Soren Ambrose*
Once upon a time,
the International Monetary Fund (IMF) seemed immune to criticism,
regardless of the damage its neo- liberal policy impositions
inflicted around the globe. That immunity was finally torn away by
the East Asian financial crisis of 1997-98, when criticism of the
IMF's interventions came from all sides. A famous photograph of
long-time IMF Managing Director Michel Camdessus standing,
cross-armed, over Indonesian President Suharto as he signed the
papers for an IMF "bail-out" summed up the neo-colonial
"overlord" role that the IMF's critics had long charged it
with.
The Argentine crisis of 2001-02, where the IMF's
culpability in creating the crisis was generally acknowledged,
probably put the recuperation of the institution's reputation
permanently out of reach.
But the IMF continued to lurch along,
on "automatic pilot," under the unimaginative leadership of Horst
K?hler and Rodrigo Rato, Camdessus's successors. But since
2005, the IMF has suffered a rapid succession of blows, and seems
less like the haughty overlord of 1998 than a boxer staggering around
the ring trying to evade the knock-out punch. Presented here is a
timeline of some of the events of this turbulent period, starting in
June 2005 and running through March 2007.
1. JUNE 2005: THE
MDRI
After a decade of pushing by Jubilee campaigners and over a
year of wrangling among G7 leaders, the G7 finance ministers, meeting
in June 2005, announce that their countries would advocate – and,
given their domination of the voting structure at the IMF and World
Bank, secure – 100% cancellation of the debts claimed by the IMF
and World Bank of countries which completed the Heavily Indebted Poor
Countries (HIPC) debt initiative. That means 20 countries for
the IMF, a figure which has now increased to 24 as others have
graduated from HIPC.
This program, given the prosaic name of
Multilateral Debt Relief Initiative (MDRI), is still quite limited,
in that it applies to a small subset of the countries requiring such
cancellation: those which had submitted to at least six full years of
the IMF's destructive "sound policies." But it nonetheless sets
an important precedent – the elimination of virtually all
obligations to the IMF and World Bank. For the first time, countries
which have been under the policy domination of these institutions for
as much as 25 years could, potentially, opt out of any further
involvement with them.
The IMF still gets its money –
indeed, the MDRI enables it to collect on some of its most dubious
claims, in full, through the mechanism of trust funds set up by
wealthier countries and the World Bank. But after 25 years of
keeping almost 100 countries on a debt treadmill – structural
adjustment loans leading to more poverty and debt, leading to more
structural adjustment loans – the IMF has lost its leverage to
maintain that cycle with some of the most vulnerable ones.
Unfortunately, but perhaps predictably, given the infiltration of
finance ministries with former IMF and World Bank employees, few
countries avail themselves of this opportunity. Most already have
signed onto new, restrictive programs with the IMF and/or World Bank
by the time the MDRI is finalized. (see #3)
Simultaneously
with the MDRI, the IMF introduces a new program, formulated in tandem
with the debt-cancellation talks. Called the Policy Support
Instrument (PSI), it is designed to offer IMF oversight and "advice"
for countries that no longer need or want IMF loans. In other words,
a country that wants to declare itself free from the IMF – a
"graduation" the IMF could not overtly be seen as discouraging –
can still be pressured to submit itself to IMF rules. Although the
first PSI goes to a non-MDRI country, Nigeria, the PSI is clearly
designed for the new frontier the IMF faces: countries that can
declare their independence of IMF lending. Thus far only four
countries have signed up for the PSI – Nigeria, Cape Verde, Uganda,
and Tanzania, with only the latter two having benefited from the
MDRI. But Ghana is likely to go the PSI route, and several other
countries are considering it.
