Twenty Questions on the IMF
by Robert Weissman
from the book
Democratizing the Global Economy
Kevin Danaher - editor
Common Courage Press 2001
1. What is the IMF's mission and how has it changed over time?
The International Monetary Fund (IMF) was created in 1944
to maintain the standard of fixed exchange rates that was established
at the end of World War II. Since the abandonment of the gold
standard in 1971, the IMF has adopted a new core mission, providing
loans to economically troubled countries.
Countries with balance of payment difficulties-meaning their
earnings from imports and other sources are insufficient to pay
off their foreign debts-turn to the IMF for two reasons. First,
the IMF provides loans to cover immediate obligations to foreign
creditors. Second, private lenders and other public lenders, such
as the World Bank, generally will not lend to troubled economies
unless they have a loan agreement with the IMF.
Thus the IMF plays a "gatekeeper" role: If you are
a poor, indebted country, you can't get access to foreign credit
unless you have a deal with the IMF. Agreements with the IMF typically
require countries to adopt "structural adjustment" policies
as the condition for a loan.
2. What is structural adjustment?
Structural adjustment is a policy package in line with what
is often called "neoliberalism," a far-reaching version
of the "free trade" agenda. In many ways, it is a harsh
version of Newt Gingrich's Contract with America.
The central goals of structural adjustment are to open up
countries to having transnational corporations get access to their
workers and natural resources, 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, liberalizing
trade and investment rules, raising interest rates, increasing
taxes, and eliminating subsidies on consumer items such as food,
fuel, and medicines.
3. What is the relationship between the IMF and World Bank?
How has that changed over time? Do their functions overlap?
The World Bank was also formed in 1944 to help with European
postwar reconstruction. It later shifted its focus to assisting
development efforts in the Third World. It has funded major infrastructure
projects: roads, hydroelectric dams, coal plants, and other major
investments that private capital would not initiate because they
are not profitable. These projects have been highly controversial
for their effect on the environment, indigenous people, rural
communities, and women.
Starting in the 1980s, and while continuing to do project
lending, the Bank began shifting its loans toward structural adjustment
and sectoral adjustment loans. About two-thirds of the Bank's
lending now goes for structural adjustment and sectoral adjustment.
The World Bank's structural adjustment programs are not appreciably
different than those of the IMF.
The IMF and World Bank jointly administer a program, now called
the Heavily Indebted Poor Country/Poverty Reduction and Growth
Fund, that provides very modest debt relief to the world's poorest
countries on the condition that they undergo years of structural
The World Bank respects the IMF's unofficial gatekeeper role,
and generally will not make loans to countries that have not received
an IMF seal of approval.
4. What is the IMF's and the World Bank's relationship to
the World Trade Organization (WTO)?
The IMF, World Bank and the WTO all share a commitment to
"free trade" and binding developing countries into the
global economy. The WTO, which implements agreements governing
world trade and administers a binding mechanism to resolve trade
disputes between nations, generally operates independently of
the IMF and World Bank.
In November 1999, however, the IMF, the World Bank and the
WTO announced a new "coherence agreement" in which they
pledged to coordinate future activity. It is unclear what this
will mean in practice, but some fear the IMF and World Bank may
incorporate some of the worst elements of WTO agreements into
their lending conditions.
5. How does the IMF set its policies?
The IMF is governed primarily by an executive board that consists
of representatives of IMF member countries, with voting weighted
in favor of those countries that provide more money to the Fund.
The executive board sets broad policy and approves loans. The
agency's bureaucracy handles the massive, day-today operations
and exerts a strong, de facto influence over policy.
Voting at the IMF is weighted, with bigger contributing countries
having proportionally more say. The United States-the largest
shareholder at the IMF with more than 17 percent of the votes-maintains
effective veto power over major decisions at the Fund. In practice,
the U.S. Treasury Department exercises overwhelming control at
the IMF; The New York Times has referred to the IMF as a "proxy
for the United States."
6. How open is the IMF to outside scrutiny and participation?
Although "transparency" (openness) is a favorite
buzzword in development circles, the IMF is extremely secretive
in its operations. In recent years, as criticism of the IMF's
secrecy has grown in developing countries, the IMF has made public
"Policy Framework Papers"-the documents establishing
the parameters of structural adjustment programs in specific countries-and
some other important materials. These are all papers that a few
years ago the IMF said it could not make public out of respect
for the sovereignty of the countries they affected. Meanwhile,
other critical documents remain secret.
Although the IMF assumes a dominating role in economies undergoing
structural adjustment-with IMF officials often posted in national
finance departments-precise IMF demands are concealed from the
affected populations. As a general matter, the IMF does not seek
public input into the policies it imposes on borrowing countries.
