Going Into The Dragon's Lair: Can The IMF Be Our Friend?

Sir Lloyd Erskine Sandiford, former Prime Minister, and current Ambassador to the People's Republic of China, made what many will see as a bold statement earlier this week. The Nation reported that he endorsed countries, including Barbados, to use the International Monetary Fund's (IMF's) technical assistance, even if they do not wish to be held to following IMF-supported economic and financial policies. The cartoon carried by the Nation (see alongside) gave what to many seems like a familiar view of the IMF in the region at least--a strange and probably fearsome beast.

There is terrible misunderstanding about what the IMF does--part of which is the Fund's fault; some is plain uninformed ignorance; some may be willful misunderstanding especially by politicians, but I wont go there. Sir Lloyd's comments are interesting because they try to stop people seeing the Fund as some demon and make clear a distinction that was also made recently by outgoing Governor of the Central Bank of Barbados, Marion Williams. Namely, IMF technical assistance is something that Barbados (and any country) should make use of to the maximum; it helps build up national capacity, and is often very cheap, if at any cost. Barbados has been guilty of not using such assistance, preferring either to let weak systems persist or to go another route and then suffering some unnecessary consequences. The IMF set up regional technical assistance operations, based in one country but offering a range of assistance to countries in a region, be that in Africa, Asia, the Middle East, or the Caribbean. The Caribbean Regional Technical Assistance Centre (CARTAC) has been based right here in Barbados for a decade, a point stressed by a letter to the Nation's editor by CARTAC's Programme Coordinator, published today (and reproduced alongside).

IMF policy advice should also be used as much as possible, and it often comes with no strings. The Fund is there for member countries to use, and if any nation wants it, they can be in constant contact with Fund staff, seeking advice on economic policy or on particular economic or financial issues. Its can be a pain for staff to have to deal with a nation's policy makers and civil servants on a near daily basis, but if a PM, Minister of Finance or Central Bank Governor makes this demand of Fund management it is rarely refused. The Fund may consider whether it would not be better to try to assign a policy adviser to the country; this could be anywhere from a few weeks through several years, and/or be on a rolling basis (e.g., a visiting adviser, who stays say 2 weeks and visits every 3 months), or on a specific area (e.g., foreign exchange policy, reserves management, bank supervision, budget preparation, tax administration, etc.) or general (macroeconomic policy, for instance).

IMF -financed support is not necessarily what a country needs--especially if such support may come at a political price that a government finds too high. But a country can move far if it uses advice well, and that does not mean taking the recommendations, but does mean listening to critical assessments of national policy proposals and thinking through policy actions. The Fund has the great advantage over any national economic policy maker of seeing details of economic issues for almost every country in the world. There is little that is really new to Fund staff, therefore, and they can often put a country's policies into a regional or broader international context. But, countries have become so fixated that they may be tainted by association with the Fund that they stand as far away as possible. I think this is a terrible loss.

I'm not privy to any discussions that Barbados might have had with the Fund on policy or technical assistance issues, but know that the current central bank governor, DeLisle Worrell, spent his time at the Fund providing principally technical assistance to member countries. This would have given him much insight that should make some of these points better understood by the government. Former central bank governor, Winston Cox, also worked for the Fund as a consultant after his time as Governor, and may also be and have been instrumental in improving such understanding.

Countries, especially small ones, need to leverage what the international institutions have to offer, because it comes much the same in terms of national needs whoever you are. I recall that the first phase of my career at the IMF was providing technical assistance, mainly in monetary and financial statistics. This included the seemingly mundane exercise of ensuring that countries reported their data correctly for standard monetary and financial series. It also included very difficult tasks such as helping a country identify what international reserves it actually held, and in one case having to explain to an African central bank governor that though his staff told him the country had enough foreign exchange to cover several weeks of imports that in fact there were none, because the country was already committed to spend the money. More complex and intriguing work was done, combing over files and dossiers with staff for weeks. The benefit of all that was to leave systems in place that countries still use to control their operations. That is not trivial.

I hope that the government and central bank take the seemingly bold step to use the IMF technical assistance and to do it with a public flourish.