IMF on the Ropes

By Russell Mokhiber and Robert Weissman, 21 March 2000

There may be no single institution with greater pernicious influence in the world than the International Monetary Fund (IMF). Now, for the first time, the Fund faces a real challenge to its existence, at least in its current form.

For two decades, the IMF has exerted a stranglehold over developing country economies, denying them the funding they need to make foreign debt payments and avoid default, unless they enact structural adjustment policies.

Structural adjustment can fairly be described as a virulent strain of Reaganomics or Newt Gingrich’s Contract with America. The basic idea of these policies is to open countries’ labor markets and natural resource riches to multinationals, shrink the size and role of government, rely on market forces to distribute resources and services and integrate poor countries into the global economy.

Key structural adjustment policies include: privatizing government-owned enterprises and government-provided services, slashing government spending, orienting economies to promote exports, lifting trade restrictions, implementing higher interest rates, eliminating subsidies on consumer items such as foods, fuel and medicines and imposing tax increases.

Structural adjustment has been successful at its intended effort to diminish the scope of government and integrate developing countries into the global economy.

But it has increased suffering in developing countries immeasurably. In most of the world’s poorest nations undergoing structural adjustment, poverty has increased, health care systems have collapsed and income inequality has skyrocketed.

Developing countries that have done well in recent decades, primarily those in Asia, including China, have succeeded by violating central tenets of structural adjustment: they have maintained a strong government role in the economy, and they have protected certain parts of their economy.

Not surprisingly, people in developing countries have protested strongly against IMF policies. Countries throughout the world have witnessed IMF riots following IMF-ordered lifting of price subsidies for goods such as bread and gasoline.

But because the IMF derives it authority from rich countries, not the poor nations, it has been able to weather these outbursts.

In the last two years, however, momentum against the IMF has grown in the rich countries, as well as in the developing world.

The IMF’s admitted mishandling of the 1997-1998 Asian financial crisis made the economic contraction in Asian nations much worse. The structural adjustment agenda further slowed the Asian economies that had already plunged into recession.

This incompetent performance finally sparked widespread criticism of the Fund in the industrialized countries.

Meanwhile, the worldwide Jubilee movement is increasingly winning support for the idea of debt cancellation for the poorest countries.

The IMF has deftly tried to turn these weaknesses to strengths. It adroitly used the Asian financial crisis to win $90 billion in new funding from the rich countries. The Fund needed more money, proponents claimed, to keep the crisis economies afloat.

And the IMF has sought new monies so it can offer very modest debt relief through its Enhanced Structural Adjustment Facility (now known as the Poverty Reduction and Growth Facility, an Orwellian twist)—in exchange for countries agreeing to years of closely supervised structural adjustment!

But these jujitsu tactics may be running out of steam. Political momentum against the IMF ratcheted up in recent weeks, when the Meltzer Commission, a bipartisan advisory commission to the U.S. Congress, released its report.

While the members of the commission disagreed on many matters, they agreed on two: First, the IMF (along with the World Bank) should use its existing resources to cancel all debts owed to these institutions by the poorest countries. Second, the IMF should get out of the business of long-term lending—the kind of development loans to which structural adjustment conditions are normally attached.

The report has shifted the terms of debate over the IMF in the United States and the U.S. Congress. Unfortunately, the IMF is only seeking a relatively small amount of new money from the Congress—and if that money goes through, Congress will lose most of its influence over the monetary agency for several years (until the next funding request).

But the shift in policy circles is now being accompanied by a new progressive public protest against the IMF in the United States. On April 16, during the IMF’s annual spring meeting, thousands of demonstrators will take to the streets of Washington, D.C. to protest the deadly toll of IMF policies.

Infused with the spirit of Seattle that shut down the World Trade Organization meetings, the demonstrators are planning a direct action to shut down the IMF, as well as a massive, permitted rally and march. (For more information on the April 16 actions, see http://www.a16.org)

Street demonstrations against the IMF in Washington have the potential to awaken people in the United States to the needless suffering imposed by the Fund on people throughout the world, and to mobilize a critical mass of opponents in the country that exercises a dominant influence at the Fund.

The IMF’s reign of terror may finally be winding down.