Abolish the IMF

by Don Boudreaux on May 19, 2011

in Foreign Aid, Other People's Money

Here’s a letter to the Washington Post:

Rather than deliberate over which world-class bureaucrat will be the next head of the IMF (“Fight to succeed IMF head Strauss-Kahn may pit Europe against developing nations,” May 19), why not simply abolish that misfit outfit?

The IMF’s original purpose was to help cash-strapped governments maintain their currencies’ fixed exchange rates as directed by the 1944 Bretton Wood system.  But that system gasped its dying breath in the summer of 1971, when – with Pres. Nixon’s closing of Uncle Sam’s gold window – all pretense of an international system of fixed exchange rates was abandoned.

Undeterred by the total disappearance of its purpose, the IMF – flush with continuing streams of subsidies, especially from American taxpayers – morphed into a “development” agency.  The quotation marks around “development” are no mistake.  There’s no evidence that the IMF’s efforts as a development agency have had any positive effects, unless by “positive effects” you include creating among many poor countries a culture of dependency upon foreign “aid,” along with propping up authoritarian regimes.*

As my great teacher Leland Yeager observed, “self-important international bureaucracies have institutional incentives to invent new functions for themselves, to expand, and to keep client countries dependent on their aid.”

Isn’t it time to close the window on funding for the IMF?

Sincerely,
Donald J. Boudreaux

* E.g.

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{ 20 comments }

Methinks1776 May 19, 2011 at 5:21 pm

Isn’t it time to close the window on funding for the IMF?

Nope. Time to find another rapist to lead it! Why do you always insist on ending the party for the Lords of Poverty?

Octahedron May 19, 2011 at 5:29 pm

I fully agree with you. The only good thing one can say they do really is research which I don’t know how you feel about that.

Stone Glasgow May 19, 2011 at 5:50 pm

The only way to help the third world develop is by gibing money to the warlords that run it. If the warlords have enough cash, things will improve. The whole reason that poor nations have suffering people is the same reason that United States schools have suffering children: they just need more funding!

Bill K. May 19, 2011 at 6:22 pm

“self-important international bureaucracies have institutional incentives to invent new functions for themselves, to expand, and to keep client countries dependent on their aid.”

Another example of Jerry Pournelle’s Iron Law of Bureaucracy, “In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely.”

WhiskeyJim May 19, 2011 at 11:09 pm

In its present role, I see it as the best example of the ineffectiveness of Keynesian economics; that we can prime a nation’s pump so to speak, by top-down injections of huge amounts of money.

juan carlos vera May 20, 2011 at 12:41 am

Yes, this is the time. But it’s also the time to change the monetary system, it’s also the time to leave this miserable stinking worldwide socialism, it’s also the time to kick these thieves and swindlers political , it’s also the time that men become aware we have eggs to make what we have to do…

Antonio Mendes May 20, 2011 at 5:12 am

Don, you are wrong about the role of the IMF since 1971. It is not an aid-agency (that role is played by the World Bank). It is a creditors club, providing short-term liquidity while governments adjust their economies to be able to access the markets. Of course, there are many people advocating that the IMF should do more than that and become an aid-agency, but so far they have not succeeded.

It is clear to me that a well functioning capitalist system, where you cannot seize the assets of a country and force it to pay its debts, needs a creditor/debtor system to arbitrate such conflicts (if the IMF and the Paris Club are not doing their job properly, that is another matter for discussion).

The Reticulator May 20, 2011 at 10:24 pm

“It is clear to me that a well functioning capitalist system, where you cannot seize the assets of a country and force it to pay its debts, needs a creditor/debtor system to arbitrate such conflicts”

False dichotomy. There are and have been other mechanisms.

Lionel from France May 20, 2011 at 6:10 am

Agree with you, Don. But you’re dreaming!

Luther Stueland May 20, 2011 at 8:44 am

Don, I just wanted to say thank you. For your effort of thought and clarity of communication. I really enjoy your letters and I’m happily recommending your site.

