The International Monetary Fund
Is Hurting You
The IMF - a chauffeur for giant banks
by Rep. Bernard Sanders (I-VT)
Z magazine, July / August 1998
This year, Congress is considering spending $18 billion to
expand the International Monetary Fund (IMF). The IMF comes as
close as any one organization to being the chief regulator of
the global economy, yet the American people-and even most members
of Congress-know little about it and, therefore, cannot fully
appreciate the enormous impact it has on their lives.
The IMF was founded in the wake of World War II by the victorious
allies, who feared an unregulated world market would mean a return
to world depression, poverty, communism, and perhaps another world
war. The IMF's original function was to ensure that temporary
imbalances between the currencies of different countries did not
lead to forced recessions, competitive devaluations, and other
Beginning in the 1970s, the IMF took on much of the management
of the exploding international debt crisis, making loans to Third
World countries and forcing them to restructure their economies
through "structural adjustment programs." Recently,
the IMF has hit the headlines with bailouts for troubled Asian
Unfortunately, the IMF is less a vehicle to encourage sustainable
development for the people of the world than it is a chauffeur
for giant banks, global corporations, and wealthy investors. Its
loans in Asia are bailing out international bankers and investors
while imposing unemployment and mass misery on the people there.
It has provided huge loans for brutal, corrupt dictators like
the now-former Indonesian dictator, Gen. Suharto, who presided
over the slaughter of hundreds of thousands of people while amassing
what was estimated to be the world's sixth largest personal fortune,
between $30 billion and $40 billion. It encourages global companies
and national elites to exploit children, workers, and the environment
in poor countries and then to export their products to the U.S.
and other countries where workers are forced to compete with their
counterparts who live in these degraded conditions.
What the IMF Does
The IMF makes loans to troubled countries, but insists they
cut benefits for workers and the poor, fire government employees,
and sell their assets to foreign investors. The stated purpose
of these "structural adjustment programs" is to make
a country attractive to foreign investors and to encourage cheaper
exports. The result is generally to raise profits for international
corporations while increasing poverty and unemployment for ordinary
To understand what the IMF does, let's look at the country
where IMF intervention is most familiar to Americans: Mexico.
Under a series of IMF agreements in 1982, 1986, and 1989, the
Mexican government implemented IMF plans for trade liberalization,
privatization, and deregulation. Investment in education, research
and development, and infrastructure plummeted. In the decade following
1982, infant deaths due to malnutrition tripled; the minimum wage
(adjusted for inflation) declined by 60 percent; and the percentage
of the population living in poverty increased from less than half
to more than two-thirds. After a decade of IMF tutelage, the plunge
in workers' conditions continued. Manufacturing workers' compensation
decreased by 30 percent between 1993 and 1995. Hot money poured
into the country, then fled, and by early 1995 the Mexican economy
entered its worst depression in 60 years. As the Mexican patient
sickened from this treatment, the IMF provided more of the same
medicine. IMF supporters boast the new adjustment program imposed
by the IMF and the U.S. Treasury in 1995 has worked, because Mexico
has not defaulted on its loans, speculators have been repaid,
investment has started to return, and the trade deficit has became
a trade surplus. But what have been the results for the Mexican
people? In the past three years, some 1.8 million people have
left home in search of work, many of them coming to the United
States. Over 20,000 small and medium-sized business-one-third
of all Mexican businesses-went into bankruptcy. Two million jobs
have been lost. One-third of Mexico's economically-active population
is unemployed or in precarious jobs. The Mexican minimum wage
now buys only one-third of what it did in 1981, just before IMF
control of the Mexican economy began.
Ninety countries with more than half the world's people have
lived directly under such IMF-imposed conditions. Far from being
restored to health, they have only been plunged further into debt.
From 1982 through 1990, debtor countries in the Southern Hemisphere
paid their creditors in the North $6.5 billion dollars in interest
and another $6 billion dollars in principal payments per month-as
much as the entire Third World spends on education and health.
Yet the debtor country debts were 60 percent greater in 1990 than
in 1982. The IMF's own 1993 review of 19 countries with its structural
adjustment plans" found that, in spite of the austerity imposed
on their people, their trade deficits and debts continued to rise.
A study this year of 71 countries operating under IMF and
World Bank conditions has found that, through 1995, the average
increase in debt among these countries was 49 percent. IMF policies
create loan junkies" who keep finding themselves "another
day older and deeper in debt."
The IMF's Mexican "success" has been repeated in
much of Latin America. A study for the Inter-American Development
Bank found "the harsh structural adjustments of the 1980s
have significantly worsened the poverty problem. Casual evidence
from virtually every country confirms the widening inequality."
A decade after their governments opened their doors to the global
market, 40 percent of the people of Latin America are poor, and
1 in 4 survives on less than $1 per day. Since 1970, average Latin
American per capita income has fallen from one-third of First
World levels to one-quarter of those levels.
