22 July 2010
Debt & Public Finance
– The recent announcement of a make-over and the admission by the International Monetary Fund of its faults for imposing invasive policy recommendations to developing countries that led to the financial crisis in Asia 1997-98 and in some parts of the world drew criticisms from a debt watchdog.
The Freedom from Debt Coalition stressed that the IMF has already lost its credibility and legitimacy, and the most rationale thing to do is to decommission the so-called “lender of last resort.”
“Asia is better off without the IMF. We believe that the IMF is still the arrogant ‘lender of last resort’, only this time, this beast is using the sheep’s clothing. The IMF will only bring bad tidings in Asia as what it did during the debt crisis in 1980s and financial crisis in 1997-98,” said FDC president Walden Bello.Charm offensive
In a press conference the IMF called in Daejon, South Korea recently, its Managing Director Dominique Strauss-Kahn acknowledged the Fund’s faults and used the charm offensive to repair its relation with Asia.
Strauss-Kahn said that the IMF intends to increase the region’s Special Drawing Rights, the IMF’s unit of account which also determines the voting rights of each member country. This will provide developing countries a “sufficient voice in its decision-making.”
“This is demagoguery," said Bello, now a member of the Philippine parliament. "The US, Europe, and Japan have stated their opposition to any substantial reduction of their voting power in the Fund."
Aside from increasing the voting rights of Asian countries, the IMF intends to recruit “people from the Philippines and neighboring countries.”
The IMF also intends to pursue streamlined policy recommendations, veering away from a whole set of reforms with many conditions so that “at the end of the day, reforms should be owned by the people.”IMF sins
Together with the World Bank, the IMF imposed structural adjustment programs (SAPs) on close to 90 developing countries, including the Philippines, beginning 1980. The elements of these SAPs include long-term structural reforms to deregulate the economy, liberalize trade and investment, and privatize state enterprises, coupled with measures like cutbacks in government expenditures, high interest rates, and currency devaluation.
Bello said that the two international financial institutions sought nothing less than the dismantling of the developmental policies of state-assisted capitalism that they judged to be the main obstacles to sustained growth and development.
According to Bello, the first phase of adjustment, which focused on trade liberalization, saw quantitative restrictions removed on more than 900 items, while the nominal average tariff protection was brought down from 43 percent in 1981 to 28 percent in 1985. This eroded the domestic industries.
“The second phase of adjustment saw economic recovery subordinated to the repayment of the country’s $26 billion foreign debt incurred by the late dictator Ferdinand Marcos. Under Corazon Aquino, this “model debtor” policy of her administration via structural adjustment institutionalized stagnation, with the country registering zero average GNP growth between 1983 and 1993,” said Bello.
The focus of adjustment shifted back to accelerated privatization, deregulation, and liberalization of trade, investment and finance, under the administrations of Fidel Ramos and Gloria Macapagal-Arroyo.
“Capital account liberalization, an IMF prescription, resulted in massive inflows of speculative capital into the financial and real estate sector, triggering an artificial boom in Manila. But the liberalized capital account also became the wide highway through which billions of dollars exited in 1997 and 1998, at the onset of Asian financial crisis, bringing the growth rate to below zero in 1998,” Bello explained.
Bello does not believe that a real transformation within the Fund is possible since “the problem lies in the very structure and culture of the institution.”
“There is a lack of accountability; a belief in non-transparency as a condition for effectiveness; and, a deeply ingrained elitism that renders the bureaucracy incapable of learning from outsiders,” explained Bello.
“Because of its past blunders and dreadful character, there is no other choice but to decommission the IMF. Allowing it to come back to life will only bring sufferings to people, especially the future generation,” said Bello. (30)