International Monetary Fund

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The International Monetary Fund (IMF) is an organisation that was created with the principal aim of reducing the poverty of the world’s poorest countries.

Contents

The IMF's aims

The IMF describes its work as falling into three main categories:

  • Surveillance, involving the monitoring of economic and financial developments and the provision of policy advice, aimed at crisis prevention.
  • Lending money to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to low-income countries are also aimed especially at poverty reduction.
  • Providing countries with technical assistance and training in its areas of expertise.

Supporting all three of these activities is IMF work in economic research and statistics.[1]

According to the IMF's website as at May 2009, the following are the "Fast Facts on the IMF":[2]

  • Current membership: 185 countries
  • Staff: approximately 2,490 from 143 countries
  • Total quotas: $325 billion (as of 3/31/09)
  • Loans outstanding (as of 3/31/09): $35.8 billion to 65 countries, of which $6.1 billion to 58 countries on concessional terms.

History

The International Monetary Fund (IMF) was officially established on 27 December 1945 after 29 countries signed the Articles of Agreement at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, 1-22 July, 1944. On 1 March 1947 the IMF began financial operations.

At this time the IMF's aims were to monitor exchange rates, to increase international trade, to provide a forum for discussion about international monetary concerns, to give technical assistance to member countries and lastly, to lend money to member countries who cannot make the loan repayments. However, money was only made available to countries if they acknowledged the IMF's policy and implemented certain structural adjustment programs. [3]

Criticism

The IMF has come under heavy criticism concerning the terms attached to the financial assistance it gives. One major critic of this organisation is Joseph Stiglitz, a former chief economist at the World Bank, who has argued that the IMF is hindering the economies of the world’s poorest countries rather than enhancing them. He has argued that the financial assistance given by the IMF is plunging the poorest economies into further debt rather than improving their financial situation.[4][5]

Since Stiglitz's departure from the World Bank he has challenged the effectiveness of the policies of both the World Bank and the IMF. Stiglitz notes, "the Institutions (World Bank and IMF) are not representative of the nations they serve... it has never even been a prerequisite that the head should have any experience in the developing world... while almost all of the activities of the IMF and World Bank today are in the developing world."[6]

Global protests and riots staged against the IMF would suggest that many people are not happy with its activities.[7]

In many countries where the IMF-imposed economic programs have been implemented, the general deterioration of living standards among ordinary people has not gone unnoticed, and people have organised themselves to protest against the programs. Countries where mass protests have occurred include Algeria, Benin, Bolivia, Ecuador, Jamaica, Jordon, Mexico, Niger, Nigeria, Russia, Sudan, Trinidad, Uganda, Venezuela, Zaire and Zambia. [8] These protests date back to 1985. The mainstream media have rarely covered these protests, despite the fact that many people have been killed in them.[9]

Policies

HIPC

Created in 1996 by the IMF and World Bank, the Heavily Indebted Poor Countries (HIPC) is an agreement between creditors to help the poorest and most indebted countries reduce their debt burden. Poor countries owe a combined debt of over $2 trillion to rich countries. The HIPC Initiative enables poor countries to focus on “building the policy and institutional foundation for sustainable development and poverty reduction.” Along with reducing debt, the Initiative reduces poverty, and helps a country’s fiscal and monetary performance.

HIPC is open to the poorest countries that meet the following requirements:

  • A per capita income below $785.
  • Eligibility for assistance from the World Bank’s International Development Association.
  • Have such high debt that they cannot sustain it even after applying debt relief devices.
  • A track reform of trying to reduce poverty and building economic growth. [10]

Structural Adjustment Program

A Structural Adjustment Program (SAPs) is a set of policy changes implemented by the International Monetary Fund (IMF) and the World Bank (the Bretton Woods Institutions) in developing countries. These policies involve the countries' having to meet certain financial conditions in order to receive loans. Eligibility for loans from the IMF requires governments to be in compliance with the IMF’s Structural Adjustment Programs (SAPs), which aim to reduce a government’s budget deficits through decreasing government expenditure. Among the conditions are increasing exports, devaluing overvalued currencies, trade liberalization, balancing budgets, price controls, privatization, and fighting corruption.[11]

