Amar Bhide and Edmund Phelps have written a strongly-worded denunciation of the International Monetary Fund, which they argue has long since outlived its usefulness:
The IMF’s business model sabotages properly functioning capitalism, victimizing ordinary people while benefiting the elites. Do we need international agencies to enable irresponsible—verging on immoral—borrowing and lending? Instead of dreaming up too-clever-by-half schemes to stumble through crises after they happen, why not just stop imprudent banks from accommodating foreign borrowing by feckless governments?
This passage in particular is worthy of note:
Now, before Tunisia and Egypt even have new governments in place, the IMF has jumped to offer them loans for vast infrastructure projects in the desert—as if the fund didn’t know that young Arabs there want ways to start businesses and have careers, not temporary construction jobs.
This reminds me of our discussion of Somaliland. States without easily-controlled point-source natural resources or access to large infusions of foreign aid must rely on indigenous revenue sources. And so these states have a strong incentive to protect property rights, limit cumbersome regulations, and take other measures that will facilitate the growth of the private economy. They don’t do this for fun. They do this because they must. The IMF may well short-circuit this process by offering an alternative path to financing the state, and in many cases to enriching entrenched political elites.