NCPA - National Center for Policy Analysis

How The IMF Encourages Dangerous Policies

December 28, 1998

Increasingly, economists see the International Monetary Fund as an agency that brings on the economic disasters it is supposedly designed to quell.

  • Knowing that they could eventually qualify for IMF aid -- $42 billion as it turned out -- Brazil's leaders abandoned sound economic policies and wound up at the brink of disaster.
  • Russia avoided tough economic decisions -- such as greater privatization, cutting public spending and enacting legal reforms -- and found itself so deeply in trouble that even billions from the IMF have provided no solution.
  • Mexico's problems in 1995 stemmed from corrupt and risky bank lending policies and macroeconomic mismanagement -- with the IMF waiting in the wings to clean up the mess.

Critics argue that as long as countries and their leaders assume the IMF will be there to bail them out, they will continue to delay reforms, as well as pursue politically popular short-term fixes that eventually lead to long-term economic chaos.

Source: Robert J. Barro (Harvard University and the Hoover Institution), "The IMF Doesn't Put Out Fires, It Starts Them," Business Week, December 7, 1998.


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