The IMF at 60

Le FMI, by Patrick Lenain
Reviewed by Georges de Menil*
OECD Observer

The International Monetary Fund, which turned 60 in 2004, is both one of the most important and most criticised global institutions in today’s world. For some, it is a rigid organisation which has frequently obstructed development in poor countries, and which bears heavy responsibility for the severity of the east Asian and Russian crises.

For others, it is both a forum and instrument of international co-operation, and is no more responsible for recent crises than is the fireman for the fire.

In this very readable short book, rich with information, Patrick Lenain, now at the OECD and a former IMF staffer, provides an insider’s guide to the history and structure of the Fund, and to some of the heated debates, to which it has been central. Succinctly, but carefully, he shows how changing perceptions and economic conditions have interacted to influence the development of the institution.

At the founding Bretton Woods conference in 1944, the overriding concern was to create a financial system which would guard against the competitive devaluations of the 1930s. Thirty years later, as markets expanded and capital became increasingly mobile, the focus of the Fund’s attention moved from the developed to the developing world.

Mr Lenain devotes a quarter of the book to the financial crises which, over the last two decades, have marked the growth of a number of developing regions and countries – Latin America as a whole in 1982, Mexico in 1994, south east Asia in 1997, Russia in 1998, Brazil, Turkey and Argentina since then. It is indeed the actions of the IMF before, during and after these later crises that the current debate is about.

The IMF has played a forefront role in some notable successes, in particular, two US-led packages: first, Treasury Secretary Nicholas Brady’s plan that helped resolve Latin America’s debt problems, and then Secretary Robert Rubin’s plan to arrest Mexico’s plummeting peso. But the jury is still out on the IMF’s role in the crises since 1997.

In east Asia, the Fund was criticised, first, for not spotting the risks inherent in the foreign indebtedness of the private sector early enough, then for tactical errors in the manner in which it responded to the heat of events, and finally (and somewhat unjustly) for pressuring the affected governments into adopting excessively tight fiscal and monetary policies. Mr Lenain discusses these criticisms, but does not give due importance to what is perhaps the most important question.

Could the Asian crises, and some of the subsequent episodes, have happened if international capital had not been as mobile as it was in the 1990s? Probably not. If it had not been so easy for western banks to lend to Thai financial institutions, for instance, these could not have taken the untenable currency risks they did. Yet, the IMF had helped promote short-term capital mobility, and had urged borrowing governments to make their currencies convertible on capital as well as current account. Since the crises, international opinion, and the IMF itself, have tended towards the view that further short-term capital liberalisation should be conditioned on strengthening regulatory structures.

Whether the Fund encourages it or not, increasing capital mobility will, nonetheless, likely remain a central feature of international development. The tendency of private investors to seek higher returns regardless of borders will enhance the long-term growth prospects of many developing countries. But this may also mean some financial instability in emerging markets. In this increasingly international world, Mr Lenain asks what the role of the IMF should be.

He quietly sides with the IMF’s advocates, though emphasises tighter supervision, with additional and more flexible lending facilities. He goes on to describe what for this reviewer were perhaps the most innovative institutional proposals to have emerged in recent years.

After the Asian crises, Jeffrey Sachs and others had pushed for the international equivalent of national bankruptcy courts. This “Super Chapter 11” proposal was, for a while, advocated by Anne Krueger, the first deputy managing director of the IMF. The argument was that if an international authority could give temporary protection to sovereign creditors who were in default, this would facilitate the process of restructuring and recovery. The institution would have substantial authority to intervene in private market contracts between creditors and debtors. Governments and financiers were not ready, and the proposal was shelved.

It may well return, however. Critics should certainly not be too quick to reject the idea, particularly those that point to the potential conflict that might arise if the IMF, itself a creditor, became an international bankruptcy judge. Surely this conflict could be avoided by having the bankruptcy judge as an independent, quasi-judicial body?

Despite this reviewer’s disagreement with one or two issues, and apart from a slightly confusing chapter on economic models, one would be hard pressed to find a better introduction to the IMF, its structure and its battles, than this one.

It should be translated into English, and be read by everyone looking for a quick guide

into the history, the workings and the role of this important institution.

Le FMI, by Patrick Lenain, Collection Repères, Editions La Découverte, fourth edition, Paris, 2004.

ISBN 2-7071-4338-3

*Georges de Menil is professor of economics, Advanced Institute for the Study of Social Sciences (EHESS – Paris-Jourdan Sciences Économiques campus), and Adjunct Professor, New York University, Stern School of Business. Mr de Menil is also founder of the review, Economic Policy.

©OECD Observer April 2005




Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • “Nizip” refugee camp visit
    July 2016: OECD Secretary-General Angel Gurría visits the “Nizip” refugee camp, situated between Gaziantep and the Turkish-Syrian border, accompanied by Turkey’s Deputy Prime Minister Mehmet Şimşek. The camp accommodates a small number of the 2.75 million Syrians currently registered in Turkey, mostly outside the camps. In his tour of the camp, Mr Gurría visits a school, speaks with refugees and gives a short interview.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • Queen Maxima of the Netherlands gives a speech next to Mexico's President Enrique Pena Nieto (not pictured) during the International Forum of Financial Inclusion at the National Palace in Mexico City, Mexico June 21, 2016.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • OECD Environment Director Simon Upton presented a talk at Imperial College London on 21 April 2016. With the world awash in surplus oil and prices languishing around US$40 per barrel, how can governments step up efforts to transform the world’s energy systems in line with the Paris Agreement?
  • Happy 10th birthday to Twitter. This 2008 OECD Observer interview with Henry Copeland said you’d do well.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Once migrants reach Europe, countries face integration challenge: OECD's Thomas Liebig speaks to NPR's Audie Cornish.

  • Message from the International Space Station to COP21

  • The carbon clock is ticking: OECD’s Gurría on CNBC

  • If we want to reach zero net emissions by the end of the century, we must align our policies for a low-carbon economy, put a price on carbon everywhere, spend less subsidising fossil fuels and invest more in clean energy. OECD at #COP21 – OECD statement for #COP21
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa. blogs.worldbank.org
  • Pole to Paris Project
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • How can cities fight climate change?
    Discover projects in Denmark, Canada, Australia, Japan and Mexico.
  • Climate: What's changed, what hasn't, what we can do about it.
    Lecture by OECD Secretary-General Angel Gurría, hosted by the London School of Economics and Aviva Investors in association with ClimateWise, London, UK, 3 July 2015.
  • Is technological progress slowing down? Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on www.ft.com.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .

Most Popular Articles

Poll

What issue are you most concerned about in 2016?

Unemployment
Euro crisis
International conflict
Global warming
Other

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2016