The IMF on the Run
The International Monetary Fund Tries to Outrun
by Robert Weissman
Multinational Monitor magazine, April 2000
Fro Two decades the International Monetary Fund (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.
Now, for the first time, the Fund faces a real challenge to
its continued existence, at least in its current form. So far,
the IMF has been extraordinarily successful in turning the growing
momentum against it to its own advantage.
The sources of the IMF's power lie in its funding from rich
countries and its "gatekeeper" role-the refusal of other
creditors, public and private, to make loans to developing countries
unless they earn an IMF seal of approval. The price of that seal
of approval is adherence to a structural adjustment program.
The greatest threats to IMF authority are denial of new funding
from the rich countries, and removal of its gatekeeper role. Such
opposition to the Fund is now percolating, especially in the United
States. The IMF strategy is to rush to get the last bit of money
it now wants from the U.S. Congress before those threats reach
the boiling stage, and to jealously guard its prerogative to impose
structural adjustment on the poor nations.
The origins of the IMF's gatekeeper role lie in the Third
World "debt crisis" of the 1980s. In the 1970s, commercial
banks made large loans to developing countries- much of it directed
to dictators and military regimes that wasted the monies on boondoggles,
corruption and military expenditures. Heavily indebted countries
suddenly found themselves drained of the money to make interest
payments when oil prices spiked in 1979. Then, in the early 1980s,
the sharp rise in interest rates engineered by Paul Volcker, the
then-U.S. Federal Reserve chair, sent their interest charges soaring.
Many Third World nations were simply unable to make their
loan payments-a problem for both the commercial lenders and the
Following various financial rearrangements, however, the commercial
banks emerged from the crisis in the mid-to-late 1980s. The banks
wrote down their loans to developing countries, had loans effectively
assumed by public institutions and otherwise lessened their outstanding
But the crisis never ended for most developing countries.
Most of the developing world continues to be burdened by extraordinarily
high debt levels-with countries routinely owing more in annual
foreign debt payments than they allocate to education or health
care spending. Even so, they can avoid default only with continual
refinancing-which is where the IMF comes into the picture.
The world's public and private lenders alike generally refuse
to lend to countries unless the IMF certifies their economy is
being restructured and maintained soundly. The IMF definition
of sound maintenance is adherence to the policy package of structural
adjustment austerity measures.
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.
ASIAN CRISIS: "A BLESSING IN DISGUISE"
Despite the IMF's advancement of the corporate agenda in the
developing countries, there remained a residual opposition to
the institution in elite circles, especially among conservatives
in the United States. Many conservatives generally opposed the
idea of international institutions. Growth-oriented conservatives
opposed particular elements of structural adjustment, such as
the recessionary tax and fiscal policy demands.
IMF bungling of the 1997-1998 Asian financial crisis finally
sparked widespread criticism of the Fund in the industrialized
As people like Harvard economist Jeffrey Sachs pointed out,
whatever the problems of the Asian economies, it is clear that
the problem was not profligate governments-yet the IMF imposed
its standard budget-cutting demands nonetheless. In countries
whose currencies were under speculative attack, IMF-ordered removal
of price controls led to sudden rises of food and fuel prices,
exacerbating economic hardship and causing avoidable malnutrition
and suffering. And many commentators pointed to the IMF's support
for capital account liberalization (removal of currency trading
and other financial regulations) as an immediate cause of the
In early 1998, the IMF admitted in internal documents that
it had made the financial crisis worse.
But this acknowledged mishandling did not lead the IMF to
scale back its operations. To the contrary, it sought to use the
crisis to expand its power.
Then-IMF Managing Director Michel Camdessus repeatedly referred
to the crisis "as a blessing in disguise," because it
would enable the Fund to impose conditions on Asian countries,
and force them to reduce the role of government intervention in
And the IMF's backers in the U.S. Treasury used the crisis
to lobby for an additional $18 billion U.S. contribution to the
Fund (as part of an overall $90 billion increase in funds). Republicans
in the U.S. House of Representatives were highly skeptical of
the request, and at one point voted it down. Although the vote
represented partisan maneuvering to some considerable degree,
it also evidenced widespread Republican opposition to the IMF.
The Clinton administration was able to win support for the
IMF later in 1998, however, negotiating for its inclusion in an
"omnibus" spending bill (a bill covering funding for
many government agencies and programs, and effectively not open
to amendment). The administration's successful negotiations depended
in significant part on the strong support of Congressional liberals
who acknowledged some of the problems of structural adjustment
but argued, as Representative Nancy Pelosi, D-California, said,
that "you don't turn off the hydrant when the house is burning
A few dozen Congressional progressives-led by Representatives
Bernie Sanders, I-Vermont, Dennis Kucinich, D-Ohio, and Peter
Defazio, D-Oregon-responded in effect that the IMF was adding
fuel to the fire-making the problem worse-not working to put it
out. They were unable to overcome the fear implanted by the Treasury
Department that denying the IMF risked exacerbating the financial
crisis, however, and the IMF funding was approved.