Oscar Varela May 20, 2011 at 8:54 am

Beyond the standard use of the acronym IMF for what we all know to represent the International Monetary Fund are some others. A common interpretation in the third world for the frustration from austerity programs associated with the IMF is “I Am Fired”. Another more evocative interpretation for this frustration, and one that is ironic in light of its current headlines, involves a slight variation of this latter one, where the word “Fired” is substituted by one that is more vulgar. The IMF was born with Bretton Woods (1944) and should have accordingly died with the Jamaican Agreement (1976) which formally disbanded the fixed exchange rate world.

Stephen A. Boyko May 20, 2011 at 9:34 am

The universal flaw in donor agency strategy is that capital is viewed as a byproduct of a political process where activity (the project) is more important than achievement (wealth creation).

indianajim May 20, 2011 at 9:50 am

“…institutional incentives to invent new functions for themselves…”

Rape, pillage and punder. (literally)

Methinks1776 May 20, 2011 at 10:11 am

Ross Coggins wrote this in 1976. Nothing has changed.

The development set

Excuse me, friends, I must catch my jet
I’m off to join the Development Set;
My bags are packed, and I’ve had all my shots
I have traveller’s checks and pills for the trots!

The Development Set is bright and noble
Our thoughts are deep and our vision global;
Although we move with the better classes
Our thoughts are always with the masses.

In Sheraton Hotels in scattered nations
We damn multi-national corporations;
injustice seems easy to protest
In such seething hotbeds of social rest.

We discuss malnutrition over steaks
And plan hunger talks during coffee breaks.
Whether Asian floods or African drought,
We face each issue with open mouth.

We bring in consultants whose circumlocution
Raises difficulties for every solution –
Thus guaranteeing continued good eating
By showing the need for another meeting.

The language of the Development Set
Stretches the English alphabet;
We use swell words like “epigenetic”
“Micro”, “macro”, and “logarithmetic”

It pleasures us to be esoteric –
It’s so intellectually atmospheric!
And although establishments may be unmoved,
Our vocabularies are much improved.

When the talk gets deep and you’re feeling numb,
You can keep your shame to a minimum:
To show that you, too, are intelligent
Smugly ask, “Is it really development?”

Or say, “That’s fine in practice, but don’t you see:
It doesn’t work out in theory!”
A few may find this incomprehensible,
But most will admire you as deep and sensible.

Development set homes are extremely chic,
Full of carvings, curios, and draped with batik.
Eye-level photographs subtly assure
That your host is at home with the great and the poor.

Enough of these verses – on with the mission!
Our task is as broad as the human condition!
Just pray god the biblical promise is true:
The poor ye shall always have with you.

Methinks1776 May 20, 2011 at 10:47 am

Too be fair to the people in the field immunizing children, teaching people how to clean water for drinking, teaching school, etc., this poem does not describe them. The World Bank was the inspiration.

Don Boudreaux May 20, 2011 at 1:31 pm

:-)

The Reticulator May 20, 2011 at 10:22 pm

Yes, yes, but if you didn’t have these workshops, conferences, and development programs, these people would be out on the street. Isn’t it better to have them jetting from meeting to meeting than leaving them to beg on street corners?

Chuck May 20, 2011 at 1:04 pm

I think the saying goes something like, “the more their plans fail, the more the planners plan.” Spending other people’s money is easy. Getting results is the hard part. But results are such a hard and calloused thing, and the IMF is about warm and fuzzy things.

Victoria May 20, 2011 at 4:07 pm

Another great letter – many thanks for sharing.

Recently, I received a call for papers from the International Studies Association regarding a panel titled ‘The Spirit of Keynes and Hayek in IMF Lending Programs after the Bust’. The gist of the panel is to explore whether Hayek’s work is influencing a shift in IMF policy. I thought Hayek moved away from the idea of an international authority in his later writing, but maybe I have it wrong (?). Can IMF policy be considered Hayekian in any real sense? Does anyone have suggestions for further reading on this?

from france May 20, 2011 at 10:17 pm

agreed. but if it must stay, i wish my country would spare the world another show of Gallic arrogance by behaving as the post of IMF chief was French by right. mind you, if Lagarde’s name is making headlines, it has little to do with France but rather the result of the recent infatuation of anglo-saxon media with their new darling, madame Lagarde…..

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