International Policy

Heritage Backgrounder: IMF Aid and Trade Barriers

Neither the International Monetary Fund nor the $18 billion funding increase the Clinton administration has asked for is an effective substitute for fast-track authority and free trade, contend some analysts.

And they say its policy of bailing out developing economies is counterproductive:

  • The IMF is more likely to undermine markets than to stabilize them, since the very existence of government guarantees encourages risky investments.

  • Rather than promoting strong, stable currencies, one of the IMF's most common economic prescriptions is currency devaluation, which often undermines investor confidence and can lead to economic crisis.

  • Countries with little or no reliance on IMF loans have been less affected by the recent financial crisis in Asia or are recovering at least as well as countries that received an IMF bailout.

Furthermore, IMF aid recipients typically have the highest trade barriers.

  • The average tariff rate for IMF loan recipients is more than 17 percent -- over five times higher than the average tariff rate of the countries in the European Union and Japan.

  • By comparison, the 15 countries of the European Union maintain an average tariff rate of 3.6 percent, Japan has an average tariff rate of less than 2 percent and Hong Kong an average tariff of 0.1 percent.

  • And non-tariff trade barriers are more prevalent among IMF recipients than non-recipients, according to the Heritage Foundation/Wall Street Journal 1998 Index of Economic Freedom.

Most non-tariff barriers among IMF recipients include (but are not limited to) import bans and quotas, corrupt customs officials, unnecessary licensing and labeling requirements, and unrealistic health and sanitary requirements aimed specifically at keeping out exports.

Source: Bryan T. Johnson and Brett D. Schaefer, "Agricultural Exports and the IMF: Separating Myth from Reality," Backgrounder No. 1178, May 11, 1998, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington, D.C. 20002, (202) 546-4400.

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