2. SEPTEMBER 2005: US ATTACKS
IMF
In a widely-discussed speech at the Institute for
International Economics in Washington, at the beginning of the
weekend of the IMF/WB annual meetings, US Under Secretary of the
Treasury for International Affairs Tim Adams, with IMF Managing
Director Rodrigo Rato in the audience, delivers a stinging critique
of the IMF. The speech attracts extra attention because the IMF is
usually seen as deeply influenced by US Treasury. Press articles
focus on Adams's declaration that the IMF is "perceived as being
asleep at the wheel on its most fundamental responsibility, exchange
rate surveillance," a thinly-veiled attempt to shift discontent
among US politicians with China's exchange rates from Treasury to
the IMF. But the speech also lays out in unusually clear terms
the need for re-balancing voting power on the IMF board – where the
status quo threatens the Fund's legitimacy — including a call for
consolidating the eight European seats into one. More importantly,
Adams zeroes in on the IMF's record in impoverished countries,
finding that "the IMF is not a development institution, and it is
clear that the IMF's financial involvement in low-income countries
has gone terribly awry." He calls for IDA, the World Bank's
facility for low-income country loans, to take on most of the work
currently being done by the IMF's Poverty Reduction and Growth
Facility (PRGF), and for the IMF to return to its original mandate of
making short-term loans to facilitate balance-of-payments
corrections.
Adams's speech in effect declares open season
on the IMF, with officials of other governments and independent
commentators taking up the theme that the IMF has lost its way, and
is in danger of becoming irrelevant.
3. DECEMBER, 2005: FAILED
ATTEMPT TO UNDERMINE THE MDRI
The MDRI announced by the G7
finance ministers in June required ratification at the board level of
both the World Bank and the IMF. IMF staff prepare
recommendations for its implementation. Those suggestions and the
discussion that ensued demonstrate just how threatening both the
staff and some members of the IMF board find the MDRI. Using
elaborate inferences, IMF staff construe the rather straightforward
declarations of the G7 to mean that it should devise a new set of
performance criteria before countries are awarded cancellation. Using
very imprecise gauges, the staff concludes that six of the initial 18
countries — – fully one-third — should have their benefits
delayed. Coincidentally, or quite possibly not, four of the five
countries which would not have an IMF program in force after getting
MDRI benefits fall on the list of six. (The other, Uganda, had
recently committed to become the second PSI client.) The IMF, it
seems, is willing to create new rules in order to preserve its
leverage.
The staff proposal receives support from
board members representing the non-G7 European countries, who are
apparently miffed at having the MDRI imposed on them. Some of those
board members went further than the staff recommendations, making
suggestions such as making the cancellation revocable at any time a
country deviated from IMF-approved policy behavior. Rapid
mobilization by civil society organizations, together with the
obstinacy of the US and UK, preserve the MDRI in its original form,
except for a delay for Mauritania (which turned out to be for six
months). The intensity of the board battle makes clear that this is a
significant defeat for the IMF – probably the most significant
rejection of established practice and the staff and management's
policy priorities in its history.
4. DECEMBER 13, 2005: BRAZIL
TO PAY OFF ALL IMF CLAIMS
After successfully concluding, and not
renewing, its IMF program in March 2005, the Brazilian government
makes the unanticipated announcement that it will pay the remaining
$15.5 billion claimed of it by the IMF before the end of 2005.
Civil society activists protest that the move amounts to depriving
Brazil of much-needed funds for social programs in order to pay what
should be considered illegitimate debt claims. But it does have the
effect of eliminating the IMF's leverage over Brazil.
Brazil
is not the first country to make a pre-emptive and complete payoff –
Thailand did so by paying $12 billion in August, 2003. But
Brazil's move sets off a chain reaction of other middle-income
countries taking the same step. This, together with the growing
recognition that East Asian countries are amassing unprecedented
currency reserves in order to guard against future vulnerability to
the IMF, intensifies the perception (and the reality) that the IMF is
facing a crisis of confidence, a crisis of identity, and a crisis of
finance.
5. DECEMBER 15, 2005: ARGENTINA TO PAY OFF ALL IMF
CLAIMS
Just as surprising as Brazil's announcement is
Argentina's two days later that it will pay the $9.8 billion the
IMF claims from it. Although civil society protested, as in Brazil,
there was widespread approval of the resulting independence from the
IMF. President Nestor Kirchner's administration had the most
contentious relationship with the IMF of any government, and in
announcing the pay-off, he reiterates his charge that the IMF is
responsible for the catastrophic collapse of the country's economy
in 2001 – a belief widely shared in Argentina and around Latin
America. While Kirchner's move adds to its crises of relevance and
legitimacy, and now solvency, there is also some relief felt at the
IMF since some had feared that the Argentina would choose to default
rather than repay its arrears.
