Should the IMF discontinue its long-term lending role in developing countries? *

In the wake of the ‘east Asian crisis’, many commentators have argued that the IMF should ‘return to basics’ and that the Poverty Reduction and Growth Facility through which the Fund makes long term loans to poor countries should be abandoned. To various degrees, they are critical of the Fund’s involvement with developing countries and suggest that the World Bank and aid donors should replace it. However a counter-argument can be made. We argue that the Fund’s long-term lending via the PRGF plays an important role in the process of building up the supply side and tax capacity in weak economies under democratic governance which cannot easily be replaced by the World Bank. Furthermore, the PRGF has been crucial for poverty reduction: it has made possible a poverty-conscious restructuring of the pattern of public expenditure which would have been unlikely under the proposals of the ‘new fundamentalists’. * Paper to be presented at conference on ‘Impact of Globalisation on the Nation-State from Above: the IMF and the World Bank’, Yale University, April 25-27 2003. ** Surrey Centre for International Economic Studies, University of Surrey, Guildford, GU2 7XH, UK. Email: [email protected] *** Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield, S1 IDT, UK. [email protected]