SAPs have been criticised on the grounds that structural adjustment policies are simply loans which are being added to the ever-increasing debt which the poorest developing countries are accumulating. SAPs often require the devaluation of the currency against the dollar and recommend the removal of price controls and state subsidies. This aspect of the program weighs most heavily on the poor of the country, who will often depend greatly on what few state-subsidised services the government was able to provide prior to IMF intervention. The basic services often impacted are health and education, which many would consider to be more important in development and poverty reduction than the economic program proposed by the IMF, which is focused on the export of primary commodities and foreign exchange.[12]

In many cases, a country that has been subject to the IMF Structural Adjustment Program can experience a sharp increase in GDP, but these increases are often characterised by stark inequality. The program often creates, or increases the existence of a wealthy elite, whilst simultaneously further impoverishing the already very poor.

Former World Bank chief economist Joseph Stiglitz talks of "a growing regional disillusionment with the IMF and the reforms ... a feeling of resentment with the hypocrisy of US free trade rhetoric combined with increased trade barriers" and the perception that in those cases where there has been growth, the rewards have disproportionately ended up in the hands of the rich, with the situation worsening for many of the poorest:

The experiment in so-called reform is failing in Latin America. After a brief spurt in the early 1990s, growth has slowed. Many countries in the region are facing recessions, depressions, crises, a few of an almost unprecedented level... The outcomes have been worse than many of its critics feared: it has not brought growth to much of the region and in some parts of the region, it has brought increased inequality and poverty.[13]

In 2002 there was an attempt to involve recipient countries more in the SAP process, resulting in the introduction of Poverty Reduction Strategy Papers, which, however, represent much of the same neoliberal approach as the Structural Adjustment Programs.

PRS

The poverty reduction strategy (PRS) approach, begun in 1999, redefines the relationship of aid--empowering governments to set their priorities (and holding them accountable for results), and encouraging donors to provide predictable, harmonized assistance that is aligned with country priorities. The approach centers around countries developing and implementing poverty reduction strategies (PRS) that articulate development priorities and specify the policies, programs, and resources needed to meet their goals.[14]

The East Asia crisis

This global economic crisis began on July 2, 1997 in Thailand. Previous decades had seen the countries of East Asia improve dramatically, incomes had soared, health had enhanced and poverty had decreased rapidly. Some of the countries had not experienced a single year of recession in almost 30 years [15].

Towards the beginning of the 1990s, East Asian countries had liberalized their financial and capital markets because of increased national pressure form the U.S Treasury Department. This pressure stimulated a flood of short term capital[16].This short-term capital helped speed up an unsustainable real estate boom, but every real estate bubble has to burst at some point, frequently with catastophic consequences. This is exactly what happened in Thailand and caused an extensive economic problem [17].In 1997 when private organisations in the East Asian countries could not make their payment obligations, international currency markets panicked. [18]

When the Thai baht derpreciated, it not only seriously affected the currency market of Thailand but also the rest of East Asia - South Korea, Singapore, Malaysia, Indonsesia, the Philippines, Hong Kong and even Russia, Brazil and the United States[19].

IMF policy and advice

The IMF played a major role in the progression of the crisis. The Asian countries that could not make their loan repayments were given loan arrangements through the IMF in order to meet foreign debt payments, but in turn the countries were required to adopt Structural Adjustment Policies.

