Globalisation:International Monetary Fund:Case Studies

The IMF History

The International Monetary Fund (IMF) was officially established on Deceber 27th, 1945. Subsequently due to 29 countries signing the Articles of Agreement at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire one the 1-22 of July, 1944. All the same it was not until the 1st of March, 1947 the IMF began financial operations. At this time the IMF's aims was to monitor exchnage rates,to increase international trade, to provide a forum for discussion about international monetary concerns, to give technical assisstance to member countries and lastly, the IMF's main purpose was the lending of money to member countries who cannot ake the loan repayments. However, money was only made available to countries if they acknowledged the IMf's policy and implemented certain structural adjustent programs. [1]

In many countries where the IMF imposed economic programs have been implemented, the general deterioration of living standards among ordinary people has not gone unnoticed, and many have organised themselves to protest against the program. Countries which have protested include; Algeria, Benin, Bolivia, Ecuador, Jamaica, Jordon, Mexico, Niger, Nigeria, Russia, Sudan, Trinidad, Uganda, Venezuala, Zaire and Zambia. (http://www.whirledbank.org/development/sap.html) These protests date back to 1985. Despite these protests, institutions ignored them, and mainstream media rarely give them due covergage, despite the fact that many have been killed during the protests. [2]

The IMF's Aims

The work of the IMF is of three main types. Surveillance involves the monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention. The IMF also lends to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to low-income countries are also aimed especially at poverty reduction. Third, the IMF provides countries with technical assistance and training in its areas of expertise. Supporting all three of these activities is IMF work in economic research and statistics.

In recent years, as part of its efforts to strengthen the international financial system, and to enhance its effectiveness at preventing and resolving crises, the IMF has applied both its surveillance and technical assistance work to the development of standards and codes of good practice in its areas of responsibility, and to the strengthening of financial sectors.

The IMF also plays an important role in the fight against money-laundering and terrorism. [1]

[edit]Notes ^ [1]What the IMF does,www.imf.org, 26 feb 2008 Retrieved from "http://spinprofiles.org/index.php/Globalisation:International_Monetary_Fund:Aims"

Main people of the IMF

This section will examine some of the members of the IMF who occupy key organisational roles, their history and links to other organisations. We will question what ‘type of people’ are selected to take on the key positions within the IMF. Initially we will consider the current structure and organisational pattern by discussing the role of; Dominique Strauss-Kahn (Managing Director). Then we shall consider some of the previous leaders of the organisation, and highlight any patterns evident.

Contents [hide] 1 Dominique Strauss-Khan 2 Rodrigo de Rato 3 Horst Kohler 4 Principals 5 Common traits of IMF Directors 6 notes

[edit]Dominique Strauss-Khan Strauss-khan is a professor in economics with the Institut d’Etudes Politiques in Paris. Between 1997 and November 1999 he held the position of Minister for Economu, Finance and industry. He is credited with several 'key successes' through this period; perhaps the key areas are his involvement in the launch of the Euro and the privatisation of the French aerospace industry. [1]. Interestingly his first forray into the political sphere was as an active member of the Communist students movement and subsequently The french Socialist party. His interest in Private finance and corporate proggression had attracted criticism from his left wing socialist party counterparts at this time. [2]

[edit]Rodrigo de Rato De rato was imf president from june 2004 until october 31 2007. Before he assumed this role, he was the minister of economic affairs in spain [3] He has also been involved with other organisations such as the World Bank and the European Investment Bank along with other organisations tasked with reconstruction and development. As with Dominique strauss kahn, we can see potential political leanings linked through his involvement previous firms/organisations. For example the European Investment Bank (EIB) is specifically tasked (like other "development banks") with "financing for projects which would further the policy objectives set by the European Community" [4]

[edit]Horst Kohler President of the IMF from 1st may 2000 until 4th march 2004. Prior to this role, one of Kohler's key roles was within the European Bank for Reconstruction and Development (EBRD) [5]. This link is interesting as the EBRD are once again a very influential group with an interest in using "the tools of investment to help build market economies and democracies in countries from central Europe to central Asia" [6]. They will only provide financing to countries who are either democratic (freemarkets etc) or who show an ionterest in the transition into democracy.

[edit]Principals So what can we learn from the record of appointments to the top job in the imf? There are several key characteristics we can discuss, and which may lead us to the conclusion that a very simmilar "type" of person is sought after for this position.

It seems that the IMF has a clear line of interest from the IMF; The people chosen for the role of director already have a simmilar ethos (or have shown interest in privatising, redevelopmental economics etc)to the IMF. The organisations they have worked for prior to taking this role seem to hold simmilar values and interests, take part in simmilar programs and justify actions in the same way as the IMF. Perhaps the sought after candidates are all simmilar in this way as when they take on the presidents role they will carry forward the objectives of the organisation without disruption. This in fact renders the choice of individuals as relatively insignificant, as the IMF will inevitably select subsequent candidates based on the same interests.