7. Given that the U.S. taxpayer contributes large amounts
of money to the IMF, what kind of oversight of the IMF is provided
by Congress or other agencies?
The IMF is generally viewed as following a policy line set
by the U.S. Treasury Department. Congressional efforts to influence
policy at the Fund have generally failed. Congress has directed
the U.S. Executive Director to the IMF to use "voice and
vote" to push for certain reforms, but this has had virtually
no effect on IMF policy. Almost all decisions at the IMF are reached
by consensus, and recorded votes are rarely taken. The U.S. Executive
Director to the IMF, Karen Lissakers, told a Congressional committee
in 1998 that the Fund's executive board had taken votes on approximately
a dozen out of 2,000 decisions taken during her tenure. The only
time Congress has affected IMF policy is when it refused to provide
requested funding increases.
8. How do IMF policies benefit transnational corporations?
Structural adjustment policies open up developing countries
to foreign investors on terms most favorable to transnational
corporations. Structural adjustment requires countries to remove
barriers to foreign investment, and push countries to orient their
economies to producing exports-typically produced by or sold to
transnational companies. State-owned enterprises privatized under
structural adjustment are frequently sold to transnationals, often
at bargain-basement prices.
IMF-orchestrated bailouts-assistance to countries whose exchange
rates are plummeting-provide money primarily so that developing
countries can pay off their foreign creditors (including private
banks). Many critics view these bailouts as bailouts of the creditors
who don't absorb the cost of risky loans gone bad.
This particular kind of corporate welfare can have especially
pernicious effects, since it may encourage excessively risky lending
by bankers and others. If they know they have free, de facto insurance
from the IMF, they can make very risky loans at high interest
rates without fear of paying for failures.
9. What is the IMF's approach to helping countries that are
deeply in debt?
The IMF program for helping poor countries that are deep in
debt was, until recently, called the Enhanced Structural Adjustment
Facility (ESAF). In 1999, under fire for a program poorly run,
the Fund changed the name to Poverty Reduction and Growth Facility
(PRGF). This program is operated in conjunction with the World
Bank's Heavily Indebted Poor Country (HIPC) Initiative.
The purpose of PRGF/HIPC is to provide some debt relief- that
is, to cancel part of the debts-for poor countries that have no
hope of paying back their total foreign debt and for whom debt
payments are draining their economy.
However, the debt relief under PRGF/HIPC is very modest. Under
the plan, many countries find that while the absolute amount of
their debt may decline, the amounts they actually pay are only
minimally affected. That is because many poor countries cannot
make their debt payments, and, often with the agreement of their
creditors, they pay just a portion of what they owe.
Compounding the problem, the price of receiving debt relief
under the PRGF/HIPC program is to implement a supervised structural
adjustment program for three years (previously six years) prior
to receiving any debt relief.
10. What would the alternative be?
An alternative would call for immediate debt cancellation
of the debts of the poorest countries and far-reaching debt cancellation
for other developing countries. For less poor countries, debt
cancellation could focus on "odious" debt-debt incurred
by dictators, military regimes or for boondoggle projects pushed
by foreign interests. This cancellation would come without any
structural adjustment conditions.
Many economic justice advocates from developing countries
urge conditions related to the establishment of democracy, or
a commitment to devote resources to meeting the basic needs of
the poorest segments of society.
In the case of the poorest nations, debts could be cancelled
by drawing on the existing resources of the IMF and World Bank,
that is, without rich countries providing these institutions with
any new funding.
Beyond approaches to debt cancellation, many in the developing
world are also calling for an alternative approach to economic
development. One of the demands arising from grassroots movements
is respect for a diversity of national approaches, so there would
be no "blueprint" for development to parallel the IMF's
cookie-cutter structural adjustment policies. But there is growing
agreement about the importance of a number of principles: national
food security, land reform, devoting attention to production for
local needs, an emphasis on egalitarian wealth distribution, emphasizing
smaller enterprises, empowering workers and respecting worker
rights, imposing regulations on foreign capital to limit a country's
exposure to volatile international capital markets, involving
civil society in development planning, and preserving a substantial
role for government in planning, regulating, and carrying out
11. What are the economic and social impacts of structural
Structural adjustment has been successful at its goal of reducing
the scope of government and integrating developing countries into
the global economy. Yet it has failed by many other measures.
Most countries undergoing structural adjustment have not experienced
economic growth, even in the medium term.
Those developing countries that have experienced the greatest
economic successes in recent decades have violated many of the
central precepts of structural adjustment. They have protected
certain parts of their economy, and they have maintained an active
government role in economic planning.
