IMF: Reform or Recalcitrance

Apr 29, 2009 Editorial

Even though the IMF mission is to assist countries in financial straits, its modus operandi is so draconian that its clients inevitably concluded that the “cure” was worse than the disease. We in Guyana should know this to our cost.
In 1997, its draconian conditionalities made the East Asian economies swear never to repeat that experience and started to pile up reserves – which helped to precipitate the present financial crisis. Others shied away.
At the beginning of the crisis, the IMF was therefore not very much in the picture. Its new head, Dominique Strauss (2007), attempted to initiate changes to justify its continued existence but potential clients were unimpressed.
One of the innovations – a fund that would be open to economies that were fundamentally sound but faced temporary shortfalls – without the one-shoe-fits-all “conditionalities”, failed to entice any takers.
The reasons for the skittishness on the part of borrowers, however, went deeper than the terms of lending.
There was firstly the matter of the control of the institution and its policies. Most borrowers felt, with good reason, that the IMF was controlled by the US and the other members of the G7 and acted as their proxy.
Apart from the inherent bias, emerging economies with healthy reserves – built up after the IMF roughed them up in 1997 – balked at funding the institution without changes in the governing bodies that anachronistically reflects the WWII power relations – dominated by the US and Europe.
Then, there was the matter of the mission of the IMF: to be a lender and then act simultaneously as regulator and supervisor of the global financial system creates inherent contradictions and conflicts. Not least among them is the moral hazard created by the imperative to make loans – necessary for its survival – and to police those same borrowers.
The crisis brought these matters, and more, to a head when, after conceding that the emerging economies had to be brought aboard the old G7 club of developed economies to deal with the meltdown, President Bush convened a meeting G20.
At this meeting in November last year and at its successor at the beginning of this month, the IMF was promoted by the G7 members as the vehicle to once more take a lead in dealing with economies in crisis.
To entice new contributions, they announced a potpourri of measures (especially on “voice and participation), and conceded that changes in the IMF were necessary.
However at the just-concluded meeting of the International Financial Committee of the Board of Governors of the IMF (comprised of financial Ministers and Central Bank governors from around the world) it appeared that some of the old guard are balking at the proposed changes and yet expect that the new burgeoning economies will up their contributions to the fund.
According to Russia’s Finance Minister, Alexei Kudrin, developed countries are resisting the reform of the IMF representation quotas.
From our perspective, this impasse imperils the increase of aid to lesser-developed countries like ours that was promised by G20 (even though none of it was really new), since over half of the $1 trillion G20 announced countries in crisis is still not even pledged.
It should be noted that even the US and the EU have not stepped up to the plate. The BRIC nations (Brazil, Russia, India and China) have proposed that the IMF issue bonds to raise money which should be funnelled to developed countries.
These countries have also been pushing for more massive increases in SDR’s, the IMF’s reserve currency that would be available to all countries.
But the inherent contradiction of the IMF in its dual role of lender and policeman is being reinforced, and coupled with the mindset cultivated there for over sixty years, we can expect more of the old, high-handed “conditionalities” from the neo-liberal tool kit.
This was very apparent in the loan just extended to Pakistan that demanded policies guaranteed to further exacerbate its crisis. Evidently only some countries can be given a “stimulus” as their economies collapse.
We hope that better judgement will prevail in the next few months.

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