IMF: International Misery Fund

May 31, 2009 Features / Columnists, Ravi Dev

Last Sunday, on the request of PM Manning of T&T, the Heads of Government CARICOM met in Port of Spain, at a Special Caucus to “address the deterioration in regional economies as a result of the fallout of the global financial and economic crisis”. Evidently it was to assist them in presenting a unified approach to a three-day UN Conference on the “World Financial and Economic Crisis and Its Impact on Development” to be held at the UN in New York starting tomorrow.

The leaders asked a team that had been appointed “to review the plans of Member States and examine their sustainability and try to incorporate those plans into a regional programme” (remember that they had been expected to deliver their proposals since January) to now “report back…on specific proposals regarding: an approach to International Financial Institutions (IFIs) to request special considerations for CARICOM countries given their unique circumstances of size and vulnerability.”

Obviously, the assembled leaders have concluded that one or more (most likely “more”) of their members will soon have to seek refuge in loans from the IFIs and consequently subject themselves to the infamous “conditionalities” of the IMF. Signalling their assessment of those conditionalities, the leaders “reiterated the need for a departure from the IMF traditional model (and) indicated there should be two sets of standards – one for developed countries and one set for developing countries.”

The irony is that the IMF always had a different set of standards for the developed world and for developing countries. For the developing world its mission was to impose the premises of the now discredited neo-liberal “Washington Consensus” – liberalisation of financial markets and trade, minaturisation of governmental activities in the economy through privatisation and “stabilisation of the macro-economic fundamentals”.

The promise for sticking to the tenets of the Fund was an increase in Foreign Direct Investment (FDI) that would kickstart and maintain a virtuous cycle of growth. Without getting into any conspiracy theories we know from our own (bitter) experience as a developing country with the fund since 1989 (we’re one of its oldest – if not the oldest – clients) that the reality is quite at variance from the promise..
But it is not only us. The Washington Consensus was after all a summary of the IMF’s policy prescriptions to Latin American countries that ran into trouble with debt (like us) in the 1970s. It is conveniently forgotten that the debt was facilitated by the same IMF, as the western banks tried to recycle the massive profits (from which they took their cut) of OPEC during the first oil crisis.

The same loose NINJA principles that got those banks today were applied to developing countries then. When the other shoe inevitably fell (as it has once again) the banks took massive write-offs while the debt at full face value was used as a stick by the IMF to force the concessions of their “Structural Adjustment Programs”. Much later the debt (most of which by then was interest) was written off for some twenty-three countries – for which we were supposed to be eternally thankful. The Latin American countries such as Argentina, Brazil and Venezuela bought out their debt from the IMF when their economies turned around and have vowed never to return to its embrace.

In 1997-98 when the Far Eastern economies ran into trouble when the liberalised financial framework foisted by the IMF allowed the FDIs to pull their funds unimpeded out of their markets, the IMF (under the same Timothy Geithner who is overseeing the biggest build-up of debt the world has ever seen in the US economy) imposed draconian conditions on those economies that almost brought them down. The only economy that came out relatively unscathed was Malaysia, under its nationalistic leader Dr. Matathir, which refused to follow the dictates of the IMF. After the crisis, the Far Eastern economies decided to build up their foreign reserves to such a point that they would never have to deal with the IMF – one of the factors, not incidentally, precipitating of the present crisis.

In the present crisis, even though we have been promised a “kinder, gentler IMF” after it went into a decline as few countries wanted to deal with it, we can once again see the differential treatment after it has been given a new lease on life by G-20 after a promise to triple its lending capacity from $250 billion. In its dealings with, for instance, Iceland, where the European banks are taking a beating, its loans have been far more generous (so that the banks stand a better chance of being repaid) than say, Pakistan, where the traditional conditionalities of reduction of social spending, reduction of inflation and fiscal deficits are imposed. Its economy will inevitably shrink, but so what? In the US, the government debt is now over 80% its GDP – a greater percentage than Guyana’s at 77% – yet the IMF, which is mandated to issue reports on the status of all its member countries says nothing as the Fed opens up the money-printing presses and the fiscal deficit climbs astronomically. The fiscal stimulus to prevent the economy from contracting further must be stopped at all cost.

We wish the Caricom leaders well with their hope of forcing reform on the IMF on their own but we believe that they would be better advised to join forces with Brazil, Russia, India, China (BRIC) that seek those same reforms but have what it takes to ensure changes – money.
The developed world has overplayed their hand and need the trillions of dollars of reserves that these countries have built up to tide them over so they will have to loosen their control over the IMF. But then what exactly does Caricom have to offer them? The IMF has been dubbed by many of its former clients as the “International Mother F*****” but we will settle for the explication of President Mubarak of Egypt – International Misery Fund. Do not expect much change soon.