GEI Projects

9. THE ROLE OF THE IMF IN THE WORLD ECONOMY

Principal Researchers

Professor WILLIAM PERRAUDIN
Birkbeck College
University of London

Professor MARCUS MILLER
Dr Jonathon Thomas
University of Warwick

Ms PINAR BAGCI
University of Cambridge

Contacts

Professor William Perraudin
Department of Economics
Birkbeck College
7-15 Gresse Street
London WIP 1PA

Tel: 020 7631 6404
Fax: 020 7631 6416
Email: wperraudin@economics.bbk.ac.uk

Ms Pinar Bagci
Department of Economics
Birkbeck College
7–15 Gresse Street
London WIP IPA

Tel: 020 7631 6425
Fax: 020 7631 6416
Email: pbagci@economics.bbk.ac.uk

Duration

I April 1994 – 30 April 1996

AIMS AND OBJECTIVES

The project studies the IMF’s role in the world economy to examine ways in which the Fund as an institution affects economic outcomes by acting as a third party in games played between governments and their private sectors and between sovereign debtors and commercial banks. Our econometric analysis gauges the effectiveness of IMF policies, taking explicit account of the selectivity biases that have plagued past studies. It is hoped to draw implications from our work for the Fund’s current activities in Eastern Europe.

STUDY DESIGN

The project will investigate two key areas in which the Fund’s policies affect world economic performance. The first is the financial assistance and policy advice the Fund provides to member countries undertaking stabilisation and adjustment programmes. There has been much debate about whether Fund-supported programmes have been effective in meeting their objectives or whether such programmes, and the onerous conditionality attached to them, have failed to improve the economic performance of borrower countries. Using a combination of econometric investigation and theoretical modelling, the project will review the impact of the Fund’s current policies on the economic performance of member countries. The second aspect of the project will focus on the part the Fund plays in dealing with the problem of developing country debt. The research will focus on the Fund’s possible role, acting as the representative of creditors on the one hand, or, on the other, in mitigating the burden of countries which are unable to repay their debt. The project will address the question of an appropriate role for the IMF in the negotiations between debtor and creditor countries.

A key feature of the project will be to bring together researchers interested in the impact of IMF policies, in particular the Fund’s influence, in sovereign debt negotiations and its impact on the domestic political economy of borrower countries. To this end, a workshop on ‘Political Economy, Sovereign Debt and the IMF’ was held in July 1994 as forerunner to a conference on this theme which will be held in the summer of 1996.

POLICY IMPLICATIONS

The IMF’s role has changed greatly in recent years. From monitoring the Bretton-Woods system and smoothing payments imbalances in the 1960s and 1970s, it has become involved, first, in debt crisis renegotiation and, second, in assisting former communist countries to integrate with the West. The 50th anniversary of Bretton-Woods has provoked widespread discussion of the IMF’s activities. What has been lacking, however, is rigorous modelling of the IMF’s functions. Recent advances in political economy and the modelling of debt renegotiation suggests that now is a good moment to remedy this.