[mai] U.S. and I.M.F. Putting More Squeeze on the South? (fwd)

[Robert Weissman <rob@essential.org>]

U.S. AND I.M.F. PUTTING MORE SQUEEZE ON THE SOUTH?

Recently the US administration announced it had established a monitoring
system to ensure that the affected Asian countries would implement trade
reforms that are included in their IMF rescue deals. Meanwhile, the IMF
secretariat (backed by some rich countries) is pushing for an amendment to
its Articles to allow it to have the mandate to discipline developing
countries to open up foreign exchange transactions EVEN IF these are not
related to trade. 

By Martin Khor
Third World Network Features

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 its
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
the 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. 

About the writer: Martin Khor is Director of the Third World
Network.

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1730/98