Rudi Dornbusch suggests that intergovernmental financing is less necessary in these days of buoyant capital flows to developing countries ("Do we really need the World Bank anymore?" Economic Viewpoint, Feb. 24). Why use public funds, Dornbusch asks, if private funds can do a perfectly adequate job? The answer is threefold:
First, as happened to Mexico in early 1995, a country can lose access to international capital markets precisely when it must undertake substantial changes in economic policies. In these circumstances, IMF lending can help accelerate a return to private financing.
Second, because the economic policies promoted by the IMF are market-friendly, IMF financing directly increases the credibility and creditworthiness of the borrowing member.
Finally, if any lesson has been learned from Mexico, surely it is that multilateral support through the IMF is needed in such cases both to ensure policy correction and to spread the burden of support across the IMF's membership.
Shailendra J. Anjaria
Director, External Relations Dept.
International Monetary Fund