Cornel Ban and Kevin Gallagher
The economic crisis that struck in 2008 challenged many myths. One of them is the myth of the International Monetary Fund (IMF) as a global agent of economic orthodoxy. Since the 1970s, the IMF has been heavily criticized for being insensitive to the diversity of domestic conditions. Its rigid commitment to a conservative view of economic development has been dubbed the “Washington Consensus.” However, we argue in a forthcoming special issue of the journal Governance that this conventional wisdom is outdated. The IMF is not what it used to be.
In some of its policy thinking the IMF has undergone deep transformations that often point in a more Keynesian direction. The most radical change has been in the IMF’s research on the systemic risks posed by the interconnectedness of global banks, followed by its views on capital controls, and its interventions in the austerity debate.
Surprising its critics, the IMF has endorsed capital controls—of which it was a staunch opponent for decades—as well as state spending to stimulate the economy under certain conditions. Moreover, it has been sharply critical of the theory—popular with E.U. institutions—that spending cuts reignite growth and has become an advocate of slightly more progressive taxation systems. The IMF now holds a strong preference for more spending on public investment and safety nets as the main instruments in the stimulus toolbox.