DEBT RELIEF, IMF RELIEF
new challenge to the IMF gained steam in 1999. Founded in
1996, a worldwide movement led by church groups and including
development organizations and many others demanded "jubilee"-debt
forgiveness-for the poor countries of the world.
The worldwide Jubilee 2000 movement succeeded in forcing debt
relief onto the agenda of the rich countries. Prodded by Jubilee,
many rich countries entered into what became a bidding war to
forgive the poorest countries' bilateral debt (debt owed to governments
by other governments).
At the G-8 meeting in Cologne, Germany, the rich countries
also agreed to provide more debt relief through the IMF and World
Bank's program of debt forgiveness. Originally, the program identified
heavily indebted poor countries (HIPCs) based on a set formula,
and then offered partial debt forgiveness to those who complete
six years of structural adjustment. At Cologne, the rich countries
agreed to send additional money to the IMF and World Bank so that
the IMF's Enhanced Structural Adjustment Facility (ESAF) and the
World Bank's HIPC program would provide more generous debt relief.
Combined with pledges for bilateral debt relief, the Cologne initiative
promised an additional $45 billion for poor country debt relief.
Some Jubilee members greeted the announcement with cautious
approval, congratulating the rich country leaders, while urging
them to do more.
"We urge the leaders not to think their work is done.
Instead they must step up the pace," said Carole Collins,
then-national coordinator of Jubilee 2000 USA.
Other Jubilee campaigners denounced the Cologne initiative
as both completely inadequate and harmful - a "cruel hoax,"
in the words of Jubilee South, a network of Jubilee coalitions
in developing countries.
Although the $45 billion seemed like a large amount, in practice
the Cologne initiative would only result in 16 countries making
significantly smaller debt payments.
A large portion of the debt forgiveness would apply to loans
that had already effectively been written off by lenders, but
were still on the books as obligations of the poor country borrowers.
As Joe Hanlon, a Jubilee 2000 analyst, noted, "Of the
$207 billion HIPC country debt, approximately $100 billion is
not being serviced-mainly with the agreement of the IMF and World
Bank as most of these countries have
Bank and Fund programs. This means the Bank and Fund have
already admitted that this money will never be paid. So the $100
billion now on offer is only equivalent to the money that it is
already accepted will never be paid-in effect this much debt can
be written off without real cost since it would never have been
Moreover, Cologne stipulated that much of the money for debt
forgiveness would be channeled through the IMF and World Bank-and
made available only to poor countries which enacted closely monitored
structural adjustment programs.
"Increased debt cancellation has been won only at the
price of increasing the power of the IMF," Hanlon noted.
"Debt reduction is even more strictly linked to ESAF, and
the IMF and World Bank have been given the power to impose additional
conditions on 'poverty alleviation.' The words 'adjustment,' 'reform,'
'sound policies' and 'good governance' are liberally sprinkled
through the documents."
The division in the Jubilee movement was mirrored in the United
States [see "Against IMF Realism," this issue]. The
Jubilee 2000 USA coalition lobbied in Congress on behalf of legislation
that would provide funding to the IMF for enactment of the Cologne
debt forgiveness. Other organizations, including the 50 Years
is Enough Network, Results and Essential Action (a project of
Essential Information, the publisher of Multinational Monitor),
opposed the legislation, urging instead that the IMF be required
to fund debt relief -without structural adjustment conditions-out
of its existing resources. Again, the funding was included in
a rushed end-of-the-year omnibus appropriations bill.
There was little question about how the IMF itself viewed
Cologne-style debt relief. Then - IMF Managing Director Michel
Camdessus greeted debt relief proposals with glee. More debt relief,
he explained in April 1999, meant more structural adjustment.
"My personal inclination, I tell you very frankly, would
be for broadening the list [of country beneficiaries of debt forgiveness],
" Camdessus said at a news conference. "Having in mind
that debt alleviation can be a powerful incentive to economic
reform and economic progress, then the more countries going for
economic reform and progress and benefitting from debt alleviation,
the better for the global community. I insist on that."
"If we have learned one thing about debt relief,"
he added, "it is not so much that the amount of debt reduction
matters-of course, it matters a lot. But what matters even more
is the quality and duration of the economic effort that must support
the debt relief and create change for the better. This, of course,
carries a message about the way in which money should be spent
on debt relief. It must be in a way that creates incentives for
countries to continue to persevere with adjustment and reform.
