STANDING UP TO THE I.M.F. / INTERNATIONAL HERALD TRIBUNE OP EDITORIAL ( VERY HIGHLY RECOMMENDED READING )

October 7, 2010

Standing Up to the I.M.F.

By MARK WEISBROT

As finance ministers, bankers and other interested parties from around the world flock to Washington for the semi-annual meetings of the International Monetary Fund and the World Bank, the fund is experiencing its most serious infighting in decades. The fight is over how to give more voice to governments representing the majority of the world’s people. Ironically, the quarrel is mostly between the United States and Europe.


Washington has had a veto and overwhelming influence over decision making ever since the I.M.F. was created in 1944, with Europe and Japan playing the role of subordinate partners. The borrowing countries — low- and middle-income countries who were often drastically affected by I.M.F. decisions — have had little or no say.


The decades-long struggle to change voting shares has so far produced only tiny results. Now the rich countries have agreed to shift possibly 5 percent of voting shares from rich to developing countries. But they can’t agree on who will give up some of their influence.


The struggle comes at a time when the fund’s power has increased exponentially in less than four years. Since 2007, the I.M.F. has tripled its resources from $250 billion to $750 billion, and is aiming for $1 trillion. It has also, for the first time in decades, extended its influence over macro-economic policy to some high-income countries — particularly the weaker economies of the euro zone, such as Greece, Spain, Portugal and Ireland.


The I.M.F. has also gained a lot of influence in Eastern Europe, where loans to countries such as Poland, Hungary, Ukraine and Latvia have shaped their post-crisis recovery — or in some cases, non-recovery. Although the fund is subordinate to the European Commission and European Central Bank in this area, the combined influence of the I.M.F. and European authorities has been overwhelmingly negative: The weaker euro-zone countries are adopting austerity policies that are pushing their economies back toward recession, while countries such as Latvia have suffered a world record loss of more than 25 percent of gross domestic product.


This has been the problem for at least 40 years: I.M.F. loans have carried conditions that too often inflicted unnecessary pain on borrowing countries. This includes not only the inappropriate, pro-cyclical macro-economic policies currently being implemented in Europe and in many other developing countries, but also I.M.F. conditions that have made it difficult or impossible for developing countries to pursue the strategies that made rich countries rich.


What to do? The shift of a few percentage points of voting shares or executive board seats is largely cosmetic. The disenfranchised countries representing most of the world aren’t using the power that they already have within the I.M.F. For comparison, look at what these countries have done in the World Trade Organization. W.T.O. rules are also stacked against developing countries. But at the 2003 ministerial meeting in Cancun, Mexico, a group led by Brazil and India decided that enough was enough, and the talks collapsed. The dynamic between the rich countries and the majority within the W.T.O. was permanently altered.


If a sizeable group of the world’s low- and middle-income countries got together and acted as a bloc within the I.M.F., they could make a difference, just as they did within the W.T.O. Although many middle-income countries — in Asia and Latin America as well as Russia — said goodbye to the I.M.F. after its dramatic policy errors of the late 1990s — they all, including even China, have a collective interest in fixing fund policy. It’s true that the W.T.O. formally operates by consensus, but in reality no one country blocks consensus. Similarly, the rich countries in the I.M.F. could not simply outvote the majority of the world if that majority were willing to put up a real fight. The fund’s legitimacy depends on the acquiescence of the majority within its membership. It is long past due for the excluded countries to either hang together at the I.M.F. — or to continue to hang separately.




Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington.