IMF Survey:The first question is prompted by the title of the new history: why do you call it the Silent Revolution?
Boughton: The impetus for the title was the speech that Michel Camdessus gave in 1989 in which he said there was, in his view, a silent revolution going on in the developing countries. What he meant by that was that country after country in the developing world were trying to reformulate their economic policies in a way that was market friendly, brought them into the world economy, moved away from a strong development role for the state, and enabled private sectors to develop. He called it a “silent revolution” because, to the naked eye, there was nothing very dramatic going on, but the effect on the world economy and on these particular countries was dramatic. So when I then looked at the whole time span, I said: “How did the world change?” If you took two snapshots—one in 1979 and one in 1989—you’d find that the world had changed dramatically. Mexico is a good microcosm of what was going on in those 10 years. If you read what Mexican officials were saying in the late 1970s and early 1980s about how they thought their economy should be run and then you looked at what they were saying in 1989—it’s completely night and day.
IMF Survey:After the breakdown of the Bretton Woods system in the early 1970s, many observers said the IMF was really an institution that had lost its role. But you chart an extremely active and, at times, controversial period in the IMF’s history. What were the forces that drew the IMF into deeper involvement in the world economy?
Boughton: One thing I realized fairly early on in doing my research was that 1982 was really a bigger watershed year for the IMF than 1973 was. Most people—if they reflect on the history of the IMF and its 55 years of experience—think that 1973 was the big shift. Until then we had been overseeing the fixed exchange rate system; after that, we kind of drifted and had to look for a new role. But that’s not actually what happened. It’s true that 1973 drew the IMF into a more active and important role in the world economy than it had before, in the sense that the world was a less stable place. We had the oil shocks of the early and late 1970s, and we had all these floating exchange rates and countries having to develop their own exchange rate policies. The world needed a guiding force to cope with this new kind of rapid growth and greater instability.
What happened in 1982 was that all of those forces came to a head. Suddenly, a lot of countries were facing massive problems all at once, and this became the debt crisis. There was a great need for an agency to jump in and try to lead the world out of the crisis, to try to find solutions to those problems. And that agency turned out to be the IMF.
IMF Survey:Since 1979, no industrial country has borrowed from the IMF, and IMF lending has been entirely to developing countries. What effect has this change in lending had on the institution and its operations? Should the IMF become more involved in structural reform and longer-term lending?
Boughton: Certainly the demand for IMF resources shifted very dramatically. In the late 1970s, the IMF was still lending to the United Kingdom and Italy, and it was not at all obvious that the future of the IMF would be with the developing countries. But the rapid growth in private international financial markets, which started in the mid-1970s and became much more important in the 1980s and 1990s, insulated the industrial countries from the need for any financing from the IMF. That actually increased rather than decreased the importance of the IMF in the world economy, because it meant that the resources that the IMF had been using for short-term stabilization in these industrial countries were now free for meeting the demands of the developing countries, which turned out to be enormous.
Unlike the industrial countries, the developing countries needed to have this financing for longer periods of time and to solve more deep-seated, more structural problems. There has indeed been an ongoing debate about whether the IMF should be getting into these longer-term roles. But the answer is very clear: the IMF has to get involved in longer-term issues because it is no longer possible to separate short-term from longer-term financing needs. The same countries that have serious balance of payments problems are also the countries that have structural imbalances, and you need an agency that can coordinate that. You can’t say, well, longer-term lending is a World Bank problem, and short-term lending is an IMF problem, because it’s the same problem. So the IMF and the World Bank have to coordinate.
IMF Survey:You discuss the IMF’s surveillance over industrial countries, which is still a live topic. Is this debate likely to continue?
Boughton: I think it will continue. Obviously, right now, surveillance over the industrial countries seems like a back burner issue, but it’s very important that the IMF maintain the ability to examine and provide advice to the large industrial countries if it’s going to continue to be the premier international financial institution in the world.
What’s interesting is that in the 1980s, when people thought that the IMF was moving away from the industrial countries, it was actually devoting a great deal of its energies to trying to maintain a dialogue and give strong policy advice to the large industrial countries. In fact, all through the 1980s, the IMF was sending a very strong and consistent and pointedly worded message to the United States, which the United States did not want to hear. The message was that the United States had to pay attention to its fiscal deficit. It could not simply ignore the fact that it was tripling the total amount of government debt outstanding in a period of a few years, because that was going to have enormous adverse effects on the rest of the world and eventually on the U.S. economy itself.
By the end of the 1980s, the United States actually did change its fiscal policy quite dramatically, trying to get its government deficit under control in line with the IMF message. How much direct influence the IMF had in bringing that about is another matter, but the fact that the IMF was consistently sending the right message to the U.S. government gained the IMF quite a bit of credibility.
