IMF: Shrink it or Sink it. Consensus statement and strategy document

IMF: Shrink it or Sink it. Consensus statement and strategy document

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This document was drafted collectively over a period of two months by representatives of the organizations that attended the Strategy Session on the International Monetary Fund at the Institute for Policy Studies in Washington DC, at the Spring meeting. from the IMF and the World Bank in the third week of April 2006.

The following document was drafted collectively over a period of two months by representatives of the organizations that attended the Strategy Session on the International Monetary Fund at the Institute for Policy Studies in Washington DC, when it was held. the Spring meeting of the IMF and the World Bank in the third week of April 2006. It is circulating around the world for accessions before the all-important autumn meeting of the Bretton Woods institutions to be held in Singapore between the September 13 and 20, 2006. The document, with the list of signatories, will be presented to the governments that attend the meeting. This is intended to be the opening act of a global campaign, in which the other elements will be a conference on the future of the Fund to be held in Singapore on September 17, and alternative events to be held on the nearby island of Batam in Indonesia from September 15 to 19.

The International Monetary Fund is experiencing perhaps its most vulnerable moment in years. The institution is experiencing a triple crisis - a crisis of legitimacy, a budget crisis and a crisis of roles - that is unparalleled in its 62 years of existence. These circumstances offer critics of the Fund an opportunity to radically shrink it, disempower it, or why not close it permanently. If not seized, this opportunity may slip away and circumstances could change and strengthen and save the Fund.

Ten years ago, the Fund was flying high, arrogant in its belief that it knew what was best for developing countries. Today, the Fund is a fenced-in institution hiding behind its four walls in Washington DC, unable to mount an effective response to the growing number of opponents and critics.

Legitimacy crisis

The Asian financial crisis, which swept through the famed Asian tiger economies in the summer and fall of 1997, was the determining factor in changing the Fund's fortunes. The Asian crisis was the "Stalingrad" of the IMF, and it has never recovered. As Dennis de Tray, a senior former IMF official who was serving at the World Bank in Jakarta at the time of the crisis, said, "The Fund lost its legitimacy at that time and did not regain it any more" (i).

The Fund suffered three devastating blows during the crisis. He was first held responsible for the policy of removing capital controls that many East Asian governments followed in the years preceding the crisis. This policy of capital account liberalization attracted billions of dollars of hot money between 1993 and 1997, but it also ensured that there were no barriers to capital outflows during the panic of the summer of 1997, when some $ 100,000 Millions of dollars left the economies of Indonesia, the Philippines, Thailand, Malaysia and South Korea within a few weeks.

The second blow was the widespread perception that the multi-billion dollar bailout packages collected by the IMF for the affected countries were not effectively used to bail out economies but to pay off foreign creditors and speculative investment. Citibank, for example, despite being heavily over-exposed in Asia, did not lose a penny during the crisis. These scandalous events drew strong criticism against the IMF, including among free market supporters such as George Shultz, former Secretary of State in Richard Nixon's presidency, who declared that the Fund was encouraging a "moral hazard" and therefore should be abolished. .

The third blow to the Fund came from the results produced by stabilization programs on economies in crisis. With their misguided emphasis on reducing public spending as a method of fighting inflation, these programs effectively accelerated the slide of these economies into recession.

The Asian financial debacle gave impetus to a review, which is still under way, of the structural adjustment programs that the Fund, together with the World Bank, had imposed on more than 90 developing and transition economies since 1980. Few of These programs had some success in generating the growth, reduction of inequalities, and reduction of poverty that had been promised to the countries that adopted these programs. In reality, the IMF's shock therapy programs in Russia and Eastern Europe led millions of people to join the ranks of the poor in the 1990s (ii). So dismal were the results that the Fund's extensive structural adjustment program had to be renamed the "service for growth and the fight against poverty."

In 2002, when the Fund was still suffering the consequences of the Asian financial crisis, Argentina collapsed, with a default of US $ 100 billion of the US $ 140 billion of its external debt. Perhaps more than any other country in the world, Argentina had followed the IMF's neoliberal prescriptions to the letter, including radical deregulation, radical liberalization of tariffs, and financial liberalization. The Fund was also the great defender of the convertibility of the Argentine peso, which tied the supply of Argentine pesos to the dollar in circulation within the country. When this policy mix went haywire in 2001 and 2002, the same fate suffered the IMF's credibility as it had put billions of dollars in stabilization loans to support them.

The aftermath of the crisis was even more damaging. When Nestor Kirchner was elected president of Argentina in 2003, he declared that his government would repay its debt to private creditors, but only at 25 cents to the dollar. Furious, the creditors asked the IMF to take action against Kirchner, but with its reputation in tatters and its lobbying capacity weakened, the Fund retracted its position to confront the Argentine president, who got away with it, achieving a radical reduction of the foreign debt of your country with the international private sector (iii).

