op-ed on IMF in Washington Post

[Robert Weissman <rob@essential.org>]

The IMF Has Gotten Too Big For Its Riches
Washington Post - Sunday, April 26, 1998 - Outlook Section p. C2
 
by Soren Ambrose
 
     The International Monetary Fund's growing involvement in
crisis-ridden nations of East Asia has earned it unprecedented
and overdue attention.  After decades of quietly designing and
overseeing the economic policies of dozens of countries, the IMF
has become a hot political issue on Capitol Hill. 
 
     Conservatives in Congress mistrust the IMF's willingness to
meddle with market forces, bailing investors out of the
consequences of their risky bets.  Progressives oppose its
reliance on trickle-down economic policies that invariably favor
the interests of multinational corporations and rich foreign
investors over poor and middle-class people in poor countries. 
Both camps reject the IMF's penchant for secrecy and the
suggestion that the IMF's economists alone know what is good for
the rest of the world.
 
     Supporters of the IMF, including the leadership of both
parties, appear uncomfortable with the growing public debate. 
They and the Clinton White House have worked hard all spring to
avoid any committee hearings or roll-call votes on IMF funding --
even as Clinton continues to seek approval of an $18 billion
appropriation to bolster the international lending agency over
the next three years.  That would represent a 45 percent increase
in the U.S. commitment to the IMF.  The outlay would not finance
the Asian bailouts, which are already paid for (while still
leaving some $40 billion in the IMF's reserves) but would expand
the holdings -- and the power -- of the IMF to unprecedented
size.
 
     Congress, which in the past rubber-stamped White House
requests for IMF funding, is now responding to wide-ranging
popular skepticism about the IMF and its policies -- a skepticism
now being voiced by top economists, including some longtime
friends.
 
     The IMF, created at the Bretton Woods conference in 1944, is
the lender of last resort for the governments of the world.  It
is supported by contributions from its 182 member nations; the
United States contributes more than any other nation, about 18
percent of the Fund's total.  After the IMF began injecting
billions into troubled Asian banking systems last summer to
prevent the spread of financial chaos, President Clinton decided
the times was right to seek formal congressional approval for the
U.S. funding.
 
     But last week, the House rejected a move by IMF supporters
to attach the funding to popular emergency legislation for
disaster relief.  House Appropriations Chairman Bob Livingston
(R-LA), who is running hard for Speaker of the House, came out
against this parliamentary sleight of hand and Speaker Newt
Gingrich went along.  This defeat for the administration sets the
stage for the full and open debate in the House that the White
House has been resisting.  This debate is likely to center on the
IMF's intention to amend its Articles of Agreement to mandate the
deregulation of investment capital flows in member countries --
the very step that some say set off the financial crises in Asia
and Mexico.  Reps. Ron Klink (D-PA) and Ileana Ros-Lehtinen have
offered an amendment to require the United States to oppose this
change.
 
     Behind the legislative maneuvering, the Fund faces an
unprecedented intellectual challenge from its own ranks.
 
     The most prominent and outspoken of the IMF's critics is
Harvard professor Jeffrey Sachs, who advised the governments of
Bolivia, Poland, and Russia as they implemented IMF economic
restructuring programs in the 1970s and '80s.  Sachs now opposes
IMF policies to revive the East Asian economies.  The recent
crisis, he argues in the March-April issue of the American
Prospect magazine,  is "a financial panic made in the private
sector" that the IMF at first ignored and then made worse.  He
notes that in the months before the East Asian collapse, the IMF
had expressed great confidence in the Asian economies, citing
their  "sound fundamentals" such as budget surpluses, high
savings rates, low inflation, and export-oriented industries. 
 
     Once the dependence of these countries on short-term foreign
debt became apparent, panic set in, Asian currency values
plunged, and the IMF stepped in with its standard prescription: 
layoffs, higher interest rates, and the opening of local
economies to international investors.  As a result, Sachs notes,
a  "wave of bankruptcies is sweeping Korea, and a massive rise in
unemployment seems set to hit all three of the economies
[Thailand, Indonesia, and South Korea] . . . ."  
 
     He questions the IMF's carefully tended image as the fire
department of the global economy.  "The actual record shows that
the IMF, loyal to financial orthodoxy and mindful of creditors to
the neglect of debtor countries, often pours oil on the flames"
of economic crises.
 
