The International Monetary Fund’s consideration of whether to issue “special drawing rights” – essentially billions of dollars of grants to governments of countries all over the world, primarily funded by United States taxpayers – has provoked widespread outrage. Proposed grants to, among others, China, Iran, Nicaragua, Myanmar, and Afghanistan under Taliban rule are worse than poor policy.
The outrage against IMF special drawing rights, however, misses the mark. Instead of cancelling special drawing rights, it is the IMF that should be cancelled.
Economists such as Peter Bauer and William Easterly have shown that most economic aid provided to the governments of poor and developing countries provides little, if any, benefit to the economies of those countries and instead strengthens corrupt and authoritarian rulers. Yet it is economic aid to governments that is the IMF’s main function.
As Easterly explains in his book, The Tyranny of Experts, the evidence instead shows that it is development of the institutions of a civil society that enhance the rule of rule of law and permit the operation of free markets that has allowed billions of people around the world to pull themselves out of poverty and has raised incomes in poor and developing countries.
Consider, for example, a comparison of the experiences that South American neighbors Argentina and Chile have had with IMF aid.
For much of their history, Argentina was richer than Chile. World Bank data show that in 1960, Argentina’s per capita income of $5,642.76 was substantially higher than Chile’s per capita income of $3,611.92. The same was true in 1984, when Argentina’s per capita was $7,399.89, while Chile’s per capita income was only $4,583.38.
Argentina’s population of about 45 million is about 2.5 times larger than Chile’s population of 18 million. In 1984-1989, the IMF disbursed over $3 billion to Argentina, a little over 2.5 times more than the $1.175 billion that it disbursed to Chile during the same years. As of 1989, Argentina’s per capita income of $6,497.42 continued to exceed Chile’s per capita income of $5,836.71.
After 1989, however, the story drastically changed. Since 1990, the IMF has disbursed over $53 billion to Argentina – and none, i.e., $0, to Chile. The results? Argentina has stagnated while Chile has zoomed higher. By 2020, Chile’s per capita income had taken major steps upward to $14,050.18, while Argentina’s per capita income had only slightly inched up to $8.692.71.
Stopping the IMF special drawing rights program would be a step in the right direction. But we can do much better. It is time to abolish the IMF and permanently stop the IMF from fleecing American taxpayers and throwing sand in the gears of poor and developing countries.