Indonesia | Economics

Sunday, October 24, 2004

IMF needs to learn to defend itself

IMF often lets itself be assaulted from left and right, particularly from critics within countries under its program. Perhaps the IMF thinks this will avoid the perception of the institution imposing its policies on these countries. But by doing so, the IMF risks undermining rational economic policymaking in these countries.

A country enters an IMF program to deal with its balance of payment crisis. IMF Programs usually recommend fiscal and monetary prudence - which basically means reductions in inefficient spendings and risky economic activities. The immediate objective is to limit fluctuations - in inflations, interest rates - so that the economy can return to normal. But often, this requires a country to make hard choices and non-populist (although, often, pro-poor) policies.

However, even when these are pro-poor policies , the IMF often fails to make its case to the public. As the result, it often lets itself be perceived as an anti-poor institution. Perhaps, it's more than willing to absorb various false accusations - under the presumption that, after the program finishes, it will leave the country anyway. But in doing so, the IMF risks undermining rational economic policymakers - and those people implementing more rational economic policies once it's gone.

Indonesia is the case in point. The IMF was recommending policies that many economists perceived as necessary to control the wild fluctuations of inflations and interest rates (which, by the way, would have hurt the poor much more than they would have hurt the rich). Economists who understand the rationale behind these recommendations supported such policies. But many politicians and interest groups rejected many of the policies, and together, they managed to paint a picture of an evil IMF. IMF did very little, if anything, to defend its recommended policies - and the accusations stick.

At the end of 2003, the IMF Program was finished, and the issue of the IMF should have stopped to become relevant. That is, of course, until the election - and suddenly, the issue of pro/anti-IMF is put forward in the selection of the new administration's economic ministers. And, obviously, economists who supported prudent fiscal and monetary policies are the ones being accused of being pro-IMF ministers. Or, in other words, rational economic policymakers are becoming victims of the IMF's inability to defend its own policies.

It is in this sense that the IMF needs to learn from its Bretton Woods sister. The World Bank, to a certain extent, has been much more successful in defending itself - using its army of external relations and communications officers to deliver the message of the merits of its policies, and by doing so, limit the damages of irrational criticisms towards its policies.

Of course, the IMF needs not become an institution that admits no wrong - it simply needs to communicate its policies much more, presenting its rights as much as admitting its wrongs...

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