[stop-imf] IMF meets with labor

[Robert Weissman]

Excerpted from the IMF's Civil Society Newsletter, January 2003



Management of IMF and World Bank meet with global union leaders

IMF and World Bank management and staff met with leaders of the
international labor movement in Washington, D.C. on October 21-23. The
agenda focused on issues of concern to labor unions, including poverty
reduction, reform of the international financial architecture, and ways
to enhance the dialogue between labor unions and the Bretton Woods
institutions. The delegation included over 90 labor union
representatives from about 40 countries, and was headed by Guy Ryder and
Willy Thys, General Secretaries of the International Confederation of
Free Trade Unions (ICFTU) and the World Confederation of Labor (WCL),
respectively.

The current state of IMF cooperation with labor unions
The Fund=92s relationship with labor unions has three elements:
collaboration with the International Labour Organization (ILO); mission
and resident representative contacts with country-level labor unions;
and management and staff contacts with international labor federations.
With regard to the last of these, in addition to the leadership meetings
in Washington, IMF staff has developed worldwide links through the labor
federations with national labor unions, and meets regularly with labor
union leaders through the confederations in Washington. Meetings with
regional labor confederations also take place, but on a more ad-hoc
basis.

Prospects for the world economy and the IMF=92s role
In his introductory remarks, IMF Managing Director Horst K=F6hler briefed
the delegates about his recent meeting with the ILO=92s World Commission
on the Social Dimensions of Globalization and his contacts with labor
unions in Algeria and Mauritania during his recent trip to North Africa.
With regard to short-term economic prospects, he stressed the downside
risks to global growth and called for a collaborative approach to help
strengthen economic recovery. Such an approach ought to include the
elimination of trade-distorting practices by industrial countries, he
said, as these are detrimental to the growth in developing countries.
K=F6hler also referred to key reforms underway in the Fund, including
efforts to streamline Fund conditionality, strengthen the framework for
crisis prevention and resolution, and promote transparency and openness
on the part of both the Fund and its membership.

In their response, labor representatives emphasized the likely negative
impact on workers of a downturn in the global economy. They were
encouraged by the dialogue between the Fund and the ILO Commission and
noted that it could help improve social peace and restore confidence in
many crisis countries. They were supportive of the Fund=92s commitment to
strengthen the dialogue with labor unions both at country and global
levels.

The IMF=92s crisis resolution framework
Timothy Geithner, Director of the IMF Policy Development and Review
Department, spoke about the IMF=92s crisis resolution framework. The
framework was strong, he said, but to work effectively, it should be
supported by appropriate national economic policies and a stable
external environment. Geithner then presented his views on the Sovereign
Debt Restructuring Mechanism (SDRM).

Labor representatives indicated their broad support for the SDRM
proposal, but raised concerns similar to those of many other civil
society organizations. In particular, they noted that the initiative
does not go far enough to design a comprehensive legal framework modeled
on domestic insolvency regimes. They also noted that the SDRM should
address the legality of contracted debt, include official multilateral
debt, and limit debt repayments to a socially sustainable level.
Furthermore, the IMF should play only a limited role in the
decision-making process. A few representatives thought that sanctions
should be included to force a return of flight capital and that CSOs
should be consulted on an equal footing with the international financial
community.

Geithner stressed that the IMF provides resources that reduce the strain
on governments and make possible levels of social expenditure that would
not otherwise be sustainable. That is one of the reasons why its
preferred creditor status is central to the process. In domestic
insolvency cases, companies going through a workout often need access to
new funds on preferred terms so that they can maintain a minimum level
of operations while they reorganize.

Geithner also warned participants about the potential impact of
questioning the legality of debt contracted by previous governments, as
this might affect sovereign lending in the future, including to
countries that have borrowed responsibly and are servicing their debts
in a timely way. He stressed that the revised framework does not
anticipate a major role for the Fund in initiating negotiations or
arbitration (see below under "further reading" for details). Moreover,
there is no requirement for a Fund program to be in place unless
requested by the country. With respect to the situation in Argentina,
Geithner questioned whether sanctions would lead to financial re-flows.
The authorities should instead focus on creating an economic environment
that would encourage the return of funds.

Lastly, Geithner noted that outreach activities are underway to
encourage further debate of the SDRM proposal. The Fund will continue to
put the development of its proposal before the public and give the
international community a more fully articulated SDRM design some time
over the next few months.