With another group of actors - the governments of developing countries - Argentina's next move, together with Brazil, shook the Fund's image as an indispensable lender of last resort. Both governments canceled their debts to the Fund, which allowed them to declare their independence from this institution so hated in Latin America.

Budget crisis

The legitimacy crisis has had economic consequences. In 2003, the Thai government declared that it had paid most of its debt to the IMF and that it would soon gain financial independence from the organization. Indonesia terminated its loan agreement with the Fund in 2003 and recently announced its intention to pay off its multibillion-dollar external debt in two years (iv). Another series of large borrowers from Asia, concerned about the devastating consequences of the policies imposed by the Fund, have stopped taking out new loans. Among these are the Philippines, India and China. Now, this trend has been reinforced by the recent attitudes of Brazil and Argentina, which by paying off all their debts and declaring their financial sovereignty, implicitly stated that they do not want to borrow from the IMF again.

This, which is in fact a boycott on the part of the large borrowers, is leading to a budget crisis for the Fund, since in the last two decades the IMF's operations have been increasingly financed with the amortizations of developing countries that are clients. of the Fund and not because of the contributions of the rich countries of the North, which have deliberately transferred the burden of supporting the institution to the borrowers. The result of these events is that the payments of charges and interests, according to the Fund's projections, will be reduced by more than half, from US $ 3,190 million in 2005 to US $ 1,390 million in 2006 and again by half with a forecast of US $ 635 million for 2009, which would generate what Ngaire Woods, a specialist in matters of the Oxford University Fund has described as "a huge reduction in the budget of the organization" (v).

Role crisis

The erosion of the Fund's role as a disciplinarian for indebted countries and as an enforcer of structural adjustments has been accompanied by a futile search for a new role for the Fund.

The Group of Seven's attempt to transform the Fund into the centerpiece of a new "global financial architecture," putting it in charge of a "contingency credit line" to which countries on the brink of a financial crisis would have access if they complied With the macroeconomic conditions approved by the IMF, it failed when it was pointed out that the spectacle of a government seeking access to this line of credit would in itself be a trigger for the financial panic that the government intended to avoid.

The proposal to create a "Sovereign Debt Restructuring Mechanism" - an international version of the bankruptcy bailout mechanism stipulated in Chapter 11 of NAFTA, which would provide countries with protection from their creditors as they embark on a restructuring plan - it collapsed due to objections from Southern countries who argued that it was too weak and to US opposition who feared that this would undermine the freedom of operation of US banks.

At the recent IMF meeting in the spring of this year, the Fund was tasked with monitoring relations between countries associated with global macroeconomic imbalances - that is, with massive trade surpluses or deficits - but the mandate was extremely vague. If there is something that reflects, it is precisely the desperation of the G8 countries to find a role for a bureaucracy of the international economy that has become obsolete and irrelevant.

Why should we act now

The current moment, when the Fund is more vulnerable than ever due to its triple crisis, is the most opportune to launch a campaign to disempower it: either "shrink" it or simply eliminate it.

There are three factors that can favor the success of this campaign:

First, as we noted earlier, the developing countries that have been the Fund's main clients are fed up with the institution and want to leave it.

Second, the American elite is more divided than ever over the Fund, and a significant number of conservatives want to shut it down. The last time the replenishment of the Fund's resources was raised in the US Congress in 1998, the measure barely managed to pass. It is highly doubtful that a replacement measure will win congressional approval today.

Third, the US and some key European countries have had major differences in their policies for the IMF. Some key European governments, for example, wanted to use the IMF to get Argentina to pay off its debts to mainly European bondholders. The Bush administration, for its part, had a cold response to this idea, eager to prevent the Fund's resources from serving as collateral for European speculators (vi). Another recent expression of the divergences was seen in the positive attitude of European governments to create the Sovereign Debt Restructuring Mechanism, which was severely attacked by the United States.

In sum, the three pillars that served as the foundation of the Fund for sixty years - the belief in its indispensableness on the part of developing countries, an "internationalist consensus" among the American elite, and the transatlantic consensus between the European and American elites. —They are notoriously eroded, opening up real possibilities for a global civil society campaign to disempower or eliminate the Fund.

Indispensable Lender of Last Resort?

While more and more people and groups monitoring the IMF agree that it is increasingly dysfunctional, there are those who hesitate to demand its closure, feeling that there is still a need for a "lender of last resort" for developing countries (vii).

That is no longer a viable role for the IMF.

For many Asian countries, the answer is a regional institution, which understands the complexities of the region better than the Fund and therefore has greater judgment in imposing conditions. The Asian Monetary Fund (AMF) that was vetoed by Washington and the IMF during the Asian financial crisis could have fulfilled that role. In fact, the "ASEAN plus three" agreement could allow East Asian countries to move now towards the creation of such a regional financial grouping.

There are also initiatives for a regional institution in Latin America that could have as one of its functions serve as a source of capital and as a lender of last resort: the Bolivarian Alternative for the Americas (ALBA), promoted by Venezuela, Bolivia and Cuba.

But there is one objection: East Asia and Latin America have significant capital resources that can serve to create a common fund for regional last-resort loans. But what about Africa that is poor in capital? It is this concern that has made many African governments reluctant to distance themselves from the Fund.

In the first place, the main need of sub-Saharan Africa, as in most countries of the South, is the genuine cancellation of the debt without external conditionalities, not the false relief for the "highly indebted poor countries" tied to the conditionalities of the IMF style. Such a genuine write-off would include African countries' debt to the IMF, something the fund is stubbornly opposed to, although it grudgingly agreed to write off the debt of 19 heavily indebted poor countries. As to who would serve as Africa's lender of last resort, this is an important question, but the fund's dire track record with poor advice and dire policies in this area hardly qualifies it to continue in that role (viii ). As one specialist noted, Africa is not only becoming a haven for policies that have failed in the rest of the world, but they are also being implemented by Fund staff with less experience and less rank (ix).

Rather than relying on the IMF, African governments could consider cooperating with relatively capital-rich developing countries such as China, Venezuela, India, and South Africa to create a regional institution that could serve as a lender of last resort. However, learning from their own experience with the North and the IMF, they must insist on obtaining equitable agreements, not subject to being manipulated by these governments, something that will not be easy, since some of them are simply as exploitative as those of the North. .

But there is no other option for Africans but to gain control of the resources of their rich continent - through the cancellation or repudiation of debt, or through alliances with potential like-minded allies, such as Venezuela and others, who have already cut their ties with the Fund - and mobilize them for their development, instead of allowing them to bleed out in the payment of a gigantic debt, and go to the hands of the big creditors, the World Bank and the IMF.

The consequences of missing this opportunity

The IMF is now practically knocked out, but its ability to pull itself together should not be underestimated. Unforeseen circumstances may still arise that lead the United States and European countries to rebuild a united front to revive the institution. Or it is possible that the United States keeps the Fund alive with artificial support so that it serves as a de facto arm of Washington's unilateral policies, for example to discipline China and that it revalues ​​the renminbi to solve the problem of the trade balance of States. United.

In other words, we cannot afford to stand by and enjoy watching the Fund fade in its agony. We must collaborate to take it to the destination it so deserves.

Campaign claims and activities

To achieve the strategic goal of disempowering the IMF, the Campaign should urge the governments of the countries of the South not to enter into new loan agreements with the Fund.

The campaign should also urge governments to unilaterally repudiate the debts claimed by the Fund.

We should ask countries that have inefficient or bogus debt relief programs - like the Heavily Indebted Poor Countries (HIPC) Initiative - that are overseen by the IMF and the World Bank, to abandon totally those programs.

Likewise, the Campaign should request the governments that participate in the Poverty Reduction Strategy (ELP) plans not to use the advisory and management services of the Fund or the Bank and review the commitments they have assumed within the framework of those plans, should you not abandon them unilaterally. The systematic denunciation of the negative impacts of the conditionalities imposed by the Bank and the Fund on production, employment, wages, income, gender equality, public health, public services and the environment constitute a fundamental task. The IMF's Poverty Reduction and Growth Facility seems particularly vulnerable at this point, and a campaign that focuses on its closure has a chance of succeeding, thus creating a forum to boost new initiatives.

The provisions and practices of Congresses or Parliaments of a budgetary or supervisory nature should be used to convene hearings and carry out IMF audits in the United States, Europe, Japan and the countries of the South. Resigning from IMF membership could be an alternative that can be raised to attract interest from both civil society and governments. Holding a forum on this topic in a leading country Argentina, for example, could be an element to later generate similar forums in other countries.

This could be accompanied by popular consultations by civil society regarding whether or not to remain within the IMF, similar to the exemplary experience carried out in Brazil regarding the convenience of the Free Trade Area of ​​the Americas for that country in 2002. Really, when there is a chance of a victory, we can encourage parliamentarians to vote whether or not the country withdraws from the Fund.

A major conference on alternatives to the IMF in its role as a lender of last resort needs to be organized in 2007, with extensive research preparatory to this event done later this year. As a way to raise the curtain on this conference, the Campaign is to host a one-day seminar on alternatives to the Fund in Singapore during the fall meeting of the World Bank and the IMF in September this year.

