Has the IMF done more harm than good?

Created at the 1944 Bretton Woods Conference, the International Monetary Fund has acted as a bank for struggling nations. Over the years, the IMF has made headlines for its contribution to global stability, however, the negligence and poor policy plans perpetrated by the organization have been largely ignored. While the mission of the IMF appears well-meaning, the methods employed to achieve it have left many countries in horrendous conditions.

The failure of the IMF can be directly attributed to its wealthier members. Due to their immense wealth, “Germany, Japan, France, Great Britain, and the U.S. combined control about 38% [of the organization]. The disproportionate amount of power held by wealthy countries means that the interests of bankers, investors, and corporations from [those] industrialized countries are put above the needs of the world’s poor.” Among the countries that have requested loans, three general impacts have been found, crystalizing the IMF’s real interests.

One of the IMF’s common methods of reducing debt is austerity measures. Austerity measures are a series of cuts in a country’s budget to reduce its deficits. These cuts could include reducing social spending or infrastructure spending. However, in addition to these cuts, a 2019 study estimated that 43% of IMF loan programs include food and agriculture conditions. “The majority of its interventions constitute a push for liberalization of the sector by reducing the role of the state as a provider of price supports, agricultural insurance, and credit provision, and further expanding the market-led development ideology.”

This is devastating because many farmers don’t produce enough food to make a profit. As a result, governments often don’t provide farmers with subsidies and credit so they can continue producing cheap food, without compromising their financial security. Removing a lifeline for these farmers has empirically caused famine. “[In] Zambia, the [IMF] required the government to eliminate subsidies for fertilizers and pesticides…the prices of these inputs skyrocketed, forcing farmers to leave their fields fallow…[leaving] seven million people short of food.” While this itself isn’t imperialism, however, the IMF doesn’t stop there. Following the increase in austerity measures, the IMF deregulates the private sector and opens the borders allowing multinational corporations to flood into countries and operate within them.

Countries that were historically protectionist and self-reliant were soon overrun with monopolistic companies. This is uniquely devastating for agriculture since many of these corporations buy the land from the now impoverished farmers and export the food to the developed world. In fact, “Nearly 80% of all malnourished children in the developing world live in countries where farmers have been forced to [produce] crops for wealthy countries.” Across the world, “an estimated 124 million people were under crisis-level hunger…[while] the IMF facilitated, enabled, and led the global rush for land grabs.” Selling food to the developed world at the expense of those who need help the most is what the IMF does best.

The IMF’s cheap loans and endless bailouts are coupled with decades of future entrapment for many countries. The IMF’s strategy is one of moral hazard. The theory behind moral hazard is that an individual or entity is more likely to take risks or commit dangerous actions if the chance of consequences is significantly decreased. In terms of the IMF, governments borrowing their money go on a shopping spree, taking out costly loans for expensive projects, and building up even more debt. Because they believe that the IMF will always be there to help them this creates a perpetual cycle where countries continuously go into debt and have multiple financial collapses.

History, unfortunately, proves this theory correct as the IMF has played a major role in nearly 100 banking crises in the developing world in the last 15 years. For example, in Indonesia, a banking crisis caused by the IMF led to a 14% decrease in GDP and a 40% increase in poverty. Or look to the dependency of Sierra Leone’s economy on its wealthy IMF donors. This bondage bred a domestic crisis in the 2008 recession that parallels the dependency of a colonial nation on its metropole.

Of all the countries across the world that have been bailed out by the IMF, 11 have gone on to rely on IMF aid for at least 30 years; 32 countries have been borrowers for between 20 and 29 years, and 41 countries have been using IMF credit for between 10 and 19 years. The IMF continues to string countries along hiding their true motive of foreign control, by promising they will help them out of their crises.

The final method the IMF employs is currency devaluation. Oftentimes, these countries are producing negative net exports or have extreme debt situations. As a result, the IMF forces countries to artificially devalue their currencies to decrease the value of their debt and, incentivize countries to buy goods from them. Devalued goods are less expensive to foreign countries, which is why countries buy the now cheaper goods. On average, a 10% fall in the value of a nation’s currency can boost exports by an average of 1.5% of GDP. Unfortunately, the IMF uses this to its benefit. Particularly, in developing countries, a decrease in prices means an increased demand for their raw materials.

In Sierra Leone, for example, the IMF required them to “devalue [their] currency, claiming that this would promote domestic business by increasing the cost of national imports. Yet, this currency devaluation also lowered the cost of Sierra Leone’s minerals for other countries, incentivizing diamond extraction and decreasing the amount of revenue the government could generate by selling the gems.” In the end, 70,000 people were killed and an additional 2.6 million people were displaced due to the conflict.

Fueled by the desire to benefit its wealthiest benefactors, the IMF has manipulated countries into giving up resources and power to the organization. Created after the Second World War, many scholars argue that the IMF is the primary vehicle used by the West to keep developing nations in poverty. Unfortunately, a Harvard University study concluded that most countries would be better off economically in the long term if they never turned to the IMF.