The IMF ordered the Asian governments to cut expenditure, a recessionary policy that intensified the economic slowdown.[20] Former World Bank chief economist Joseph Stiglitz told New Republic:

I thought this was a mistake. For one thing, unlike the Latin American nations, the East Asian countries were already running budget surpluses. In Thailand, the government was running such large surpluses that it was actually starving the economy of much-needed investments in education and infrastructure, both essential to economic growth. And the East Asian nations already had tight monetary policies, as well: inflation was low and falling. (In South Korea, for example, inflation stood at a very respectable four percent.) The problem was not imprudent government, as in Latin America; the problem was an imprudent private sector--all those bankers and borrowers, for instance, who'd gambled on the real estate bubble.[21]

Stiglitz argued that the most important contributing factor to the crisis was capital account liberalization, the removal of restrictions relating to the flow of capital – in this case, currency. The Western world encouraged East Asian countries to allow foreign investors easier access to the Asian markets. Money flowed into the region rapidly but many of these countries did not have regulations in place to ensure foreign investment could not be pulled out without penalty. When negative speculation occurred, this money flowed out of the region as fast as it was initially invested.[22]

The IMF, said Stiglitz, helped prolong the East Asian crisis by refusing to lend money to East Asian nations unless they undertook certain economic reforms. These included:

  • A high increase in interest rates
  • Decreased government expenditure. Indonesia's government had to eliminate fuel and food subsidies in 1998.
  • Countries were told to shut down unsatisfactory performing banks
  • South Korea had to grant international organisations access to its domestic markets
  • Mass layoffs were implemented in many countries.[23]

The IMF came under criticism for

imposing its orthodox policy prescriptions (control on government spending and higher taxes, higher interest rates, and liberalised markets and fewer state controls) on countries which are not suffering from excessive government spending or inflation, but from profligate financiers who have cared little for the riskiness of their loans. Analysts have warned that these policies will stifle the economies.[24]

Joseph Stiglitz rebuked the IMF, saying:

you don't want to push these countries into severe recession, one ought to focus on things that caused the crisis, not on things that make it more difficult to deal with.[25]

IMF involvement in Mexico

One of the countries where the IMF has attracted most criticism is Mexico. In recent history, the IMF has granted over $5 billon (USD) to Mexico in an attempt to reduce poverty, increase stability, and provide financial protection from declining oil revenues. [26]

Some blamed the IMF for Mexico's financial crisis in 1994. The IMF had advised that Mexico devalue the peso and encourage the privatisation of many state run banks and other industries. The country built up a massive debt burden. Also, the Mexican government was advised to steer away from the public funding of improvements to the systems of water provision in their traditional agricultural areas during times of drought. Instead the IMF advised to focus on the "Maquilladora regions" (the northern region where manufacturing of parts for American firms for export is the prevalent industry).

Richard Salsman, president of investment consultants InterMarket Forecasting, Inc., commented in Capitalism magazine:

The IMF claims its involvement with Mexico was a success story. Not so. Mexico fell into crisis when, at the IMF's instigation, it devalued the peso in 1994-95. Only when Mexico re-established a peso that was semi-fixed to the dollar and weaned itself from IMF aid did its economy recover.[27]

According to an IMF statement, however, "Mexico enjoys sustained growth and stability thanks to sound economic policies" [28].

A wider problem

A Multinational Monitor investigation explains the case of Argentina and tied loans and assistance from the IMF[29]. In this case the Argentinian government accepted IMF funding to avoid defaults on other foreign debt. As usual, the loans were subject to policy conditions. By examining the loan documentation agreements between the IMF and 26 other countries, Multinational Monitor shows that that several conditions were replicated throughout, and in more cases than not these conditions were deemed to undermine the rights and living standards of vast numbers of working citizens. These measures include:

  • The downsizing of public service work
  • Less worker protection from dismissal
  • Reductions in minimum wage levels
  • Less social security/pension benefits.

A US Congressional committee identified problematic issues with the support policies and adjustments of the IMF, stating:

The IMF has given too little attention to improving financial structures in developing countries and too much to expensive rescue operations. Its system of short-term crisis management is too costly, its responses too slow, its advice often incorrect, and its efforts to influence policy and practice too intrusive.[30]

In fact, the IMF receives much criticism for its neoliberal reformist policies. It is widely accepted that private capitalist investment will always locate where the lowest wages and most liberal market conditions exist. This is also known as "The race to the bottom"[31]. In such markets the low level workers are subjected to abject poverty, low standards of living, malnutrition and a host of other physical and social ailments that the IMF claims to cure.

