WORLD-ECONOMY: IMF Using Global Crisis to "Re-Launch"
Itself
By
Christi van der Westhuizen
IPS
Posted by www.cenpeg.org
CAPE
TOWN, May 15 (IPS) - The International Monetary Fund (IMF) is attempting
to reinvent itself with the global financial crisis, in the process
using the opportunity to promote policies that exacerbate the recession
by shrinking rather than growing economies.
This
is the opinion of Deborah James, director of international programmes
at the Centre for Economic and Policy Research (CEPR) based in Washington,
U.S.
James
also urged developing countries, including those in Africa, to find
ways to stimulate economic activity. She argued against those who
promote the idea that only the North can afford stimulus packages.
Several
countries in the South, including a poor country such as Bolivia,
are using stimulus packages to buffer their populations against
the ravages of the crisis.
She
distinguished between policies that stimulate economic activity
and those that don’t. Tax breaks and assistance to buy imports
do not stimulate economies but food stamps, transport vouchers,
rent reduction or housing vouchers are all reactivating because
such assistance is spent immediately and therefore circulates in
the economy.
IPS
interviewed James after she spoke at a public meeting hosted by
Our World Is Not For Sale (OWINFS), of which CEPR is a member, and
Amandla Publishers in Cape Town, South Africa.
OWINFS,
which held its biannual strategy meeting in Cape Town from May 11
to 15, is a global network of organisations, individuals and social
movements that oppose corporate globalisation. CEPR is a non-governmental
organisation that promotes democratic debate about economic and
social issues through research and public education.
While
some say that neoliberalism is in crisis, others are saying "we
need more of the same", James told the audience. Apart from
the IMF, the World Trade Organisation is the other institution which,
despite promoting neoliberal policies such as deregulation and liberalisation,
is projecting itself as "part of the solution".
Before
the economic crisis struck, the IMF was teetering on the brink of
becoming redundant as lending dropped to its lowest level in 25
years.
Its
financial reserves were falling because of countries such as Argentina
and Brazil deciding not to take out further IMF loans and regions
such as South America and Asia deciding to form their own monetary
funds that will lend money without policy strings attached.
The
Group of 20 meeting at the beginning of April this year gave the
faltering organisation a new lease on life. The G20 leaders decided
to make 750 billion dollars available to the IMF ostensibly to help
countries battling with recession.
According
to James, the IMF is presenting itself as the institution that can
help with bailing out countries that are suffering from balance
of payment problems and are running out of reserves. But the loan
policies that the IMF is enforcing are still the same as before:
contracting rather than stimulating economies.
Contractionary
policies are about keeping interest rates high which makes it expensive
to borrow money and therefore inhibit the growth of economies. Stimulus
policies, on the other hand, are what governments in the North are
doing by spending more money to counteract the recession.
"The
whole point of the IMF coming into those countries is to help them
not collapse but they are forcing them to adopt policies that make
the recession worse. High interest rates (one of the IMF’s
conditions for a loan) choke off growth," explained James.
Interest rates are a key determining factor in growth.
The
IMF has also made other counterintuitive measures the criteria for
bail-out assistance, such as raising the rates of services such
as water and electricity (at a time when people cannot afford such
hikes), and freezing pensions and unemployment benefits (at a time
when people desperately need assistance).
As
an example, Latvia’s economy is due to contract by 12 percent
because the IMF has forced it to adopt contractionary policies.
Such negative growth will translate in hundreds of thousands of
job losses. When Latvia deviated from the imposed policies, the
IMF denied it the second tranche of bail-out money, according to
James.
Countries
like Latvia in Eastern Europe have been particularly hard hit because
Eastern Europe is more globalised than other regions, has deregulated
extensively, and is dependent on speculative investments from the
west.
The
policies that the IMF is still forcing on countries are the same
that led South American countries such as Argentina to decide to
break ties with the institution. Cumulative growth in South America
was 82 percent in the period 1960 to 1980. Between 1980 to 2000,
in the grip of the IMF policies that come with loans, cumulative
growth in the region fell dramatically to nine percent.
In
the wake of the Argentine economic crisis in 2001, the IMF tried
to impose more contractionary policies on Argentina.
The
latter broke with the IMF and adopted expansionary policies that
saw its economy rebound faster than had been expected to economic
growth of between eight and nine percent per annum over the last
five years, one of the best in the region, James said in an interview
with IPS.
This
is not only due to commodity exports, argued James, because Argentina
has outshone other commodity-exporting South American countries.
As a result of this growth, 10 million people have managed to cross
the poverty line to better livelihoods.
The
IMF would want to use the global economic crisis to reclaim some
of its former power because, by last year, it was "a shell
of its former self", James said. Its crisis was exacerbated
when South American countries decided not to borrow more money.
The
IMF has a billion dollar operating budget. It keeps itself operating
from the interest that it gets from developing country loans. Therefore
it has a perverse incentive to keep countries indebted to keep itself
functioning, argued James.
Rather
than shrinking and "going away" as more countries rejected
its services, it decided to fund itself in perpetuity by selling
an eighth of its gold reserves. The G20 in April gave its stamp
of approval to this action.
The
IMF’s troubles have intensified since Asian and South American
countries have decided to create regional monetary funds. The United
Nations’ commission led by Nobel economics laureate Joseph
Stiglitz also recommended that regions rather look at developing
their own monetary funds, given the U.S.’s domination of the
IMF.
The
U.S. has an effective veto in the IMF as a decision needs 85 percent
of the stakeholders to vote and the U.S. - as the largest funder
- holds 60 percent of the vote.
After
years of attempted reforms of the vote in the IMF, amid serious
economic crises exacerbated by IMF policies in both Asia and South
America, the two regions decided to pool their our own reserves
and lend money without forcing countries to adopt contractionary
economic policies.
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