The case for standards and codes, and against a Tobin tax
Mark Allen, Deputy Director of the Policy Development and Review
Department, explained how lessons from various crises continue to shape
the IMF=92s thinking about reforming the international financial
architecture. He noted in particular efforts to strengthen surveillance
of countries, including of their financial sectors, and steps to improve
their transparency, such as encouraging countries to adopt
internationally recognized standards and codes. Allen stressed that
further work is needed to strengthen standards in corporate governance
and accounting, including in the major industrial countries.

Labor representatives said that the potential for global financial
instability has increased considerably with the continued world economic
slowdown and the crises in South America. They favored a move toward a
more regulated international financial system, including through capital
controls. A currency transactions tax (often called the Tobin tax) to
reduce speculative currency flows and raise money for poverty
alleviation was also warranted.

In his response, Allen responded that there is no support in the Fund
for a Tobin tax approach for a number of reasons, including the fact
that it would not reduce the volatility of flows to emerging markets. It
seemed more important to address the excessive temptation to borrow that
open international capital markets can create: countries should have
more effective restraints on the amount of borrowing that they permit
their governments, banks and corporate sectors to undertake. Addressing
the problem at the source rather than by attempting to tax international
flows was more promising, Allen argued. Labor representatives indicated
their willingness to continue their research on this issue and said they
looked forward to close cooperation with the Fund.

Global governance issues
Reinhard Munzberg, Director of the IMF=92s UN Office, outlined the various
mechanisms for the Fund=92s cooperation with UN agencies, which include
the UN=92s Chief Executive Board for Coordination, the Social and Economic
Council, the Development Committee of the IMF and the World Bank and the
International Monetary and Financial Committee of the IMF. He explained
how the momentum generated by the WTO conference in Doha, and the UN
conferences in Monterrey and Johannesburg, has resulted in closer
cooperation between the UN system and the Bretton Woods institutions. In
particular, Monterrey was an example of effective multi-level
cooperation in which IMF staff contributed to discussions related to
debt relief, capacity building, and a "two-pillar" approach to
development. Thanks to initiatives like the Monterrey conference, the
Fund is now better informed about what other organizations are doing,
and vice versa.

Labor representatives raised the issue of a global governance deficit
that has to be tackled in order to improve transparency and provide
better coherence in international policymaking. In this regard, they
supported the creation of a Global Economic and Social Council to
oversee the interaction of the various international institutions.

In his response, Munzberg did not discount the need to discuss
appropriate global structures. However, he said the main emphasis should
be for each institution to focus on its responsibilities, particularly
with regard to the work needed to reach the Millennium Development
Goals.

Poverty Reduction Strategy Papers
Union representatives were also updated on IMF/World Bank work. Brian
Ames, an Advisor from the Policy Development and Review Department, and
Sudhir Shetty, a Sector Manager from the Poverty Reduction Group at the
World Bank, presented findings from the PRSP review and most recent
progress report. In particular, they highlighted the need to further
promote country ownership, increase transparency, prioritize
expenditures, boost capacity building, and institutionalize civil
society participation. They also noted the importance of Poverty and
Social Impact Analysis (PSIA) to the PRSP process.

Labor representatives were concerned about the level of participation of
local unions, and called upon the Fund to reject all PRSPs in which
labor did not participate. They also emphasized the need for
"alternative" approaches to macroeconomic and labor market reform
policies in PRSPs.

In his response, Ames stressed that PRSPs are country-owned documents,
and it is incumbent on national authorities to involve civil society in
the formulation of their poverty reduction strategies. He noted that
there may well be scope for alternative policy choices on issues related
to the pace and prioritization of privatization and the size of fiscal
deficits related to countries=92 unique circumstances (e.g., existing
levels of debt). However, it is a responsibility of civil society to
propose alternative and realistic approaches.

Looking ahead: prospects for IMF cooperation with labor unions
Deputy Division Chief Peter Fallon and Economist Nadeem Ilahi from the
Policy Development and Review Department presented the results of a
recent survey on consultation between the IMF and labor unions. The
survey showed that more meetings between IMF staff and labor unions are
taking place now than in the past at the country level, and that mission
chiefs generally are positive about these contacts.

While labor representatives recognized that there has been progress,
they noted that in many countries these meetings still do not take
place, even when there are major labor market issues. They stressed that
the nature, frequency and substance of mission contacts with labor
unions will require further improvements and that staff should ensure
that labor union views are reflected in country reports.