An external review of ESAF programs sponsored by the IMF illustrated
the basic failure of structural adjustment. Countries undergoing
ESAF-sponsored structural adjustment experienced stagnating growth
rates and saw their foreign debt nearly double: dramatic evidence
of failure, since reducing foreign debt is one of ESAF's ostensible
In the two regions with the most structural adjustment experience
(Latin America and Africa), per capita income has stagnated in
Latin America, and collapsed in Africa, where per capita income
dropped more than 20 percent between 1980 and 1997.
The emphasis on exports tends to be socially disruptive, especially
in rural areas. Poor subsistence farmers frequently find their
economic activity described as nonproductive, and they experience
land pressures from expanding agribusiness, timber companies,
and mines. Pushed off their land, they frequently join the ranks
of the urban unemployed, or move onto previously unsettled, and
often environmentally fragile, lands.
Structural adjustment has generally contributed to rising
income and wealth inequality in the developing world, a fact tacitly
acknowledged by both recently retired IMF Managing Director Michel
Camdessus and World Bank President James Wolfensohn.
12. How did the Asian financial crisis of 1997 start and what
was the IMF* response?
The Asian meltdown was caused in large part by a heavy reliance
on short-term foreign loans by South Korea, Thailand, the Philippines,
Malaysia, and Indonesia. When it became apparent that private
enterprises in those nations would not be able to meet their payment
obligations, international currency markets panicked. Currency
traders converted their Asian money into dollars, and the Asian
currencies plummeted. That made it harder for the Asian countries
to pay their loans, and it made imports suddenly very expensive.
There were other underlying causes for the financial crisis,
including over-investment in real estate and other speculative
and unnecessary ventures, but almost everyone agrees that the
currency crash and financial disaster were vastly disproportionate
to the weaknesses in the Asian economies.
The IMF treated the Asian financial crisis like other situations
where countries could not meet their balance of payment obligations.
The Fund made loan arrangements to enable countries to meet foreign
debt payments (largely to private banks in these cases) on the
condition that the recipient countries adopt structural adjustment
But the Asian crisis differed from the normal situation of
countries with difficulties paying off foreign loans. For example,
the Asian governments were generally not running budget deficits.
Yet the Fund instructed them to cut spending: a recessionary policy
that deepened the economic slowdown.
The Fund failed to manage an orderly roll-over of short-term
loans to long-term loans, which was most needed, and it forced
governments, including those in South Korea and Indonesia, to
guarantee private debts owed to foreign creditors.
In retrospect, even the IMF admits that it made things worse
in Asia. Malaysia stood out as a country that refused IMF assistance
and advice. Instead of further opening its economy, Malaysia imposed
capital controls, and sought to eliminate speculative trading
in its currency. While the IMF mocked this approach when adopted,
the Fund later admitted that it had succeeded. Malaysia generally
suffered less severe economic problems than the other countries
embroiled in the Asian financial crisis, and rebounded faster
from its recession.
13. Did the 1997-1998 global financial crisis lead to a shift
in the debate surrounding structural adjustment policies in the
The IMF's structural adjustment prescriptions for countries
suffering through the Asian financial crisis were roundly denounced,
including by many conservative and mainstream economists and opinion
makers. The widespread criticism of the Fund undermined its political
The IMF response has been to make some minor concessions in
making its documents more publicly available, increasing its rhetorical
commitment to poverty in its structural adjustment programs, and
by limiting its demands that countries liberalize their capital
markets (e.g., by allowing unlimited trading in their currency,
and permitting foreign investors to invest in domestic stocks
and bonds without restriction).
14. What were the consequences of the Asian financial crisis
in countries like Thailand and Indonesia? Did IMF policies help
The financial crisis led to massive human suffering. In South
Korea, a country whose income was approaching European levels,
unemployment skyrocketed from approximately 3 percent to 10 percent.
"IMF suicides" became common among workers who lost
their jobs and dignity.
In Indonesia, the worst hit country, poverty rates rose from
an official level of 11 percent before the crisis to 40 to 60
percent in varying estimates. Gross Domestic Product (GDP) declined
by 15 percent in one year. In September 1998, UNICEF reported
that more than half the children under two years old in Java,
Indonesia's most populous island, were suffering from malnutrition.
At one point, the food shortage became so severe that then-President
B.J. Habibie implored citizens to fast twice a week. Many had
IMF-mandated reductions in government spending worsened the
Asian recession. The forced elimination of price controls and
government subsidies for the poor imposed enormous costs on the
lowest income strata. In Indonesia, food and gasoline prices rose
25 to 75 percent overnight or in the course of a few days.
