Why the Policy Development Capacity of Some Developing Countries Exceeds that of the International Monetary Fund

The IMF's track record on developing policy to govern the interaction of developing countries and global capital is not strong. Argentina was an IMF poster-child throughout the 1990s. Its economy imploded in 2001. The Brady Plan provided a resolution of the Latin American debt crisis of the 1980s. Yet the Plan was conceived by Brazil and Mexico, not the IMF. Chile successfully charted its own course through the turbulent 1990s with the adroit use of home grown capital controls. Likewise, Malaysia charted its own course out of the 1997 Asian crisis more advantageously than nations that implemented IMF programs and with policies the IMF vehemently opposed. The lesson is that developing nations need to develop their own innovative solutions to the challenges of global capital and are often better placed to do so than the IMF. The International Monetary Fund plays a pivotal role in guiding and shaping the interactions between developing countries and global capital. The Fund advises countries upon when and how to liberalise their financial systems and open up to global capital. In addition, for countries with an IMF program in place, the Fund has direct input into the regulations enacted to achieve these ends, and into the fiscal and monetary policy settings of the country. These functions were not part of the IMF's original role, but over the past 23 years (since the inception of the Debt Crisis in 1982) the IMF's role has evolved so that today these functions are central to its mission. Yet the history of the past two decades suggests that the IMF may not be the best placed institution for this purpose. This article analyses four developments in the past fifteen years: (i) Argentina's recent economic crisis, (ii) the Brady Plan implemented in the early 1990s to address the Latin American debt crisis, (iii) Chile's response to increasing capital inflows in the early 1990s, and (iv) Malaysia's response to the East Asian economic crisis that commenced in 1997. The article concludes that some developing countries are better placed than the IMF to develop the policies and regulations that will govern their interaction with global capital and analyzes why this might be so