International Economist Tracks the IMF’s Response to Global Crisis

The global financial crisis has created seismic changes in monetary policies worldwide. Even the strict lending practices of the International Monetary Fund are showing signs of movement, according to Professor Ilene Grabel, an expert on global economic policies and development at the Josef Korbel School of International Studies.

Grabel’s recent paper on the topic, “Productive Incoherence in an Uncertain World: Financial Governance, Policy Space and Development after the Global Crisis,” was featured on the website of the Bretton Woods Project, an international body that scrutinizes the activities of the World Bank and IMF. Grabel explained that the IMF and World Bank bore the brunt of international criticism following what was thought to be its ineffectual handling of the Asian financial crisis of the late 1990s. That, combined with rapidly cascading financial problems spreading throughout the developed and developing world, has caused the IMF to rethink past orthodoxies.

At the time of the Asian crisis, Grabel said, the IMF imposed standardized, one-size-fits-all solutions on countries receiving fund assistance, which included Thailand, South Korea and Indonesia. The fund particularly opposed capital control policies, which allow struggling economies to reduce their level of financial and currency instability by managing international flows of capital. The IMF’s doctrinaire opposition to capital controls during the Asian crisis, Grabel said, may well have hurt rather than helped these ailing countries.

The “productive incoherence” cited in Grabel’s paper refers to what she sees as the IMF’s real-time struggle to address the world’s current financial woes in more nuanced ways. In the case of Iceland, she said, the IMF not only allowed the country to maintain the strict capital controls it had established before negotiating with the IMF, but it also encouraged Iceland’s central bank to strengthen them.

Grabel said she was “heartened” by the fund’s new openness. “I think the IMF’s policies are making a difference,” she observed. “The IMF’s movement away from one-size-fits-all responses to recovery has created more opportunities for developing countries to create policies that might be consistent with their economic conditions.”