The IMF's impact on Jamaica W.I

IMF's impact on Jamaica W.I

IMF's impact on Jamaica W.I

Introduction

The IMF is a lender of last resort to countries facing serious economic imbalances. Following the oil crises in the 1970s and the international debt crisis in the 1980s, the IMF focused its attention on devaluation and macroeconomic stability in order to restore external balances. The reform agenda embodied in policy conditionality soon expanded to address sectoral policies as well as institutional reforms. Policy conditionality in this way was broadened to encompass not only traditional balance of payments and monetary concerns but also development strategy and associated growth policies. The expansion in policy conditionality partly took place because, as was soon perceived, external balance and macroeconomic stability could not be achieved without changes in key sectoral policies.

The policy

conditionality of the IMF quickly became the target of heavy criticism from both sides of the political spectrum ([Bird and Willett, 2004] and [IEO, 2007]).1 On the left, IMF conditionality is typically viewed as harsh, intrusive, and ineffective; on the right, the habitual objection is that policy conditions are not enforced. Faced with these criticisms, the IMF has accepted that the proliferation of policy conditions went too far. Furthermore, the IMF has expressed a desire to re-focus attention to areas which are core competencies of the institution (IEO, 2007). In IMF lingo, conditionality must be streamlined. Yet the IMF continues to perceive conditionality as a useful instrument for encouraging economic reforms.

Over the years, the IMF has increasingly stressed that its policies should help lay the basis for promoting long-run economic growth ([IEO, 2007] and [IMF, 2005]). As such, devaluation, balance of payments equilibrium, and macroeconomic stability become intermediate targets that derive importance to the extent that they contribute to fostering economic growth. There is by now a well-established literature which evaluates the IMF against the goal of promoting long-run economic growth. While disagreement exists, the evidence is not entirely positive (Vreeland, 2006). However, the understanding of where the IMF seemingly went off target remains controversial.

Some claim that the IMF follows a one-size-fits-all approach. According to this view, the policy template used by the IMF is both unsound and overly rigid ([Stiglitz, 2000], [Stiglitz, 2001], [Stiglitz, 2004] and [Vreeland, 2006]). Others argue that incomplete compliance with conditionality is the main culprit. To the extent that program effectiveness requires adoption of the full gamut of IMF policy conditions, incomplete compliance will undermine the entire reform package (Krueger, 2004). Recent IMF thinking on conditionality is closer to this latter view (Rodrik, 2006).2 Unfortunately, it is very difficult to settle this debate using econometric evidence. Failure to demonstrate a positive effect from IMF program participation to economic growth does not allow us to discriminate in favor of either of these two views. Indeed, if we cannot fully account for the degree of compliance with conditionality (and this is very difficult), both views can with some right claim that no effect of reform initiatives is consistent with their ...