IMF 2.0 or same old, same old – has the Fund really changed its tune?

Has the G20 revived the neoliberal, austerity-wielding IMF of the 1980s and 90s, are has it ushered in a new IMF 2.0 (in the words of Time Magazine) that cares about countercyclical economic policies, public services and jobs? In late April, IMF Managing Director Dominique Strauss-Khan wrote to NGOs saying ‘I would like to make it clear that we do not put conditions in programs that limit health and education spending. On the contrary, about one-third of Fund-supported programs in low-income countries have targets to preserve or increase social spending.’ Grumblings that the IMF is ‘going soft’ have already started among hardliners in Washington, surfacing in the Wall Street Journal. But is Strauss-Khan telling the whole story? It’s a crucial question in the global response to the economic crisis.

Over at the Center for Global Development, Nora Lustig is certainly in a celebratory mood, welcoming the IMF boss’s promises. She concludes that ‘It seems that the Fund is in the process of embracing socially responsible macroeconomics. For the sake of the world’s poor, we should all hope that it succeeds.’

Others are more sceptical – Third World Network and CEPR have both looked at post-crash IMF lending practices and concluded that the leopard hasn’t changed its spots. Even The Economist is sceptical, arguing that any policy changes are more about reacting to different circumstances than any profound rethink. In regions with ‘old school’ crises such as Eastern Europe (which the Economist sees as ‘reliving the Asian Crisis’), its ‘macroeconomic prescriptions are very much IMF 1.0’ – worry about inflation and jack up interest rates, even at the cost or recession.

This all looks like the gap between words and deeds, and between Washington and ‘the field’ (not that IMF staff spend too much time in fields….). But suppose both are right – there is a genuine desire for change from the Fund’s leadership, backed by its members, but little is changing in practice?

What set me thinking about this was a chapter by Nicholas Pialek in ‘Can NGOs Make a Difference’. Nick is currently a gender adviser at Oxfam, but before he got there, wrote his PhD thesis on what he sees as the failure of gender mainstreaming in NGOs (with a focus on Oxfam!). A lot of what he says could easily ring true for reform of the IMF, should it ever get past its opposition to all things heterodox, Keynesian, countercyclical etc:

Nick presents the problem as ‘why is there no change when there is no noticeable opposition?’ to the new ideas, or what he calls ‘consensual acquiescence’. He sees two kinds of resistance to change: passive and subconscious, both of which frustrate efforts at institutional reform.

What is required, he argues is to distinguish between ‘norms’ (policy statements, rules and procedures, explicit goals, all backed by edicts from senior management etc) and ‘values’ (what goes on in the heads of individuals employed by the organization). If you want to radically change an institution, you need to transform both, but so far all the effort to date at the G20 and IMF has been focussed on the norms. The trouble is that they are the easy bit. What will be needed to change the IMF’s DNA, the assumptions, default solutions, and logic of its staff when confronted with real life? Changing existing staff will be personal, intense and reflective (one author likens it to religious conversion) and slow – very hard to achieve through traditional command and control management systems. Nick’s proposed solution for the NGOs’ gender mainstreaming problems was for them to hire a load of feminists. Will the IMF also have to hire different staff? Probably, and perhaps someone should start monitoring the economic views of the Fund’s new recruits, but don’t hold your breath for a mass entrance of heterodox economists.

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3 Responses to “IMF 2.0 or same old, same old – has the Fund really changed its tune?”
  1. Keith Johnston

    I have found in my work on leadership development that it is not just the alignment between plans and values that is needed to effect lasting change but also surfacing the competing values within the organisation and within individual leaders. The best approach I have found to addressing why good reasons actually block our best intentions to change and what we can do about this is set out in a book by Robert Kegan and Lisa Lahey “Immunity to Change” (2009). There is an Oprah article on their work too! It can be found here: I think there is a lot more work to be done to apply these ideas in organisations – especially in NGOs.
    Keith Johnston

  2. Rick Rowden

    The posting raises important issues, indeed. Part of the problem is that TIME Magazine, Nora Lustig and others have responded to only part of what is going on. In some respects, the IMF has indeed changed its tune with regard to its advice given to other rich countries and some of the biggest emerging market economies to address the economic recession with expansionary policies. Yet TWN and CEPR are also correct to note the IMF retains its traditional contractionary policy conditions for most developing countries, even though this will likely make their recessions deeper, longer and unnecessarily harsh.

    One reason the IMF claims is that poor countries cannot “afford” to adopt the same expansionary policies being used by the rich. It claims that poor countries will quickly bump up against domestic debt “unsustainability” in that too much of future years’ budgets will be devoted just to servicing the interest on the built up domestic debt. However, this assumes that countries must remain in their fiscal space
    straightjackets predicated on the neoliberal assumption that interest rates ought to be set by the market. Here I refer to the extremely high interest rates developing countries must pay when floating government treasury bonds as a way to finance their deficit spending.

    Often poor countries float bonds on extremely unfavorable terms, i.e. pay out very high interest to bondholders and on very short-term maturities (like 18 percent interest on 90-day bonds, etc), vecause this is what “the market” ostensibly dictates. Its a rigged, no-win situation: most of those who buy such bonds are the handful of often-foreign-owned commercial banks in the capital cities. But it doesn’t have to only be this way. In the North, central banks often target low, real interest rates (not target the inflation rate as with IMF programs). PERI economists and others often ask why the donors, IFIs, and banks cannot work out collective arrangements using a combination of loan guarantees and subsidized credit to collectively enable governments to float bonds under much more favorable terms (i.e. lower interest rates and longer-term maturities), which would enable governments to engage in more deficit spending, but under more “sustainable” terms. In response to IMF claims that poor countries can’t afford expansionary policies, we
    should be calling for such mechanisms right now.

    Lastly, a word on politics, political advocacy, etc. Yes, internal oreganizational dynamics are very important, but also the IMF is a top-down org, and staff generally respond to board decisions. In the days the loans described by TWN and CEPR were officially approved by the IMF Executive Board, UK NGOs should ask themselves how their representative, Mr. Gibbs, voted. Did he support the loans with contractionary policies included or object to these? What are UK NGOs doing about the UK Treasury’s decision to instruct Mr. Gibbs to approve such loans? Will UK NGOs allow this to go on and on for ever and ever?

    In the US, some NGOs are mobilizing on this exact question, and thanks to their pressure, the House Financial Services Committee has questioned the IMF on this and its chair, Barney Frank, has personally said he is committed to getting such contractionary policies changed at the IMF. His committee, which has oversight of what the US Trerasury does at IMF, has requested a GAO study (the research arm of the US Congress) to undertake a comprehensive review of the efficacy (or lack thereof) of the IMF’s tight deficit-reduction and inflation-reduction policies; it is due out later this year. Advocates in all countries should commission similar official research and pressutre their governments to make similar changes at IMF.

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