The New York Times called the IMF and its sister organization,
the World Bank, "the overlords of Africa," supervising
the economies of some 30 African countries. The results? Africa's
GNP fell by an average of 2.2 percent per year in the 1980s. Meanwhile,
in African countries with IMF-World Bank programs, spending on
health decreased by 50 percent and on education by 25 percent
during the 1980s. A United Nations advisory group reported that,
throughout Africa, "health systems are collapsing for lack
of medicines, schools have no books, and universities suffer from
a debilitating lack of libraries and laboratory facilities."
A December 1997 a study by a joint task force of the International
Labor Organization and the United Nations Development Program
charged that structural adjustment in Africa has been "purchased
at the price of economic contraction, high unemployment and massive
Now the IMF is applying the same medicine to the troubled
economies of South Korea, Indonesia, the Philippines, and Thailand.
In Indonesia, the IMF demanded huge increases in the price of
food-then backed off out of fear of food riots. Then it forced
a 70 percent increase in prices for fuel and electricity, along
with other so-called reforms. As the New York Times commented,
"for Indonesia's citizens-who are already struggling with
rampant unemployment, spiraling inflation and a devalued currency-economic
reform seemed just another word for misery."
According to press accounts, much of the benefit of the IMF's
Asian bailout will go to six banks with large amounts of bad loans
in Southeast Asia: Citicorp, J.P. Morgan, Bankers Trust, Bank
America, the Bank of New York, and Chase Manhattan. Under terms
of the bailout deal, South Korea must allow its financial institutions
to be purchased, even at greatly undervalued prices, by the very
foreign banks that have already profited so much. According to
Richard Medley, head of Medley Global Advisors, a New York-based
consultant on risk management, "The only winners in Korea
are the foreign banks, who will get their money back and then
some." Jeff Uscher, editor of Grant's Asia Observer, confirms
that lenders to South Korea's banks will get back 100 cents on
The Race to the Bottom
Indonesia and Korea may seem far away, but when the IMF forces
austerity policies on one country, it has an impact around the
globe, including right here in the U.S. Each country is forced
to reduce labor, social, and environmental costs below the others
in order to be more competitive." When all countries do the
same thing, the result is a disastrous race to the bottom"
in which conditions for working people throughout the world tend
to fall toward those of the poorest and most desperate.
As a result of the Asian economic crisis and the way the IMF
has managed it, the U.S. trade deficit is projected to grow about
$100 billion in 1998, resulting in the loss of approximately 1
million jobs or potential jobs, most in the better-paying manufacturing
sector. The loss has already begun; in spite of its booming domestic
economy, the U.S. lost 10,000 manufacturing jobs this April. It's
not just the number of jobs. This kind of global competition drives
down wages and conditions for U.S. workers. It helps explain why
wages have remained low and inequality has soared even as has
In the past quarter century the gross domestic product of
the United States has grown more than 40 percent, yet real median
income has fallen for more than 60 percent of the American workforce.
Over that time, American workers have seen a 15 percent reduction
in real wages.
The paltry wage increases of the past year have not even brought
workers back to where they were before the last recession, let
alone made a significant dent in the losses of the past 25 years.
Average hourly wages were $9 per hour in 1973; after the increases
of 1997 they were still a dollar an hour lower, if you adjust
for inflation. Over the past quarter century, there has been a
nearly 30 percent reduction in the real incomes of young families.
A recent Marist College poll found nearly two-thirds of Americans
say they are having difficulty paying their monthly bills, and
a quarter always worry that they will come up short. Household
debt has reached 91 percent of disposable personal income, compared
with 65 percent in 1980.
Conditions continue to deteriorate for those at the bottom
of the bottom. More people are in poverty today than before the
last recession. A study based on interviews with 28,000 people
in soup kitchens, homeless shelters, and food pantries found that
26 million Americans visited charitable food programs in 1997-a
15 percent increase over the year before.
President Clinton, supported by Newt Gingrich and an array
of corporate CEOs, says we need to give the International Monetary
Fund $18 billion dollars to save the global economy from potential
meltdown. A central goal of the IMF model of globalization has
been to increase capital mobility by eliminating barriers to the
international flow of capital. More than $1.5 trillion flow across
borders every day. Private investment in developing nations around
the world increased from $30 billion 7 years ago to approximately
$245 billion today. Paul Krugman, professor of economics at MIT,
describes the result: "We are back to a volatile, pre-depression
world economy of financial booms and busts."
The IMF's original function was to stabilize currencies so
countries wouldn't have to engage in the competitive devaluation
that aggravated the Great Depression of the 1930s. For the past
15 years, the IMF has played the opposite role. Economist Jeffrey
Sachs points out that current IMF policies in Asia are "relentlessly
squeezing these economies so inappropriately that clearly they're
not only not restoring market confidence, they're pushing those
economies deeper into crisis." IMF policies are promoting,
rather than preventing, competitive devaluation.
Fixing the IMF
have been working with a coalition that includes labor, progressive
citizens groups, non-governmental organizations working in the
Third World, and progressive Democrats in Congress to challenge
expanded funding for the IMF. We have also been cooperating with
conservative Republicans, who oppose the IMF for reasons of their
own. Many on the right propose to abolish the IMF altogether.
