Improve Living Standards in Poor Countries: Reform the International Monetary Fund

Abstract

The International Monetary Fund was primarily established to facilitate the management of a fixed exchange rate regime designed to promote global trade. It did this in the 1950s and 1960s. It was a good idea for its time. That time ended with the floating of exchange rates in the 1970s. Since then the Fund has become the economic policy director of countries in crisis, a role it is ill-suited to serve, and which it has fulfilled poorly. This essay reviews the Fund’s performance in managing the debt crisis of the 1980s, the East Asian crisis of the late 1990s, Argentina’s crisis early this decade and poverty in Africa generally. It then assesses the Fund’s capacity to reinvent itself and concludes the time has come for a far reaching and fundamental reform in the mission of the Fund – a reform to return it to its original mandate and remove it from setting economic policy for countries in crisis.