when politicians confront their populations with a less profligate budget. "The IMF forced us to do it! "is the familiar refrain when governments cut spending and subsidies. Never mind that the country's government-whose macroeconomic mismanagement often had more than a little to do with the crisis in the first place--general retains considerable discretion over its range of policy options, not least in determining where budget cuts must take place At its heart, the austerity critique confuses correlation with causation Blaming the IMf for the reality that every country must confront its budget constraints is like blaming the fund for gravity Admittedly, the imf does insist on being repaid, so eventually borrowing countries must part with foreign exchange resources that otherwise might have gone into domestic programs. Yet repayments to the fund normally spike only after the crisis has passed, making payments more manageable for borrowing governments. The IMF shareholders---its 184 member countries--could collectively decide to convert all the fund's loans to grants, and then recipient countries would face no costs at all. However, if IMF loans are never repaid industrialized countries must be willing to replenish continually th organizations lending resources, or eventually no funds would be available to help deal with the next debt crisis in the developing A Hazardous Critique Of course, in so many IMF programs, borrowing countries must pay back their private creditors in addition to repaying the fund. Yet wouldn,'t fiscal austerity be a bit more palatable if troubled debtor nations could compel foreign private lenders to bear part of the burden? Why should taxpayers in developing countries absorb the entire blow? That is a completely legitimate question, but let's start by getting a few facts straight. First, private investors can hardly breathe a sigh of relief when the fund becomes involved in an emerging-market financial crisis. According to the Institute of International Finance private investors lost some $225 billion during the Asian financial crisis of the late 1990s and some $100 billion as a result of the 1998 Russian debt default. And what of the Latin american debt crisis of the 1980s, during which the IMf helped jawbone foreign banks into rolling over a substantial fraction of Latin American debts for almost five years and ultimately forced banks to accept large write-downs of 30 percent or more? Certainly, if foreign private lenders consistently to developing countries, will cease. Indeed flows into much of Latin America--again the current locus of debt problems-have been sharply down during thewhen politicians confront their populations with a less profligate budget. "The IMF forced us to do it!" is the familiar refrain when governments cut spending and subsidies. Never mind that the country's government—whose macroeconomic mismanagement often had more than a little to do with the crisis in the first place—generally retains considerable discretion over its range of policy options, not least in determining where budget cuts must take place. At its heart, the austerity critique confuses correlation with causation. Blaming the IMF for the reality that every country must confront its budget constraints is like blaming the fund for gravity. Admittedly, the IMF does insist on being repaid, so eventually borrowing countries must part with foreign exchange resources that otherwise might have gone into domestic programs. Yet repayments to the fund normally spike only after the crisis has passed, making payments more manageable for borrowing governments. The IMF's shareholders—its 184 member countries—could collectively decide to convert all the fund's loans to grants, and then recipient countries would face no costs at all. However, if IMF loans are never repaid, industrialized countries must be willing to replenish continually the organization's lending resources, or eventually no funds would be available to help deal with the next debt crisis in the developing world. A Hazardous Critique Of course, in so many IMF programs, borrowing countries must pay back their private creditors in addition to repaying the fund. Yet wouldn't fiscal austerity be a bit more palatable if troubled debtor nations could compel foreign private lenders to bear part of the burden? Why should taxpayers in developing countries absorb the entire blow? That is a completely legitimate question, but let's start by getting a few facts straight. First, private investors can hardly breathe a sigh of relief when the fund becomes involved in an emerging-market financial crisis. According to the Institute of International Finance, private investors lost some $225 billion during the Asian financial crisis of the late 1990s and some $100 billion as a result of the 1998 Russian debt default. And what of the Latin American debt crisis of the 1980s, during which the IMF helped jawbone foreign banks into rolling over a substantial fraction of Latin American debts for almost five years and ultimately forced banks to accept large write-downs of 30 percent or more? Certainly, if foreign private lenders consistently lose money on loans to developing countries, flows of new money will cease. Indeed, flows into much of Latin America—again the current locus of debt problems—have been sharply down during the