By THOMAS BEE
Who is the IMF actually helping now?
Since the recent rise in anti-globalisation movements around the world, the IMF has become the subject of a great deal of criticism. There are those who praise it for its ability to help those nations in need, and there are a rapidly growing amount of those who claim that it is a corrupt organisation which operates in favour of multinational corporate interests. In the middle are those who know the IMF as nothing more than three letters that often get mentioned on the news regarding economic stories. So what is the IMF, what is it meant to do, and who is it actually helping?
Chances are, if you were to approach an average person on the street and question them about their thoughts regarding the International Monetary Fund’s impact on global economic and sociological conditions, your query would be met with a profound look of bewilderment. That’s not to criticise the intelligence of Britain’s every-man, I myself have only recently wrapped my head around what exactly this organisation is and how it operates around the world. The IMF is one of the many elusive acronyms belonging to the family of global political entities which are often quoted as irrefutable sources of evidence but are seldom talked about in great detail. It’s impossible to turn on the news or read a story regarding any kind of global event without one of these multinational giants being name-dropped; IMF, World Bank, NATO, EU, WHO, UN, WTO, the list goes on.
Authors such as Piotrowski would argue that this air of confusion and lack of transparency surrounding the IMF may be intentional, in order to oversimplify its real workings into PR friendly sound bites, and has been the cause of some serious economic problems in areas like Greece and Latin America. Whether or not this notion has substance is down to how cynical or naive you are, but that is a story for a different day.
So what exactly is the IMF? Well according to its official website: “The IMF’s primary purpose is to ensure the stability of the international monetary system”. This means that the intended purpose of the institution is to maintain a stable global economy while trying to keep world debt to a minimum. It attempts to do this by monitoring and regulating international exchange rates, and providing economic guidance and support to its member countries (of which there are currently 188).
The IMF claims that by monitoring the global economic climate it is able to identify potential risks and ‘advise’ on necessary governmental policy changes; it will soon become clear why the word advise is in inverted commas. Perhaps the most important and controversial role of the IMF is it’s ability to provide loans to any of it’s member countries; these short-term, high interest loans are given to nations with the intention of improving their economic stability, stabilizing domestic currency and improving economic growth. However, like anyone who has ever taken out a loan will tell you, there is no such thing as free money.
So why the mini lecture on the IMF? Well, as mentioned before, too many news outlets and journalists often like to quote from the organisation without illustrating a clear depth of knowledge or any real analysis of the issues surrounding it. Rather than stroking my ego, it is an attempt to set a foundation for analysis. By looking at the ‘dictionary definition’ of the IMF and it’s history to date, it allows us to better identify contradictions in its actions and also analyse how its goals and practices have changed since its conception. Back in 1945 the IMF was founded as the body in charge of overseeing the Bretton Woods Agreement: a monetary system developed alongside the World Bank and the UN aimed at rejuvenating economic growth after the war. In a one of his lectures, economist Benn Stein, explains how America’s intent was to reduce the risk of currency wars while coincidentally increasing the strength of the USD. The BWA was based on a gold standard and, because the US had around 80% of the world’s gold reserves at the time, the member countries had to peg their currency against the dollar, which replaced sterling as the global common trading currency. This was done with the intention of bringing post-war member countries up to par economically, while providing last resort loan opportunities for nations struggling with balance of payments crisis. This concept was necessary at the time to fix a post-war global economic recession, but times have changed and now many people question the motives behind the IMF and whether or not it is necessary at all.
A lot has changed within the global economy since 1945, and as a result the IMF has gradually reformed the way in which it operates. The 70s saw rapid inflation rates in the US which lead to the abandonment of the gold standard and the Bretton Woods system as a whole. Many share the view that this transition away from the gold standard means that the IMF is no longer necessary and cannot fulfill its initial purpose which is to maintain balance in the global economy.
