IMF/World Bank Conditionality and Open Borders

Suppose a country can’t pay its bills. It has a lot of outstanding debt coming due, and it doesn’t have sufficient reserves to pay it. Nor can it find lenders willing to buy its debt. Without money, it will have to stop paying social security checks, interest on bonds, or salaries of civil servants, teachers, and doctors. The problem may take the form of a currency crisis, if the country is trying to maintain a pegged exchange rate which is under attack by forex traders, or simply a debt crisis. It could try to raise taxes, but that would be likely to depress the economy further. Catastrophe looms.

A lot of countries have found themselves in this situation. It’s basically where Greece has been for the past few years, and more recently Ireland, Portugal, to some extent Italy and Spain. Asian countries found themselves in a position like this in the late 1990s. So did Brazil and Argentina. Typically they go to the IMF, which is the official fire-fighter for these kinds of situations. The IMF will provide money, conditional on some reforms that are expected to improve the country’s ability to pay in future. In return, the IMF provides an immediate injection of cash to pay creditors and dispel the crisis. Often the reforms the IMF imposes are unpopular. They may also be necessary and/or beneficial. Asia recovered strongly after the IMF’s intervention in 1997-98, though whether the IMF deserves much or any credit for that is controversial.

Anyway, I doubt this has ever entered the IMF’s collective head– though possibly I’ve blogged about it before, I forget– but in principle, one of the reforms the IMF could demand in return for assistance during crises is an opening of the borders to more immigrants. Though no one thinks about it this way, every country in the world is foregoing a perhaps substantial revenue source by not allowing foreigners to come and receive working visas in return for paying either just ordinary taxes or perhaps special surtaxes of one sort or another. If the IMF were to demand that a country permit more immigrants to enter, it would be operating very much within the proper scope of its responsibilities as a creditor. It could then offer technical assistance to help the countries set up the institutional means to register guest workers and establish credible legal protections for their rights going forward. The policy would be somewhat counter-intuitive in countries which are going through crises and probably have high unemployment. But foreign workers are likely to be complements to, rather than substitutes for, domestic workers. Some may be entrepreneurs, bringing investment capital and know-how with them, and creating jobs upon arrival. If the policy is unpopular, well, imposing unpopular but wise policies and taking the heat for them is what the IMF is for.

The World Bank isn’t a crisis fire-fighter in the same way the IMF is, but it, too, might be able to play a role in liberalizing the world’s borders. It could encourage to be hospitable to immigrants, both to help the immigrants– “Our dream is a world free of poverty” is the World Bank’s motto– and to facilitate economic development in the host countries. It could monitor inter-ethnic frictions that arise and look for ways to ameliorate them. In some cases, migration might mitigate existing inter-ethnic frictions by giving societies more of a “melting pot” character. As I’ve previously suggested, it could promote and administrate passport-free charter cities.

The World Bank and IMF are staid, groupthinky organizations that don’t pioneer radical ideas. They strive for internal consensus, the content of which they derive from the views of global elites seasoned with bright ideas from academia and from NGO activists. They’d only do this if the tide of ideas swung strongly in the direction of open borders. Not that open borders would have to become standard policy for the IMF and World Bank to make them part of the development agenda, but that there would have to be powerful, widespread, deep-rooted sympathy for the goal of liberalizing migration.

Nathan Smith is an assistant professor of economics at Fresno Pacific University. He did his Ph.D. in economics from George Mason University and has also worked for the World Bank. Smith proposed Don’t Restrict Immigration, Tax It, one of the more comprehensive keyhole solution proposals to address concerns surrounding open borders.

See also:

Page about Nathan Smith on Open Borders
All blog posts by Nathan Smith

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