[stop-imf] Weisbrot: The IMF Under Attack (fwd)

[Robert Weissman]

The IMF Under Attack
By Mark Weisbrot
(forthcoming in the Dallas Morning News and San Francisco Chronicle)

         The new report of a Congressional commission that harshly criticizes
the International Monetary Fund (IMF) will add fuel to the firestorm of
controversy that has surrounded the institution since its mishandling of the
Asian financial crisis two and a half years ago. Together with the
unprecedented public dispute over the leadership of the institution, and
Seattle-like demonstrations planned for April in Washington, DC, the IMF
is under siege as never before in its 56-year history.

         Much of the result will depend on how the media interprets the
unfolding events. The new report, issued by an 11-member bipartisan
congressional panel-- the International Financial Institution Advisory
Commission-- unanimously called for the cancellation of the poorest
countries' debt. This is welcome news to advocates for the poor, who have
long argued that it is unconscionable to bleed desperately poor countries for
payments on a debt that everyone acknowledges as unpayable. For Sub-
Saharan Africa, where many countries are spending more on debt service
than for health care and education, these payments average more than a fifth
of export earnings.

         The majority of the commission also called for a vast downsizing of
the operations of both the IMF and the World Bank. C. Fred Bergsten, a
former Treasury official and a dissenting members of the commission,
dismissed the majority's recommendations as "extreme." Yet Harvard's
Jeffrey Sachs, the commission's leading expert on these matters, together
with economist Allan Meltzer, the commission's chair, supported the
proposed changes.

         Who is right? Let's look at the evidence of the last few years. It is
now clear that the IMF's "reforms" in Asia were a major cause of the
regional financial crisis that began in August of 1998. They created the
conditions under which $100 billion of hot money could exit in a panic from
South Korea, Indonesia, Thailand, Malaysia, and the Philippines. Then the
Fund failed to provide the necessary credits to stem the panic in a timely
manner, while the US Treasury department-- which basically controls the
IMF-- prevented others from doing so. Among other mistakes, the Fund
imposed unnecessarily high interest rates and budget austerity, worsening
the regional economic damage.

         In Russia, the last two years have highlighted the IMF's failure to
understand or help the process of economic transition there. In August of
1999 the Fund wasted billions of dollars trying to maintain the fixed and
overvalued exchange rate of the Russian ruble. The money ended up in the
hands of speculators and corrupt elements, and the ruble collapsed a couple
of months later. But the IMF's worst nightmare turned out to be good for the
Russian economy, which was freed from having to feed a speculative
financial bubble, while crippling the real economy with the exorbitant
(peaking at more than 150%) interest rates necessary to defend the ruble.
Russian industry rebounded and the trade balance was greatly improved, as
the lower ruble reduced competition from under-priced imports.

         In Brazil, too, the IMF turned out to be dead wrong in its efforts to
maintain an overvalued exchange rate. The Brazilian real collapsed in
January of last year, but only after the IMF had saddled the country with
tens of billions of dollars of added debt in a futile attempt to prop up the
currency.

         In both the Brazilian and Russian cases, the Fund defended its
actions, which have caused great suffering and economic damage, by
arguing that these countries would face hyper-inflation if their currencies
were to fall. The projected hyper-inflation failed to materialize.

         But being the most powerful financial institution in the world means
never having to say you're sorry. The IMF's failures, even when they are
documented by prominent experts like Joseph Stiglitz-- one of America's
leading economists and the former chief economist of the World Bank--
have not led most policy-makers or journalists to question the organization's
competence.

         This was evident in the ongoing dispute over who will lead the IMF.
Stanley Fischer, currently the acting head of the Fund, was nominated. The
fact that he has presided, as second in command, over some of the worst
economic disasters in the Fund's history, has gone unnoticed. Is failure at 
the
IMF truly impossible?

         The Congressional commission that issued today's report was
established as a condition of the IMF's receiving an enormous $18 billion of
US taxpayers' dollars in 1998, as a step toward reform. The Clinton
Administration will now attempt to discredit and bury its findings and
recommendations. Will Congress and the press let them get away with it?
Stay tuned.

Mark Weisbrot is co-director of the Center for Economic and Policy
Research in Washington, DC.