The IMF since 1970.

Between the Bretton Fields agreement in 1944 and the 1960's the International Monetary
Fund used a gold standard pegged to the United States dollar as the basis for international
trade. Britain got itself into all sorts of financial trouble that caused havoc with the
official price of gold. Speculation in gold pushed unofficial prices upwards to the extent
that official where too low and official gold transactions came to a standstill.

In 1971 the USA suspended convertibility of gold into US dollars. A little later, after
attempts to find a new regime for currency conversion rates had failed, the pound Stirling
was allowed to float. That it was allowed to be bought and sold at the market price like
any other commodity. After the US dollar was devalued twice in fourteen months all
attempts to fix international currency rates where abandoned in 1974.

This is of course a very abridged version of the events between 1944 and 1974, but the
result was that the role of the IMF was almost irrelevant because the Bretton Fields
agreement and the part of the white plan on which the IMF had been established had
collapsed. That would have been the perfect time to scrap the IMF and establish a new
workable system. Unfortunately the IMF made a comeback in a new form that has had
disastrous implications for poorer countries.

Continued internal problems in Britain forced the British Government to go to the IMF as
a lender of last resort. This happened in late 1976.

This was a turning point in the way the IMF worked. The loan to Britain was made
conditional on Britain making internal policy changes according to the dictates of the
IMF. This was a world changing event. The IMF had been converted into a political
machine that could impose policy onto an independent country in exchange for a loan.
The terminology used to describe this process is 'international cooperation.'

In the case of Britain the Republican administration of the USA exerted enormous
pressure on the British Labour Government to change its social policies to be more
'responsible and realistic.' This pressure was not exerted openly, but by the IMF on behalf
of the USA.

As a result of the British experience developed countries avoid borrowing from the IMF
at all cost, and since 1977 the only countries to borrow from the IMF have been third
world and Latin American countries with nowhere else to go.

The Oil Crisis of the early to mid 1970's drove many third world countries into massive
deficits. Developed countries who exported to OPEC (Organization of Petroleum
Exporting Countries) survived reasonable unscathed by charging more for their exports,
but the third world countries with no oil where in real trouble.
Initially third world countries borrowed outside of the IMF to overcome their deficits but
third world borrowings escalated to the point where they where borrowing to repay
existing loans. Non IMF lenders reached a stage where they were unwilling to lend more
money to third world countries and countries began to default. The IMF gave loans to
struggling third world countries dependent on 'Stabilization Programs.' An outline model
of the standard stabilization program is given in The Unholy Trinity, Peet, Richard. Wits
University Press. 2003.

1. Abolition or liberalization of foreign exchange and import controls;

2. Exchange rate devaluation;
3. Anti-inflammatory domestic programmes, including (a) control of bank
credit and higher interest rates; (b) lower state budget deficits through
curbs on government spending, increases in taxes, abolition of subsidies;
(c) controls on wage increases, and (d) dismantling price controls, and
4. greater hospitality for foreign private investors.

Basically these conditions equate to agreeing to create a poorly paid docile work force for
the use of invading American multinationals. In order to obtain an IMF loan third world
countries had to submit to economic slavery.

By the mid 1980's three quarters of Latin America and two-thirds of African countries
where under the supervision of the IMF. This came about largely because falling
commodity prices triggered the 1980's debt crisis. Every new monetary crisis strengthens
the IMF.

One of the ways the IMF increased its power in the 1980's crisis was by providing the
conditions in which private banks would be guaranteed that their loans would be repaid,
and in return private banks where required to provide more money for long term loans.
It is run like a protection racket. In return for short term loans the IMF takes over
'supervision' of a countries economy.

This supervision guarantees that investment banks will receive high return on monies lent
to poor oil importing countries on a long term basis. The borrowing country pays by
creating higher unemployment, higher prices and poverty. Unfortunately for the IMF it
went to far and countries became debt ridden.

The Ragan administration came up with the Baker plan for debt relieve for debt ridden
countries that were 'friendly' to the USA. The rational was that if the USA did not help
their friends there would be regime changes that might not be in the US national interest.
The Baker plan failed so I won't go into detail.

When Bush (the 1st) came to power in 1989 his Secretary of the Treasury Nicholas Brady
announced that Banks would be 'encouraged' to engage in 'voluntary' debt reduction
schemes to stabilise countries friendly to the USA.
Forgiveness of debt was accomplished by a complicated arrangement of issuing 'Bradley
Bonds' to debtor countries, usually discounted at 30-35% which could be traded.
Effectively the face value of the loans did not change but interest was paid on the
discounted value effectively reducing the debt by 30-35%. It was more complicated than
that but it would take the whole article to explain it. For greater detail see
http://en.wikipedia.org/wiki/Brady_Bonds

A new debt crisis in Latin American countries occurred in 1998. The problem was that
the IMF stabilisation programs implemented for previous IMF loans caused economic
depression. This led to inability to repay loans which led to further economic contraction
and so on. The basic cause of the 1998 economic crisis in Latin America was IMF policy.
Argentina had an exchange rate the fixed the peso to the American dollar.

This caused Argentinean exports to be too expensive causing a contraction in the

economy. This lead to a request for IMF loans that was approved by the Clinton
administration. A further request for loans in August 2001 was rejected by the Bush
administration. The interference of George Bush in the loan application of Argentina
destroys any pretence that the IMF if an independent organisation run by its members. It
is controlled by the USA.

'Mr. Bush promised just such a policy during his presidential campaign. But the
first time his approach was tested, when Turkey ran into deep trouble last spring,
Mr. Bush's national security aides warned that it was no time to abandon a well-
located ally whose government seemed willing to take the medicine the
International Monetary Fund prescribed. Washington joined in the bailout.

''It's fair to say,'' one senior administration official noted during the last week,
''that while we have been clear, we haven't always been consistent.''

The hard line on Argentina, White House and Treasury officials say, was
calculated to send the message that under the Bush administration, the United
States would be a reluctant financial firefighter and that the markets should not
bet on a bailout. ….

New York Times Published: January 5, 2002'

By Joseph Kahn with David E. Sanger

The IMF approach of making loans conditional on 'financial reform' has been counter
productive. It ignores a basic principle (apart from moral or ethical considerations.) If a
loan is made then the borrower has to be able to repay. If the conditions imposed by the
IMF cause the economy to contract the loan cannot be repaid.

Every time a country fails to repay its loans and goes back for more it becomes more
dependent. There are ungenerous souls around (into conspiracy theories) who make much
of this increasing dependency.
The IMF was supposed to have been an independent financial organisation design to
bring stability to the world economy but instead has become a political tool for the
American government. Under IMF policies the rich get richer and the poor are driven
into poverty. And it is presided over by the IMF on behalf of the USA.

Soon there will be a new 'Bretton Woods.' It is inevitable. We are no longer a post world
war planet. We no-longer rely on the USA for our daily bread. It is inevitable,
particularly since the failure of the economic policies of the USA that have destroyed the
world economy that a new economic system emerges.

I am not talking 'isms' I am talking about basic mechanics of how the economy will work.
All the people of the world have the choice of whether or not they want to be part of the
design process or if they will just accept what is given.