IMF loan programs impose harsh fiscal austerity on cash-strapped countries. Second, IMF loans encourage financiers to invest recklessly, confident the fund will bail them out( the so-called moral hazard problem). Third, IMF advice to countries suffering debt or currency crises only aggravates economic conditions. And fourth, the fund has irresponsibly pushed countries to open themselves up to volatile and destabilizing flows of foreign capital Some of these charges have important merits, even if critics (including myself in my former life as an academic economist)tend to overstate them for emphasis. Others, however, are both polemic and deeply misguided. In addressing them, I hope to clear the air for a more focused and cogent discussion on how the ImF and others work to improve conditions in the global economy. Surely that should be our common goal The austerity myth Over the years, no critique of the fund has carried more emotion than the"austerity"charge. Anti- fund diatribes contend that, everywhere the Imf goes, the tight macroeconomic policies it imposes on governments invariably crush the hopes and aspirations of people. (I hesitate to single out individual quotes, but they could easily fill an entire edition of Bartlett's Quotations. ) Yet, at the risk of seeming heretical, I submit that the reality is nearly the opposite. As a rule, fund programs lighten austerity rather than create it. Yes, really Critics must understand that governments from developing countries don't seek IMF financial assistance when the sun is shining, they come when they have already run into deep financial difficulties generally through some combination of bad management and bad luck. Virtually every country with an IMf program over the past 50 years, from Peru in 1954 to South Korea in 1997 to Argentina today could be described in this fashion Policymakers in distressed economies know the fund will intervene where no private creditor dares tread and will make loans at rates their countries could only dream of even in the best of times. They understand that in the short term imf loans allow a distressed debtor nation to tighten its belt less than it would have to otherwise. The economic policy conditions that the fund attaches to its loans are in lieu of the stricter discipline that market forces would impose in the IMF's absence Both South Korea and Thailand, for example, were facing either outright default or a prolonged free fall in the value of their currencies in 1997-a far more damaging outcome than what lly took pla Nevertheless, the institution provides a convenient whipping boyIMF loan programs impose harsh fiscal austerity on cash-strapped countries. Second, IMF loans encourage financiers to invest recklessly, confident the fund will bail them out (the so-called moral hazard problem). Third, IMF advice to countries suffering debt or currency crises only aggravates economic conditions. And fourth, the fund has irresponsibly pushed countries to open themselves up to volatile and destabilizing flows of foreign capital. Some of these charges have important merits, even if critics (including myself in my former life as an academic economist) tend to overstate them for emphasis. Others, however, are both polemic and deeply misguided. In addressing them, I hope to clear the air for a more focused and cogent discussion on how the IMF and others can work to improve conditions in the global economy. Surely that should be our common goal. The Austerity Myth Over the years, no critique of the fund has carried more emotion than the "austerity" charge. Anti-fund diatribes contend that, everywhere the IMF goes, the tight macroeconomic policies it imposes on governments invariably crush the hopes and aspirations of people. (I hesitate to single out individual quotes, but they could easily fill an entire edition of Bartlett's Quotations.) Yet, at the risk of seeming heretical, I submit that the reality is nearly the opposite. As a rule, fund programs lighten austerity rather than create it. Yes, really. Critics must understand that governments from developing countries don't seek IMF financial assistance when the sun is shining; they come when they have already run into deep financial difficulties, generally through some combination of bad management and bad luck. Virtually every country with an IMF program over the past 50 years, from Peru in 1954 to South Korea in 1997 to Argentina today, could be described in this fashion. Policymakers in distressed economies know the fund will intervene where no private creditor dares tread and will make loans at rates their countries could only dream of even in the best of times. They understand that, in the short term, IMF loans allow a distressed debtor nation to tighten its belt less than it would have to otherwise. The economic policy conditions that the fund attaches to its loans are in lieu of the stricter discipline that market forces would impose in the IMF's absence. Both South Korea and Thailand, for example, were facing either outright default or a prolonged free fall in the value of their currencies in 1997—a far more damaging outcome than what actually took place. Nevertheless, the institution provides a convenient whipping boy