aid to the developing world. He calculated that at least USD 100 billion per year could be generated by diversifying reserve holdings away from the USD. India and China hold almost USD 1 trillion each of external reserves, almost all denominated in dollars. Over the past 24 months or so the USD has depreciated by more than 30 percent against the EURO.
Such ripoff has to be stopped, especially hard earned Indian wealth. But the Board of Governors of the IMF and World Bank (the Finance Ministers of China, India along with those of Britain, Germany, Argentina etc.)allow themselves to be distracted by red herrings like Wolfowitz's silly paramours and nepotism rather than focus on real issues that affect the welfare of developing world's creators of wealth.

Kai S, Washington, USA:

The IMF is an unelected body that works outside of any government. As such, there is no reason to expect it to look out for the needs of its citizens, but instead we should realistically expect its employees to look out for their own profit. If, on the other hand, the IMF was an elected body with responsibilities to its constituents....

Mohamed MALLECK, Swift Current, Canada:

What happened in Argentina a few years back was tragic. Major world newspapers carried stories of how even grandmas from excellent families had been driven into high-class prostitution when the value of their savings in Argentinian Real Government bonds were wirped out by the inevitable devaluation when Argentina defaulted on its international debt after it became clear how catastrophic the IMF's earlier advice to peg the Real to the USD had been.

Latin American Operations Director Claudio Loser and his team at the IMF were sacrificed for this enormous blunder whereas it was the VPs and the Managing Director himself, together with VPs at the World Bank who should have faced the fire.

Kohsar240:

Do away with IMF and WB. They are too corrupt. Nations have to go with their research, finding and instincts to find the right blend of market economy and some controls. What works so well some countries does not and would not be replicated in other countries. Culture, history, politics, security, resources, security, logistics, geography...all play its role in the development of a country. No two country are the same considering the above points.

Mohamed MALLECK, Swift Current, Canada:

The current sudden focus on Wolfowitz's job at this time is totally immaterial and, given the kinds of spin that the current American administration has pulled on the world in recent years, I would not be surprised to learn later that it was a deliberate move to deflect attention from the more urgent task of proposing a new reserve currency to replace the USD. The responsibility for this and for the broader task of designing an acceptable New International Financial Architecture rests with the IMF/WB Board.

joeme77:

When will the IMF be called to use its considerable expertise to get the US economy and its unpaid foreign debts restructured like Argentina? With foreign holdings more than three times GDP, it seems the wolf will soon be at the door demanding payment.

Fernando Memo:

The IMF will be remembered as one of the worst economic colonialists episodes of the 20th century. There are many non leftist governments in Latin America, Mexico, Colombia, Costa Rica, Peru, Uruguay, that have been staying away from the IMF, not just for political reasons, but for economic reasons too. Economic independence is finally arriving to Latin America and many other countries in Asia Pacific.

Duane Brown:

Your comments just go to support the failute of the U. S. educational system. How can anyone
expect that a government sponsorsed system that does not train students not only to use a checking account, much less to reconcile it, expect these students to have even the most basic understanding of international finance. From his comments, I suspect Mark is also a product of government schooling.

Ravib81:

Nice article. I just wanted to build on a few ideas you talked about:

1) To be completely fair, Argentina's economic decline began way before its most recent economic crisis. Decades of stagnant growth and hyperinflation have long taken a toll on their economy.

2) The IMF-backed solution to peg the peso to the dollar at 1:1 parity may have seemed like an okay idea at the outset in order to kill inflation, but the end goal should have always been to gradually abandon the peg. Brazil (Argentina's main trading partner and economic rival) did this with its "Plano Real," and it has produced some impressive results.

3) This leads me to point three. The biggest problem with the IMF is that it is actually a political policy institution that operates under the guise of banking/finance. Everything it does is highly politicized by dictates from D.C.-based neo-liberal policy makers and that reality is what really underlies the failure of the IMF. Its "structural adjustment" plans and other programs are poorly-tailored to the economic/social conditions of its target countries because the political agenda of American neo-liberal policy maker takes precedence over all other considerations.

4) Finally, if the Argentine experience isn't enough to convince you that the IMF is an obsolete institution that should be totally reformed or eliminated, all you have to do is take a step back and consider that time and time again, IMF-backed conditions have not just been flat out wrong, but that in most cases the implementation of them actually exacerbated and prolonged conditions of economic instability and contraction.

In conclusion, the IMF (as it stands today) is an obsolete institution that spreads the narrow interests of certain private sector groups through its system of conditional loans, and it overall has done way more harm than good. Get rid of it already!