A central operating principle of the campaign is to give the various participating organizations the opportunity to join the campaign at whatever level they feel comfortable with. Some governments and organizations, for example, may not yet be ready to adhere to a call to withdraw from the IMF, but may be willing to withdraw from a Poverty Reduction Strategy plan or request the closure of the Facility for Growth and Development. Fight Against Poverty (SCLP).

The challenge we face

In his classic work, The Structure of Scientific Revolutions, Thomas Kuhn demonstrates how paradigms go from being systems that drive a quantum leap in knowledge to then become obstacles to further advances in science. Similarly, the IMF has grown from a vital institution contributing to economic growth and stability in the two decades after World War II, to an 800-pound gorilla blocking the economy in the last three decades. route to the sustainable development of billions of poor people in the world. If this outdated institution had been closed on its 50th anniversary in 1994, 22 million Indonesians and 1 million Thais would have been saved from falling below the poverty line due to capital account liberalization policies imposed on the countries of the United States. East Asian; Argentina, the darling and favorite image of IMF-style neoliberalism, would have been saved from the tragedy of having more than half of its population unemployed and living in poverty; thousands of people in Malawi are said to have been saved from hunger and malnutrition resulting from the obligation imposed on Malawi by the Fund to "commercialize" its food procurement and stabilization agency, in a move that led to bankruptcy; 100 million people in Russia and Eastern Europe would not have experienced a free fall into poverty, courtesy of the IMF's shock therapy programs.

Global economic governance is important, but it is a system in which the Fund as configured today can no longer play any positive role. The Fund's purported stabilizing functions in a volatile world of unregulated global finance have been consistently undermined by its strongest member, the United States, while its service as a lender of last resort has been systematically undermined by the conditionalities it imposes. to its borrowers, who have exacerbated poverty and inequity and institutionalized economic stagnation.

The disempowerment of the Fund will not lead to global financial and fiscal chaos as Wall Street would have us think. On the contrary, the disempowerment of the fund is a sine qua non for the creation of a truly fair and effective rational system of global financial governance. IMF conditionalities threaten developing countries with the most crisis and the most poverty. The Fund's "rescue" programs do nothing more than bail out the big creditors, while binding the towns with recessive stabilization programs. The IMF has, in reality, no interest in curbing the power of the world's big speculators, and as long as it retains a position of power, blocking a genuine reform of world finance on the orders of Wall Street, there will be more financial crisis, more insecurity for peoples, and less responsibility at the hands of finance capital.

Like old nuclear reactors, the IMF is dangerous, and for many, it is time for it to be retired. The optimal solution to the problems presented by these Jurassic institutions is to eliminate them. But if this is still not possible at this time in the case of the Fund, then it is necessary to drastically restrict its power to do harm and its scope.

(Initial signatories: Institute for Policy Studies; Sisters of the Holy Cross Congregation Justice Committee; Focus on the Global South; South Jubilee; 50 Years Enough; Gender Action; Nicaragua-United States Office of Friendship; Solidarity Africa Network; Development Gap; Citizens'Action for Essential Services; Center for Policy Research and Education; Asian Indigenous Women's Network (AIWN); Jerry Mander, Co-Director, International Forum on Globalization).

(i). Remarks at the luncheon seminar on the IMF and the World Bank, Carnegie Endowment for International Peace, Washington, DC, April 21, 2006.
(ii). United Nations Development Program (UNDP), Human Development Report (New York: Oxford University Press, 2003), pp. 33-65.
(iii). Kirchner, however, continued to pay Argentina's debt with the Fund in full.
(iv). "President Says IMF Debt to be Repaid in Two Years," Jakarta Post, May 26, 2006.
(v). Ngaire Woods, "The Globalizers in Search of a Future: Four Reasons why the IMF and World Bank Must Change, and Four Ways they can," CDG (Center for Global Development) Brief, April 2006, 2.
(saw). See Walden Bello, "Synthesis Report on the E-Forum on International Regulation," Focus on the Global South and Pacific Action Research Center, Hong Kong, December 2005.
(vii). See George Soros, On Globalization (New York: Public Affairs, 2002).
(viii). See Ngaire Woods, The Globalizers: the IMF, the World Bank, and their Borrowers (Ithaca: Cornell University Press, 2006), pp. 141-178.
(ix). Woods, Remarks at IMF-World Bank Luncheon Seminar, Carnegie Endowment for International Peace, Washington, DC, April 21, 2006.

To join

July Focus on Trade, edited by Nicola Bullard of Focus on the Global South (FOCUS) - c / o CUSRI, Chulalongkorn University
Bangkok 10330 THAILAND - Tel: 662 218 7363/7364/7365
Fax: 662 255 9976 - - Translation: Alicia Porrini and Alberto Villarreal for REDES-Friends of the Earth Uruguay ( )
Published in Censat - Agua Viva -

Video: The David Rubenstein Show: IMF Managing Director Kristalina Georgieva (July 2022).


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