Congress should say no. The IMF has long impeded economic growth in poorer countries, and its new penchant for bailouts is likely to further slow reform while putting U.S. taxpayers at risk.
The IMF was created in the aftermath of World War II to help countries meet balance‐of‐payments shortfalls. When that original role disappeared along with fixed exchange rates in the early 1970s, the fund showed an agile instinct for self‐preservation by shifting to the economic‐development business. Persistent failure in that new incarnation didn’t stop the IMF from expanding into the markets created by the collapse of communism. Now the fund has taken another step and become the bailout king. Last fall the U.S. agreed to a $100 billion increase in the IMF’s capital base; fund executive director Michel Camdessus is pushing for $60 billion more.
The real test of any aid agency is whether its clients move from dependency to self‐sufficiency. Bryan Johnson and Brett Schaefer of the Heritage Foundation figure that in the end, more than half of the IMF’s borrowers between 1965 and 1995 were no better off than when they started. A third were actually poorer. Almost all were deeper in debt. Eighty‐four countries have been borrowing from the fund for at least a decade.
Although the IMF sets conditions for its loans, it usually focuses on narrow accounting measures — currency devaluations, for example — that often bring borrowers’ economies to a halt.
Moreover, the fund is shamelessly eager to lend: It responded to Indonesia’s recalcitrance by promising “considerable flexibility” and by constantly renegotiating its loan agreement.