Another key problem associated with the IMF is the lack of public accountability. As the IMF is a global organisation, the effects of its policies can be felt by many citizens around the world as they can directly influence host governments without facing any sort of public vote. So even if the inhabitants of a country are driven into poverty by transactions and arrangements as seen in the above case studies, the problems are inescapable and they are above the scale of local or national democratic systems. As seen in the following section, perhaps the only way to impose restrictions on the IMF is with mass protest on a wide scale.

History of protest

The IMF's policies are based upon a belief that the free market should rule and that capital should be free to roam unfettered across the globe. These policies tend to hurt the poor, by maintaining their poverty or making it worse. These effects have not gone unnoticed and there have been many protests against IMF and World Bank involvement in the economy. When protests occur in third world countries, it is easy for the mainstream media in the West to play down or not to cover these protests. However, when protests are staged within developed countries, it is more difficult to ignore. Protests and people speaking out against the IMF and its strategies led to the Structural Adjustment Program gaining a negative connotation with academics and protesters.

A worldwide global justice movement has been established which aims to link people within advanced nations to events occurring in the developing world, which may not be covered by mainstream media. This movement works with Labour unions, debt campaigners, and environmentalists to keep people informed and aware of the injustices occuring at the hands of the IMF. [32]

This movement calls for the details of the IMF and World Bank meetings to be made public and transparent. The group also calls for a cancellation of all debt owed to the most heavily indebted countries, and to put an end to policies which allow the privatisation of basic services such as water.

Washington protests

In September, 2002, mass protests were held in Washington, DC, whilst the IMF and World Bank were holding meetings in the city. Three thousand police officers were mobilized from different regions to police the area. In many media reports, the protesters were represented as crazed and violent anarchists, yet an article on the World Socialist Web Site says that of the 649 arrests made, only five were charged for destruction of property. Protesters were kept several blocks away from the building where the meetings were actually being held, and police have been reported to use unnecessary force. Protesters were said to chant, "This is not a police state, we have the right to demonstrate".[33]

DC Police Chief Charles H. Ramsey said, “The intent of this group is to shut down all DC." If they are not locked up, he said, “they leave here and go someplace else and do something else.... Those people that are apprehended will be missing several protests because they are going to be behind bars.” Ramsey warned demonstrators that anyone caught damaging property would be jailed.[34]

Protest and media involvement

Mainstream media coverage typically takes a derogatory stance toward the protesters. The Washington Times referred to them as “the Anti-Capitalist Convergence and other hooligans,” and criticised the police force for even allowing the protesters into the city. The Post took a similar stance, stating its concerns for the economy and the tourist trade; “That’s all the more reason for the authorities to take appropriate action to ensure that Washington does not become a city that is besieged and sacked this weekend.” This open encouragement of by the media of crackdown on those who speak out against government policy is remarkable, and a good example of the conflicting interests of democracy and free market ideology.[35]

Global justice movement

Even on the poorest countries, people began to mobilise in their thousands to protest against the IMF's privatisation programs, in a study done on this issue,of the countries examined nearly three quarters have IMF-sponsored privatisation programmes, and half of these have seen anti-privatisation protests. The protests catalogued by the World Development Movement report are part of the global fight against global capitalism. [36] The problem within the protests is that whilst they can bring the attrocities to the attention of the wider public, it is generally the government, and the politicians of the country that must answer its people, and the IMF and capital remains free, and does not have to answer to anyone. This is one of the main reasons the Global Justice Movement seeks to make these oragnisations like the IMF and the World Bank more accountable.

Global Month Of Action, 2006

A Global Month of Action was declared in September in 2006, which saw protestors in the U.K lobby for the government to withdraw its funding to the IMF. These protests were staged ahead of crucial World Bank and IMF meetings in Singapore. Around 3,000 people gathered in Geraldine Mary Harmsworth Park in Lambeth to stage a drumming march.The marchers then drummed their way up to Westminster to a rally outside the Treasury, beating on drums, pots and pans, yoghurt pots, tubs, tambourines and anything else people could get their hands on. They delivered a petition of around 25000 names to Westminster, and Hilary Benn announced that the British government would with hold 50 million of its funding to the IMF.