And we must be inventive for that. "
THE POVERTY OF IMF RHETORIC
Unfortunately for the IMF, the U.S. legislation did not include
all of the funding it sought. The new IMF monies for debt relief
came from a complicated scheme for re-valuing gold held by the
IMF. The U.S. Congress, which had to authorize the scheme, permitted
revaluation only of nine-fourteenths of the gold. Authorization
of the final portion was deferred until 2000, keeping the issue
alive in Congress for another year.
The IMF again became a focus of Congressional attention in
March, when the Meltzer Commission, the informal name of the International
Financial Institutions Advisory Commission, released a blockbuster
report. The 1998 legislation providing the $18 billion to the
IMF created the Meltzer Commission, and charged it with making
recommendations on the IMF, the World Bank and the regional development
banks. Republicans and Democrats separately appointed members
to the commission, with Republican members outnumbering Democrats
because of the Republican majority in Congress.
The final committee report split along party lines, but the
commission unanimously agreed on two critical points: the IMF
and World Bank should use their existing resources to cancel the
debts of the HIPC countries, and the IMF should be phased out
of long-term development lending, the kind to which structural
adjustment conditions are most routinely attached.
The recommendation to phase the IMF out of long-term lending
followed a similar recommendation by U.S. Treasury Secretary Lawrence
Summers earlier in the year.
Despite the resonance with Summers' previous recommendation,
the Treasury Department along with some Congressional Democrats
sought to discredit the report. The report included very far-reaching
recommendations, including an end to World Bank lending and replacement
of Bank loans with aid; and a requirement of "pre-qualification"
for loans from the IMF, which should only be made as a last resort
and at penalty rates (with higher interest rates, to discourage
borrowing). Treasury and the Democratic group tried to portray
the report as extremist, isolationist and oblivious to the needs
of the poor.
By and large, this effort failed. Mainstream commentators
-including the editorial pages of the New York Times and Washington
Post-took the report seriously, finding its recommendations worthy
of careful consideration,. That in turn has given more steam to
Congressional Republicans, along with many progressive Democrats,
who are using the Meltzer Commission to urge far-reaching changes
in the way the IMF does business.
Meanwhile, the Jubilee movement has continued to grow in strength,
with calls for debt relief growing louder. The IMF response to
both the demand for debt relief and calls for downsizing the IMF
has been to reposition itself as a poverty-fighting institution.
It changed the name of the Enhanced Structural Adjustment Facility
to the Poverty Reduction and Growth Facility.
In February 2000, in his final public speech before leaving
the managing director position, Michel Camdessus told the UN Conference
on Trade and Development (UNCTAD) at a Bangkok meeting that, "Poverty
is the ultimate systemic threat facing humanity.... The widening
gaps between rich and poor within nations and the gulf between
affluent and impoverished nations, are morally outrageous, economically
wasteful and potentially socially explosive. It is not enough
to increase the size of the cake. The way it is shared is deeply
relevant. If the poor are left hopeless, poverty will undermine
societies through confrontation, violence and civil disorder.
We cannot afford to ignore poverty anywhere."
At the same time as it rushed to embrace the "poverty
alleviation" mantle, the IMF also maneuvered to make sure
that debt relief demands did not infringe on its authority to
impose structural adjustment.
"Debt relief is, can be and should be an element in a
strategy to secure global growth and to fight poverty," said
the presumptive IMF managing director-to-be, Horst Kohler at his
first IMF news conference in March.
"But debt relief or debt reduction without growth, macroeconomic
stability and structural reforms makes no sense," he stated.
"I have a bit of a concern that this discussion about debt
relief and debt reduction is not strongly enough combined, with
reforms, with macroeconomic stability."
NEW MOMENTUM AGAINST THE FUND
In the United States, the short-term debate on IMF policy
turns on whether the IMF should be authorized to re-value the
remaining five-fourteenths of its gold reserves, an authorization
that may be linked with funding for the World Bank's HIPC debt
Jubilee 2000 USA campaigners are actively advocating for the
HIPC funding. Other economic justice organizations are echoing
the Meltzer Commission call for the IMF and World Bank to fund
debt relief out of their existing resources, and demanding a de-linking
of debt relief from structural adjustment.
At press time, it appears possible that the Clinton administration
will manage to insert the gold revaluation authorization and HIPC
funding into a House-Senate conference supplemental appropriations
bill-another maneuver to circumvent Congressional opposition.
If not, the Congressional controversy will extend into the summer.
But even if the IMF wins the race for funding approval, the
political climate in the United States may be permanently shifting
against the IMF.
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's meeting, as well as a massive, permitted rally and march.
Energized grassroots opposition to the Fund, combined with
the deepening criticism of the IMF in policy circles, may finally
build enough momentum against the Fund to begin to restrict its
power, and to provide more autonomy and freedom for developing
countries to set economic and social policy according to their
own democratically determined priorities.
IMF, World Bank, Structural