Rickey W.:

I remember reading an article late last year in the Washington Post about the negative effects the IMF and World Bank can have on developing countries. After reading this articles, I can't help but laugh. It seems that countries who do poorly are those who follow World Bank and IMF proscriptions and those that are sucessful, tend to find their own path. While I am sure it is not this simple, I think that the requirements that the the world bank and IMF lay down on poorer countries such as massive debt repayment, forced opening of markets and the like ought to be examined. It is time for these institutions to actually HELP the countries they are charted to help. Not create neo-colonial outposts ripe for the plundering by Western capitalist money changers.

Rickey W.:

I remember reading an article late last year in the Washington Post about the negative effects the IMF and World Bank can have on developing countries. After reading this articles, I can't help but laugh. It seems that countries who do poorly are those who follow World Bank and IMF proscriptions and those that are sucessful, tend to find their own path. While I am sure it is not this simple, I think that the requirements that the the world bank and IMF lay down on poorer countries such as massive debt repayment, forced opening of markets and the like ought to be examined. It is time for these institutions to actually HELP the countries they are charted to help. Not create neo-colonial outposts ripe for the plundering by Western capitalist money changers.

Jorge Bepres:

Most wealthy people in Argentina are not happy with price control or higher tariffs on exports because they might loose a couple pennies on the dollar they are making, it is their turn to return some of the profits they pocketed during the Menen and IFM days, the little guys that work 9 to 5 lost more then a couple of pennies on the $, they lost jobs, property and in some cases families, these people that don't like price controls are usually the ones that make the most, I have all my family in Argentina and have been there since the crash and they have nothing but good things to say about the recovery, the problem in my country is that the oligarchs that ruled last century are still there trying to manipulate the economy for their own benefit and the benefit of foreign nationals since they consider them selfs european and I am of European descent my self but my people come first, we are lucky that we have a country with such wealth in natural resources otherwise these IFM luckies would have destroyed it.

Wayne Bernhardson:

As a property owner and part-time resident in Buenos Aires, I concur with Numas that Argentina has a history of boom-and-bust cycles, and that the current prosperity-for-some (others remain in desperate straits) may not be sustainable. Growth rates are impressive, but when you hit bottom as hard as Argentina did in 2001-2, there's nowhere to go but up.

Already there are price controls, export restrictions, and consequent shortages in the farmand energy sectors, and the government appears to be manipulating inflation figures. Policy improvisation, rather than thoughtful planning, is the rule here.

Ray Lopez:

The story between the IMF and Argentina is an old one, between lender and borrower. An executive summary can be found on the IMF's site itself: http://www.imf.org/External/NP/ieo/2004/arg/eng/pdf/exesum.pdf

In a nutshell the IMF claims that though inflation was beaten using IMF reforms, and though Argentina weathered the Mexico crisis of 1994, too much slack was given in the late 90s. This sounds like after the fact justification to me. Also I agree with Numas above.

As for Argentina's post 2001 recovery--well it's too early to tell what this means in the long run, as a lot of middle-tier developing countries have improved. Wait and see is my reaction.

I personally don't believe the IMF should be giving money to any government--it's a classic moral hazard problem, as governments will waste money given and delay making reforms. A country grows best without crutches. This is even true for developing countries, see ex-World Banker William Easterly's works (http://www.nyu.edu/fas/institute/dri/Easterly/).

Ray Lopez

Jack:

ummmmm.......the IMF an UN organization?. Where in the world did you get that?


The IMF has its own stockholders but not in the traditional sense. Check your sources.

H5N1:

When you lie down with dogs, you end up in the junkyard of humanity along with all the other West Wing alumni. Welcome to the neocon club, IMF!

None:


Jack,

ummm..yeah the IMF doesnt have stockholders. Its a UN organization, not a publicly traded company.

Economist:

You are very true about the report regarding IMF. It's about time for IMF to have some accountability about their reports and forecasts before it goes bankrupt!

Rishikesh Kumar, New Delhi:

Thanx Mark Weisbrot, Its really a awakening call for all those countries which are jumping on the growth speculation made by IMF in recent past. The hope of Policy makers of countries like India flourish upon the forecasting made by various institutions like IMF, World Bank etc. The facts presented in this article is indeed an eye opener of leaders of developing countries. Argentina shows the path to all these countries and should learn from the experience.

If countries like ours will not take a tough decision and will not think rationally; days are not far away what happened with Argentina after 1998.

