About the Book
The International Monetary Fund (IMF) has long attracted criticism for attaching to its loans contractionary economic policy conditions that undermine growth and development in borrower countries. The nature and scope of these conditions now assume even greater importance in light of the significant increase in IMF lending to countries affected by the 2008-09 financial crisis.
This paper finds that, apart from some limited reforms in its crisis loans such as a new focus on social safety nets, the Fund remains essentially wedded to the objective of securing macroeconomic stability in debtor states through the tightening of both fiscal and monetary policies. The prescribed policy measures, such as curbs on public spending and hikes in interest rates, carry a serious risk of exacerbating the downturn in economies already hit by the crisis.
Given such damaging impacts, this paper argues the need for a fundamental departure from the pro-cyclical orientation of IMF loan conditions. The authors advocate increased flexibility for borrowing countries and, more importantly, a counter-cyclical strategy to pursue nationally driven development policies that can boost domestic economic activity and support equitable growth.
[This paper first appeared as a chapter in Fifteen years is enough: What’s changed in the international financial system and its institutions, what hasn’t and what needs to, edited and published by the Halifax Initiative Coalition (Ottawa, March 2010).]
About the Authors
Nuria Molina-Gallart is Director of Policy and Research at Save the Children UK and former Director of the European Network on Debt and Development (Eurodad). Bhumika Muchhala is a researcher with the Third World Network in the area of finance and development.
1 A CRISIS OF LEGITIMACY FOR THE INTERNATIONAL FINANCIAL INSTITUTIONS
2 THE PERVASIVE INFLUENCE OF THE IMF AND ITS MACROECONOMIC CONDITIONS
Lender of last resort – few options for low-income countries
Long-term pain for a short-term gain?
The IMF as “policy trend-setter” and “financial gatekeeper”
The wrong prescription for the illness – domestic vs. external shocks
3 THE FINANCIAL CRISIS OF 2008-09 – SAME MEDICINE, DIFFERENT BOTTLE?
The crisis loans of 2008-09: The proof of the pudding...
4 BREAKING THE MONOPOLY – WHAT NEEDS TO CHANGE
Counter-cyclical and nationally driven policies
A financial paradigm fixated on the free flow of capital
5 POLICY RECOMMENDATIONS
Malaysia RM7.00 RM1.00
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