6. FEBRUARY 2006: DEBATING THE
IMF'S FUTURE
The debate ignited by Tim Adams's speech in
September reaches new peaks, as a number of other top officials join
in the IMF-bashing. Mervyn King, the UK's central bank governor,
uses particularly strong language, warning the IMF risks "slipping
into obscurity." Adams again weighs in again on the exchange-rate
surveillance. Officials of the Canadian central bank jump into the
fray, as does South African central bank governor Tito Mboweni, who
slams the marginalization of African countries on the IMF board. Even
among the G7 officials, the diagnoses are not identical: King, for
instance, locates the IMF's problems in its "micro-managing"
board, a theme not picked up by others. Another critic suggests
merging the IMF and the OECD; others suggest merging it with the
World Bank. The most common suggestion is re-focusing the IMF from
lending operations in low- and middle- income countries to global
surveillance, with emphasis on the imbalances among the largest
economies. Pressure from the establishment for real change at
the IMF has probably never been greater.
7. MARCH 2006:
BOLIVIA TURNS ITS BACK ON THE IMF
Bolivia, under its new
President, Evo Morales, becomes the first country benefiting from the
MDRI to conclude its IMF arrangement and announce that it will not
enter into any new agreements with the institution.
8. APRIL
2006: A NEW ROLE FOR THE IMF?
At the semi-annual meetings of the
IMF and World Bank, the IMF releases official figures forecasting its
first loss in decades in 2007. Much discussion focuses on the reform
of voting power on the IMF board, with the G24 and other
developing-country blocs expressing dissatisfaction with the limited
proposal tabled by Rato, which would give four countries (Mexico,
Turkey, South Korea, and China) immediate quota increases, and
inaugurate a process to consider how to realign all the institution's
votes. New committees are created to explore the financial challenges
facing the IMF and the voting-rights debate.
But the proposal
winning the most attention is Rato's rather unexceptional one to
shift the IMF to a more active role in convening bilateral and
multilateral meetings among major economies to address serious
imbalances (meaning, in particular, China with its controversial
exchange rate and trade surplus, and the US with its massive
deficit). This "new mandate" to mediate global economic frictions
is greeted in extravagant terms by some of those who had been most
vocal with their criticisms. Tim Adams is very satisfied, and Mervyn
King is reported to be nearly ecstatic. But at the end of most
commentaries reporting on this development is the cautionary note: we
shall see if the big players really allow the IMF to play a mediating
role, and if the IMF will have the clout and imagination to pull it
off. Prescient concerns, since by the institutions' annual
meetings in September, this new mandate that was to revive the IMF is
hardly spoken of.
9. MAY 17, 2006: SERBIA PAYS OFF IMF
The
Serbian government announces that it will pay back $500 million lent
by the IMF, thus closing out all obligations to the institution (the
final payment is made in March 2007).
10. MAY 23, 2006:
INDONESIA ANNOUNCES PLAN TO PAY OFF IMF EARLY
The Indonesian
government announces that it will pay off all remaining IMF claims,
totaling $7.8 billion, within two years. That amount is the residue
of some $25 million the IMF lent Indonesia during the East Asian
financial crisis.
11. JUNE / JULY / AUGUST 2006: IMF
INSOLVENCY?
As the committee formed in April to consider
alternative funding mechanisms for an IMF that can no longer depend
on loan-repayment income goes about its work, reports emerge of the
depth of the shortfall, including a possible one-year loss of $100
million in 2007. For the first time, reductions in IMF staffing are
discussed. The idea of selling or revaluing some of the IMF's
massive gold stocks is broached – a move that was rejected as a
financing mechanism for debt cancellation in 2005. The US, whose
Congress must approve any change in the status of the Fund's gold,
signals that it will not support such action.
12. SEPTEMBER
2006: IMF & WORLD BANK MEET IN REPRESSIVE SINGAPORE
The IMF
and World Bank hold their 2006 annual meetings in Singapore despite
warnings that its history of suppressing civil liberties may impede
free discussion with civil society. And indeed, the Singapore
government bans dozens – probably over one hundred – individuals
from entering the country, including some 27 whom the institutions
had approved as civil society delegates to the official meetings. The
institutions issue statements distancing themselves from Singapore's
actions, and requesting that all delegates be allowed to attend. But
most press attention and commentary at the meetings is devoted to the
image of the IMF and World Bank taking cover in another repressive
country to hold their meetings (the 2003 meetings – the last time
they were held outside Washington – were in Dubai, UAE). The
release of a World Bank report on "doing business" that finds
Singapore is the top country in which to "do business" does not
help persuade anyone that the institutions are on the side of human
and civil rights.
