The IMF’s current legitimacy crisis is largely a backlash from the harm caused by its neoliberal policy prescriptions, particularly the harsh austerity measures it has imposed on client-states. There is a very long list of countries in the developing world that have come to the IMF for help during a major debt and economic crisis, only to see the crisis get worse and more prolonged as a result of the IMF’s policy prescriptions and budget cuts. The after affects still linger to this day in many former IMF client-states that have subsequently suffered from sluggish growth and higher poverty and unemployment.
Some of these former clients were Southeast Asian states during the 1997-98 financial crises. Helleiner refers to this and talks about how it damaged the credibility of the IMF, which drew widespread criticism for its handling of the crisis. Perhaps the worst case was Indonesia, whose economy took a nose dive after implementing IMF mandated neoliberal reforms and austerity measures, resulting in widespread unrest leading to the overthrow of the country’s dictator. Indonesia only recovered after later governments rejected the IMF’s ideas and pursued its own policies, after which it went on to become one of the world’s fastest growing economies. This sequence of events in particular severely harmed the IMF’s legitimacy.
A few years later, IMF credibility took another serious hit during the Argentine debt crisis, during which the country became known as the “IMF poster child” for its strict adherence to the neoliberal policies and austerity measures the agency advocated for and attached as conditionalities. However, these policies caused severe harm to the Argentine economy, worsening the crisis and failing to close the country’s budget deficit. In 2001, the country defaulted and the IMF bore a great deal of the blame. To this day the internet is full of blogs and website articles blaming the IMF for the country’s default, and Argentines and neighboring countries hurt by the crisis have bitterly resented the IMF ever since. An IMF report published shortly after the crisis claimed that the Argentine default was not because of its neoliberal reforms and austerity measures but because of its failure to adequately implement them, which ran completely counter to what the IMF had been saying at the time. The report was largely seen as an effort by the IMF to cover itself and deflect blame. This failure to take responsibility for its mistakes and failures showed the world that the IMF lacked accountability, which farther damaged its legitimacy.
The IMF involvement in the Eurozone debt crisis and its imposition of the same failed policies has shown the world that the IMF has still failed to learn from its mistakes. It has been particularly destructive in Greece, which in many ways closely mirrors what happened in Argentina less than a decade earlier as IMF and EU imposed neoliberal policies and budget cuts have pushed the country to the brink of default. The IMF’s failure in the Eurozone has been another major blow to the agency’s legitimacy. This failure has been compounded by the successful recovery of Iceland, also hit very hard by the 2008 crisis, which defied the IMF’s policy prescriptions, much to the agency’s frustration, and instead pursued their own policy agenda. The IMF’s lack of accountability and failure to admit to or learn from its mistakes has probably been even more damaging to its legitimacy than the failure of its policies. Perhaps the best way for the IMF to regain its legitimacy and remain a viable organization is to admit that its past policies have failed, apologize to those who have been hurt by them, and learn from its mistakes and adopt newer, more affective policies.