Change, Stability and Grey Zones: The International Monetary Fund Since the Lehman Crisis

Date and Location TBD

The post-Lehman crisis changed many aspects of the governance of the world economy. In late 2008 and throughout 2009 Keynesian-style fiscal activism was resuscitated, decades after it had been relegated to the doghouse of macroeconomic policy. A dramatic sovereign debt crisis visited not developing countries, but Europe. Financial sector regulation went through a tightening phase. In contrast, large emerging economies (BRICs) were asked to chip in the rescue effort. Yet not everything has changed. Indeed, most things did not change at all. In most countries inflation targeting remained the main tool of monetary policy, structural reforms were still seen as the key to employment and productivity performance and privatization was not unseated from the priority list. In short, the crisis altered the conventional wisdom on some policy areas but not on others.

The International Monetary Fund’s reaction to the crisis has displayed a similar trend. This quintessential institution of global economic governance began to allow capital controls, but it stuck to monetary policy orthodoxy. Its erstwhile staunch opposition to all forms of countercyclical spending was replaced with the endorsement of activist fiscal policy in the case of surplus countries. In contrast, there has been little change in the Fund’s position on fiscal policy towards other kinds of countries or in its traditional advocacy of liberalization of products, services and the labor market. The Fund also continued to advocate pension reforms, welfare state retrenchment and privatization. And despite the fact that in this crisis the IMF had to intervene in developed European economies, its main procedural instrument (policy conditionality) remained unaltered. What explains this variegated pattern of stability and change in the IMF’s substantive and procedural positions? Do existing explanations of the IMF’s reactions to previous crises survive the test of the current crisis, whose distinctiveness consists of its unprecedented size and its deep impact on the developed European core?