By Pablo César Marin Graue – International Relations Student

Answering whether an international organization is successful at incentivizing development is impossible. We have seen failures and successes across the entire spectrum, and one cannot find a more perfect example of this, than the IMF itself; an organization that gets a very bad reputation. This can be likely attributed to the fact that if the IMF knocks on your door, it is an obvious sign that something is very, very wrong with the handling of your economy, and that you, and the ones who preceded you, are incompetent, and should be ashamed of themselves. You see, there is a reason don’t shoot the messenger is a popular saying, but unlike what some pundits might want you to think, the messenger behind that door does not want to leave an IED, he is not trying to kill you and, in fact, he might even want to hand you some flowers. Want me to prove my point? Sure. Let me present you with a country you probably have heard about before, and for all the good reasons: The Republic of India

India's economy was devastated by the colonial era. The slow growth from the economically restricted socialist era didn't do it any favours either. Fast forward to 1991, and its government had found itself out of foreign currency reserves. This is called a balance of payment crisis, and forced its government to secure an emergency loan of 2.2 billion dollars from the IMF, against 67 tons of gold as collateral. If you have heard about how the IMF operates, you will know that these billions of dollars did not come for free, not only did they have to pay them back, they had to check some boxes. The IMF presented the newly elected Indian government with a set of conditions as part of the bailout: India was instructed to open its markets to the global economy, reduce the tedious licensing requirements in the private sector, cut subsidies, and allow private and foreign investors into the country. The fun part about being the IMF is that the leaders usually don't have any choice, so, naturally, the Indian government gave into these ludicrous terms and moved to a free market economy. The formal beginning of liberalization can be traced back to the first day of July 1991, when the reserve bank of India devalued the Indian rupee by 9%. (Cerra & Saxena, 2002).

This had a positive impact on every sector of the Indian economy. As a part of the liberalization of the Indian banking industry, companies got approval from the reserve bank of India to set up private banks; Indian pharmaceutical companies were able to obtain market exclusivity for generics and boasted of outstanding sales abroad, and IT tech parts were introduced to India with major incentives offered to them through substantial long term tax breaks. These same companies, alongside new Indian start-ups would eventually start exporting their services and products to Fortune 500 companies. To top it all off, the government of India was just in time to ride the internet wave. Its telecom regulatory authority slashed tariffs for international bandwidth in 2005, resulting in an extremely competitive business environment that prompted the rise of the Indian tech and service industry, turning it into the behemoth everyone knows today.

Altogether, it is clear that the reforms enacted and forced upon India by the IMF, coupled with a positive, hard working population led to India's GDP increasing dramatically, and turning it into the titan it is today in the world stage. Liberalization was a huge transition for India, and it, without a doubt, led to positive changes in lifestyle and consumption of the average person. And don't ask me, ask any of the 271 million people the country has pulled out of poverty since 2005 (McCarthy, 2019).

 

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References:
  • Cerra, V., & Saxena, S. C. (2002). What Caused the 1991 Currency Crisis in India? (Vol. 49, Ser. 3). Washington
  • McCarthy, N. (2019, July 12). Report: India Lifted 271 million people out of poverty in a decade [Infographic]. https://www.forbes.com/sites/niallmccarthy/2019/07/12/report-india-lifted-271-million-people-out-of-poverty -in-a-decade-infographic/?sh=332c2cb2284b