Should We Get Rid of the International Monetary Fund?

Original source: L’Humanité
translated by Scott Hiley

Note: Round Table with Demba Moussa Dembélé, economist, Forum for African Alternatives (Senegal); Pedro Paez, president, Commission for a New Regional Financial Architecture (Ecuador); Aurélie Trouvé, co-president of Attac and candidate for IMF director.

A few facts: Although the IMF is missing a head, it’s as dangerous as ever.  After a first loan of 110 billion euros given to Greece last May in exchange for draconian austerity measures, the IMF now demands a new wave of crackdowns for continuted “aid.” On June 30, we will learn the name of the new director of the Fund, and French Finance Minister Christiane Lagarde seems the likely winner.  No chance that the old methods will be abandoned—since 1944, the institution tasked with maintaining world financial stability has acted as the police force of the neoliberal world order.  On those who fall under its law, it imposes tax breaks, spending cuts, privatization, and the opening of borders to foreign capital and products.  Many voices, here and elsewhere in the world, clamor for an end to the old, destructive way of governing world finance.

The IMF would seem to be a key institution for managing the world financial crisis.  What are the stakes in its choice of a new director?

Aurélie Trouvé:  The IMF depends, first and foremost, on the United States and on European countries, who hold nearly half the votes in its administrative council.  The Fund functions on the rule that a dollar equals a vote: the more a country can contribute financially to the IMF, the more power it holds.  In and of itself, a change of leadership won’t call into question the policies of the IMF, propelled by all-powerful, wealthy nations and governed by an administration mired in free-market ideology.  It is, however, a hint of the political future of the IMF.  We should be worried about the candidacy of Christiane Lagarde, a member of a socially regressive neoliberal government.  Moreover, her suspected collusion with a wealthy friend, [businessman] Bernard Tapie, reminds us of her tight ties to the world of finance.

Pedro Paez: The IMF made attempts at internal reforms under the leadership of Dominique Strauus-Kahn, but these reforms didn’t extend to changing the nature, the essence of the IMF’s role, which is to discipline national economies under the control of a transnational financial hierarchy. The change in IMF leadership coincides with the formation of an international coalition whose goal is to call into question the effectiveness of the IMF.  Clearly, the situation in Greece has shown the total incompetence of IMF technicians, since their program has failed completely in under a year.

Demba Dembélé:
  Given the composition of the IMF administrative council, where the US and European nations control just over half the Fund’s capital, the director won’t be able to initiate any reforms that go against the priorities set by Western countries. So you tell me whether change in leadership is meaningful or not!  Despite a few concessions made to developing countries in recent years, the United States holds the right of veto over every major decision of the IMF.  As long as the same countries hold the power, the choice of a new director will depend on them, as we can see with the near-certain election of Christiane Lagarde.

Primacy of the market, weakening of public power... can we do anything to change the neoliberal doctrine of the IMF?

Demba Dembélé:
  In the near future, there’s no hope for change, since the United States and the European countries will never accept reforms that would deprive them of hegemony within the IMF.  The Fund now serves to control weaker economies in Africa and Latin America, as the infamous “structural adjustments” demonstrated.  Moreover, its neoliberal doctrine is at work in managing the sovereign debt crisis in Europe.  Now we see the hollowness of former director Dominique Strauss-Kahn’s rhetoric of change.  

Pedro Paez: The successive crises of the world economy showed with stunning clarity the doctrinal, ideological, technical, and material bankruptcy of the IMF.  After the crisis, we saw the IMF recover its powers of blackmail, which it uses to impose its own conditions on democratically elected governments.  We have to change the economic paradigm by making life the highest value.

Aurélie Trouvé:
  The neoliberal credo of the IMF these past few years boils down to one thing: using austerity and debt-repayment programs to make working people, retired people, and the unemployed pay for an economic crisis brought on by financiers.  They do this even as profits in the financial sector are higher than ever.  Under Strauss-Kahn, the IMF imposed drastic austerity programs on indebted European countries.  These plans were not only unjust, but also ineffective, because they inhibited development and didn’t prevent banks from continuing to speculate on the debt market.  Thus, the IMF contributes to a massive transfer of wealth from workers, retired people, and the unemployed to big capitalists. But this doctrine can, and must, be called into question.  Global financial stability is a public good, which must be democratically governed by the whole of the international community, in the framework of a reorganized IMF.  The democratization of the IMF requires opening its administrative council to every country on the planet and placing the Fund within a reformed United Nations system, with one vote for each of the 187 member states.