Economics editor at Investor’s Business Daily, Terry Jones, has expressed his believe that “the IMF no longer needs to exist”. He has talked about how the institute should have been made redundant in the 70s but instead has transformed into a predatory lending organisation which “implements high levels of currency devaluation and taxes on countries, as a way out of [their] economic troubles”. Since dropping the BWS, the IMF has operated as a global credit union with a collective fund of over $1.3 trillion, which it can distribute as loans to member countries. The role of ‘last resort lender’ seems to have become the IMFs primary function. In the last decade alone over 50 countries have taken out loans and, although this is a collection of accounts that the IMF proudly boast, the effect on the recipient countries is rarely that of a success.
As part of the IMF’s lending policy there is a list of criteria that potential recipient countries must meet before receiving a loan. These ‘conditions’ include active devaluation of currency, removal of trade barriers, privatisation of state owned industry and implementation of austerity measures. While these are deemed as necessary measures- by the IMF- in order to rectify the economic issues facing the recipient nations, they have faced a great deal of criticism. The NGO Global Exchange has continuously voiced its opposition to the IMF, describing the imposed policy changes as “bad medicine” and stating that they only deepen economic crisis and “undermine development in the long run”. Examples of this can be seen all over the world, more often than not in developing nations such as Colombia, Chile, Ghana and countless others.
An example in which the imposed policies have had severe adverse effects is Mexico 1995; the IMF provided a bail out loan and in return required that Mexico increase its interest rates, remove import barriers and drastically reduce public spending. This inevitably resulted in mass unemployment, with extreme poverty levels rising by 50 percent and average minimum wage falling by 20 percent. This is a common pattern that has developed over the last few decades, in which the nations on the receiving end of the loan end up losing out severely when it comes to the stability of their markets, the growth of domestic production and economic well-being of the general public.
One of the biggest criticisms of the IMF’s lending policies is the effect it has on people living within poorer countries. An article by The Guardian’s Mark Weisbrot outlines how, despite the their claims of helping develop poorer areas of the world, the IMF’s conditional requirements often make matters intensely worse for those at the bottom of the pyramid. He uses Latvia and Pakistan as examples of when the IMF have set extreme targets for reducing the national deficit, which in turn lead to massive reductions in output and employment figures. Not only does the public suffer as a result of the loan through low wages and unemployment, they are essentially the ones who have to pay for it through intense austerity measures imposed by the IMF. These high levels of enforced austerity have been seen all over the world in countries like greece and portugal, and has slowly taken hold in the UK over the last decade.
While the poorest of the world are taking the brunt of the IMF’s globalised economic agenda, it seems that those at the top, namely large multinational corporations, are reaping the benefits. As a credit union, by definition, the IMF cannot make profit on the loans that it gives out, however that doesn’t mean profit isn’t being made somewhere along the economic food chain. By creating conditions in which a country is forced to drop trade barriers, decrease corporate tax and privatise public assets: it establishes an economic environment in which established multinational companies can enter a market at little or no cost and essentially wipe out any pre-existing domestic competition. This drastically reduces the chances of said country to develop a growing and competitive economy, while allowing foreign interests to take advantage of cheap materials and labour, in a market with any real competition. The forced privatisation of publicly owned assets strips away any protective legislation surrounding things such as healthcare, public transport and energy- leaving these industries open to the hands of foreign companies looking to make profit. Haiti, for example, were forced to open its market to US imported rice, while at the same time putting a stop to the subsidies it provided to domestic farmers. This is a perfect example of how IMF policy illustrates preferential treatment of corporate interests.
Looking at the countless examples and recurring patterns surrounding the IMF’s economic policies, it’s difficult to deny the notion that their is a politically driven agenda behind them. It would be naive to ignore the fact that the major decision making powers within the IMF are held by the biggest contributors (i.e the US, Japan, China etc), and that a lot of decisions made by them often work in favour of those countries’ economic well being. Harry Dexter White, senior US treasury official and key figure in the Bretton Woods Agreement, was quoted as saying that “economics was a means to a political end”. ANd when asked about what he wanted to achieve with BWA, US president Truman said “I wanted to move the financial center of the world from London and Wall Street to the US Treasury”. So whether there has always been a political agenda behind the IMF could be argued for a while, but there’s no denying that the changes made to the way the IMF operates has caused it to move a long way from what it initially was. It was meant to help those in need but instead does the opposite.