The Failure of the IMF in Preventing Currency Crises in CIS Countries

Abstract

The IMF has supported the transition process in a number of FSU countries. This support has involved concessionary financing, policy advice and technical assistance. Notwithstanding temporary conflicts, cooperation between the Fund and FSU countries throughout the period has been described by the Fund as generally successful. It has been argued that it has contributed to macroeconomic and financial stabilization.¹ However, the financial crisis of 1998 wiped out this stabilization and proved that previous policies had not been fully sustainable. This chapter attempts to answer the crucial question of why countries collaborating closely with the IMF and implementing policies supported by the Fund had to undergo deep currency crises.² The question becomes even more intriguing if one takes into consideration the fact that this was a first-generation crisis (see chapters 5, 6, 11, 12 and 13 of this volume) — that is, one caused by bad policies that led to macroeconomic imbalances. While the core of the problems was domestic, a deterioration in external conditions was the trigger that started the inevitable collapse. True, however, it is also now well understood that vested interests, insufficient structural reforms and lack of political will were also crucial factors preventing necessary policy adjustments. But did the Fund influence the pace of structural reforms and fiscal tightening enough?