Macro-Criticality: The International Monetary Fund’s Black Box

Back in 2018, the International Monetary Fund (IMF) promised to tackle corruption within its member states when that corruption is “macro-critical”—that is, when corruption “affects, or has the potential to affect, domestic or external [macroeconomic] stability.” The IMF’s declaration that corruption is, or at least can be, “macro-critical” was an important development, one that anticorruption professionals applauded as a “major step forward.” For those less familiar with the IMF, though, the significance of the “macro-criticality” finding may not be immediately obvious. To understand this particular piece of IMF jargon, and why it’s so important for when and how the IMF engages in anticorruption work, it’s necessary to understand a bit more about how the IMF operates.

First and foremost, the IMF is a “monetary agency, not a development agency.” In contrast to a development agency like the World Bank, the IMF does not finance specific projects, nor is its mandate to promote economic development and poverty reduction as a general matter. Rather, the IMF helps protect global macroeconomic stability by lending funds to governments in dire straits. Furthermore, the IMF often requires, as a condition for receiving these emergency loans, that the recipient governments adopt institutional or policy reforms—a controversial practice known as “conditionality.” The IMF has also sometimes forgiven loans for particularly debt-burdened countries. And in recent years, the IMF has expanded its capacity development apparatus by providing advice to countries on a wide range of issues related to a country’s macroeconomic management, including central banking, monetary and exchange rate policy, tax policy and administration, and official statistics. All these services function to protect the international monetary system from potential risks, which is the IMF’s primary task.

But although the IMF’s mission is, at least in principle, narrowly focused on macroeconomic stability, the IMF has consistently faced the question of how to distinguish economic policy (which the IMF may influence) from social or political matters that are outside the IMF’s mandate (see, e.g., here, here, and here). Recognizing that there can be a porous boundary between economic and political matters, the IMF developed the concept of “macro-criticality.” So long as an issue—even a political or social issue—affects, or has the potential to affect, the macro-economy in a significant way, the IMF may treat the topic as it would any other issue traditionally recognized to be the IMF’s bread and butter.

And that’s why it was so important that the IMF has declared that corruption is a “macro-critical” issue. Once the IMF considers corruption in a given country to be macro-critical, the IMF may place anticorruption conditions on IMF loans to that country. The macro-criticality finding also validates data collection and capacity building measures related to corruption and anticorruption—measures that would otherwise seem to fall outside the IMF’s jurisdiction.

Nevertheless, confusion persists about when the IMF will consider corruption to be a “macro-critical” issue, and what exactly the IMF promised to do in its 2018 statement. One reason it’s hard to understand what the IMF actually committed to is because there are many ways for an issue to affect domestic or external macroeconomic stability. Perhaps most importantly, it’s important to distinguish a finding that an issue, such as corruption, is globally macro-critical—in the sense that there is robust evidence that this issue can have significant effects on macro-economic stability—from a finding that this issue is macro-critical in a particular country. Even a globally macro-critical issue may not by macro-critical in a specific country, either because the country in question already has adequate safeguards in place to address the issue, or because the macroeconomic risks associated with this particular issue are minimal in comparison to other country-specific threats.

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Golden Visa/Passport Programs Have High Corruption Risk and No Demonstrated Economic Benefit. So Let’s Abolish Them.

We’ve had a couple of posts recently (from regular contributor Natalie Ritchie and guest poster Anton Moiseienko) about the corruption-related problem associated with so-called “golden visa” and “golden passport” programs (GV/GP programs), which grant either residency (golden visas) or citizenship (golden passports) in exchange for “investments” (or sometimes simply direct payments to the government) that exceed a certain threshold. Both Natalie and Anton reference recent reports by Transparency International-Global Witness and the European Commission, both of which focus in particular on the EU, and which are both very useful in documenting the risks associated with these residence/citizenship programs—including though not limited to corruption and money laundering risks. That said, the solutions proposed, while certainly helpful, feel a bit thin, in part because both the TI-GW and EC reports assume that these programs have at least some legitimate uses, or at the very least that it would be overstepping for outsiders (be they international bodies, other countries, or NGOs) to try to coerce states into abandoning these programs altogether.

My inclinations are somewhat different, and a bit more radical: I’d push for abolishing these programs entirely—certainly the golden passport programs, but probably the golden visa programs too. The risks associated with GV/GP programs are well-documented in Natalie and Anton’s posts, as well as the TI-GW and EC reports (and other sources), so I won’t dwell on them here. In short, as these and other sources convincingly demonstrate, GV/GP programs may provide safe havens for wealthy criminals and their money, often produce corruption in the programs themselves, and may also have more diffuse pernicious effects associated with the commodification and marketization of membership in a political community. I acknowledge that the risks associated with well-run programs may not be huge, but they’re not trivial, either. And I can’t for the life of me figure out what benefits these programs could have (to society, not to the governments that run them) that could possibly justify those risks.

The usual story is that these programs attract necessary foreign investment, stimulate the economy, and create jobs and raise government revenue. I’m no macroeconomist, and so I may be about to reveal my ignorance in embarrassing fashion, but I have yet to hear a convincing argument, let alone see a persuasive study, that establishes that these programs indeed have substantial economic benefits. Let me explain my puzzlement, and if I’m obviously misunderstanding some crucial point, either about how the programs work or about the economics, I hope some readers out there will correct me. Continue reading