[edit]Common traits of IMF Directors 1.Since its inception, all of the presidents of the imf have been from european countries.

2.Many Come from relatively well off backgrounds.

3.A lot of the previous candidates have had experience in Governmental roles.

4.As with the three most recent cases; many have been involved in the redevelopment sector of finance, where conditional finance/investments can be used to promote the interests of certain organisations and countries.

[edit]notes ^ [1],Mr. Dominique Strauss-Kahn is the EU candidate to lead the IMF, www.ambafrance-au.org ^ [2], "French news" Monday, 12 November 2007, ^ [3], "IMF Biographical Information", ^ [4], "The EIB", ^ [5], "IMF Biographical Information", ^ [6], "About the EBRD",

Policies

Created in 1996 by the IMF and World Bank, the Heavily Indebted Poor Countries (HIPC) is an agreement between creditors to help the poorest and most indebted countries reduce their debt burden. Poor countries owe a combined debt of over $2 trillion to rich countries. The HIPC Initiative enables poor countries to focus on “building the policy and institutional foundation for sustainable development and poverty reduction.” Along with reducing debt, the Initiative reduces poverty, and helps a country’s fiscal and monetary performance.

HIPC is open to the poorest countries that meet the following requirements:

1. A per capita income below $785. 2. Eligibility for assistance from the World Bank’s International Development Association. 3. Have such high debt that they cannot sustain it even after applying debt relief devices. 4. A track reform of trying to reduce poverty and building economic growth.

[1] 26/2/08

The IMF also has a number of policies incorporated into the Structural Adjustment Policies (SAPs). These particular policies involve countries having to meet certain financial conditions in order to recieve loans.Eligibility for loans from the IMF requires governments to be in compliance with the IMF’s Structural Adjustment Programs (SAPs), which aim to reduce a government’s budget deficits through decreasing government expenditure. Among the conditions are increasing exports, devaluing overvalued currencies, trade liberalization, balancing budgets, price controls, privatization, and fighting corruption.

[2] 11/3/08

However the structural adjustment policies have been criticised due to the fact that the debts of the poorest countries have increased rather than decreased. Another possible criticism is that the structural adjustment policies are simply loans which are being added to the ever increasing debt which the poorest developing countries are accumulating.

This is basically the forced introduction and integration of the country in question into the world free market economy. This allows the wealthy economies to gain access to the country in questions economy, which benefits the developed nations (in support of the IMF) The structural adjustment program often requires the devaluation of the currency against the dollar, and recommends the removal of price controls and state subsidies. This aspect of the program weighs most heavily on the poor of the country, who will often depend greatly on what little state subsidised services the government were able to provide pre IMF intervention. The basic services often impacted are Health and education, which many would consider to be more important in development and poverty reduction than the economic program proposed by the IMF, which is focused on the export of primary commodities and foreign exchange. (http://www.whirledbank.org/development/sap.html) [3]

This explains the fact that in many cases, a country that has been subject to the IMF Structural Adjustment Program often experience a sharp increase in GDP, but these increases are often characterised by stark inequality. The program often creates, or increases the existence of a wealthy elite, whilst simultaneously further impoverishing the already very poor. This program gained such a negative connotation that it eventually ‘abandoned’ it, only to introduce the Poverty Reduction Strategy Initiative, which hold much of the same ideology of the Structural Adjustment Policy

The poverty reduction strategy (PRS) approach, begun in 1999, redefines the relationship of aid--empowering governments to set their priorities (and holding them accountable for results), and encouraging donors to provide predictable, harmonized assistance that is aligned with country priorities. The approach centers around countries developing and implementing poverty reduction strategies (PRS) that articulate development priorities and specify the policies, programs, and resources needed to meet their goals.[4] 18/03/08

[edit]notes ^ Gina-Marie Cheeseman [1]International Monetary Fund's Financial Assistance Policies:Pros and Cons, www.globalpolitician.com ^ Gina-Marie Cheeseman [2]International Monetary Fund’s Financial Assistance Policies: Pros and Cons, www.globalpolitician.com ^ [3], "Whirledbank.com", 18/03/2008 ^ [4]2005 PRS Review: Balancing Accountabilities and Scaling Up Results, http://go.worldbank.org/815EOPWMZ0

The Following are case studies of financial situations in the world market, the IMF involvement and responses of the organisation.

The East Asian crisis

The crisis

The global economic crisis began on July 2, 1997 in Thailand. Previous decades had seen the countries of East Asia improve dramatically, incomes had soared, health had enhanced and poverty had decreased rapidly. Some of the countries had not experienced a single year of recession in almost 30 years.

Towards the beginning of the 1990s, East Asian countries had liberalized their financial and capital markets because of increased national pressure form the U.S Treasury Department. This pressure stimulated a flood of short term capital. This short-term capital helped speed up an unsustainable real estate boom, but every real estate bubble has to burst at some point, frequently with catastophic consequences. This is exactly what happened in Thailand and caused an extensive economic problem.

