How many times has The Economist proven wrong
The accusation of globalization opponents that the IMF and the World Bank bear a substantial part of the responsibility for worldwide poverty and accumulated financial crises is not tenable. The influence of the Bretton Woods institutions on economic policy and the economic development of their members is considerably less than is often assumed. But measured against their own claims, the track record of the IMF and World Bank is rather poor. Reform of both institutions is urgently needed. Instead of concentrating on their core competencies in macroeconomic and financial stabilization (IMF) and poverty reduction (World Bank), both institutions endeavored to expand their areas of responsibility. The division of labor between them became increasingly blurred. The attempt by both institutions to implement economic policy reforms in the member states by tying financial aid to conditions (conditionality) has proven to be ineffective. The reform programs conceived in Washington have often not been implemented by the member states. The realization that development aid only favors macroeconomic growth processes and alleviates poverty problems if it is concentrated on poor countries with good economic policies has so far hardly been taken into account by the World Bank in day-to-day practice. The success reports about positive project results cannot hide the fact that a productive use of resources is not guaranteed due to the exchangeability of project funds (fungibility) in the recipient country. The World Bank's claim that its financial aid has recently flowed to countries with good economic policies turns out to be false as soon as the misleading statistical averages of the World Bank are corrected for two special cases (Cape Verde and Honduras). The IMF's conditionality has shown no undoubted success even where it would most likely have been expected - as in the fight against inflation and the reduction of current account deficits. More IMF programs failed in the 1990s than in previous years. One reason could be that the main shareholders are refusing the developing countries a greater say in the decision-making processes in the IMF. The accusation of having pushed the burden of crisis management unilaterally on the affected countries has only recently been taken into account. It remains to be seen whether the proposal by the IMF management to involve private creditors in “insolvency proceedings” to overcome over-indebtedness can be implemented. The World Bank must fulfill its traditional mission of fighting poverty more effectively than before. Country-specific poverty reduction should be based on independently designed reform programs in developing countries. In the provision of poverty-related services with the character of international public goods - such as the fight against AIDS - the World Bank could act as a financial intermediary. The IMF would have to concentrate on stabilizing the international financial markets and leave poverty-related tasks to the World Bank. The subsequent conditionality of the IMF should, as far as possible, be replaced by previously defined qualification criteria. The credit terms would also have to be staggered in such a way that long-term use of financial aid is discouraged. Finally, the IMF has to help avoid financial and currency crises as far as possible through its monitoring activities and improved early warning systems.
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