IMF

After decades of operating in relative obscurity, the IMF is taking center stage of public debate
in the United States and throughout the world. Frantically running to the rescue of the recently
beleaguered Asian economies, the IMF is throwing around unprecedented amounts of public
money, bailing out rich country banks and imposing its traditional austerity programs upon 350
million people in Indonesia, Thailand, the Philippines and South Korea.

Coming on the heels of the Mexican bailout of 1995, the IMF's central role in the Asian financial
drama represents a substantial expansion of the Fund's mandate and power. Originally conceived
as an entity to provide temporary financing assistance to Western countries having trouble
sticking to the fixed exchange rates of the post-World War II era (currencies then had a set value
relative to the U.S. dollar, which was redeemable for a set amount of gold), the IMF redefined
itself in the 1970s. It began providing short-term balance of payment assistance (aid when money
is flowing out of a country at unsustainable rates compared to the incoming rate) to developing
countries, in exchange for their imposition of strict "structural adjustment"-budgetary and
monetary programs of austerity, combined with economic deregulation. Now the Fund is carving
for itself an additional role as guarantor of the private international financial system, a de facto
insurer of loans and foreign investment to industrializing countries. The insurance comes free for
lenders, but the traditional high payment of austerity measures is exacted from debtor countries
having trouble repaying loans.

To fill this new function, the IMF needs more resources. During its last annual meeting, the
IMF's board of governors agreed upon a 45 percent quota increase, adding $90 billion to its $200
billion budget. The U.S. share of the $90 billion is $14.5 billion.

But even as the IMF and its U.S. allies misleadingly claim that the Asian crisis makes it urgent
that the Fund quickly receive an infusion of new capital, U.S. lawmakers are raising serious
questions about the IMF's lack of clear purpose, its counterproductive adjustment programs, its
penchant for bailing out big international banks and its excessive secrecy. (The urgency claim is
misleading because the IMF already has allocated monies to Asia from existing resources,
because the IMF has plenty of capital on hand and can raise more, and because the money from
quota increases would go for purposes other than financial bailouts.

The increasing volume of criticism from Congress, the mainstream media and establishment
economists follows almost two decades of condemnation of IMF austerity from labor
organizations, environmentalists, poverty groups, church organizations and sustainable
development advocates, as well as more recent criticism from right-wing groups which denounce
financial bailouts as an improper interference in the market economy. Rising criticism of the
IMF is leading some IMF backers to offer to "condition', U.S. money for the Fund, and some
opponents seem satisfied that :conditions can satisfactorily reform the IMF. There is a decade of
experience that suggests otherwise, however.

 
Muted voices, Neglected vote

Since 1989, Congressional approval of funding for the IMF has been linked to legislative
language requiring the U.S. executive director to the IMF to use "voice and vote" in order to
promote specific policy and procedural changes at the institution. In 1989, the Congress urged
the U.S. executive director to promote: 1) the addition to the Fund's staff of natural resource
experts and development economists trained in analyzing the linkages between macroeconomic
conditions and the short- and long-term impacts on sustainable management of natural resources;
2) the establishment of a systematic process to review in advance, and take into account in policy
formation, projected impacts of each IMF lending agreement on the long-term sustainable
management of natural resources, the environment, public health and poverty; and 3) the creation
of criteria to consider concessional and favorable lending terms to promote sustainable
management of natural resources. This last requirement specifically refers to the reduction of the
debt burden of developing countries in recognition of domestic investments in conservation and
environmental management.

In 1992, the U.S. Congress passed even more comprehensive legislation demanding the U.S.
executive director regularly and vigorously in program discussions and quota increase
negotiations promote the following:

* Programs to alleviate poverty and reduce barriers to economic and social progress, and to
incorporate environmentally sound policies into Fund-promoted government programs;

* Policy audits;

* Policy options that increase the productive participation of the poor; and

* Procedures for public access to information.

In order to prevent any ambiguity about the interpretation of these overall objectives, the 1992
legislation provides a detailed list of specific policy recommendations. Among the policy
changes were:

* All IMF programs should consider poverty alleviation and the reduction of barriers to
economic and social progress;

* All Policy Framework Papers (PFPs) should articulate the principal poverty, economic, and
social measures that borrowing nations need to address;

* The IMF should incorporate environmental considerations in all of its programs;

* The IMF should encourage nations to implement systems of natural resource accounting in
their national income accounts;

* The IMF should assist and cooperate fully with the statistical research being undertaken by the
Organization of Economic Cooperation and Development and the UN in order to facilitate
development and adoption of a generally applicable system for taking account of the depletion or
degradation of natural resources in national income accounts;

* The IMF should conduct periodic audits of all its programs, on a country-by-country basis, to
determine whether the IMF's objectives were met and to evaluate social and environmental
impacts; and

* PFPs and the supporting documents prepared by the IMF's mission to a country, among other
documents, should be made public at an appropriate time and in appropriate ways.

While both laws were very specific in their policy recommendations and reporting requirements,
this important congressional action did not lead to any real changes of IMF operations or
policies. The only noticeable shift was reflected in the IMF's managing director's rhetoric,
emphasizing the importance of achieving high quality growth without hurting people or the
environment in all IMF programs. The IMF also changed the job description of one of its senior
economists, Ved Ghandi, to include environmental issues.

Having an environmental expert at the Fund did not benefit the environment in any discernible
way, either. In fact, Gandhi’s main tasks seem to focus on writing papers explaining why the
IMF should not be concerned about or engaged in environmental issues. After two years of
analysis, Gandhi concluded that macroeconomic stability would lead to environmental stability
but that sustainable environmental management was not critical for macroeconomic stability. In
other words, in a well-managed economy, the environment will take care of itself; and taking
care of the environment is irrelevant to economic well-being. While Gandhi has shifted from this
position, the IMF continues to support the notion that microeconomic policies, such as
environmental resource management policies, do not affect the macroeconomic outlook of a
country.

