Is it Time to Close the IMF?
|January 9, 2007||Posted by Staff under Progress Report, The Progress Report|
IMF Continues to be the Bully
Why is the Clinton adminmistration so supportive of the IMF, in spite of the IMF’s secrecy and anti-democratic values? If he wants to help Democrats gain seats in Congress later this year, Mr. Clinton had better swing around to be in favor of economic justice, not fatcat bureacracies.
Anyway, here’s a recent report with lots of details.
IMF Seeks New Ways to Apply Pressure
by Martin Khor
The United States government has set up a system to ensure that Asian countries receiving loans from the International Monetary Fund will open up their economies and carry out trade reforms as agreed to under the IMF deals.
This ‘policeman’ role was announced recently by the US Trade Representative Charlene Barshefsky, who said Indonesia and South Korea were of particular interest as the IMF had secured commitments from them to open their markets.
She added the IMF-linked trade reforms would ‘bear fruit’ because the IMF would stop disbursing funds to a country that did not comply with the conditions and also even after the disbursements are finished ‘there is very little backsliding because countries are fearful of disrupting their relationships with the IMF’.
Barshefsky explained her agency and the Commerce Department would transmit to the IMF through the US Treasury any concerns the US had over trade policies in IMF countries. The State Department is also asking its embassies to monitor the situation.
She said she had also discussed with the World Trade Organisation director general to get the WTO more involved in monitoring the implementation of trade reforms.
The above report shows how serious the US is in taking advantage of the Asian financial crisis to push its objective of opening up the markets of the affected countries so that American products and firms can better penetrate the markets.
In pursuing this agenda, the US is establishing its own monitoring and enforcement mechanism, and will work with the IMF which has the leverage of making a decision to release instalments of loans only if it is satisfied with the affected countries’ compliance with conditions.
This kind of pressure to reform their policies to the liking of the major ‘donors’ is a good reason why countries like Malaysia are trying their best to avoid having to request for IMF aid. For the conditions for IMF loans will surely include the rapid or immediate opening up of the country’s markets, leaving the local firms exposed to foreign takeovers and competition before they are even ready to compete.
However, even developing countries that are not under an IMF rescue programme are now facing additional pressure to give the IMF greatly enhanced powers over their policies on the inflow and outflow of capital.
Backed by some of the rich countries, the IMF secretariat has been campaigning to get its Articles of Association amended so that it would have the mandate to oversee the liberalisation of capital flows in all member countries.
At present the IMF has jurisdiction over the flow of funds on the countries’ ‘current account’, meaning that foreign money should be allowed to be exchanged with local currency for purposes of trade and direct investment.
However, the IMF wants to extend its powers to also include liberalisation in the ‘capital account’, meaning that foreign and local currencies should also be allowed to be exchanged even if this is not related to trade or direct investment. This would include foreign loans entering the country, foreign funds entering or leaving the stock market, and residents taking money out of the country.
The IMF’s proposed amendment is a sensitive issue because it was financial liberalisation that facilitated the large inflows and subsequent outflows of short-term capital, which has been associated with the Asian financial crisis.
By requiring member countries to liberalise their capital account, the IMF could be creating the conditions for more crises in future. ‘If the IMF is given the legal authority to pursue capital account liberalisation, that tool would almost certainly end up being used to require such liberalisation as a condition for access to Fund resources,’ said Jim Barnes, a counsellor at Friends of the Earth International.
A report in the Washington Times recently characterise the plan as follows: ‘The IMF is moving on a plan that could override national and even local limits on how and where corporations can spend their money.
‘The proposal would amend the IMF’s charter to grant the Fund broad new power to force nations to eliminate restrictions on foreign ownership of land and other investments. It picks up the baton dropped last month by negotiators of the Multilateral Agreement on Investment (MAI).
‘The MAI, a pact being negotiated among the world’s wealthiest nations, sought to override any laws – federal, state or local – that discriminated against foreign corporations or restricted corporate investment.
‘Treaty talks stalled last month after being subjected to a firestorm of criticism that labelled it a corporate Bill of Rights and a subversion of states’ rights. The IMF proposal is being called a “backdoor MAI” and a desperate power grab by an agency in crisis.’
In a recent statement, the Friends of the Earth (FOE) USA said the IMF justified the attempt to amend its Articles by claiming that the benefits of liberalising the capital account outweigh the potential costs; and that only the IMF can guarantee that capital account liberalisation is carried out in an orderly, non-disruptive way.
‘But as recently experienced by the citizens of Mexico and East Asia, the demonstrated costs of speculation overshadow the theoretical benefits of unregulated capital flows; and the IMF’s dismal track record in stabilising economies inspires little confidence in the institution,’ said FOE.
It added that to guard against the worst effects of speculative foreign investment and to avoid financial crises, some developing countries put controls on inflows of foreign money.
The aim is to limit the flows to levels that don’t overwhelm the domestic economy, and to screen out short-term speculative investments in favour of longer-term commitment.
Another way to deal with the risks of speculative capital flows is to regulate capital outflows. Chile, for example, requires foreign investors to keep initial investments in the country for at least one year, although earnings from the investment can be taken out at will.
The Chilean government has imposed this requirement so that investors cannot come in for a short time just to profit from currency fluctuations or other forms of speculation.
The FOE warned that such measures regulating capital flows would be threatened if the IMF changes its bylaws to expand control over capital account liberalisation. IMF member countries would then be committed to the goal to fully liberalise their capital accounts, that is, to remove all barriers to international capital flows. It appears odd, to say the least, that the IMF secretariat and the major countries should be moving so strongly for capital account liberalisation when the Asian crisis points to the opposite direction, that is, the need for countries to have the opportunity to have controls over the inflow and outflow of funds, especially over short-term hot capital.
The freedom of fund owners and financial speculators to shift their enormous sums of foreign exchange across borders should not be placed as a higher priority than the freedom and right of countries to protect themselves from the economic instability and volatility caused by massive flows of short-term capital.
In February 1998, Ministers of the Group of 24, which represents developing countries at the IMF, had issued a statement expressing concern over the Asian crisis and calling for ‘an orderly and cautious approach to the liberalisation of capital accounts under IMF auspices’.
This implies they were not in favour of an amendment to the IMF Articles, at least not for now. However, the IMF Secretariat, and some of the major countries, appear keen to push the amendment through as soon as possible. Perhaps they fear that the longer this is put off, the more the opposition to it may increase.
It is expected that the matter will come up for discussion at the IMF Board soon, and that further discussion or even a decision could be made in September 1998.
Developing countries have thus to be extra alert if they want to oppose the amendment or at least postpone a decision, especially since the rich countries hold a majority of the votes in the IMF.
This article is by Martin Khor, for Third World Network Features. For more information about Third World Network, visit http://www.twnside.org.sg or email email@example.com
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