[stop-imf] Weisbrot/LA Times: The IMF's Dwindling Fortunes

[robert weissman]

http://www.latimes.com/news/opinion/commentary/la-op-weisbrot27apr27,0,7128851.story

The IMF's Dwindling Fortunes
Thanks to disasters of its own making, the agency is losing money and
influence.
By Mark Weisbrot
April 27, 2008
Los Angeles Times
'The imf is back," declared the International Monetary Fund's managing
director, Dominique Strauss-Kahn, at its annual spring meeting earlier
this month in Washington. And not a moment too soon either. To hear the
organization's economists tell it (as they mingled in five-star hotels,
long black limos and posh restaurants with bankers, businessmen and
finance ministers from around the globe), they've arrived on the scene
just in time to help solve the world's financial crisis.

But despite the bravado, the reality is that today's IMF is not what it
once was. These days, the world's most famous deficit police force is
running a whopping small-country-size $400-million annual deficit of its
own and is being forced into some of the same kinds of "structural
adjustments" it used to impose on indebted Third World nations. In just
the last four years, the IMF's total loan portfolio has shrunk from $105
billion to less than $10 billion; over half of the current portfolio
consists of loans to Turkey and Pakistan. To cut costs, the agency is
reducing staff and closing offices.

The IMF's loss of influence is probably the most important change in the
international financial system in more than half a century. Until just a
few years ago, the IMF -- originally created at the Bretton Woods
conference on international economic cooperation in 1944 -- was one of
the most powerful financial institutions in the world and the major
avenue of influence for the United States in developing countries.

This wasn't so much a result of the money that it lent -- the World Bank
loans much more -- but because of its position at the top of a hierarchy
of official creditors. Until a few years ago, a developing-country
government that did not meet IMF conditions risked being economically
strangled. The World Bank, regional banks such as the Inter-American
Development Bank, rich lender governments and sometimes even the private
sector would withhold lending until the government reached agreement
with the IMF.

At the top of this powerful creditors cartel sat the U.S. Treasury
Department, which holds a formal veto over many of the IMF's decisions
and is an informal power within the organization that marginalizes even
the other rich countries. Developing countries -- the ones that have
historically borne the brunt of IMF decisions -- have little or no
effective voice in the decision-making of the organization, where the
majority of votes of the 185 member nations are assigned to the rich
members.

But the IMF lost credibility after presiding over a series of economic
disasters. Latin America, for example, suffered its worst long-term
growth failure in modern history under the IMF's tutelage since 1980.
The IMF's "shock therapy" program in Russia vastly underestimated the
time it would take to transition from a planned to a capitalist economy
in the early '90s. The result was a lot of shock and no therapy, and
tens of millions were pushed into poverty as the economy collapsed.

The Asian financial crisis in the late 1990s was a tipping point. The
IMF and the U.S. Treasury helped cause the crisis by pushing for the
removal of important regulations on foreign capital flows. Then they
made it worse with their policy recommendations, prompting economist
Jeffrey Sachs -- now head of Columbia University's Earth Institute -- to
say that "the IMF has become the Typhoid Mary of emerging markets,
spreading recessions in country after country."

Some of these mistakes were because of incompetence; others were driven
by ideological or special interests. But the result was that developing
countries began voting with their feet, piling up international reserves
so that they would never have to borrow again from the IMF cartel.

The IMF-supervised Argentine disaster from 1998 to 2002, which pushed
the majority of Argentines below the official poverty line in a country
that was previously one of the richest in the region, further sullied
the fund's reputation. Argentina then defied the IMF, refused its
conditions, got no international help and rapidly transformed itself
into the fastest-growing economy in the hemisphere. This too was noticed.

The collapse of the IMF creditors cartel has been a huge blow to U.S.
influence. It was most pronounced in Latin America, where most of a
region that used to be referred to as the United States' "backyard" is
now governed by states that are more independent of Washington than
Europe is.

The problem is that poorer developing countries, especially in Africa,
remain dependent on foreign aid from the IMF (and the World Bank and
other sources) to fund their basic budget and import needs. This can be
harmful to their development and their people. In recent years, the IMF
-- insisting that such measures are necessary to hold down inflation --
has imposed conditions that limit their public spending and, according
to the fund's own internal evaluation, have prevented these countries
from spending aid money on urgent needs, such as healthcare and education.

These countries need to join the rest of the developing world in
breaking free of the IMF's policy conditions. The U.S. Congress may
consider legislation that would pressure the IMF to use some of its huge
gold reserves for debt cancellation and to limit the IMF's control over
policy in poor countries. These would be important steps forward for the
world's poor.

Mark Weisbrot is co-director of the Center for Economic and Policy
Research in Washington. ( www.cepr.net <http://www.cepr.net>).