There were Global Month of Action launch events all over the world on Saturday 16 September:

In Indonesia, GCAP held an international "Peoples Tribunal on Poverty and Debt" in Batam. People from across the developing world gave evidence on the impact of World Bank and IMF polices, as well as the impact of debt repayments on the lives of people living in poverty in their countries.

Picket outside World Bank in PhilippinesIn the Philippines, GCAP Philippines and the Freedom from Debt Coalition staged a protest rally in front of the World Bank office in Ortigas to express indignation at this institution's continued exclusion of the peoples' voices in its decision-making process.

In Liberia, 500 activists and campaigners staged a protest outside the World Bank and IMF offices in Monrovia - holding banners protesting against the harmful impact that debt has on Liberia's development. [37]

Principals

Dominique Strauss-Khan

Strauss-Khan, managing director of the IMF, is a professor in economics with the Institut d’Etudes Politiques in Paris. Between 1997 and November 1999 he held the position of minister for economy, finance and industry. He is credited with several key successes through this period; perhaps the key areas are his involvement in the launch of the Euro and the privatisation of the French aerospace industry. [1][38]. His first foray into the political sphere was as an active member of the Communist student movement and subsequently the French Socialist party. His interest in private finance and corporate progression had attracted criticism from his left-wing socialist party counterparts at this time.[39]

Rodrigo de Rato

De Rato was IMF president from June 2004 until October 31 2007. Before he assumed this role, he was the minister of economic affairs in Spain.[40] He has also been involved with other organisations such as the World Bank and the European Investment Bank along with other organisations tasked with reconstruction and development. The European Investment Bank (EIB) is specifically tasked (like other "development banks") with "financing for projects which would further the policy objectives set by the European Community".[41]

Horst Kohler

President of the IMF from 1 May 2000 until 4 March 2004. Prior to this role, one of Kohler's key roles was within the European Bank for Reconstruction and Development (EBRD) [42]. This link is interesting as the EBRD are once again a very influential group with an interest in using "the tools of investment to help build market economies and democracies in countries from central Europe to central Asia"[43]. They will only provide financing to countries who are either democratic (freemarkets etc) or who show an interest in the transition into democracy.

Common traits of IMF principals

  • All presidents of the IMF have been European.
  • Many IMF principals have had experience in Governmental roles.
  • Many IMF principals have been involved in the redevelopment sector of finance, where conditional finance/investments can be used to promote the interests of certain organisations and countries.

