International Monetary Fund

The International Monetary Fund (IMF) is an organisation that was created with the principal aim of reducing the poverty of the world’s poorest countries.

The IMF's aims

The IMF describes its work as falling into three main categories:

• Surveillance, involving the monitoring of economic and financial developments and the provision of policy advice, aimed at crisis prevention.
• Lending money 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.
• Providing 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.

According to the IMF's website as at May 2009, the following are the "Fast Facts on the IMF":

• Current membership: 185 countries
• Staff: approximately 2,490 from 143 countries
• Total quotas: $325 billion (as of 3/31/09)
• Loans outstanding (as of 3/31/09): $35.8 billion to 65 countries, of which $6.1 billion to 58 countries on concessional terms.

History

The International Monetary Fund (IMF) was officially established on 27 December 1945 after 29 countries signed the Articles of Agreement at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, 1-22 July, 1944. On 1 March 1947 the IMF began financial operations.

At this time the IMF's aims were to monitor exchange rates, to increase international trade, to provide a forum for discussion about international monetary concerns, to give technical assistance to member countries and lastly, to lend money to member countries who cannot make the loan repayments. However, money was only made available to countries if they acknowledged the IMF's policy and implemented certain structural adjustment programs.

Criticism

The IMF has come under heavy criticism concerning the terms attached to the financial assistance it gives. One major critic of this organisation is Joseph Stiglitz, a former chief economist at the World Bank, who has argued that the IMF is hindering the economies of the world’s poorest countries rather than enhancing them. He has argued that the financial assistance given by the IMF is plunging the poorest economies into further debt rather than improving their financial situation.

Since Stiglitz's departure from the World Bank he has challenged the effectiveness of the policies of both the World Bank and the IMF. Stiglitz notes, "the Institutions (World Bank and IMF) are not representative of the nations they serve... it has never even been a prerequisite that the head should have any experience in the developing world... while almost all of the activities of the IMF and World Bank today are in the developing world."

Global protests and riots staged against the IMF would suggest that many people are not happy with the its activities.

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 people have organised themselves to protest against the programs. Countries where mass protests have occurred include Algeria, Benin, Bolivia, Ecuador, Jamaica, Jordon, Mexico, Niger, Nigeria, Russia, Sudan, Trinidad, Uganda, Venezuela, Zaire and Zambia. These protests date back to 1985. The mainstream media have rarely covered these protests, despite the fact that many people have been killed in them.

Policies

HIPC

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:

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

Structural Adjustment Program

A Structural Adjustment Program (SAPs) is a set of policy changes implemented by the International Monetary Fund (IMF) and the World Bank (the Bretton Woods Institutions) in developing countries. These policies involve the countries' having to meet certain financial conditions in order to receive 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.

SAPs have been criticised on the grounds that structural adjustment policies are simply loans which are being added to the ever-increasing debt which the poorest developing countries are accumulating. SAPs often require the devaluation of the currency against the dollar and recommend 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 few state-subsidised services the government was able to provide prior to 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.

In many cases, a country that has been subject to the IMF Structural Adjustment Program can 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.

Former World Bank chief economist Joseph Stiglitz talks of "a growing regional disillusionment with the IMF and the reforms ... a feeling of resentment with the hypocrisy of US free trade rhetoric combined with increased trade barriers" and the perception that in those cases where there has been growth, the rewards have disproportionately ended up in the hands of the rich, with the situation worsening for many of the poorest:

The experiment in so-called reform is failing in Latin America. After a brief spurt in the early 1990s, growth has slowed. Many countries in the region are facing recessions, depressions, crises, a few of an almost unprecedented level... The outcomes have been worse than many of its critics feared: it has not brought growth to much of the region and in some parts of the region, it has brought increased inequality and poverty.

This program gained such a negative connotation that it eventually ‘abandoned’ it, only to introduce the Poverty Reduction Strategy Initiative, which holds much of the same ideology of the Structural Adjustment Programs.

PRS

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.

The East Asia 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 .In 1997 when private organisations in the East Asian countries could not make their payment obligations, international currency markets panicked.

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

The IMF played a major role in the progression of the crisis and continued to increase the problem. The Asian countries that could not make their loan repayments were made loan arrangements through the IMF in order to meet foreign debt payments, but in turn the countries were required to adopt structural adjustment policies. However, the Asian countries were different to the countries that normally had problems with the payment of foreign loans. The IMF ordered the Asian governments to cut expenditure, a recessionary policy that intensified the economic slowdown. Previous World Bank Chief Economist Joseph Stiglitz gave details to a New Republic report “I thought this was a mistake. For one thing, unlike the Latin American nations, the East Asian countries were already running budget surpluses. In Thailand, the government was running such large surpluses that it was actually starving the economy of much-needed investments in education and infrastructure, both essential to economic growth. And the East Asian nations already had tight monetary policies, as well: inflation was low and falling. (In South Korea, for example, inflation stood at a very respectable four percent.) The problem was not imprudent government, as in Latin America; the problem was an imprudent private sector--all those bankers and borrowers, for instance, who'd gambled on the real estate bubble.” 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. . 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" . 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:

• A high increase in interest rates

• Decreased Government expenditure

• Countries were told to shut down unsatisfactory performing banks

• South Korea had to grant international organisations access to its domestic markets

• A very large proportion people lost their job

• Mandatory political reforms were implemented

The IMF came under attack from the world media who seriously doubted their management of the crisis. They highly criticised the policies (as mentioned above) the IMF compelled the countries to adopt as the countries were not experiencing over expenditure but from reckless financiers. Stiglitz commentted on how"some of the conditions [demanded by the IMF] had nothing to do with the problem at hand .

