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Still Bossy After All These Years

Are the international lending institutions — backed by U.S. policymakers — out to foil Brazil’s democracy?

July 2, 2002

Are the international lending institutions — backed by U.S. policymakers — out to foil Brazil's democracy?

Opponents of globalization often point to the problems of democratic decision-making that globalization creates. To an appreciable extent, many important decisions for a small or less developed country are made outside the country.

That appears to render the country's people powerless — creating the perception of a kind of dictatorship of certain foreigners.

The candidates for dictator vary, according to these critics. Sometimes, it is multinational corporations that impose their will on a country regardless of the desires of its people. Other times it is international banks and other lenders.

But often, the proposed culprits are the government-run, multilateral lending institutions based in Washington, D.C.

The World Bank and the IMF — with their numerous reports drafted by large staffs of economists, and, worst of all, through conditionality — are widely viewed as simply forcing developing countries to adopt whatever policies are fashionable at any given time in Washington, D.C.

And the key is that, according to the critics, there is next to no room for discussion or debate. In fact, they characterize the IMF and World Bank approach as "do what they tell you to do — and don't argue."

In many respects, this argument is unfair. The IMF and World Bank face the difficult twin problem that the loans actually help to improve the situation of a borrowing country — and of ensuring that their loans are repaid. That sometimes requires pushing rather hard on democratic governments that do not want to take tough decisions.

But Edwin Truman — former Assistant Secretary of the U.S. Treasury and previously the influential Director of the Division of International Finance at the Federal Reserve Board — apparently thinks exactly the way the critics claim.

In a recent article in the Financial Times, Mr. Truman suggested that "conditionality" be extended across the political spectrum.

Mr. Truman zeroed in on the case of Brazil, where elections are due to be held in October 2002. He suggested that the IMF should get a written agreement not just from the government — but from all of the country's leading presidential candidates.

In other words, Mr. Truman wants to make sure that basic IMF policies cannot be part of the political debate.

Unfortunately, such a suggestion would put the IMF in exactly the position that it is accused of. For starters, it would prevent legitimate political discourse. Why shouldn't somebody be able to campaign against the IMF?

Worse, however, it makes the IMF's job harder — not easier. There is often a basic logic to the IMF's recommendations. That is why so many governments follow the IMF's advice — and so few try to go it alone.

If the IMF's policies are part of a robust domestic political debate about economic policy, it is possible to educate voters and citizens about the issues at hand — and to develop the necessary political consensus.

But evidently, Mr. Truman wants to cut off this educational opportunity. Under his suggestion, the debate would go underground — and probably boil up at inopportune times. That is a high price to pay for the dubious goal of forcing everybody to agree to IMF policies.