Even in its work in the developing world, it is criticised on six issues. First, for going overboard in promoting more open capital markets leading to greater financial instability across the world. Second, the IMF’s standard advice to emerging economies is pro-cyclical — which ends up increasing the depth of the crisis. But when it comes to advanced economies, it endorses a completely different recipe. Third, the IMF’s surveillance in advanced economies is not taken seriously and nor are its analysis of spillover effects of advanced country policies, which have global implications and make macroeconomic management and financial stability more difficult for the less advanced economies.
This may also have added to its inability to predict global financial crises. Fourth, its programme sizes are arbitrary. Many small EU countries, such as Greece, Portugal and Ireland, received large IMF programmes over 30 times their quotas. A $15-billion facility is hastily arranged for Ukraine during the war, but a developing economy like Sri Lanka is made to wait for a $3-billion facility while its “so-called friend” China delays it for over a year is another case in point. Many countries without political support from G7 countries struggle with much smaller programmes, which also then result often in much greater austerity and much less ability to permanently come out of crisis, leading to repeat programmes.
A fifth major critique is that once it lifted its restriction of not lending into arrears, it has become a serial lender and lends not just for illiquidity but also into insolvency. Its programmes often bail out private creditors whose commercial and sovereign debt is turned into public debt and becomes the responsibility of taxpayers. Over 25 per cent of its member countries (48 ) have been under IMF programmes for more than half their membership years, in other words in a state of perpetual IMF tutelage, and almost half of them have been under its programmes for more than 30 per cent of their membership years. Finally, the IMF is accused of “mission-creep”, that it is getting itself involved in sectoral and social issues that should be best left to the multilateral development banks and other bilateral and specialised UN organisations. By using its new instrument, the Resilience and Sustainability Trust Facility, with lending of 20-year maturity, it is beginning to look like the World Bank and behave like an aid agency.
Following the global financial crisis in 2008-09 and now with the pandemic in 2020 and the Ukraine war, it has become clear that the IMF remains too small and its resources too constrained by its articles to help the world address these challenges in the 21st century. Bilateral swap lines and regional safety nets are today twice as large as the resources of the IMF.
The IMF’s resources are now about $1 trillion, or 1.1 per cent of global GDP, barely enough to deal with crises in a few countries, but certainly not enough to manage a global crisis. Of these, about half are from its own resources and the remaining from borrowing arrangements, which are available on a discretionary basis. Its capital base (through the increase of issuance) must be at least doubled and adjusted more automatically as global GDP rises, especially as the world is entering a phase when widespread debt crises are likely. In turn, the IMF must help encourage swap arrangements and regional liquidity arrangements to help make the entire financial system more secure and not see these as competing with its pre-eminence. The total stock of special drawing rights (SDRs) of 660.7 billion is equivalent to around $950 billion, just over 1 per cent of global GDP. Each SDR issue is subject to political whims and is very uncertain. An agreement for a more automatic SDR issue every five years to keep it at least around 1 per cent of GDP and with mechanisms to assign greater shares to lower income countries is needed, but will be difficult to get agreement on in today’s fractured world.
A reformed and strengthened IMF must be a core pillar of the system, but it should see its primary role as a monitor and arbiter of the rules. Its success should not be judged by the size of its programmes or how much it has lent. It should try to understand the impact of climate change on the macro-economy but stop behaving like an aid agency. It should be seen as the lender of last resort, and it should not try to invent new facilities to keep itself relevant and to keep lending. A good firefighter should judge its success by how well it prevented fires rather than by how many fires it had to respond to. In this regard, it should be working to encourage central bank swap arrangements and regional support mechanisms and not resisting them as it has often done in the past. It should be working towards helping create a stronger, multi-instrument financial resilience compact rather than be the sole provider of support to countries in balance of payments and financial distress.
The writer is distinguished visiting scholar, Institute for International Economic Policy, George Washington University, and a senior visiting professor, ICRIER
 "IMF, International Monetary Fund")
