THE IMF In 1997, Prime Minister of Ethiopia, Meles Zenawi had created a government that was committed to a process

of decentralization and bringing the government closer to the people. Armed with a formal training in economics, and displaying a deep understanding of the dire situation his country had faced and was still facing economically, he was able to halt inflation, lower consumer prices and steadily grow output. He showed that, despite being a poor African country with the right policies in place Ethiopia could experience sustained economic growth. The only problem Meles was facing at that point was, unfortunately, one way beyond his control: The International Monetary Fund. (IMF.) The World Bank, who works closely with the IMF, had direct evidence that Ethiopia had developed sustained growth through its programs. The IMF, even though it was presented with this evidence of good macroeconomic performance, suspended all international assistance, stating that it was worried about Ethiopias budgetary position. It argued that Ethiopia was not experiencing solid growth because its expenditures werent limited to the taxes it collected, also saying that international assistance was too unstable to be relied upon. What? The IMF essentially said that they couldnt give Ethiopia assistance because it will spend that assistance on things that it needs, and that is irresponsible because the assistance from the IMF is unreliable. Come again? Statistics show that international assistance is far more reliable than tax revenues, as the tax revenues vary widely upon the conditions of an already unpredictable market. In another feat of paradoxical logic, Ethiopia, in what most people would consider to be a smart move, repaid an American loan early using some of its reserves. Since Ethiopia was paying a much higher interest rate than it was receiving on its reserves, it was an obvious move. But, again, with logic put to the side, the IMF vehemently objected. Their reasoning?

Ethiopia hadnt gotten IMFs approval first. Then, to top all defeats in logic, the IMF wanted Ethiopia to voluntarily open up its financial markets to Western competition. Ethiopias banking system is smaller than most small towns in America, and it was expected that they compete with corporate megafinancial firms such as Citibank and JP Morgan. Not only that, but they wanted Ethiopias already tiny financial institution to be broken up into several pieces. This in no way is meant to provide abundance for a country living in squalor. Instead, it provides a platform for the biggest institutions in the world to step in, eradicate all competition, and benefit greatly from providing loans to multinational corporations, rather than loaning to the riskier farmers and small businesses. The corporations move in, and destroy the already damaged economy, furthering the poverty. Ethiopia resisted the IMF at all costs they had just seen what happened in its neighboring country, Kenya, when they gave in to the IMFs demands: fourteen banking failures in Kenya in 1993 and 1994 alone. With the IMF intervention, interest rates increased in the end. Exactly the opposite of what they claimed they wanted. Chief economist of the World Bank, Professor at Columbia University, and author of Globalization and its Discontents, Joseph Stiglitz, shared his revelations of the IMF while collaborating with them: The tussle over lending to Ethiopia taught me a lot about how the IMF works. There was clear evidence that the IMF was wrong about financial market liberalization and Ethiopias macroeconomic position, but the IMF had to have its way. It seemingly would not listen to others, no matter how well informed, no matter how disinterested. The IMFs role is to make sure that countries are living within their means, and makes its determination on how well a country is doing by watching the rate of inflation in that country. They tell the World Bank to lend money to countries that need it, but have a very strict set of rules to abide by and only lend money if the countries conform to the policies that they provide. The problem is, these strict sets of guidelines normally cause the problems to worsen.

If thats not the kicker, the country then has to pay back the World Bank the money it was given to kill its economy, with interest. This IMF logic-failure isnt the only thing that is wildly disturbing. While the IMF is supposed to be helping these countries develop in a way that benefits them, they are imposing contractionary policies that have been proven time and time again to lead to recessions and crisis. If the countries refuse to carry out the IMFs heinous policies, the IMF will simply cut them off from funding. A scenario in Indonesia in 1998 lays this out more clearly with a visual aid. This is a picture of Michael Camdessus, the head of the IMF at the time, standing smugly over Indonesian president as he, without any other choice, signed away his countries sovereignty to the IMF in return for financial aid from the central banks.

Most of this money, ironically, was eventually used to bail out the private sector creditors put into place after the IMFs take over. A quick glance back to a year prior, when the East Asia crisis was unfolding in 1997, South Koreas economists, when faced with the same IMF solutions knew that they would end up in disaster, but remained silent in fear that the IMF would cut them off from all foreign aid and discourage investments from private markets. This Catch-22 situation left South Korea quietly taking the money because they desperately needed it in the moment, knowing that it would lead to disaster in the long run. Essentially, the IMF gave them 2 options: Disaster now, or disaster later?

The IMF had no interest in hearing the thoughts of their client countries, and as Stiglitz stated, the IMF has had the feel of a colonial ruler. Any country that is off-track of the IMFs preconceived one-size-fits-all agenda is immediately totally cut off, or is pushed around with higher and higher interest rates until they get their act together. What the IMF has been doing is only giving out loans when they lead to the country developing an independent Central Bank whose only focus is on inflation. As happened to Korea in the midst of their crisis, even though they had no problem with inflation. This clearly shows us that either the policymakers of the world are incredibly dumb, and keep letting the power of once sovereign nations fall into the hands of the powerful banks, or they are acting incredibly dumb so that the power of once sovereign nations falls into the hands of the powerful banks. Either way, its a solemn reminder of whos really in charge here.