But that will hardly solve the problems of the global economy.
Market economies, including the global economy, need non-market
institutions to function well.
Without some kind of global regulation, global corporations
will be able to run even more roughshod over the world's people
and environment. Even more than when the IMF was established,
the global economy needs alternatives to imposed recession, competitive
devaluation, and uncontrolled deflation. The question Congress
and the American people should be debating is, how can this be
provided in ways that benefit poor and working people around the
world, rather than a wealthy global elite?
Fortunately, labor, citizens groups, and NGOs around the world
have been addressing that question for the past several years.
They have come up with important proposals for how the IMF and
other international institutions can help reduce third world poverty,
discourage environmental destruction, reverse the race to the
bottom, increase global economic stability, and contribute to
a worldwide process of democratization. To counter poverty and
the race to the bottom:
Protect internationally recognized labor rights. If the IMF
made the right of workers to organize, bargain collectively, and
strike a condition for its assistance, it would revolutionize
conditions in much of the world. Workers would be able to resist
the extremes of exploitation and gain a share of the benefits
of economic development. Rising wages would expand local, national,
and international markets and generate a virtuous circle of economic
growth. Organized workers could provide a degree of accountability
for governments, and it would be far harder to pit workers in
different countries against each other.
Protect the environment. While the IMF gives lip service to
the environment, its policies actually encourage the despoiling
of natural resources for export. Instead, loan conditions should
encourage sustainable development that enhances the environment
as a long-term resource.
Encourage development, not austerity. IMF policies should
aim to raise, not cut, wages. They should increase credit for
small and medium-sized locally owned businesses and farms. They
should pursue a progressive tax policy that places no undue burden
on the poor. This will help reverse the destructive global competition
that is promoted by current policies.
Promote long-term investment. Short-term foreign investment
which just skims off speculative profits does little or nothing
for economic development. Only long-term investment that builds
economic capacity is likely to benefit poorer countries. IMF policy
should aim to encourage investment that leads to genuine development,
not just a quick buck for the investors.
Encourage an effective public sector. IMF policies should
increase, not discourage, spending on primary health care, basic
education, and other social services that improve people's lives
and provide the basis for long-term economic growth.
End global debt slavery. Today poor countries are forced to
run their economies to pay debts often promoted by foreign investors
and taken on by corrupt governments that did not represent their
people. Often those debts have continued to multiply by the rules
of compound interest. Current IMF policies make repayment of such
debts a country's top priority. Instead, the debt of the poorest
countries should be written off and other countries should be
encouraged to make sustainable development rather than debt repayment
their first priority.
To reduce the threat of financial meltdown:
Control international hot money. Rather than forcing countries
to deregulate their financial systems, the IMF should encourage
them to use capital controls to limit the flows of short-term
"hot money" which can so quickly destabilize their economies.
(Chile, which has applied such techniques, has not had the kind
of currency crisis that marked such countries as Mexico and Thailand.)
The IMF should also begin research and testing for a global tax
on short-term hot money transactions-known as a "Tobin tax"-to
reduce global volatility and provide resources for world development
and environmental protection.
Forestall competitive devaluations. The IMF's original function
was to prevent a downward spiral of competitive devaluations,
but now it often encourages countries in economic difficulty to
devalue, and their competitors are then forced to follow suit.
While a system of fixed exchange rates would be difficult to restore
today, the IMF should aim to help countries adjust to changing
conditions without drastic devaluations and massive increases
Support global demand. The Asian economic crisis is widely
seen as threatening a global depression (or as economists now
reassuringly put it, a global deflation). Currently the U.S. and
Europe are pressuring Japan to expand its demand so that it will
absorb more exports from other crisis-ridden Asian countries.
But the maintenance of adequate demand worldwide requires cooperation
of the major economic powers working in tandem. The IMF should
take responsibility for developing that cooperation.
Make speculators pay for their losses. IMF bailouts have insulated
large banks and investors from the consequences of their speculations.
That only encourages more speculative ventures, leading to more
international volatility. When the IMF provides assistance for
economies in trouble, it should be sure the assistance doesn't
end up in the pockets of international investors who lured them
into that trouble.
To encourage democracy:
Support democracy and human rights. IMF should cease being
a rescue vehicle for tyrants like Indonesia's Suharto. Make the
IMF transparent. IMF procedures and decisions need to be open
to public scrutiny. So must information on its programs. Let those
affected by IMF policies participate in making them. Instead of
closed negotiations with top officials, IMF agreements should
involve participation by labor unions, environmental groups, women's
organizations, development organizations, and other major sectors
of civil society in each country.
These proposals are based on the common interests of working
people around the world. Unlike some proposals, they don't pit
one nation against another, or people in the North against those
in the South, or environmental concerns against those of workers.
They should be on the top of the agenda for discussion by Congress
and the American people.
World Bank, Structural Adjustment