IMF Exposed

By: Leroy A. Binns Ph.D.

The International Monetary fund was established in 1945 subsequent to the conclusion of World War II at the Bretton Woods conference in New Hampshire with an expectation to promote economic cooperation among states through short term financial assistance for commercial purposes.

Since its incorporation the bank’s uninterrupted existence has been solidified with donations by member states which in turn defines its leadership and policies. In 1998 the US held 18% of the votes within the organization and along with Germany, Japan the United Kingdom and France controlled 40% of shares with a small percentage owned by 175 states. Hence the agenda is primarily dictated by the government of the United States of America.

During the mid 1970s the establishment expanded its role to address monetary aid for countries in crisis. With such leverage it gained unbridled prominence which when translated re-invents economic prerequisites for loans, international assistance and debt relief and magnifies social unrest for its recipients.

The IMF

Structural Adjustment Criteria                                               Effects

Public sector termination and the                                           unemployment

privatization of state companies

Reduction in spending for social services                               unequipped facilities and

                                                                                                 inadequate service

Wage freeze and labor suppression                                         inhumane earnings and             

                                                                                                 and minimal labor representation

                                                                                                 (if any)

Currency devaluation                                                              diminished value of local                                                                                         tender and inflation

Abolition of price subsidies                                                    increased commodity prices

and high interest rates                                                             restricted access to goods and                                                                                           service

Elimination of trade barriers                                                   depletion of foreign reserves                                                                                                  and the destruction of local

                                                                                                 production

The flowing are some classic illustrations of IMF engagement by continent and decade

The 1970s – North America

In an attempt to advance socialism and a new world order inclusive of neighboring communist Cuba Jamaica’s Prime Minister Michael Manley was confronted with resistance from Washington and ultimately his demise in 1980 accredited to IMF’s austerity measures. As the lender sought and won staff redundancies (10,000 – 11,000 workers) within the public sector, greater control of state run operations by the private sector, the dismantling of a large range of social programs, the removal of income distribution policies, a devalued currency and increased importation of Western products the country’s unraveling state of affairs exposed the flight of local technocrats, the loss of foreign exchange and an escalation of violence in urban areas – an onslaught oftentimes compared to the Lebanese debacle of the early 1980s.

By the same token Mexico succumbed to the imposition of drastic conditions in relation to restricted government spending and real wage rates declined in excess of 40%. Presently 60% of the employed earn minimum wage with the purchasing capacity of 25 to 50% of their essential needs.

The 1980s – Africa

As the largest beneficiary of structural adjustment assistance Ghana between the years 1983 and 1990 suffered from severe cuts in accordance with the bank’s directives that directly affected basic social services. Education spending was reduced to half its 1975 levels, scores of jobs were lost and overall enrollment rates rapidly declined from 1983 to 1987.

Mozambique was likewise susceptible to negative influence attributed to IMF intrusion. The mediation of a pact in 1987 advanced budgetary restraint thus eliminating local subsidies and in its stead introduced hefty price hikes. Between the months of March and April 1988 rice prices rose from 20 cents a kilogram to $1.32, sugar from 25 cents to $1.32 and maize from 14 to 56 cents. In essence the acquisition of basic commodities which intensified in cost by 300 – 500% within one month presented a test of sacrifice for the disenfranchised and even qualified secondary school teachers who in the year in question received two salary adjustments in increments of 50 and 15%.

According to the UN Economic Commission for Africa, expenditures in education and health care to IMF programmed countries declined by 25% and 50% during the 1980s with the latter accounting for the death of 5 million children under the age of five within the same timeframe.

The 1990s – Asia

The IMF in response to the 1997 East Asian fiscal crisis instructed Thai and Indonesian authorities to reduce government programs and tighten monetary policy. Consequently both countries endured a massive ongoing outflow of capital estimated at $100 billion by 1998, weakened currencies (the baht by 50% and the rupiah by 75% against the US dollar), the exclusion from support on the international market and the collective closure of 80 commercial banks (50 in Thailand and 30 in Indonesia). In a similar fashion a prescription for South Korea which entailed a $58 billion loan, increased interest rates and the devaluation of the local currency culminated in a recession from bankruptcies, accelerated unemployment (8,000 workers per day) and a decrease in government spending.

The Turn of the Century – South America

Under duress Argentina complied with the IMF’s measures to introduce labor market flexibility that endorsed diminishing employee privileges and undermined the effective presence of labor unions. As a result the passage of unfavorable laws resulted in general strikes and unfortunately an unprecedented deprivation of jobs.

Unlike industrialized states advised and aided to promote national spending, tax reduction and low interest rates as requisites for investments the Third World community is confronted with a recipe for disaster. To this end impoverished debtor nations are challenged with punitive consequences.

Herein lies a sample of the comprehensive nature of the dilemma

Fiscal Liability

An overall sum of $6.5 billion in interest and $12.5 billion with principle per month (the total is on par with the Third World’s monthly contributions to education and health)

An increase of over 127% in debt since 1982

An external debt that has quadrupled as a percentage of GNP since 1980

Debt service the equivalent of over 25% of exports

 

Human Paralysis

Over 100 million children between the ages of 6-12 do not attend school

Another 125 million withdraw from primary schools in under 4 years

Approximately 830 million are illiterate

1.2 billion people live in absolute poverty

80% of malnourished children reside in developing countries that have adopted export oriented production in lieu of tradition farming

1.6 billion inhabitants are without portable water

2 billion people are unemployed or underemployed

With severe disparity (e.g., an income ratio of 150 to 1)) directly affecting human development criticism soars. Davison Budhoo, an illustrious Grenadian economist and former IMF official now spearheads the Bretton Woods Reform Movement in response to increasingly genocidal policies while the Heritage Foundation, a conservative Washington think tank confirms, “The IMF bails out investors, not the people of troubled countries. It might be time to abolish the IMF.”

In fact a 1988 IMF internal study authenticates the failure of at least 40 programs instituted between 1983 and 1987 to encourage economic growth, reduce fiscal and balance of payment obligations and lower inflation and stabilize external debt. Moreover intensified demands from grassroots antagonists in the form of US Network for Global Economic Justice, Campaign for Labor Rights, Institute for Policy Studies and Global Economy Project to name a few and an ability to incorporate only 36 of 79 states through the 1987 stringently Enhanced Structural Adjustment Facility have given rise to the introduction of the Poverty Reduction and Growth Facility. This program requires interaction with civil society for additional loans and debt relief and a commitment to monetary alleviation for the world’s poorest countries. Yet NGO’s doubt the value of consultation if standards are cosmetically altered for the IMF’s seal of approval.

Given a history of incompetence which includes the organization’s failure in aiding 30 of 40 states meet the rigid criteria for Heavy Indebted Poor Country initiative in 2000 the body must rethink its formula and commit to a meaningful solution in support of social justice and economic prosperity worldwide. Unequivocally in an effort to offset a climate of regression that will adversely affect industrialized economies in the near future a restructured organization should demonstrate accountability to and interest in the well being of all clients. Therefore a reversal of past procedures coupled with major debt reductions and long term investments are prime components for lasting success.