Democratizing the International Monetary Fund and the World Bank: Governance and Accountability

By Joseph E. Stiglitz. 2003

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Much has been said about the failing policies of the International Monetary Fund (IMF). In this essay, I attempt to explain why the IMF has pursued policies that in many cases not only failed to promote the stated objectives of enhancing growth and stability, but were probably counterproductive and even flew in the face of a considerable body of theoretical and empirical work that suggested these poilcies would be counterproductive. I argue that the root of the problem lies in the IMF’s system of governance. Thereafter, I discuss how the World Bank managed to reform its agenda in order to fulfill its goals of poverty reduction more successfully, and what lessons this reform holds for the IMF. I conclude by proposing needed reforms for the IMF that might mitigate some of the problems it has encountered in the past. 1 Economists typically begin an analysis of the behavior of an organization or an individual by looking at the incentives they face—what is the nature and magnitude of their rewards and punishments, and who metes them out? Political discussions more commonly begin with a discussion of accountability. Before I discuss the specific problems of the IMF and the World Bank, it will be fruitful to first lay out what I mean by “accountability,” relate this notion to incentives, and identify the key problems in designing accountability systems for international financial organizations.

Subfields: Development, Economics and Econometrics, Finance

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