On October 17 the chief economist and research director of the International Monetary Fund (IMF) gave a talk at Smith about “What the IMF Really Does.” For those unaware, Blanchard’s visit was mostly a result of the withdrawal of last year’s commencement speaker, Christine Lagarde.
At Blanchard’s talk, he began with a brief overview of the history of the IMF. The IMF was created in 1944, not long after the Great Depression and in the midst of World War II. The purpose of creating the IMF was to build a platform for economic cooperation among various countries in order to offset economic policies that contributed to the Great Depression.
Of course, the IMF has changed with the global economy, but the original mission of promoting financial stability remains at the center of the IMF agenda. The role the IMF takes when assisting countries to achieve financial stability makes the organization controversial.
So how do we assess the IMF? In my opinion, we can look at Blanchard’s overall description of the IMF and form a pretty solid opinion. He was very honest when questioned and was not afraid to admit some of the inherent flaws of an organization like the IMF.Blanchard is biased, but he did a really good job of staying away from promoting the fund and simply spoke about the facts.
Blanchard explained that when a country needs to regain some financial stability, the IMF is called in to help. The IMF does not enforce policies on nations that appear to need help but only on those countries seeking it. The adjustment process can be painful for many of these countries. Blanchard explained, “It is not the fund that is creating the pain,” but rather the pain is inherent in such an economic adjustment.It takes time for the adjustments to take full effect, and the country in need of help may have already been at a disadvantage.
The pain that comes with adjustment often falls upon the poorest people. Blanchard did not deny this fact and said, “When subsidies are decreased, it’s going to affect the poor. This is the nature of the beast, but we are very conscious of it. We try to put things in place to limit the pain. It is true that the adjustments have affects on the poor, but we try very hard to limit it.” Maybe the pain is inevitable and maybe it isn’t, which leads to the next question he proposed, “Do we make mistakes?”
Blanchard makes it clear that the IMF is not perfect. He said, “Do we make mistakes? For sure. It (the IMF) is basically like the doctor, where we have to make decisions very quickly and sometimes it’s not the right choice. Economics is not an exact science. We revise programs when things work or do not work. But it’s never perfect and we make mistakes.” This argument does not excuse any harm the IMF may have caused, but it is important to see that Blanchard recognizes that the IMF is not a perfect organization.
He concluded his remarks on mistakes by saying, “We allow countries to get out of the hole and return to the market, so in the end I think we succeed.” One may or may not agree with Blancahrd on this point, however, he acknowledges an important aspect of the IMF. The IMF’s job is to help a country as a whole improve its economy, and it is difficult to accomplish this goal while also making sure that every individual will experience only positive effects. In the end, if they have helped a country exit its financial crisis, they have done their job.
In response to an audience member’s question about the IMF’s policies’ impacts on an already struggling individual in a poor country, Blanchard argued, “In general when we look at the country in trouble it often comes from the system of subsidies that does not seem particularly rational, so the general lesson from economics is to say if you want to help the poor, help the poor directly but if want to help the economy you don’t want it to rely on one price, but it is clear when you do this it is going to have affects on some people.” He continued to emphasize the IMF’s role as an organization that helps a country as a whole and how it is almost impossible to set a country’s economic policy in such a way that every single citizen will see great benefits. For the IMF, fixing an economy is not the same as helping the poor.
I find aspects of the IMF questionable of course, but I do believe it is an organization that tries to improve and do the best it can to complete its difficult job. During her time as managing director, Christine Lagarde has pushed for gender equality in addition to improving IMF policies. I think this willingness to seek change is what is most impressive about the IMF. It is an organization that recognizes its imperfections and is not opposed to finding better ways to adjust global economic policy.