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World Bank Criticizes IMF

© Bryan Johnson

A few weeks back, the World Bank released a report, which for the first time provides substantial evidence that the Bank has major policy differences with the International Monetary Fund (IMF), and the way the IMF botched the Asian financial crisis. What is most telling about this story is not that the Bank and the Fund have disagreements (as they often do), it is that it has spilled into the public arena, perhaps a first. Observers of the institutions note that this may be a sign that both the Bank and the IMF sense increasing world criticism over the next several years. This may be an attempt by the Bank to distance itself from its sister organization.

The Bank fired an unusual stream of criticism at the Fund in a report titled, "Global Economic Prospects." In the report and at a news conference for its release, Bank officials, without actually naming the IMF, managed to paint a pretty dismal picture of the IMF's recent performance. For example, Joseph E. Stiglitz, the Bank's chief economist, was exceptionally critical in assessing the Fund's failures by pushing for policies that did more harm than good. Stiglitz mentioned that the use of higher interest rates imposed in many countries AFTER the crisis began was useless.

The raise in interest rates was supposed to calm investor's fears. Instead, what happened was suffocating high interest rates, collapsing currencies, and fleeing investors. In fact, the Bank went out of its way to criticize the IMF's fixation on interest rates by including a chart titled, "No Simple Connection" between higher interest rates and stronger currencies.

To put this all in perspective, the Bank's criticism is hardly new. In fact, it echoes much of what the IMF has criticized itself for doing. For example, last summer, the IMF released four confidential internal reports analyzing the impact of IMF policies on Thailand, Indonesia, South Korea, and the Philippines. While the reports were never released to Congress, it is widely known that the reports written and published by the IMF, included language that essentially blamed the IMF for the spread of the financial crisis and the banking runs that ensued.

So, whether the World Bank now is coming to similar conclusions is of no consequence, certain in the U.S. debate over whether to provide the IMF with more money. Congress agreed to that in October. But where it does have an impact is on the future debate about the need for these institutions - a debate likely to begin in the new Congress. As the Washington Post recently observed, "The World Bank's dissension has irritated and embarrassed the IMF and its supporters in the Clinton administration because it has bolstered criticism from many private analysts of the IMF's performance in managing the crisis, and aroused fears among some fund officials that their authority is being undermined."