The IMF: Part of the Problem, Not the Solution

The International Monetary Fund (IMF) is very much in the news these days in the United States. In most newspaper accounts, the Fund is projected as the institution which stands between order and chaos in the current international financial crisis.

For many people in the Third World, however, the Fund has a very different reputation. In Jamaica, it is seen as one of the chief engineers of the downfall of the progressive Manley government in 1980. In the Philippines, which has been tied to various IMF agreements since 1970, the Fund has an image worse than that of the CIA. For people in the scores of countries which have had IMF stabilization programs, the Fund is regarded as the mastermind of economic measures which engendered misery in the form of unemployment, wage repression, currency devaluation, and forced recession.

In the official economic gospel, the IMF is the indispensable disciplinarian which places a country's external accounts in order and ensures that it lives "within its means." In the current debt crisis, many liberals are no longer sanguine about the correspondence of this image with reality. A number of Congressmen complain that the Fund's stabilization programs for Mexico, Brazil, Argentina, and other debt-strapped countries amount to nothing other than bailout schemes for the big U.S. private banks. Others point out that the IMF itself is partly to blame for encouraging the bank's easy lending policies during the 1970s. An increasing number of economists are beginning to embrace the heretical view that it has been precisely the open, export-oriented type of economy promoted by the Fund and its sister agency, the World Bank, during the 1960s and 1970s, which is responsible for the current account deficits that have forced countries to plunge deeper in debt in order to bridge the yawning chasm between declining exports and inexorably rising imports.

In addition, the status of the IMF as a "neutral, objective economic institution" has been tarnished by the Reagan administration's successful manipulation of the Fund to serve U.S. foreign policy goals. For many, the recent IMF loans to El Salvador and South Africa, (which could not be defended on economic grounds) were a shocking eye-opener.

It is ironic that at the very time that the Fund is showing its true colors as an instrument of the big banks and the U.S. government, many Third World states are beseeching its assistance in their efforts to control their liquidity crisis. The Conference of Non-Aligned Countries which took place in New Delhi in March issued its most gentle statement on the IMF in years, asking for its cooperation rather than denouncing it in the manner of previous meetings.

The paradox disappears, however, when one realizes that the elites who run many of the debt-strapped Third World countries have interests which coincide with those of the Fund and the big international banks. It was not the people but tiny authoritarian elites which contracted the huge loans from the IMF and the banks. For the most part, these business-military-technocrat groupings refuse to invest their borrowings on productive ventures which would promote popular welfare, but channel them instead to weapons purchases, or "development projects" servicing multinational corporate investors. It is these same elites which apply the World Bank-IMF strategy of export -oriented development that is largely responsible for the creation of the massive current accounts deficits, and consequently, the huge external debts of the countries they dominate.

It is not surprising, then, that most of the poor in the Third World are hostile to the current IMF stabilization programs for they not only resent the miseries imposed by these measures, but they also realize that these are schemes designed to bail out the banks and their elites at their expense.

Contrary to IMF propaganda, the principal problem faced by the Third World in not the liquidity crisis. The latter is the problem of their irresponsible elites. Poverty, inequality, domination by multinationals, and authoritarian repression continue to be the real and urgent problems. From this perspective, the IMF and the big banks are part of the problem, not part of the solution.

And here lies perhaps the silver lining to the current debt crisis. The draconian solution promoted by the Fund and the banks may well generate widespread popular resistance and then - resistance which may yield alternative, responsible sets of leaders who can offer the genuine solutions to the genuine problems of development.

In this issue, we bring you an analysis of the IMF's role in the current world debt crisis and the real forces behind IMF decision-making by Walden Bello and David Kinley, longtime students of the IMF who are now working on a book on the institution. Washington writer Jonathan Friedland documents the struggles in Congress over how to shape the almost assured increase requested by the IMF. An interview with Representative Charles Schumer tells how one liberal congressman hopes to find a way out of the present crisis. Finally, we present you with a brief primer which explains in simple terms what the IMF is and how it works - tack it on your wall.