13. AUGUST 2006: AFRICAN DIRECTORS PROTEST
IMF QUOTA REFORM PLAN
In a very unusual move, the three Executive
Directors representing African countries send a memo to a meeting of
African Finance Ministers in Maputo, Mozambique, informing them that
the quota reform proposal to be discussed at the annual meetings may
well result in Africa, already quite marginalized at the board,
actually seeing its voice reduced. The EDs signal that they will vote
against the proposal in its current form – again, very unusual –
and recommend that African countries oppose it at the annual meetings
if it has not been changed.
14. SEPTEMBER 2006: IMF QUOTA
REFORM TALKS CAUSE DISSENSION
The substantive discussion that gets
the most attention at the annual meetings is the proposal for changes
to the IMF board's voting structure. The proposal – largely
unchanged from April despite much discussion (see #8), is denounced
by a number of middle-income country governments who believe that the
promised "second step" of the reform will take much longer than
the promised year, and may never be completed. In an unusual step, a
formal vote is taken at the annual meetings, stretching over two
days. Over 20 countries oppose the resolution, including India,
Brazil, and Argentina, but their combined votes fall short of the 15%
of total votes required to prevent the resolution from passing.
(Unfortunately, African governments are mollified by promises that
the process will receive high-level attention, and most support the
proposal.) But the level of dissension at this level at the IMF is
rare, and reports indicate that the discussions (which are behind
closed doors) featured several governments, primarily Asian,
complaining that the proposal failed to outline any shift in the
IMF's role.
15. OCTOBER / NOVEMBER 2006: ECUADOR RESISTS IMF
PRESSURES
As it becomes clear that Rafael Correa might win the
November presidential elections (he does), concerns mount about his
outspoken opposition to IMF policies and interventions during his
brief stint as Finance Minister (a position he was forced to resign
due to World Bank pressure). On the campaign trail, Correa explicitly
threatens to repudiate Ecuador's external debts. But even before
the elections, in October, the Ecuadoran government publicly
denounces IMF pressure to stockpile foreign currency to pay off any
judgment against it in a case involving Occidental Petroleum, a US
company. After winning the presidential election, Correa refuses to
indicate whether Ecuador will make payments on its external debt. (As
of this writing, it appears that Ecuador is making payments, albeit
late ones, and perhaps not full ones.)
16. NOVEMBER 8, 2006:
URUGUAY TO REPAY IMF DEBT
The Uruguayan government announces it
will pay in full the IMF's claims on it, amounting to a little over
$1 billion, becoming the third country in the Mercosur bloc to escape
IMF influence.
17. DECEMBER 2006: NEW ROLE FOR IMF? NO
THANKS!
Commentators report that the IMF has had to downgrade the
talks it was trying to host among five major economic players (China,
the US, the "eurozone", Saudi Arabia, and Japan). The
participants were reportedly failing to sufficiently engage in the
discussions. So much for the big plans announced for a new IMF
mandate in April.
18. DECEMBER 28, 2006: PHILIPPINES TO PAY
OFF IMF AND EXIT ITS PROGRAMS
The Philippine government announces
that after paying the final $220 million the IMF claims of it, it
will not renew its IMF programs.
19. JANUARY 2007: IMF
PRESSURE ON UGANDA POVERTY PROGRAM EXPOSED
In a review under its
PSI program, the Ugandan government is told by the IMF that its
"Bonna Bagagawale" program – under which banks are encouraged
to make below-market-rate loans to small farmers – constitutes
"directed lending" and should be curtailed or re-designed. The
IMF's assertion of recent years that it is making reducing poverty
its top priority is called into question by this determination. And
any hopes that under the PSI the IMF would end its practice of
erecting obstacles to "pro-poor growth" are laid to rest.
20.