List of IMF Managing Directors

Notes

  1. "What the IMF Does", IMF website, accessed 17 May 2009
  2. "The IMF at a glance, IMF website, accessed 17 May 2009
  3. Allison Berg, "History of the IMF", version placed in web archive 12 June 2002, accessed in web archive 17 May 2009
  4. "Joseph Stiglitz", Global Policy Forum website, accessed 6 May 2009
  5. Joseph E. Stiglitz, "The IMF’s America Problem", Project Syndicate, 2006, accessed 11 May 2009
  6. Stiglitz, J. (2002), Globalization and its Discontents, Penguin Books, London, p. 19
  7. Allison Berg, "History of the IMF", version placed in web archive 12 June 2002, accessed in web archive 17 May 2009
  8. Structural Adjustment Program, the Whirled Bank Group website, accessed 17 May 2009
  9. Structural Adjustment Program, the Whirled Bank Group website, accessed 17 May 2009
  10. "Gina-Marie Cheeseman Monetary Fund's Financial Assistance Policies:Pros and Cons" www.globalpolitician.com accessed:26/2/08
  11. Gina-Marie Cheeseman, "International Monetary Fund’s Financial Assistance Policies: Pros and Cons" www.globalpolitician.com, 7 August 2007, accessed 19 May 2009
  12. "Structural Adjustment Policies" www.whirledbank.org, accessed 19 May 2009
  13. "IMF and World Bank face growing criticism over 'failure of reforms', Third World Network report, undated, Choike.org, accessed 19 May 2009
  14. "2005 PRS Review: Balancing Accountabilities and Scaling Up Results" www.go.worldbank.org accessed:18/03/08
  15. "Joseph Stiglitz: What I learned at the World Economic Crisis" http://www.mindfully.org accessed 04/03/08
  16. "Joseph Stiglitz: What I learned at the World Economic Crisis" http://www.mindfully.org accessed 04/03/08
  17. "Joseph Stiglitz: What I learned at the World Economic Crisis" http://www.mindfully.org accessed 04/03/08
  18. “How the IMF helped create and worsen the Asian financial crisis” http://www.essentialaction.org/imf/asia.htm accessed:25/03/08
  19. "How IMF Policies Brought the World to the Verge of a Global Meltdown" www.mala.bc.ca/ accessed:04/03/08
  20. “How the IMF helped create and worsen the Asian financial crisis” http://www.essentialaction.org/imf/asia.htm accessed:25/03/08
  21. How the IMF helped create and worsen the Asian financial crisis, undated, www.essentialaction.org, accessed 19 May 2009
  22. Miranda Nelson, "[The East Asia Crisis: How IMF Policies Brought the World to the Verge of a Global Meltdown]", 2004, accessed 19 May 2009
  23. Miranda Nelson, "[The East Asia Crisis: How IMF Policies Brought the World to the Verge of a Global Meltdown]", 2004, accessed 19 May 2009
  24. "IMF criticism grows as S. E. Asia Crisis Worsens", 15 January 1998, Bretton Woods Project website, accessed 19 May 2009
  25. "IMF criticism grows as S. E. Asia Crisis Worsens", 15 January 1998, Bretton Woods Project website, accessed 19 May 2009
  26. "Activities in Mexico" www.imf.org accessed 04/03/08
  27. Richard M. Salsman, "Abolish the IMF", Capitalism magazine, 8 March 1998, accessed 19 May 2009
  28. "IMF statement on Mexico" www.IMF.org accessed:11/03/08
  29. "Multinational Monitor, September 2001" www.multinationalmonitor.org accessed:18/03/08
  30. Ana Eiras, IMF and World Bank Intervention, A problem not a solution, Sept 2003"], The Heritage Foundation, accessed 22 May 2009
  31. Floyd J. McKay, "Wal-Mart Nation: The race to the bottom" accessed:18/03/08
  32. Robert Weissman, "Why We Protest: The IMF and World Bank Hurt Poor Countries and Undermine Democracy', Common Dreams, 10 September 2001, accessed 22 May 2009
  33. Kate Randall, "Mass arrests at anti-IMF protest in Washington", World Socialist Web Site, 28 September 2002, accessed 22 May 2009
  34. Kate Randall, "Mass arrests at anti-IMF protest in Washington", World Socialist Web Site, 28 September 2002, accessed 22 May 2009
  35. Kate Randall, "Mass arrests at anti-IMF protest in Washington", World Socialist Web Site, 28 September 2002, accessed 22 May 2009
  36. "The Socialist Worker" www.socialistworker.co.uk accessed:23/03/08
  37. "Global Month of Action 2006" www.bond.org.uk accessed:23/03/08
  38. "Mr. Dominique Strauss-Kahn is the EU candidate to lead the IMF" www.ambafrance-au.org accessed:18/03/08
  39. "www.french-news.com" accessed:23/03/08
  40. "Biographical Information from the IMF" www.imf.org accessed:23-03-08
  41. "About the EIB" www.EIB.org accessed:11-03-08
  42. "Biographical Information www.IMF.org" www.IMF.org accessed:23/03/08
  43. "About the EBRD" accessed:03/03/08
  44. IMF Managing Directors, International Monetary Fund, accessed 30 March 2013.
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