The IMF

The other day in one of my classes the topic was the IMF. Here's an excerpt from an email the professor sent out prior to the class:

I would like to start the class by going arond the table and asking each student to offer an issue for discussion or a question to be answered related to the IMF. What bothers you most about the IMF. What you think the IMF should be doing that it's not doing. Etc.

My question was "What's the point? Why does the IMF exist? What accomplishments can it point to? What does it do that the marketplace couldn't/can't?"

The professor, a rather intelligent guy who is an IMF veteran and currently works at the Brookings Institution, responded that given the current advanced state of globaization and the realities of today's global economy that "If the IMF didn't exist we would have to create it" -- largely to deal with the issue of global capital flows that some argue promote economic instability.

I responded that many economists agree that today's globalization is not unprecedented, and that the global economy was similarly closely integrated in the early 20th century -- a linkage that was disrupted by the advent of World War I. In this pre-IMF era was the global economy less stable than it is today?

The professor's answer kind of astounded me. He said, paraphrasing:

"Well, let me respond by telling you this. My grandfather was born in the Paris Commune and emigrated to the U.S. in 1914 prior to the outbreak of World War I. I was born two months before the attack on Pearl Harbor." He then went on to note how much more peaceful the world has become since that time -- which he linked to the post-World War II advent of the United Nations, World Bank and IMF.

Realizing that this debate could have gone on for the duration of class I let it go at that, but the answer kind of blew me away for its utter silliness. Am I supposed to really believe that today's peace and prosperity is primarily or even in large part owed to the UN, the World Bank and the IMF? Is that at all reasonable? When we look at some of the world's big economic success stories in the world today, such as India and China, how many of them can be traced to intervention from the IMF or World Bank? Even a top official at the World Bank wrote a highly acclaimed book that essentially argued the organization's policies have been a series of failures.

Frankly its those kind of answers that make me believe the IMF's critics are right.