Editorial, NewAge, April 5, 2009
The International Monetary Fund’s staff mission reportedly found the economy to be in a comparatively good position with exports still showing growth and a satisfactory foreign exchange reserve situation as well. Not that the economy would be worse off without this endorsement, but as it has been the case with successive governments, such endorsements, and accompanying prescription, from multilateral lending agencies are taken more seriously than those by local economists and experts. Given that trend, it is very likely that the government will heed the IMF recommendations about how to protect the economy from the ongoing global financial crisis.
It should be pointed out here, that the International Monetary Fund was close to losing its relevance and posted operational losses with major borrowers repaying their debt beforehand and refusing to borrow from it. The third world countries were also flush with liquidity and did not require this agency’s assistance regarding their balance of payments. Bangladesh was not an exception either. This had in fact led the Fund to introduce a new arrangement, namely the Policy Support Instrument, whereby the lending agency could still retain its authority to meddle into the sovereign policy space of countries. Bangladesh had rightly refused to sign into this policy instrument, which was foisted upon several African countries.
The onset of the financial crisis, however, have been a boon for this organisation, which is seeing virtually hundreds of billions of dollars being pumped into it for financing developing countries in difficulty. These billions of dollars that the G20 has decided to shell out for the developing world two days ago will in fact add to the debt of the third world in the future. This move by the G20 also ignores the lending agency’s failure during the Asian financial crisis of the late 1990’s when its recommendations turned out to be disastrous for countries that remained within its fold whereas those that did not follow IMF directives fared considerably better and overcame the crisis much faster. Furthermore, this new injection of funds sidelines some other important issues, including internal reforms and modification of its voting mechanism, that were receiving increasingly more attention internationally.
It should also be noted that the International Monetary Fund becomes relevant whenever there is some sort of a financial crisis brewing and becomes irrelevant when there are none, thus giving rise to what must be considered a perverse incentive structure, which even neutral reviews of its operations have pointed out. There should be little doubt that borrowers of this lending agency seldom benefit from its diktats and the sooner the government realises that the country’s economy is more likely to fare better without IMF involvement the better.
Since Bangladesh’s last arrangement of the Poverty Reduction and Growth Facility has expired, the government should concentrate on repaying the pending debts. Thereafter, the government should adopt policies, with or without IMF endorsement, that have proven effective for other countries that are now firmly advancing on the path to development and prosperity.