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 good examples of the influence and problems relating to the IMF involvement in world financial markets, the issue is 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
• 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 much criticism for it's neoliberal, reformist policies. It is widely accepted that private capitalist investment will always locate where 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.

Another key problem associated with the IMF is the lack of public accountability. As a global organisation the effects of IMF policy can be felt by many citizens around the world as they can directly influence host governments without facing any sort of public vote. So even if the inhabitants of a country are driven into poverty by transactions and arrangements as seen in the above case studies, the problems are inescapable and they are above the scale of local or national democratic systems. As seen in the following section, perhaps the only way to inflict restriction on the IMF is with mass protest, on a very wide scale.

History of protest

The IMF's policies, as mentioned, are based upon the belief in the rule of free market. That capital should be free to roam unfettered accross the globe. These policies tend to hurt the poor, by maintaining their poverty, or making it worse. These effects have not gone unnoticed and there have been many protests against IMF and World Bank involvement in the economy. When protests occur in third world countries, it is easier for the main stream media in the west to play down, or even to not cover these protests, however, when protests are staged within developed countries, it is more difficult to ignore. Prostests and people speaking out against the IMF and its stategies is what led to the Structural Adjustment Program gaining such a negative connotation with academics and protestors.

A World Wide Global Justice Movement has been established, which aims to link people within advanced nations to events occurring in the developing world, which may not be covered by mainstream media. This movement world with Labour unions, debt campaigners, and environmentalists to keep people informed and aware of the injustices occuring at the hands of the IMF. This movement also calls for the details of the IMF and World Bank meetings to be made public, like government in democracy, transparency is essential. The group also protest for a cancellation of all debt owed to the most heavily indebted countries, and to put an end to policies which allow the privatisation of basic services, such as water.

Washington protests

In September, 2002, mass protests were held in Washington D.C, whilst the IMF and World Bank were holding meetings in the city.3000 police officers were mobilized from different regions to police the area. In many media reports, the protesters were represented as crazed and violent anorchists, yet of the 649 arrests made, only five were charged for destruction of propery. Protestors were kept several blocks away from the building where the meetings were actually being held, and police have been reported to use unnecesary force. Protestors were said to chant "his is not a police state, we have the right to demostrate".

DC Police Chief Charles H. Ramsey emphasized the aim of police to arrest as many protesters as possible. “The intent of this group is to shut down all DC,” he commented. If they are not locked up, he said, “they leave here and go someplace else and do something else.... Those people that are apprehended will be missing several protests because they are going to be behind bars.” Ramsey warned demonstrators that anyone caught damaging property would be jailed .

Protest and Media Involvement

Mainstream media coverage is typically derogotary of the protestors, the Washington Times referred to them as “the Anti-Capitalist Convergence and other hooligans,” and crtisised the police force for even allowing the protestors into the city. The Post took a similar stance, stating its concerns for the economy and the tourist trade; “That’s all the more reason for the authorities to take appropriate action to ensure that Washington does not become a city that is besieged and sacked this weekend.” This open encouragement of by the media of crack down on those who speak out against government policy is quite remarkable, and a good example of how democracy and free market ideology cannot live together peacfully. Those who own and control the media, are generally wealthy capitalists, whose interests and allegiance lies with, and only with the market. .

Global Justice Movement

Even on the poorest countries, people began to mobilise in thier thousands to protest against the IMF's privatisation programs, in a study done on this issue,of the countries examined nearly three quarters have IMF-sponsored privatisation programmes, and half of these have seen anti-privatisation protests. The protests catalogued by the World Development Movement report are part of the global fight against global capitalism. The problem within the protests is that whilst they can bring the attrocities to the attention of the wider public, it is generally the government, and the politicians of the country that must answer its people, and the IMF and capital remains free, and does not have to answer to anyone. This is one of the main reasons the Global Justice Movement seeks to make these oragnisations like the IMF and the World Bank more accountable.

Global Month Of Action, 2006

A Global Month of Action was declared in September in 2006, which saw protestors in the U.K lobby for the government to withdraw its funding to the IMF. These protests were staged ahead of crucial World Bank and IMF meetings in Singapore. Around 3,000 people gathered in Geraldine Mary Harmsworth Park in Lambeth to stage a drumming march.The marchers then drummed their way up to Westminster to a rally outside the Treasury, beating on drums, pots and pans, yoghurt pots, tubs, tambourines and anything else people could get their hands on. They delivered a petition of around 25000 names to Westminster, and Hilary Benn announced that the British government would with hold 50 million of its funding to the IMF.

There were Global Month of Action launch events all over the world on Saturday 16 September:

In Indonesia, GCAP held an international "Peoples Tribunal on Poverty and Debt" in Batam. People from across the developing world gave evidence on the impact of World Bank and IMF polices, as well as the impact of debt repayments on the lives of people living in poverty in their countries.

Picket outside World Bank in PhilippinesIn the Philippines, GCAP Philippines and the Freedom from Debt Coalition staged a protest rally in front of the World Bank office in Ortigas to express indignation at this institution's continued exclusion of the peoples' voices in its decision-making process.

In Liberia, 500 activists and campaigners staged a protest outside the World Bank and IMF offices in Monrovia - holding banners protesting against the harmful impact that debt has on Liberia's development.

Principals

Dominique Strauss-Khan

Strauss-Khan, managing director of the IMF, 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 foray 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 progression had attracted criticism from his left-wing socialist party counterparts at this time.

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. 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. 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".

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) . 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". They will only provide financing to countries who are either democratic (freemarkets etc) or who show an interest in the transition into democracy.

Common traits of IMF Directors

• All presidents of the IMF are European.

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

• 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.