An October 2000 study by 25-year veteran IMF economist Morris
Goldstein found that "both the scope and the depth of the
Fund's conditions were excessive." Goldstein concluded that
his fellow policymakers at the IMF "clearly strayed outside
their area of expertise."
15. What has been the IMF's role in Russia?
Russia in the 1990s has witnessed a peacetime economic depression
of unprecedented scale. Much of the blame for this social and
economic catastrophe rests with the IMF, which has had a central
role in designing and supervising Russia's economic policy since
The number of Russians in poverty has risen from 2 million
to 60 million since the IMF came to post-Communist Russia. Male
life expectancy has dropped sharply from 65 years to 57. Economic
output is down by at least 40 percent.
The IMF's "shock therapy"-sudden and intense structural
adjustment-helped bring about this disaster.
"In retrospect, it's hard to see what could have been
done wrong that wasn't," Mark Weisbrot of the Center for
Economic and Policy Research told a Congressional committee in
late 1998. "First there was an immediate decontrol of prices.
Given the monopoly structure of the economy, as well as the large
amount of cash savings accumulated by Russian households, inflation
soared 520 percent in the first three months. Millions of people
saw their savings and pensions reduced to crumbs."
Then the IMF and Russian policymakers compounded their mistakes,
Weisbrot explained. "In order to push inflation down, the
authorities slammed on the monetary and fiscal brakes, bringing
about a depression. Privatization was carried out in a way that
enriched a small class of people, while the average person's income
fell by about half within four years."
Meanwhile, Russia kept its economy functioning with an influx
of foreign funds, loaned at astronomically high interest rates
because of the strong possibility of default. In 1998, with the
Asian crisis still unfolding and with Russian default seemingly
near, the IMF agreed to a $23 billion loan package to Russia,
seeking to maintain the ruble's overvalued exchange rate. An initial
$4.8 billion portion of the loan left Russia immediately- some
used to pay off foreign lenders, much of it stolen by Russian
politicians. Soon after, the ruble collapsed anyway.
For the IMF, the prospect of Russia deciding to continue not
to repay loans was extremely worrisome. To avert this problem,
the Fund continued its loan program, but its loans to Russia didn't
actually go to Russia; IMF money disbursed to Russia was and is
held at the IMF to pay off prior IMF loans to Russia.
Does the IMF think it made fundamental mistakes in Russia?
No. From the IMF's perspective, the problem has been not enough
IMF-style reform. Here's how former IMF Managing Director Michel
Camdessus put it in September 1999: "[Russia's economic]
shortcomings represent not so much the failure of reform as the
effects of 70 years of central planning and the incomplete implementation
of reform policies-itself a result of a lack of domestic political
consensus on reform."
16. How do IMF programs affect workers?
As outgoing World Bank economist Joseph Stiglitz says, the
IMF views labor as just another commodity. One IMF priority has
been promoting "labor flexibility," meaning making it
easier for workers to be fired. The Fund has supported regulatory
changes to remove restrictions on government and private employers
firing or laying off workers.
The IMF has actively promoted government downsizing, even
though in many countries the government is the major employer
and there are few prospects for alternative employment.
The IMF also views many worker benefits as too costly (if
they are provided by the government) or too inefficient (if required
of private employers). It has urged major scaling back of government
pension programs around the world.
The IMF has also called for reducing minimum wages in countries
such as Haiti. Respect for the workers' right to organize is not
included in the structural adjustment policy package.
17. To what extent do IMF / World Bank structural adjustment
policies incorporate environmental considerations? How do structural
adjustment policies impact the environment?
"The IMF claims to defer to the World Bank on environmental
matters, but promotes export-led development that has major environmental
impacts without asking the World Bank for any formal assessment
of the environmental implications of its approach," explains
Friends of the Earth in a recent report, IMF: Selling the Environment
"The World Bank has failed to provide environmental guidance
to the IMF, and is even delinquent in assessing the environmental
impacts of its own structural adjustment loans," Friends
of the Earth concludes. "A recent internal World Bank study
found that fewer than 20 percent of World Bank adjustment loans
included any environmental assessment."
But the failure to consider environmental implications does
not mean there aren't any. Here is how Friends of the Earth summarizes
the effects of structural adjustment on the environment: "The
IMF's economic policies affect the environment in various ways.
One major goal of structural adjustment programs (SAPs) and stabilization
programs is to generate foreign exchange through a positive trade
balance. To meet the IMF's ambitious targets for currency reserves
and trade balance, countries must quickly generate foreign exchange,
often turning to their natural resource base. Countries often
overexploit their resources through unsustainable forestry, mining
and agricultural practices that generate pollution and environmental
destruction, and ultimately threaten future exchange earnings."
