Needed: A brand new IMF
by Abid Aslam
WASHINGTON: Want a better-run global economy? Sack the leadership of the International Monetary Fund and put the agency in temporary receivership.
Calls for a new "global financial architecture" have grown louder since the Mexican peso crisis of 1994-95, reaching a crescendo as financial wildfire spread from Asia in 1997 to Russia and Brazil last year.
In each instance, the IMF has spearheaded international efforts to provide stricken governments with emergency funding to relieve or prevent crisis - only to see their troubles multiply.
"If the government of any democratic country had failed as much in its economic policies as the IMF has failed in country after country, that government would long since have fallen or lost an election," says American University economics professor Robert Blecker in a book released on 22 April by the Washington-based Economic Policy Institute.
However, "abolishing the IMF without creating any new institution in its place would take us back to the nineteenth century of unregulated capitalism... not forward to a twenty- first century of more stable and equitable growth," he adds.
Ideas for alternative institutions abound but none of these is likely to materialize anytime soon. Most proposals envisage some kind of world central bank, international supervisory institution or international monetary clearing houses.
"If the world does need international financial institutions, yet is unlikely to get new ones in the immediate future, it is vital to focus on reforming the most important such institution that already exists, the IMF," Blecker argues in his book, Taming Global Finance.
Transforming the IMF
He outlines "four practical ways in which the IMF could be transformed into a more responsive and functional institution for global financial management within a few years":
* First, replace the top bosses. "Innovative thinkers who are not wedded to the current policy line should be identified and promoted from within where possible, while new blood should be brought in from the outside," Blecker says.
* Second, open the organization to greater accountability and democratic decision-making to break what economist Jagdish Bhagwati terms the "Wall Street-Treasury complex".
"Political reality dictates that the United States and other large industrialized nations, who foot most of the IMF's bills, will continue to have a large influence," Blecker notes, but developing countries should be given a larger proportion of votes on the Fund's executive board.
* Third, change its long-term mission to emphasize macroeconomic prosperity and social justice - including workers' rights. "Support for core labour rights (freedom from child labour, the right to organize) and improved labour standards (reasonable minimum wages, health and safety projections) should be incorporated into IMF policy as offsets to other policies (such as currency devaluations or fiscal austerity) that tend to cut real wages," he asserts.
* Fourth, tailor the Fund's bailouts to specific countries' needs and "shift more of the adjustment burden from debtors to creditors." This involves recognizing that crises today are caused by "highly mobile capital" and not just the "inconsistent macroeconomic policies and misaligned exchange rates" of the years immediately following World War II, when the Fund cut its teeth.
IMF stabilization efforts - built on economic contraction and austerity - extract too high a price from workers and the environment to be productive in the long run, Blecker says.
"If excessive competition over export markets is a cause of currency crises, part of the solution must lie in expanding internal markets," he reasons.
"This in turn requires more wage-led growth, which cannot occur when workers' rights are systematically abused and minimal standards are not enforced."
Similarly, "countries are induced to exploit their natural resources more intensively in order to export their way out of debt crises."
Blecker sees trouble in the Fund's insistence that developing countries open their capital markets to foreign flows - although the Fund now tempers its message by calling for "orderly" liberalization.
"Capital controls are permitted under the IMF charter," Blecker counters. "The IMF should assist countries in designing them in ways that can enhance their effectiveness for reducing short-term speculative capital movements without undermining the financing of long-term productive investment."
To begin changing the institution "without unduly undermining confidence, the IMF should be placed in temporary receivership by the major governments of the world, including developing countries," Blecker says. Under such an arrangement, a transitional board of overseers - including the Fund's "relatively progressive" Bretton Woods sibling, the World Bank - would help steer the agency away from its "current monolithic viewpoint."
He warns, however, that "it will be hard to reverse the conservative bias in IMF policies if its governance is merely opened up to a wider range of finance ministries and treasury departments, which generally tend to be exceptionally cautious and are often subservient to financial interests."
Rather, the IMF needs to be involved with non-finance officials and non-governmental organizations, he says - echoing similar calls from grassroots groups, academics and UN officials. (IPS)
The above article by the Inter-Press Service appeared in the South-North Development Monitor (SUNS).