‘No Business of the Rest of the World’: Milton Friedman and IMF Conditionality

Abstract

This paper explores Milton Friedman’s views on conditional lending by the International Monetary Fund (IMF). Conditional lending by international financial institutions, which began with a few IMF stand-by arrangements in the 1950s and grew to include extensive World Bank structural adjustment programs, is considered a quintessential neoliberal policy tool. This paper shows that despite his reputation as a neoliberal, Friedman was a vocal opponent of conditional lending by the IMF. He saw conditionality as unacceptably undemocratic, even though in several cases he approved of the policy prescriptions embedded in IMF conditional lending agreements. Friedman opposed conditional lending both in public fora and privately with other neoliberals at Mont Pelerin Society meetings. This paper focuses on Friedman’s views on conditionality in the 1960s and 1970s, during the IMF’s initial turn away from unconditional lending. It also shows how Friedman’s rhetoric changed after the collapse of the Bretton Woods system of fixed exchange rates. By the 1980s Friedman moved past criticizing the undemocratic nature of IMF conditionality and instead argued that without a system of fixed exchange rates to manage the IMF should be abolished.