IMF: The Times They Are A-Changin’

25 April 2008 by Robert Weissman

Have things changed at the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
? Or is the world just witnessing yet another in a long series of global economic double standards?

IMF Managing Director Dominique Strauss-Kahn says that the “need for public intervention” to address the global financial crisis “is becoming more evident.” Strauss-Kahn has urged for a global fiscal stimulus, writing that, “Timely and targeted fiscal stimulus can add to aggregate demand in a way that supports private consumption during a critical phase.” The IMF has announced its support for the fiscal stimulus plan in the United States — a country with significant budget deficits and massive foreign debt.

The support for government intervention runs directly counter to the IMF’s longstanding support for strait-jacketing governments in poor countries, by demanding “structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

” — a series of market fundamentalist, corporate-friendly policies, including hyper-restrictive macro-economic policies.

So far, there is little evidence that the IMF is changing the way it operates in developing countries. But maybe the times are changing, whether the IMF likes it or not. The IMF gets its power from a gatekeeper role in international finance and donor circles. International lenders and government aid donors commonly limit their lending and aid donations to countries in the IMF’s good graces. The logic is that the IMF is competent to determine that the recipient countries are pursuing sensible economic policies, and therefore equipped to manage loans or aid.

The IMF has capitalized on its gatekeeper role to demand countries pursue a cookie cutter, market fundamentalist agenda of blind deregulation, sell-offs of public assets to corporations (privatization), opening up economies to foreign investors, tariff cuts, and government spending cuts.

There is overwhelming evidence of the failure of the IMF’s policy agenda. Mass privatization has led to enormous concentrations of wealth and encouraged corruption. Deregulation has contributed to financial crises, including those that foreshadowed the current global crisis centered in the United States. The overall economic model had impoverished tens of millions and left developing countries poorer. And government budget ceilings and inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. targets have prevented countries from expanding desperately needed investments in healthcare and education. Indeed, the IMF’s own Independent Evaluation Office has found that the Fund requires poor countries not meeting Fund inflation targets to divert most new donor aid. Instead of spending additional donor money on healthcare, for example, countries must use it to build up foreign reserves or pay down domestic debt.

Although the Fund has promised that it would reform the way it imposes conditions on poor countries, a new report from Eurodad, the European Network on Debt and Development, finds that, over the last six years, IMF conditions have not changed in number or kind.

One thing has changed, however. Impressed by the IMF’s repeated failures, middle-income countries have paid back their loans to the Fund, and are not taking out any news ones.

This in turn has two consequences. For now, at least, the IMF has lost its hold over most middle-income countries — but it maintains its iron grip on the world’s poorest countries. And, the Fund is experiencing a financial crunch of its own. It had depended on the interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. payments from middle-income countries to support its budget.

Developing countries are not shedding tears over the IMF’s financial distress. “At long last, the IMF is experiencing first hand serious budget cuts,” says Cheikh Tidiane Dieye of Environment and Development in Africa (ENDA), based in Senegal. “The poetic justice of this is palpable. In Senegal, the IMF has mandated budget cuts for years. As a result, we have been unable to invest in health care Care Le concept de « care work » (travail de soin) fait référence à un ensemble de pratiques matérielles et psychologiques destinées à apporter une réponse concrète aux besoins des autres et d’une communauté (dont des écosystèmes). On préfère le concept de care à celui de travail « domestique » ou de « reproduction » car il intègre les dimensions émotionnelles et psychologiques (charge mentale, affection, soutien), et il ne se limite pas aux aspects « privés » et gratuit en englobant également les activités rémunérées nécessaires à la reproduction de la vie humaine. , education and other essential services. If the IMF’s loss of financial power is accompanied by a loss in political power, this could be good news for all Africans.”

The IMF’s governing body has just approved a proposal that would involve cutting its staff by about 20 percent and selling some of its gold stock to create a trust fund that would fund administrative operations in the future.

The gold cannot be sold without U.S. approval, however, and the U.S. representative to the Fund cannot support gold sales without Congressional authorization.

Health, development and labor organizations in the United States are mobilizing so that Congress approves gold sales only after achieving fundamental changes in IMF policy. Last week, 80 U.S. organizations — including Action Aid International USA, the AFL-CIO, Africa Action, the Bank Information Center, Essential Action (which I direct), 50 Years is Enough, Global AIDS Alliance, Health GAP, Jubilee USA Network, the ONE Campaign, Oxfam America, RESULTS USA, Service Employees International Union (SEIU), and the Student Global AIDS Campaign — urged Congress not to approve gold sales until first achieving real change at the Fund.

The letter says the Congress should require the IMF to: rescind the use of overly restrictive deficit-reduction and inflation-reduction targets; exempt expanded health and education spending in developing countries from IMF-imposed budget ceilings; permit developing countries to spend foreign aid for its intended purposes; delink debt cancellation from harmful economic policy conditions; and disclose crucial documents currently kept secret.

If the gold sales deal is approved, the IMF will become self-financing, and the U.S. Congress will lose much of its power to demand changes in how the IMF operates. So the present opportunity will not soon present itself again. There is no certainty about when the gold sales authorization will come before Congress, but it now seems as though it may be delayed until 2009.

Perhaps the IMF under the leadership of Strauss-Kahn, who took the helm of the institution only last September, is ready to re-evaluate its market fundamentalist, corporate-friendly policy prescriptions for poor countries. A statementissued by the Fund last week said that African countries did not need to raise interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
in response to inflation driven by higher prices of food and fuel, and that some subsidies might be permissible in some circumstances. This is perhaps a baby step forward.

But if the IMF is not ready on its own to jettison its long-standing policy demands for poor countries, it may soon find that it has no choice. Representative Barney Frank, D-Massachusetts, chairs the House Financial Services Committee, which must approve the gold sales proposal prior to the full House of Representatives considering the issue. At the 20th anniversary celebration of the Bank Information Center last week, he strongly denounced structural adjustment, stated as a matter of fact that gold sales will only be authorized if additional IMF gold is sold to cancel poor country debt, and made clear that he intends to obtain policy changes from the IMF as a condition of permitting gold sales.

Further Resource:

Read a news report on IMF: Will these men save the world? (Guardian, UK).

Robert Weissman

Rédacteur en chef du Multinational Monitor, basé à Washington, D.C.



8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80