"Exports of natural resources have increased at astonishing
rates in many countries under IMF adjustment programs, with no
consideration of the environmental sustainability of this approach.
Furthermore, the IMF's policies often promote price-sensitive
raw resource exports, rather than finished products. Finished
products would capture more added value, employ more people in
different enterprises, help diversify the economy, and disseminate
"Structural adjustment and stabilization also aim to
generate positive government budget balances. In the effort to
rapidly trim budget deficits, governments are forced to make choices,
and inevitably, the environment loses. Lower spending weakens
a government's ability to enforce environmental laws, and diminishes
efforts to promote conservation. In addition, governments are
told to increase private investment and to reduce the role of
the state in favor of private sector development. Budget priorities
are often directed toward business promotion, creating a further
strain on cash-strapped environmental enforcement agencies. Governments
may also relax environmental regulations to meet structural adjustment
program objectives of increasing foreign investment, as occurred
in the case of the Philippines."
As an example of how IMF-mandated budget cuts hurt the environment,
Friends of the Earth points to the Brazilian Amazon: "Because
of IMF budget restrictions, as of July 1999, funding for the enforcement
of environmental regulations and supervision programs was reduced
by over 50 percent."
18. What is the Meltzer Commission and what did it say?
The Meltzer Commission, formally known as the International
Financial Advisory Commission to the U.S. Congress, was created
by the 1998 U.S. legislation that allocated an additional $18
billion to the IMF. The Commission was charged with reviewing
the operations of the IMF and World Bank, and making recommendations
for changes in the international financial institutions. The Commission,
which included both Republican and Democratic appointees, unanimously
agreed on two points: the debts of the forty-one most indebted
and impoverished countries should be cancelled; and the IMF should
get out of the business of long-term development lending.
Commission members split over how severely the IMF's functions
should be limited (with most Democratic members aiming to preserve
a broader role for the IMF), and over proposed changes for the
World Bank. Eight of the eleven Commission members supported a
proposal to change the World Bank to the World Development Agency,
to eliminate the Bank's lending function, replace Bank loans with
grants, and generally to shrink the size of the Bank.
19. Given the international nature of markets, does structural
adjustment indirectly affect the U.S. economy even if the United
States is not directly forced to structure our economy in response
to IMF guidelines?
Structural adjustment in poor countries and trickle-down economics
in richer countries such as the United States reinforce one another.
Just as structural adjustment carries the U.S. system of privatized,
fee-for-service health care to the Third World, those seeking
to privatize the U.S. social security system point to Chile's
social security system as a model.
More concretely, structural adjustment forces developing countries
to orient their economies to produce exports. The primary target
for those exports is the United States, and secondarily, other
rich countries. The IMF and World Bank economic programs do not
support regional trade.
The IMF model of unregulated global economic integration places
countries in competition with each other to produce goods with
the lowest possible wage bill. That puts downward pressure on
wages in all countries, including countries such as the United
States (particularly in markets like steel and textiles that are
produced in both rich and poor countries).
20. What should Congress do to reform / abolish the IMF /
World Bank? What could the IMF do to promote sustainable development?
Were the IMF actually concerned about sustainable development,
there are various policy measures it could promote. Friends of
the Earth has called on the IMF to emphasize ecological taxes
rather than value-added taxes, among other measures.
Some organizations, including some members of the Jubilee
2000 coalition in the United States, have called on the IMF to
pay more attention to poverty and the effect of its lending on
the poor. They place hope in the IMF's newly stated commitment
to address poverty in its lending practices, and hope that the
renaming of the Economic Structural Adjustment Facility-now the
Poverty Reduction and Growth Facility-will signal more than just
a name change.
Others, however, believe the IMF is irredeemable. They believe
the emphasis should not be on pushing the IMF to adopt better
policies, but on finding ways to shrink the IMF's influence and
power, so it has less say over developing country policies. This
group is loathe to support more funding for the IMF, even funding
that is supposed to be allocated for debt relief. Instead, they
say, the IMF should draw on its existing resources to enact immediate
debt cancellation for the poorest countries. And, if the Fund
is to continue at all, they call on IMF lending to be delinked
from structural adjustment conditions.
There is growing support for the idea of limiting the IMF's
reach. Even U.S. Treasury Secretary Lawrence Summers has urged
that the Fund be restructured so that it cease engaging in long-term
development lending-the sort of lending done to the poorest countries,
invariably with structural adjustment conditions attached. The
Meltzer Commission echoed this position, as has the head of the
German central bank.
the Global Economy
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