Bryan T. Johnson and Brett D. Schaefer

This selection was excerpted from The International Monetary Fund: Outdated, Ineffective, and Unnecessary, a Heritage Foundation report published on 6 May 1997. Bryan Johnson is a policy analyst and Brett Schaefer is a research fellow at the Heritage Foundation in Washington, D.C.

Much about the international economy has changed since the end of World War II. In addition, much of what the IMF has done has resulted in failure. The IMF remains ineffective because

IMF lending is more likely to create long-term dependency than to act as short-term assistance. IMF lending, as defined by its articles, is supposed to be short term. But according to economist Doug Bandow, most countries actually become long-term users of IMF loans. A review of IMF lending activities reveals an increasing reliance on the fund by less-developed countries.

For example, between 1965 and 1995, 137 countries received loans from the IMF. For 81 of these countries, the number of times they borrowed from the IMF between 1981 and 1995 increased an average of nearly 50 percent over the number of times they borrowed between 1965 and 1980. Only 44 countries reduced the number of times they borrowed during the same periods; 12 maintained activities at similar levels. This means the IMF is extending loans to more countries with greater frequency than it has in the past, thereby involving greater total amounts of assistance than was the case before 1980. Thus, the IMF has not been able to ensure that its loans to less-developed countries are indeed in the short term. Instead, these loans have been more likely to create long-term dependence.

The IMF has failed to help less-developed countries improve economically. In addition to weakening much of the world economy generally, IMF lending has hurt less-developed countries specifically. For example, a review of IMF loan recipients indicates that most are no better off economically today (measured in per capita wealth) than they were before receiving these loans. In fact, many are poorer: Forty-eight of the eighty-nine less-developed countries that received IMF money between 1965 and 1995 are no better off economically than they were before; thirty-two of these forty-eight countries are poorer than before; and fourteen of these thirty-two countries have economies that are at least 15 percent smaller than they were before their first IMF loan or purchase.

The economies of some recipient countries have performed especially poorly.

For example:

1. From 1968 to 1995, Nicaragua received approximately $185 million in IMF loans. In 1968, per capita gross domestic product (GDP), measured in constant 1987 U.S. dollars, was $1,821; in 1993, it was only $816, or 55 percent less than it had been before Nicaragua received any loans.

2. From 1972 to 1995, Zaire received approximately $1.8 billion in IMF loans. In 1972, per capita GDP, measured in constant 1987 U.S. dollars, was $683; in 1993, it was only $317, or some 54 percent less than it had been before Zaire received any loans.

The inescapable conclusion is that IMF efforts to encourage economic growth have been dismal failures. Whether this has been caused by the recipient countries' poor adherence to IMF policy prescriptions or by flaws within these prescriptions themselves does nothing to alter this conclusion. Harvard economist Jeffrey Sachs believes both may be at fault: "Countries that comply with IMF/WB [World Bank] programs seem to outperform countries that do not. At the same time, however, even countries in compliance with IMF/WB programs experience poor to mediocre growth performance."