IMF: a slight feeling of déjà vu

9 July 2007 by Eric Toussaint , Damien Millet

Whereas Wolfowitz, the former Number 2 in the Pentagon, clung on pathetically to his post as president of the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

after being caught practising nepotism, the managing director of 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.
(IMF), Rodrigo de Rato, has surprised everyone by resigning two years before the end of his mandate. It is true that his appointment in 2004 was also a surprise, coming as it did only a few days after the electoral defeat of José Maria Aznar’s government, of which R. de Rato was a member. It made it look as though rejection by the people on the national level could pave the way to the leadership of one of the biggest multilateral institutions!

Indeed, the post is beginning to seem more and more like an ejector seat that the pilot himself does not hesitate to activate. Back in 2004, its German incumbent, Horst Köhler, brought the economic world up short when he resigned from the IMF to take up the presidency of the German Republic. In 2000, the departure of the Frenchman, Michel Camdessus, was more due to the deep crisis in Southeast Asia. It has to be said that the IMF’s actions - bailing out creditors who had made risky investments and imposing economic measures that left over 20 million redundant - had been very strongly contested.
There is no need to go into the “personal reasons” given by de Rato to justify his departure, planned for next autumn. Nevertheless, one cannot help but notice that it comes as the IMF faces considerable difficulties over several highly sensitive issues, and at a time when the institution is already going through a crisis of legitimacy.

The reform of quotas has become bogged down. The project drawn up by de Rato would see four countries (China, Turkey, Mexico and South Korea) get an increase of several percentage points in their fund quota. Even if this is unlikely to modify the present balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. of power which favours the major powers, the project has failed to make any headway.

Meanwhile, the IMF is coming under increasing criticism. For years, global justice movements like the CADTM have been calling to have it abolished and replaced by an institution with radically different objectives guaranteeing basic human rights. But now, more and more governments want to rid themselves of the cumbersome tutelage of the IMF. Venezuela announced in April that it was going to leave the IMF. In December 2005, Brazil and Argentina repaid all they owed in one fell swoop. Other countries like Indonesia, the Philippines or Uruguay have followed in their footsteps, depriving the IMF of its main clients.

This has consequences for the funding of the IMF itself, as early repayment implies considerable loss in terms of 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. . This is why, in January 2007, a committee of experts assigned to examine the question recommended the sale of 400 tonnes of the IMF’s gold reserves (out of a total of over 3 200 tonnes). However the United States has always refused to sell off. In fact a meeting planned to discuss the matter has just been postponed for a month, indicating that things are not running smoothly in this area, either.

The United States, irritated by the under-valuation of the yuan, good for Chinese exports and bad for the US trade deficit, has just got the IMF to add a new string to its shabby bow. It is to monitor currency exchange rates. However the Chinese authorities are set against the idea and are very annoyed with the IMF, which they accuse of being a tool in the hands of the Bush administration.
Today the risk is great that we shall be hearing the same old music yet again. The European leaders agreed that Robert Zoellick should replace Paul Wolfowitz at the head of the World Bank on the understanding that in exchange, they could carry on appointing the managing director of the IMF. How much longer can this unacceptable system of reciprocal Euro-American co-option continue?

Fate can be cruel, as now, in early July 2007. The IMF’s managing director has resigned just as the new president of the World Bank takes up his post. The institutions appear peculiarly disoriented, more concerned about themselves than about world affairs. At the same time, seven Latin American countries (Venezuela, Argentina, Bolivia, Ecuador, Brazil, Paraguay and Uruguay) are preparing to launch the Bank of the South, whose vocation is to promote a radically different approach, on a regional scale, from the particularly brutal, destructive one that the IMF and the World Bank have been imposing for decades.

Meanwhile the Global Wealth Report published by the companies Merrill Lynch and Cap Gemini, show that the number of dollar millionaires in the world has reached 9.5 million individuals, up 8.3% on the previous year. The accumulated estates of these millionaires comes to over 37 000 billion dollars, i.e. 12 times the external debt of all the developing countries put together. At the same time, the poor populations sink deeper into hardship, their existence made even more precarious by the sharp increase in cereal prices on global markets. The production of cereals - especially maize - is veering more and more towards the manufacture of biofuel for the highly industrialised countries, which could lead to serious food shortages in the countries of the South in a few months’ time.

It is time to have done with an economic model that has only succeeded in making the rich richer and the powerful, more powerful. It is time to have done with an economic model that has failed, since the only things it allows to develop are debt, poverty and corruption. Like the World Bank, the IMF has been one of its main promoters and thus carries a large portion of responsibility. The boat is pitching dangerously. The year 2007 is already an “annus horribilis” for the upholders of neo-liberal globalisation. The massive mobilization of people the world over will make the coming years more critical still...

Translation from French by Vicki Briault with the collaboration of Judith Harris

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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Damien Millet

professeur de mathématiques en classes préparatoires scientifiques à Orléans, porte-parole du CADTM France (Comité pour l’Annulation de la Dette du Tiers Monde), auteur de L’Afrique sans dette (CADTM-Syllepse, 2005), co-auteur avec Frédéric Chauvreau des bandes dessinées Dette odieuse (CADTM-Syllepse, 2006) et Le système Dette (CADTM-Syllepse, 2009), co-auteur avec Eric Toussaint du livre Les tsunamis de la dette (CADTM-Syllepse, 2005), co-auteur avec François Mauger de La Jamaïque dans l’étau du FMI (L’esprit frappeur, 2004).

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