Two years later, the experience was replicated in the area of labor rights. In 1994, the U.S.
Congress attached the Sanders-Frank Amendment to the Foreign Operations Appropriation Bill,
requiring U.S. executive directors to use voice and vote to urge international financial
institutions, including the IMF, to:

* Adopt policies to encourage borrowing countries to guarantee internationally recognized

worker rights;

* Promote compliance with key International Labor Organization (ILO) conventions, including
those guaranteeing the right of association, the right to organize and bargain collectively,
prohibitions against forced labor, a minimum wage, maximum hours of work and occupational
safety and health protections; and

* Establish formal procedures to screen projects and programs funded by the institutions for any
negative impacts on key labor rights.

The Treasury Department was supposed to report on its progress in promoting these reforms at
the international financial institutions after one year. It took almost three years for the Treasury
to send its report to the Congress. Instead of explaining why the U.S. executive directors had
failed to promote any of the legislative requirements, the report offered ideas on how to begin the
process of implementing the Sanders-Frank amendment. For example, the report provided an
outline of what a possible screening process could look like. It also cited general steps the
international financial institutions have undertaken to reform labor markets as evidence of efforts
to guarantee internationally recognized labor rights.

It is hard to imagine a more cynical response from the Treasury Department. "Not all labor
market reforms have to do with improved labor rights," notes Terry Collingsworth, general
counsel of the Washington, D.C.-based International Labor Rights Fund. "Instead, many of these
reforms contribute to the denial of labor rights."

Collingsworth summarizes the report as "lacking in any real, substantive action or assessment
that addresses the express requirements of the law."

Money Talks

Something fundamentally different took place in 1994, the same year the Sanders-Frank
amendment was passed, however. Frustrated with the lack of IMF responsiveness, the U.S.
Congress cut the proposed $100 million U.S. contribution to the Enhanced Structural Adjustment
Facility (ESAF) by $75 million.

In a conference report attached to the bill, members of Congress expressed their hope that the
IMF and its member countries would work with the U.S. government to open up the IMF to
more public scrutiny. Congress urged the U.S. Treasury Department to push for reform of the
IMF's disclosure policies. Congress asked for the release of several IMF documents to the public
including the Recent Economic Developments and program documents. Other IMF documents
are owned by the countries themselves, and their publication depends on the willingness of the
national government. But since most of these documents are prepared by IMF staff and are
critical for understanding of Fund programs, the legislation required the IMF to strongly
encourage governments to make these documents available to the public. These documents
include: Article IV Consultations, Letters of Intent and Policy Framework Papers.

But the conference report did more than just urge these reforms. It strongly suggested that future
funding for ESAF would be withheld until the IMF made the desired reforms. "To determine
when and whether to recommend the remainder of the $100 million requested by the
Administration for ESAF, consideration will be given to the progress made on the disclosure of
the above information.

In contrast to all previous legislative efforts, the 1994 legislation did result in identifiable
reforms. The IMF made the REDs publicly available and began posting summaries of the Article
IV consultations on the Internet. IMF management also agreed, in 1997, to an independent
review of ESAF programs to be conducted parallel to the IMF's own ESAF review. While the
independent review has not yet been published, early statements of the reviewers have been
critical and IMF management has promised to release an uncensored version of the reviewers'
report.

The disclosure reforms have been progress, but not a panacea. While these documents provide a
flavor of the nature of the program, even economists such as Jeffrey Sachs are unsatisfied with
the progress. In one of the many editorials written by Sachs related to the Asia crisis, he states
that the IMF is only paying lip service to "transparency." Sachs complains that the IMF provides
virtually no substantive documentation of its decisions as the documents are shorn of the
technical details needed for serious professional evaluation of the programs.

Curbing the cash

Many, not least those in IMF managerial positions, have criticized the legislative strategy to
change the IMF. Opponents argue that the IMF is a multilateral institution which has to reflect
the priorities of all of its member countries. It is not appropriate, the argument runs, to use the
U.S. legislative process to open up the IMF to public scrutiny or to force it to deal with social
and environmental issues.

Unfortunately, the IMF has not given the public any other choice. People in borrowing countries
do not have the same opportunity to influence the Fund, and neither do their elected
governments.

Meaningful public participation in shaping borrowing country programs is currently not possible.
The IMF's Articles of Agreement state that IMF mission people shall only interact with
representatives from finance ministries or central banks. Even if finance ministries allow public
consultation, crucial details of IMF programs remain confidential. With limited knowledge of the
program details, the population in borrower countries-the ones to affected by IMF-imposed
policies-cannot seriously participate in policy formation. In most cases, even national
parliaments have little choice but to "endorse" an IMF agreement without serious discussion,
input or understanding of the programs.

The enormous leverage of the IMF over democratic institutions in borrowing countries was made
plain in South Korea's presidential elections late last year, as the Fund insisted that all
presidential candidates endorse the IMF bailout agreement.

In the United States, but also in a growing number of other industrialized countries, the public
does have a voice in and can affect policy decisions of their governments. The United States is
one of the few countries that offers public hearings on the operations of all multilateral
institutions financed by the public. During these hearings, non-governmental organizations
(NGOs) from around the world have testified about the devastating impact of IMF programs. At
the request of U.S. members of Congress, NGOs have provided input in the development of IMF
reform language. These IMF reform initiatives reflect the concerns of people around the world.

If the IMF would provide serious avenues of communication with the public, perhaps advocacy
groups would not have to resort to the legislative strategy of denying the Fund money. Until
then, curbing the cash is the only way the public can be heard.