Wednesday, April 8, 2009

IMF: a Sixty Year Old Limping Contradiction

I don't know if it is a coincidence but last year the Americans have finally said they would allow someone other than an American to hold the position of president of the IMF (International Monetary Fund), which they have dominated for 60 years. Will the Europeans also allow a non-European to be Managing Director? At the same time, many developing countries, recipients of IMF loans, have decided that the conditions attached to the loans cause more harm than good. So they have paid back their loans (Thailand, Brazil, Venezuela, Argentina, Indonesia). If this trend continues, the IMF could cease to exist.

Is it possible that the Americans see the IMF as an obsolescent institution? Well, perhaps not. Although the IMF appears to have been limping along for some time, the global financial crisis has prompted the G20 to add half a trillion dollars to its funds. The people who are tasked with dealing with the consequences of financial and banking liberalization are also promoting them, one of the IMF's favourite conditions being financial and banking liberalization.

Contradictions have never been a problem for the IMF or the World Bank. They give loans to countries to assist 'development' at the same time as they oversee the reduction of health, education, social services and infrastructure in the same countries. These are the very areas that are in need of development but if you've got the money, you get to decide on the ‘best’ route to development; even if that route is in the opposite direction to anything that could be described as development.

It's vaguely possible that the IMF, similar institutions and donor countries will one day start listening to their recipients. After all, many recipients have had clearer insights into what they need in order to achieve development that benefits their own people. But given their behaviour to date, it seems unlikely that these unwieldy institutions will change much for the better. One might almost think that they are not designed to benefit their recipients. (Remember the Goldenberg scandal in Kenya? Ok, it’s a bit of an easy target!)

A recent issue of Africa Focus (Africa: Global Economic Crisis 1-3) makes the point that developing countries have long been worried about the subsidies that developed countries paid to its farmers (while stipulating the removal of subsidies in developing countries as a condition of receiving loans). Now they also need to worry about subsidies being paid to financial institutions and the possible subsidies to be paid to manufacturing industries, such as the automotive industry. But those who have the money, again, get to make all the rules. Worse still, they also get to break the rules they later find they don't like.

The fiscal stimulus package is designed to favour American (and perhaps Western) interests, goods and services. The fact that Americans and Westerners own or have an interest in financial and other institutions, goods and services in developing countries does not mean that those developing countries will benefit from the package. Developing countries are not allowed to protect themselves, developed countries are.

It is almost laughable that one of the conditions the IMF and World Bank like to apply is an increase in democratic accountability and good governance. These institutions have no democratic accountability and their governance has been demonstrated to be flawed over and over again. Almost laughable, but the poorest people in the world suffer from these jokers’ repeated cock-ups.

Those responsible for the way international finance works have screwed up, badly. Yet the same people and institutions are also responsible for addressing these problems and they seem to be applying the same tired and failed solutions. The IMF is supposed to continue to give loans to developing countries with the same conditions that have been so destructive in the past. Even countries who have made some progress in reducing their indebtedness will now go back to where they were, at best.

The first and most practical thing the IMF and other donors can do is to cancel debts. Really cancel them, not just tinker around with the figures. These debts stem from loans that had impossible conditions attached to them. The recipients of these loans usually end up poorer as a result of the loans and, in reality, have paid them back many times over.

It's not developing countries that need to reform, it's institutions like the IMF. If they are to be in a position to assist developing countries, they need to face up to the reality of the mess they have made. They need to be more representative, they need good governance. Or perhaps the IMF has is finished? Perhaps the IMF now realises that is is an experiment that went on sixty years too long.


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