Under what conditions could the IMF promote growth while protecting the people?

Aurélie Trouvé:  Beyond democratization, the IMF must promote an economy governed not by financial interests, but by the goals of sharing wealth and preserving the planet.  In the short term, this means stopping the austerity programs and restructuring public debt, some part of which must be forgiven.  The big lenders must finance this, a plan already propsed by Germany, but under attack from Christiane Lagarde and others. To prevent debt speculation and forestall another crisis, the IMF must disarm financial markets by stringent regulation and the creation of a financial transaction tax heavy enough to generate the hundreds of billions of euros necessary to pursue social and environmental policies.  The Fund must pursue a truly international economic policy by making any country with an unbalanced economy stabilize in coordination with other countries, by monetary controls and active budgetary and wage policies.  Lender countries must not escape these conditions, since their dumping and currency devaluation set up an unfair playing field.  Finally, the IMF could develop a world money to replace the dollar.

Demba Dembélé:
  First of all, the countries of the global South should have a preponderant voice in the decisions of the IMF, to make the Fund serve their own development goals.  For the IMF to promote development, it needs a culture of development.  The current credo is growth at any price, led by exports and open markets: thus the emphasis on the deregulation of commerce, the free movement of capital, the ending of price controls, etc.  In the end, profound change in the IMF can only come at the expense of its autonomy, by placing it under the direction of the Economic and Social Council of the United Nations.  The choice of a new IMF chief would thus be left to the UN General Secrectary, at the end of a democratic, equitable, and transparent process.

Pedro Paez:
Every action of the IMF, especially in the third world, has been an obstacle to development.  Latin America has had a number of bad experiences.  Adjustment and austerity policies generated a chronic fiscal crisis.  Other options are possible, linked to the formation of a sovereign credit system and the reinforcement of the national currency.  Here in Latin America, we have developed a new architecture for finance and development: the Bank of the South [Banco del Sur], based not only on key currencies, but on local resources and national (and soon, regional) currencies.  The architecture of this new bank is the SUCRE: Unitary System of Regional Compensation, a common currency operating outside of the neoliberal restrictions of the euro as a savings mechanism for international monies.  The Sucre, a kind of mutual credit card among national banks, simplifies exchanges and avoids the use of the dollar. In this way, we no longer have to play with interest rates, and each country has greater space to manage exchange, finance, and commercial policies. Keeping the interest rate low will reduce debt servicing charges for families, businesses, and the State, thus liberating resources for investment in the common welfare. Moreover, those resources will be protected from the attacks of speculators and the fragilities of the international market, so we can use them for jobs and development programs.

Should we get rid of the IMF?

Aurélie Trouvé:  Whether restructuring the IMF will require elimination or only profound transformation is a pragmatic question that, in my opinion, we don’t need to worry about yet.  The important thing is to do away with the current form of the IMF and reorganize its goals and institutional structures.

Pedro Paez: The question isn’t whether we should rid ourselves of the IMF, but how we can create a new financial architecture, an international lender of last resort with special drawing rights, based on a governance structure engaged in cooperative regional development.  To do this, we might look to the example of the Bank of the South.  This type of monetary and financial organization offers the possibility of recycling local and regional resources for other kinds of development and opens new technical options on the financial and macroeconomic levels, options capable of changing our relation to the IMF.  This could entirely modify the IMF’s repressive mechanisms, like the austerity plans you see in Ireland and Greece.

Domba Dembélé:  More and more voices are demanding the total elimination of this institution, which no longer has any use in the world economy, which has lost all credibility by being an ardent and fanatical partisan of the free-market fundamentalism that drove the world economy to the brink of catastrophe.  Furthermore, the remedies of the IMF have failed, and have even made the situation worse.  Countries who refused to follow IMF marching orders, like Malaysia in 1997-98, have come out the better for it. As a counter-example, the Argentine debacle of 2000-2001 has IMF written all over it.  It is time to create new institutions: more democratic, more transparent, and closer to the real experience of countries in difficulty.

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  • IMF is the worst scammers ever, the gov will never repay the debt , and then they own them. These are the terrorists, you cant t repay a debt with a debt.

    Posted by Annon, 11/01/2015 8:35am (8 years ago)

  • The IMF is also an institution that is making decisions that it should not be doing. Originally, it was an institution set up only to supervise and stabilize exchange rates. It's failure is therefore also the consequence of engaging in problems that the institution is not designed to solve. The example of the Bank of the south is really interesting.

    Posted by Julia Naime, 07/06/2011 1:44pm (12 years ago)

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