Cashing in on Crisis

Anyone who has picked up a newspaper in the last several months has heard of the International Monetary Fund. This relatively obscure yet immensely powerful institution has been sprung to the front pages of the world’s newspapers by the Asia financial crisis and the fund’s role in bailing out the economies of Thailand, Indonesia, and South Korea.

The International Monetary Fund (IMF) was created in 1944 to oversee the global financial system and to extend short-term loans to countries facing liquidity problems. In the last several decades, however, the IMF increasingly has become involved in "structural reform" of its borrowing nations. While still providing short-term assistance, the IMF also attaches loan conditions that require fundamental changes in national economic policies. Even more recently, the IMF has begun to attach "good governance" conditions to its loans.

This deeper role has sparked a great deal of controversy. Critics from the Right argue that the IMF is interfering with the market by providing a guarantee of financing if a country’s economy, including the private sector, experiences a crisis. Critics from the Left want the IMF to recognize the impact of its policies on social cohesion, labor conditions, poverty, and the environment.

Because of its magnitude, the financial crisis in Asia has sparked an unprecedented examination of IMF policies and their impact. The Asian bailouts illustrate the IMF’s new approach—they require changes in the country’s banking and financial sectors and crack down on corruption. However, they also include the typical components of "structural adjustment programs" that have sparked longtime criticism of the IMF.