Considering the trouble that countries like Greece get into when they default on loans from the International Monetary Fund (IMF), why would any country risk it? Well, for the money, obviously… but James Raymond Vreeland argues that some governments request these loans because they “want IMF conditions to be imposed to help push through unpopular economic reforms.”
The IMF was set up as part of the Bretton Woods Conference in 1945. The Great Depression and World War II, which left huge swaths of Europe and East Asia in ruins, were the contexts for this multinational attempt to write new rules for the world economy.
U.S. Treasury official (and later proven Soviet spy) Henry Dexter White was the architect of both the IMF and the World Bank, institutions intended to stabilize the global monetary system. Incidentally, or not, the “Bretton Woods system” also helped the U.S.A.’s post-war rise to international power over war-wracked European countries and their soon-to-be-liberated colonies.
Vreeland has two statistically-selected case studies: a nation with the highest level of foreign reserves, meaning it didn’t need a loan, participating in the IMF program (Uruguay in 1990) and a nation with the lowest level of foreign reserves, meaning it very much could have used a loan, but would not cooperate with the IMF (Tanzania in 1983).
In 1990, a new administration in Uruguay didn’t feel it had a mandate to dismantle the nation’s welfare state. But the austerity measures demanded by the IMF target public spending and “the Lacalle government proved extremely eager to have IMF conditions imposed.” So much so that it disregarded a referendum that it lost on the matter.
In the early 1980s, on the other hand, Tanzania really needed IMF money (and had accepted such loans in the past), but refused stringent IMF conditions. A change in Tanzanian leadership in 1985 brought about the IMF’s desired reforms.
But whose “reforms” are those? Who benefits? Who loses? The Uruguay case suggests that democracy may not always be compatible with the IMF’s agenda. Vreeland looks beyond the conventional story to detail the basis of tough questions about an economic order devised more than half a century ago and still very much in the news.