IMF Survey:During the 1980s, private capital flows became increasingly important, as they continue to be today. Has the development of private capital flows reduced the importance of the IMF as a source of official financing?
Boughton: I think it’s been quite the opposite. The growth of private markets has benefited a number of countries; but in many cases, only temporarily, or has benefited some countries one year and other countries the next. There was a huge inflow of private capital flows to emerging markets in the early 1990s, but when some of them got into trouble in the mid-1990s, the money simply vanished, and countries that thought they could rely on private markets found there would still be times when they would need official financing and that the IMF was an effective agency for filling those gaps.
IMF Survey:The IMF is now intimately involved in providing financial assistance to the poorest countries. What progress have you seen in this area since the early 1980s?
Boughton: This is probably the most controversial area for the IMF. It’s quite clear that the whole process of trying to provide stable long-term development financing, at least right now, could not work without the IMF being heavily involved, because the IMF is the only institution that has the credibility to impose effective policy conditionality. It’s the linchpin for making this whole process work.
Whether that’s the right long-run solution is another matter. Would the world be better off with one institution rather than several institutions providing coordinated financing and the right policy advice to poor countries? I don’t think we know the answer to that yet. Certainly in the 1980s, the IMF made huge progress toward developing a rational strategy for helping the low-income countries; for example, it established the Structural Adjustment Facility and then the Enhanced Structural Adjustment Facility, and there was steady progress from the mid-1980s to the late 1990s. But in my view, if we’re really going to see an effective mechanism for financing development in low-income countries, a lot more progress is needed.
IMF Survey:What conclusions do you draw from your work on the history, and what did you find that particularly surprised you?
Boughton: One main conclusion—and it’s kind of middle of the road—is that markets and institutions go hand in hand, that we need market-friendly solutions, but we need market-friendly solutions that are guided by institutions. We need both a visible hand and an invisible hand. I think that conclusion emerges whether you’re looking at the outcome of the debt crisis or whether you’re looking at financing for low-income countries.
The biggest surprise for me was that the 1980s turned out to be quite different from what I thought they were when I first started working on the book in 1992. I thought I was going to be writing about the last period when the IMF’s primary activity was providing balance of payments financing to its member countries. The 1990s were supposed to be a whole new ball game: the Soviet Union had collapsed, and the IMF was getting involved in transition issues as countries moved from central planning to markets.
What became obvious by 1998 when I essentially finished drafting the book was that the 1980s had set the stage for the IMF to play a very active and major role in emerging markets in the 1990s; that the role the IMF played in Mexico in 1995 and in Thailand, Indonesia, and Korea in 1997 and 1998 was made possible by its having been involved with emerging markets all through the 1980s. By becoming the major player in developing a strategy for dealing with the debt crisis in the 1980s, the IMF positioned itself for helping countries solve the problems of the 1990s. So, the whole dynamic changed from the time I started working on this project to the time I ended it.
IMF Survey:How would you distinguish the style and content of your history from earlier IMF histories? In this age of transparency, I’m sure there are materials you could bring in that previous historians maybe were not able to.
Boughton: The IMF is a very different place now from what it was when the previous histories were published. The first IMF history was written in the late 1960s, and the history previous to this one was written in the early 1980s. The IMF is now a much more transparent place. My predecessors had full access to the IMF archives, but they were the only ones who had such access. As I was writing this book, I was fully aware that all the sources I was using would be accessible to other people interested in writing about the IMF or about its member countries. So I have provided thousands of footnotes to internal IMF documents; people can now look at these footnotes and if they want to know more about a document, they can go look at it themselves.
Beyond that, I’ve tried to make this as much a history of the world economy in the 1980s as it is a history of the institution. All through the 1980s, the IMF was dealing with political issues as much as with economic issues; for example, several of the countries that were hit hardest by the debt crisis were also moving from military dictatorships to democracy. Argentina and Brazil provide clear examples. These countries were struggling with the need to establish democracy at the same time they were dealing with severe economic problems. And the IMF had to take all that into account. Dealing with political issues was unavoidable when the IMF was working with countries like Sudan, what was then called Zaïre, Sierra Leone, and Liberia. All these countries had huge political and economic problems. All these political and economic issues overlapped, and the IMF had to come to grips with that. So this history is much more of a story about political economy than about technical economics.
IMF Survey:What will be the scope of the next chapter in the IMF’s history?
Boughton: As exciting as the 1980s were for the IMF, the 1990s were even more challenging and exciting. When you think about all the important stories of the 1990s—the geopolitical importance of Russia and all the work the IMF has done there; the financial crises; globalization—the history of the 1990s will be a fascinating story.
Copies of Silent Revolution: The International Monetary Fund, 1979-1989, by James M. Boughton, are available for $75.00 each from IMF Publication Services. See page 337 for ordering information.