top of page

The International Monetary Fund (IMF) is an international organisation comprised of 189 countries. The IMF aims to bring countries together with the goal of fostering better international economic relations, and create improved economic conditions internationally and domestically. The IMF, often in synergy with the World Bank, is heralded as the first line of defence of the international economic congregation. Created out of the Bretton Woods exchange agreement in 1944, its main role was to implement the same agreement.

The above goals are often achieved by the IMF by providing advice and loans. The applying country must present various documents to the IMF as a loan application, such as records of the country’s economic performance for the past five years. The IMF, taking in consideration the condition of the country, provides conditional loans, advising borrowing countries to initiate structural reforms to facilitate economic growth.

Even India has availed the help of IMF, although not for the first time, in 1991. The Chandrashekhar Government saw increasing foreign deficit due to currency overvaluation and crude oil shocks. When the government of India did finally go to the IMF and the World Bank, it only had foreign reserves enough to cover imports for the following seven weeks. India pledged its entire gold reserves and although it led to huge public outcry at that time, the action is often seen as the first giant step of the economic liberalisation of India.

However, history asks the question: Do IMF loans and advice always help nations, and secure their interests? The answer gets murkier the more one reads about the IMF and the World Bank’s involvement in various cases. The IMF, individually, has often been criticised for being out of touch with the domestic policies and economic conditions of applicant countries, and not having their best interests at heart. Extreme allegations also have painted the IMF as an organisation that advises countries not for sustainable growth, but for a quick return on the loan taken.

Let us come back to 1991 India. Political Instability was at an all-time high, with ever-increasing dissent of the coalition government. The increasing exports had already created a problem for the foreign reserves of India, and then the price of crude skyrocketed, exacerbating a bad situation. The IMF and the World Bank primarily blamed the macroeconomic policies of the 1980s in putting India into this situation. IMF bundled the loan with policy changes they viewed as problematic. The Rao Government, sworn in in June 1991, expressed discomfort with the policy, but were helpless. Although, India did eventually make out of this crisis, and transformed from a closed to a market economy, with gradually opening up to foreign investment, it cannot be ignored how the IMF did coerce a country in crisis to comply with certain policies it wasn’t comfortable with. Much credit goes to the government to this day, which had Dr. Manmohan Singh in the capacity of the Finance Minister, for navigating through this crisis well enough.

Often, the argument presented in favour of this financial pressure is that organisations like the IMF suggest only the best policies for the long-run and not the short-run. But case studies point towards the other end.

The work of the IMF in Bolivia had been good until 1998. They had curbed inflation, increased standards of living and brought a sliver of income equality within the country. The conditions on all IMF aid to Bolivia was simple: keep working to increase government efficiency and focus on government expenditure for the upliftment of the Bolivian population. On the face of it, this condition seems rather straightforward. But various documents, like a 2002 World Bank Publication, indicate towards the fact that both the World Bank and the IMF, coerced Bolivia to allow privatization of industries. This did not go well. The then-incumbent government did allow for privatisation of industries, one of them being drinking water and sewage management, which resulted in people paying exorbitant prices for the provision of drinking water. Firms, primarily the Aguas del Tunari, hijacked drinking water and made it a consumer product, forcing the population, already under financial stress, to pay for a basic necessity which should have been essentially free or negligibly charged. The nail in the coffin was the Law 2029, basically granting Aguas del Tunari a monopoly over Bolivian water resources. This amounted to the Cochabamba Water War, with various organisations and protests pushing the state into a lockdown. Various analysts have often criticised the IMF and the World Bank for acting out of vested (read: US) interests in this particular case. However, credit where it’s due, Bolivia did come out of this crisis, and the government terminated the contract. Although, there is water inequality still, but the situation could have been much worse.

This case is often used as an example of corporate greed and against full globalisation. However, one should also note how the lack of domestic understanding on the part of the related international organisations and subsequent coercion led to a massive issue with its ripple effects still prevailing.

Even in recent times, the IMF attempts to fit privatisation as a one-size-fits-all answer to every problem. The same issues came up in Greece, when IMF pushed for privatisation by Greece of firms owned or controlled by the State. Various organisations, such as the European Network of National Human Rights Association, have held the IMF accountable for worsening living standards in Greece, further exacerbated by the Refugee Crisis of the European Union. In the report published regarding the outcome of the Greek Stand-by Agreement with the IMF, IMF did admit unsatisfactory economic outcomes, but it’s high time that the IMF starts according the same attention to the human rights of the populations of the countries it helps.

In all honesty, privatisation at a surface level does seem as a good option for a government buried in debt: Privatise industries, which would relieve the government from the expenses associated them, and also boost these industries, that may have been stalled due to bureaucratic hurdles, red-taping and other reasons that public enterprises underperform. But the transition needs to be considered. Pushing for complete privatisation as the only way out for a desperate country scrambling around for monetary and/or fiscal assistance is not the precise answer. Complete transfers of such a nature take time to be sustainable, and that trade-off needs to be carefully considered by international organisations that are built to aid such countries. Also, coercion of policy using conditionality of loans is a mixed bag: With an international organisation providing aid in desperate times, with conditions that more often than not constitute great structural reforms, countries are forced to comply. Yes, organisations like the IMF should only allot money if the government would agree to its usage in a way mutually decided by the parties, but forcing policies and changes that might look good on paper without analysis of the domestic variables of interest, is a recipe for disaster.

By Abhijay Pandita


bottom of page