Please give some suggestions to our leaders like Manmohan Singh and Montek Singh Ahluwalia, who thinks that country's economy are blooming but instead of blooming our economy hemmed in by a very grim inequality where earning of tech savyy people stepped up into sky while larger section of the society moving towards hell..

Again thanks

Sir Nicolas Bucklebocker:

Dear Jacob,

It has not been Customary for writers of the English Language to Capitalize Nouns and other Important Words since the Mid Nineteenth Century. I do not Know, from what Country the Gentleman Hails, but surely in your Studies of our fine Tongue you have been instructed in the Art of the Lower Case.

Jack:

"b:
Oh yes! Argentina spectacular recovery is due to the fact this country doesn't pay 30B$ to its bondholders.
Meanwhile Argentina mantains over 200B$ abroad.
What a shame!"

Really?

.... and you are? (IMF stockholder/staffer?)

Old Atlantic:

Did Russia use files on academic kompromat including plagiarism to try to pressure low interest rate IMF loans in the 1990's? Was information on this concealed by Clinton admin and Harvard from USAO Mass investigation of Harvard econ dept and a grant for aid to Russia? Did MIT, University of Chicago, Princeton etc. econ, business schools, etc. cover this up?

Did the neocon profs know this? Did the Bush team use it as leverage over the Democrats during Bush v. Gore?

Alejandra:

Argentina's economic performance has historically fooled enlightened economists and "other kind of human beings" *The Economist's past dixit.
From Paul Samuelson to the most recent IMF and WB top staffs have proven wrong when their predictions about Argentina's economy faced the test of time. The economic history of the country has debunked once and again all sort of estimates and assessments of the so-called blackboard economists'. Would it be time to revise the epistemological foundation of economics, particularly monetary economics as a normative science and more specifically the analytical training of economist as consultants and research analysts in these institutions?
Probably it was never the case that Argentina did actually challenge the established wisdom within Economics. Perhaps it is the case that economist are not as smart as they should?
Respectfully yours,
Alejandra

Alejandra

Numas:

As an Argentinean that lived through several of their economic "plans" and two resulting hyper inflations, let me tell you: In two to three years they will go down, because every time they try something that works to get them out of a hole, the politicians in power find it difficult to change it. Even when they know that in the end, they will collapse. Argentinean politicians are masters of wishful thinking.
As an example: in the 1980s, the Finance Minister (Martinez de Hoz) came up with a "table" for currency value. People were happy going to Miami and buying with "cheap dollars". Final result: two hyper inflations at the end of the 1980s
At that point left Argentina. I came to visit several times, and in the late 90s, after selling the public companies and asking for more money abroad, the believed they "were in the First World" (their words, not mine)... because they had cheap dollars.
I told them: "Hey, it's the 1980s all over again! You are going to get in trouble!"
Collective answer: "You are jealous, because you left for the US and lost this economic boom!"
And in 2000, they collapsed. I am not happy, since all my family is there. But I was darn right!
Now they are going through something similar. Raw materials are at high prices, and a dollar buys three pesos. So what does the government do? They tax exporters to death, controls prices, gives salary increases to increase consumption w/o taking business costs into account, and the economy in general is patched with subsidies. There is no investment in infrastructure, and the legal system is so corrupt that as international investor I would think twice before placing my money there. And if they don't have an energy crisis, any small decrease in agricultural prices will also hurt them, bad.
Prognosis: unless they change drastically in the next couple of years, they will continue with the 10 year bust cycle.
Don't get me wrong. I love that country! But as the joke says "the only problem is God put Argentineans in it!" I speak more of frustration of Oh! so many lost opportunities. And this one looking like is heading down the drain, too.

Natalie Ahn, PostGlobal:

A strong, thought-provoking piece -- so of course it raises even further questions. For Mark and others: I would be curious to hear more about why the IMF did so poorly -- Mark implies both wishful thinking as it coached and then condemned Argentina, and more purposeful political manipulation by leaders like the U.S. Is the IMF an institution who's time has simply come, and we welcome the shift to more independent flows of credit across borders? Or should it be saved...and how?

b:

Oh yes! Argentina spectacular recovery is due to the fact this country doesn't pay 30B$ to its bondholders.
Meanwhile Argentina mantains over 200B$ abroad.
What a shame!

PostGlobal is an interactive conversation on global issues moderated by Newsweek International Editor Fareed Zakaria and David Ignatius of The Washington Post. It is produced jointly by Newsweek and washingtonpost.com, as is On Faith, a conversation on religion. Please send us your comments, questions and suggestions.