FEBRUARY 2007: MALAN REPORT CALLS FOR IMF TO STOP LENDING TO
LOW-INCOME COUNTRIES
A committee chaired by former Brazilian
Finance Minister Pedro Malan publishes its report on how the IMF and
World Bank can collaborate better. One of its highest-profile
suggestions is that the IMF, which it asserts is not equipped to
operate as a development institution, should stop making loans to
low-income countries, leaving that responsibility to the Bank.
The report also notes that the issue of "fiscal space" – the
IMF's insistence that low inflation targets must be maintained even
as they limit growth – has caused increasing friction between it
and the World Bank. Civil society groups have been targeting this
issue aggressively in the last two years, blaming IMF wage caps and
inflation targets for squelching health and education programs.
Unfortunately, the report endorses the continuing use of
"assessments" of low-income country economies by the IMF, and
explicitly supports the PSI.
21. MARCH 1, 2007: ARGENTINA
REFUSES TO RE-ENGAGE WITH IMF
Argentine President Nestor Kirchner
says that while Argentina intends to negotiate with and pays its debt
to the Paris Club of bilateral creditors, under no circumstances will
it enter into a new agreement with the IMF. Having an IMF
program is a pre-requisite for any debt reduction or rescheduling
from the Paris Club. The Paris Club has yet to signal whether it will
make an exception for Argentina.
22. MARCH 6, 2007: RUMORS
THAT TURKEY WILL PAY OFF IMF
The Turkish Daily News, citing
reports in business daily Referans, reports that the Turkish
government is considering paying off its entire $8.5 billion IMF debt
before November elections. If this happens, the big four IMF debtors
as of November 2005 will all have paid their debts early and set the
stage to free themselves from IMF oversight.
23. MARCH 2007:
CHAVEZ STEPS UP CAMPAIGN AGAINST IMF IN LATIN AMERICA
As US
President George W. Bush prepares to embark on a high-profile tour of
Latin America, Venezuelan President Hugo Chavez publicizes his
efforts to eliminate IMF influence in the region. Together with
Argentine President Kirchner, he announces that the new "Bank of
the South" will soon begin operations, allowing countries with
financial difficulties an alternative source of finance.
24.
MARCH 2007: INTERNAL REPORT FAULTS IMF PRACTICE IN AFRICA
A report
published by the IMF's own internal watchdog, the Independent
Evaluation Office (IEO) says that the IMF has failed to communicate
its policies accurately in Africa (saying it has "done little to
address poverty reduction and income distributional issues, despite
institutional rhetoric to the contrary"), has failed to keep
promises (e.g. of increased consultation with civil society), and has
resisted working to expand financing and aid possibilities for
African countries. In commenting on the "fiscal space" issue (see
#20), the IMF agency says that the Fund has "blocked the use of
available aid to SSA [sub-Saharan Africa] through overly conservative
macroeconomic programs."
25. MARCH 2007: ANGOLA
CANCELS CONSULTATIONS WITH IMF
The Angolan government confirms
reports that in February it canceled planned consultations with the
IMF. Finance Minister Jos? Pedro de Morais, himself a former
IMF Executive Director, says an IMF program "will not help Angola
to preserve the economic and social stability it has gained so far,"
and that the country wants to continue implementing its successful
macroeconomic program "without being subjected to restrictive
conditions." There are significant concerns that the Angolan
government may want to prevent investigations of high-level
corruption, and that the maneuver is only possible because of
Angola's enormous oil wealth and the generous aid those resources
have attracted from China. But Angola's announcement remains an
important precedent – very likely the first time an African
government has been in a position to refuse IMF engagement
altogether.
26. MARCH 28, 2007: IMF'S NEW ROLE A FLOP, JAPAN
CONFIRMS
Discussing the upcoming semi-annual meetings of the IMF,
Japanese officials say that no news can be expected from the IMF's
convening of economic powers to discuss global imbalances. Reuters
reports that "there has been scant evidence of progress in the
International Monetary Fund's multilateral consultation process on
global imbalances and Tokyo expects no big surprises at the
international meetings in mid-April in Washington."
*
Soren Ambrose is coordinator of the Africa Solidarity Network a
project of the Daughters of Mumbi Global Resource Centre, based in
Nairobi, Kenya. [email protected]
