IMF, Macroeconomic Stabilization and Currency Crises in selected CIS Countries

Annotation
The IMF has supported the transition process in a number of FSU countries. This support involved concessionary financing, policy advice and technical assistance. Notwithstanding temporary conflicts, the cooperation between the Fund and FSU countries throughout the period was described by the Fund as generally successful. It was argued that it contributed to the macroeconomic and financial stabilization. Yet, the financial crisis of 1998 wiped out this stabilization and proved that previous policies were fully unsustainable. This paper attempts to answer the crucial question why countries collaborating closely with the IMF and implementing policies supported by the Fund had to undergo deep currency crisis. The question is made more intriguing by earlier research showing that this was a first-generation crisis – that is, one caused by bad policies that led to macroeconomic imbalances. While the core of the problems was domestic, deterioration of external conditions was the trigger that started the inevitable collapse. True, it is also well understood now that vested interests, insufficient structural reforms and lack of political will were crucial factors preventing necessary policy adjustments. But has the Fund influenced the pace of structural reforms and fiscal tightening? Should the IMF have been more insistent on reforms through tighter conditionality or have allowed for more reform ownership? Finally, should it have withdrawn long before 1998 and not underwritten unsustainable policies?