For decades governments that dared to challenge the IMF model swiftly found themselves out of favor in Washington and other Western capitals.
But the financial crisis that started in 2008 prompted a new debate over free market policies and IMF ideology. So now after sixty years of zealously insisting on free market economic policies, the International Monetary Fund has traded its dogmatism for pragmatism, it seems.
IMF admits mistakes
It recently admitted that their policies for bailing out Greece has caused a lot of damage to the country. The IMF estimated that unemployment would go as high as 14% but it has now gone as high as 27%.
Capital controls cab be beneficial
The IMF has acknowledged that in some instances, developing countries might actually benefit from controlling how much foreign capital enters their economies — and how it’s used. After examining the experience of governments that have regulated capital flows, the IMF concluded that such policies helped reduce “financial fragility.
There is no surefire one-size-fits-all way to deal with the impact of potentially destabilizing short-term capital inflows. While controls can be helpful to individual countries under certain conditions, their widespread use could have deleterious effects on the efficient allocation of investment across countries, and harm prospects for global recovery and growth.
Glad to note that the IMF seems to have adapted a more flexible approach. Governments all over the world have complained to me about the inflexibility of the institution. Maybe in this respect something good came out of the global crisis? Plans are important, but we always have to be flexible about how to reach our goals. Do you think the new IMF flexibility will have a positive impact on global recovery and growth? Or is it just temporary and sooner or later they will become dogmatic again? Maybe it’s actually your opinion that all countries should stick to free market policies no matter what? Even when, as in Greece and Spain, unemployment hits 27 %?
Photo: Flickr – businesspictures