14 Oct 2009
"Has the International Monetary Fund (IMF) lived up to its founding goals or is it just a club for rich countries to dictate growth?" asks Al Jazeera, after the IMF met for its annual meeting in Turkey last week.
Two years ago, The IMF was fighting for relevance but has come back with vigour, bolstered by a new role given to it by G20 leaders at the London Summit earlier this year -- to bail out countries affected by the global financial and economic crisis and to play a key role shaping the post-crisis world.
The IMF appears to be taking the need to give developing countries, such as India and China, a bigger say in its decision-making seriously.
The world is changing and forcing a transformation of global institutions. The new world of global finance is led by emerging markets, India, China and Brazil. The G7 has been replaced by the G20. The West is shifting into the shadow of developing countries.
"Out of date and out ideas, the reign of the group of seven industrialized countries is finished," pronounces Al Jazeera.
The question is: Are the changes adopted by the IMF transformative or superficial in nature?
The IMF's ambition is to become a global central bank with a one trillion dollar balance to lend to developing countries.
But, in this day and age, the developing world has another option. It can go to China for a loan instead of relying on the IMF.
Malaysia's minister of international trade, Dato Mustafa Mohamed, says the IMF's response to the crisis has been poor and its influence waning.
For as long as developing countries' views are not being heard by the IMF and the World Bank, policies are going to be lopsided, unfair and will not take the interests of developing countries into account, charges Malaysia's Mohamed.
Ann Pettifor from the New Economics Foundation and Andrea Maksimovic from Solidar discuss the growing role post-crisis role of the IMF -- and whether it really deserves this new opportunity it’s been given to revive itself.
Pettifor contends that rich countries (the G20) needed a fire fighter to fight the global crisis and the IMF was reinvented for this purpose.
The IMF has been given the role of fire brigade by the Europeans, in particular, to help them deal with the crisis in Eastern Europe and with the countries on the margins of Europe, who are encouraged to borrow from richer countries inside Europe - with unsustainable exchange rates - on the advice of the IMF and most mainstream economists.
Pettifor says credit has to be given to IMF head, Dominic Strauss-Kahn, for re-orientating the organisation to a certain extent. But the IMF has not dealt fundamentally with the dominant economic theory that is so flawed and that led the IMF, in the first place, to fail to predict this crisis. Therefore, it failed to understand the crisis and it failed to deal with it.
According to Al Jazeera, Strauss-Kahn has been saying that the IMF is changing, that it is no longer going to be the loan shark or bullyboy of the world. They wonder if he should be taken at face value.
Maksimovic says it’s difficult to believe Strauss-Kahn if one works with people who are experiencing the fallout from IMF loans. For example, if you’re a teacher in Latvia whose salary has been cut by 40% or if you’re a poor person in El Salvador whose fuel subsidies have been eliminated, or if you’re in Pakistan and your electricity bill has gone up by 80%.
These things are happening as a result of post-crisis IMF loans.
It’s true that the IMF has gone into some countries and recommended expanding the social safety net, but their advice is contradictory, says Maksimovic. "They are still saying things like, you have to reduce your budget deficit to pre-crisis levels.” This translates to more cuts in government spending leaving people worse off.
It is also deeply hypocritical, says Pettifor, because in October/November 2008, the IMF issued a statement urging governments to use taxpayer finance to bail out the finance sector.
According to Pettifor, the IMF urged rich country governments to engage in what's known as a fiscal stimulus -- to use taxpayer money to flood the system with finance -- to prevent a systemic failure. Except that industrialized countries, which are debtor countries, are not obliged to reduce their budget deficits. There is a profound double standard in this, says Pettifor.
The reason for behind this, contends Pettifor, is because the IMF’s interests are with the finance sectors and not necessarily with governments. The Swedish banks that have lent unwisely to Latvian homeowners are of much greater concern to the IMF than the people of Latvia.
Taking this point further, Maksimovic adds that the key question to ask is: “Who are the people behind the policies that the IMF is pushing?”
She argues that the 5% quota redistribution from developed to developing countries that the IMF Finance Committee announced in Istanbul, a few days ago, is not going to do much to fix the governance problems of the IMF.
It’s a good symbolic gesture, but it’s quite clear from statements issued by the European ministers that what they really want is to give developing countries a bit more say, so they would invest a bit more money in the IMF.
This will not fundamentally change the kinds of policies that the IMF is used to prescribing, says Maksimovic.
Editor's Note: The clip above is part two of Al Jazeera's programme, "Counting the Cost - IMF in Focus." To watch part one, please click here.