National Institutions and the Role of the IMF

The word "institutions" covers a range of country characteristics, which vary widely: some are not very relevant to the business of the Fund (and, regarding some others, we cannot be confident of knowing what is best). Some recent empirical growth literature has adopted an intermediate level of generality, focusing on a cluster of institutions associated with the rule of law and property rights. These, together with tropical geography and openness, have been described as the three hypothesized "deep determinants" of growth, causally prior to macroeconmoic policy variables. One does not have to accept the extreme claim that all other determinants are econometrically "driven out" empirically by institutions, to accept that there is strong evidence for the importance of the latter. Nor need one conclude from these results that institutions are historically pre-determined, so that there is no point trying to change them. There is a role for the IMF in seeking to influence institutions over the long run. The last decade has indeed seen a moderate expansion of the Fund's purview, especially in the case of countries' financial structures. This is more appropriate than would be either the extreme strategies of refusing to change with the times, on the one hand, or accepting responsibility for everything, on the other hand. These comments were originally part of a panel discussion at the International Monetary Fund's Third Annual Research Conference, November 7-8, 2002. They are forthcoming in IMF Staff Papers. The other panel members were: Guillermo Ortiz (Banco de Mexico), Nancy Birdsall (Center for Global Development), and Jeffrey Sachs (Columbia University).