Volume 43, Number 171,
October-December 2012

Critical History of the imf, Óscar Ugarteche, iiec-unam, México, 2010.

Critical History of the imf is part of the Economic Research Compendium, edited by the unam Institute for Economic Research, whose purpose is to provide students and the general public with access to a wide variety of economic themes, like those addressed in this work.

In this text, Óscar Ugarteche presents a broad study of the International Monetary Fund (imf), starting with its creation in 1944 and going up to the current debates. He highlights how establishing the imf in Washington in 1946 would not only cement the importance of US foreign policy, but also its influence. We can remember that this institution was created to maintain global economic stability and avoid another a repeat of the crisis of 1929. As such, the author proposes a central question: What is the relevance of the imf in a global crisis?

This book shows the relevance of two stages that this multilateral entity has undergone: the first between 1944 and 1977, when conditions were stable, in accordance with the counter-cyclical Keynesian deficit conventions applied throughout the world: healthy fiscal accounts, stable payment balances and adjustable fixed exchange rates. The second stage began in 1971 when the injection of dollars into the international system was proportional to the devaluation of the dollar in comparison to gold. During this stage, the relationship between the United States and the institution changed. In other words, the government that organized the imf in 1944 to stabilize the world economy later ignored it when designing the new international financial architecture that would be put in place starting from that date. These events marked the end of the Bretton Woods Treaty and the start of a new post-Bretton Woods era.

The author describes the effects of deregulating the currency markets in terms of the price of gold, which went from 35 dollars in August 1971 to 445 dollars per ounce in 1980. Prices of raw materials followed this same trend. Something similar happened between 2003 and 2007 when the price of gold went from 334 to 743 dollars an ounce.

According to Óscar Ugarteche, the weakening of the imf became more clear in the 1960s, to such an extent that G7 economic policy summits replaced the debates that used to be carried out in the Fund. This group maintained their own debates to coordinate economic policy, while the rest of the countries with less-developed economies debated in the imf and more or less followed their directions.

The author describes how during the 1980s all debtor nations with a primary export base entered into payment moratorium due to the fact that interest rates jumped to 6.80%, even reaching 8.65% at the highest point. Still, Ugarteche sustains that “the imf was more worried about the stability of the United States banking system than about developing economies, and acted accordingly...it served more as an instrument of United States Treasury foreign policy than as a stabilizer of the global economy.”

With the fall of the Breton Woods system and the implementation of a more flexible system, the Fund assumed a more active role in supervising and applying recommended policies. The debtor governments were pressured to pay their debts, even if it damaged their economic, social or political stability. Meeting these conditions led Latin America to have extremely high inflation, which, in time, generated adjustment fatigue and refinancing. As a result, Latin America lost relevance in the global agenda.

The concept of shared responsibility between the creditor and debtor arose with the so-called “debt crisis.” However, unlike what was expected, the imf did not demand any responsibility from creditors regarding the terms of loans or interest rates, as it should have done, given the multilateral nature of the loans.

These actions meant that the imf was facing a growing credibility crisis, which sharpened with the Asian crisis and later with the Argentinean crisis, which was only worsened by the entity’s recommendations. As a result, the institution lost its role as an international guarantor and came to be seen as an irresponsible international political entity used as a foreign policy tool for the United States Treasury.

The work rejects the imf’s use of two techniques: fiscal prudence for the global South and shutting their eyes to the United States economy, which resulted in greater benefits for a small group of countries and affected many others that were trying to control inflation. In the author’s opinion, the Fund cannot end up as a multilateral entity oriented only towards the poorest economies, ignored by the developed economies, because this would worsen its credibility crisis.

In spite of this panorama, scenarios for possible changes within the institution are not very encouraging. It seems that the political conditions surrounding the governability of the Fund do not matter to the Europeans or to the Americans. A clear example is the choice of executive directors for the imf and the wb, a European and an American, respectively.

It is clear that the Fund has not acted on time to prevent various crises, giving off the impression that they are just not interested. As such, “it should strengthen its monitoring of economies that issue the principal reserve currencies in order to play an effective role in promoting financial stability and prosperity.”

As a result of the failure of the imf as an international guarantor, the one size fits all global policy has gradually been abandoned and replaced by giving more responsibility to independent regional funds to offer tailor-made solutions for regional problems. Some examples include Asia, Europe, South America, the Middle East and Eurasia.

The book emphasizes the fact that institutions in the twenty-first century have stopped working and the current international financial architecture no longer is able to respond to this century’s challenges. As such, it considers the possibility of convoking a new Bretton Woods conference.

The thirteen sections of the text declare that the imf has not met the basic objective for which it was created: to prevent financial crises. Everything would seem to indicate that the policies applied during the last 25 years have provoked, rather than prevented, global problems.

José Luis Maya
Institute for Economic Research — unam
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Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 192, January-March is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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