     The IMF's own records bear out Sachs's criticism.  Over the
past 18 years, the IMF has required more than 80 countries in
extreme debt distress to adopt its Structural Adjustment
Programs.  To get access to IMF financing, government must
subscribe to the so-called "Washington consensus," meaning they
are effectively required to cut government spending on health and
education, devalue their currency, raise interest rates, and
allow foreign ownership of domestic businesses.  If the enforced
austerity of "structural adjustment" truly did lead to economic
recovery and higher standards of living for the majority of the
people in IMF client countries, the pain inflicted might be
acceptable.  But an internal study, completed by the IMF staff in
September 1997, found that per-capita income stagnated in
countries undergoing IMF structural adjustment between 1981 and
1995.  In developing countries free of the IMF, the study found
the per capita income rose.
 
     Last year, the Fund organized an independent four-person
panel to review its structural adjustment programs.  The study
found that the IMF fails to consider the impact of how the
programs' components are organized, resulting in unnecessary harm
to the most vulnerable segments of the population.
 
     Among the panel's recommendations: that the IMF desist from
dictating policies to its clients and "leave it to the country to
decide, with the advice of the [IMF] staff, what best (or better)
suits its particular circumstances."  Such a prescription gives
the lie to the IMF's bland insistence that its conditions are
adopted voluntarily.
 
     The technical language of these reports translates into
shocking hardship for many.  The classic case is Mexico,
sometimes described as an IMF success.  In 1982, it became
apparent that Mexico could not pay its foreign debts.  The IMF
put together a "rescue package" and, for the next decade, the
Mexican government followed the IMF's standard policy
prescriptions.  But real income fell between 1982 and 1992. 
Infant deaths due to malnutrition tripled.  The real minimum wage
lost over half its value; and the percentage of the population
living in poverty increased from just under half to two-thirds of
Mexico's 87 million people.
 
     In 1994, Mexico was again hit by financial crisis, as the
risks of growth financed by short-term foreign investment ("hot
money") became plain.  The government was forced to devalue the
peso and foreign investors stampeded to withdraw their money.  To
reassure global financial markets, the IMF put together another
bailout plan; since the adoption of this plan, 20,000 small and
medium-sized businesses -- one-third of Mexico's commercial
enterprises -- have gone bankrupt, and 2 million people have lost
their jobs.  
 
     While the Mexican government claims a modest economic
recovery is underway, the only sector of the economy that grew in
1997 was the maquilas, the factories along the U.S.-Mexico border 
where goods are assembled for export, mostly to the United
States.  These plants are notorious for low pay, sweatshop
conditions and repression of labor organizing. 
     
     Perhaps the most surprising new critic of the IMF is Joseph
Stiglitz, the chief economist at the World Bank.  The World Bank,
which finances development projects such as dams and power plants
in poor countries, is the IMF's sister institution.  
 
     In January,  Stiglitz told the Wall Street Journal that the
IMF bailout conditions in East Asia might cause a "severe
recession" by imposing unnecessary austerity measures.  That same
month, Stiglitz gave a speech in Helsinki critiquing the
"Washington consensus" policies mandated by his own organization
and the IMF since 1980.  Such policies, he said, were "neither
necessary nor sufficient, either for macro-stability or
longer-term development."  Intended only to reduce inflation and
increase gross domestic product, the IMF's policies pay no
particular attention to how resulting wealth is distributed.  Had
such policies been pursued by the U.S. government, Stiglitz said
"the remarkable expansion of the U.S. economy [....] would have
been thwarted."  
 
     Stiglitz's recommendation that the Fund drop its
one-size-fits-all economic policies runs counter to the current
U.S.-supported effort to amend the IMF charter to require capital
account liberalization, which is to the say the elimination of
regulations on how investors can move investment capital within a
country or across its borders.  Chile, for example, imposes a
minimum stay on foreign investments in an effort to avoid the
rapid outflows like the one that characterized Mexico's peso
crisis.
 
     It is time to face up to the damage that has been wreaked by
the IMF.  The IMF's managing Michel Camdessus, recently
acknowledged to a group of U.S. church leaders that realizing the
benefits of the IMF's macroeconomic model may require the
"sacrifice of a generation."  Congress should take the
opportunity to abandon such cynicism and reject the additional
$18 billion for the IMF.  Just as democratic governments long ago
recognized that war was too important to be left to the generals,
the economies of the world are far too important to be left to
the economists at the IMF.
 
 
Soren Ambrose is on the steering committee of the 50 Years is
Enough Network, a coalition of more than 200 U.S. organizations
dedicated to the fundamental transformation of the International
Monetary Fund and the World Bank.