When the Thai baht derpriciated, it not only seriously affected the currency market of Thailand but also the rest of East Asia- South Korea, Singapore, Malaysia, Indonsesia, the Phillipines, Hong Kong and even over into Russia, Brazil and the United States.

IMF policy and advice

Stiglitz claims the most influential contributing matter to the East Asian crisis was when capital account liberalization restrictions were taken away for the flow of capital, in the Asian case this was currency.Western countries encouraged Eastern Asia to allow foreign investors greater access to their markets. (Nelson,2004)Money began to flow through the markets but there were no policies in place to stop investors pulling their money out without forfeiture. As the markets reputation fell money was pulled out as fast as it was put in. "... capital flows [are] pro-cyclical.... capital flows out of a country in a recession, precisely when the country needs it most, and flows in during a boom, exacerbating inflationary pressures." (Stiglitz, 100)as cited in The IMF contributed in many ways to prolong the East Asian crisis, such as they would not provide finance the countries unless they ucommitted to particular economic reforms, these included:

1. A high increase in interest rates 2. Decreased Government expenditure 3. Countries were told to shut down unsatisfactory performing banks 4. South Korea had to grant international organisations access to its domestic markets 5. A very large proportion people lost their job 6. Mandatory political reforms were implemented Stiglitz commentted on how "some of the conditions [demanded by the IMF] had nothing to do with the problem at hand." (96)as cited in

IMF involvement In Mexico

One of the regions where the IMF has attracted most criticism is for their heavy and unbalanced involvement state and financial structure of Mexico. In recent history, the IMF has granted over $5 billon (USD) to mexico in an attempt to give mexico less poverty, stability, economic gain and financial protection from declining oil revenues

IMF policy and advice

However many of the programmes undertaken as a result of IMF Stuctural Adjustment Policies (see policies section) have been subject to criticism. In fact the IMF could be considered liable as a large instigator of Mexico's financial crisis in 1994. The IMF advised that mexico should devalue the Peso; also by encouraging the privatisation of many state run banks and other industries the country built up a massive debt burden . In other cases the Mexican Government was advised to steer away from the public funding of improvements to the systems of water provision in their traditional agricultural areas during times of drought. Instead the IMF advised to focus on the "Maquilladora regions" (The northern region where manufacturing of parts for American firms for export is the prevalent industry) .

Results

The result of IMF advice and structural adjustment was the decimation of land use, ensuing poverty, a depressed economy and unemployment in the agricultural sector. Is this true nature of the "success" the IMF claims to be Having in the Region? Only when the mexican government reverted away from the IMF programs (by revaluing the peso and beggining to move away from IMF aid) did their economic status improve.

Essentially in this case; promotion of capitalist interests through structural adjustment polices led to the economic failure of a large state, with wide reaching affects. These effects included the furthering of destitution and poverty, malnutrition, an inability to fund the most basic of human needs. However according to an IMF statement "Mexico enjoys sustained growth and stability thanks to sound economic policies" Based on this case study it would seem that this is undoubtedly a contentious claim.

A Wider Problem

It must be noted that even though the two case studies cited are god examples of the influence and problems relating to the IMF involvement in world financial markets, the issue in increadibly diffuse and problematic. A multinational monitor investigation explains the case of Argentina and tied Loans and assistance from the IMF. . In this case the Argentinian government accepted IMF funding to aviod defaults on other foreign debt, of course the acceptance of the loans was subject to policy conditions. By examining the loan documentation agreements between the IMF and 26 other countries, it is shown that that several conditions were replicated throughout, and in more cases than not these conditions were deemed to undermine the rights and living standards of vast numbers of working citizens. These measures include the downsizing of public service work, less worker protection from dismissal, reductions in minimum wage levels and less social security/pension benifits. Concurrent with the plethora of examples available, we can see the promotion of the farcical notion that the "free hand" of the market will dictate best circumstance for all environments, can drive entire economies into dissaray. Even A US Congressional committe indentified problematic issues with the support policies and adjustments of the IMF, Stating that:

"The IMF has given too little attention to improving financial structures in developing countries and too much to expensive rescue operations. Its system of short-term crisis management is too costly, its responses too slow, its advice often incorrect, and its efforts to influence policy and practice too intrusive."

In fact, the IMF receives an increadible level of criticism for it's neoliberal, reformist policies. It is widely accepted that private capitalist investment will always locate were the lowest wages and most liberal market conditions exist. This is also known as "The race to the bottom" . "Coincidentally" , in these conditions the low level workers within this market are subjected to abject poverty, low standards of living, malnutrition and a host of other physical and social ailments that the IMF claims to cure...

notes

[edit]Notes ^ Allison Berg "History of the IMF http://filebox.vt.edu/users/aberg/imf.content.html 26/02/08" ^ [1], "www.Whirledbank.com", 18/03/2008 Retrieved from "http://spinprofiles.org/index.php/Globalisation:International_Monetary_Fund:History"