Sunday, July 3, 2011

Is the IMF Dictating an Austerity Economy on the American People?

In the aftermath of the Great Depression, the International Monetary Fund was established at the 1944 Bretton Woods meeting as a public institution with taxpayer money.  The Fund's  “primary purpose,” according to its website, “is to ensure the stability of the international monetary system, promote sustainable economic growth, increased living standards and reduced poverty.”  

If the IMF was held accountable as a public agency, its goals would be failing in all areas.  The Fund is governed by a 24 member Board of Directors and interacts with an appointed Governor from each of its 187 member countries.  Secretary of the Treasury Tim Geithner is the U.S. Governor with Fed Chair Ben Bernanke serving as vice-Governor.  With a staff of 2,500 headquartered in Washington, DC, the IMF meets twice a year behind closed doors and generates no public minutes of its meetings. With no oversight mechanism, the IMF is not responsible to any government.

Unbeknownst to its taxpayer, the United States, by virtue of being the Fund’s largest‘contributor (in excess of $80 billion  tax  dollars) receives 17% of a weighted vote and retains the sole veto on the Board.  (European Union countries hold 32% of the vote.)   In other words, the country with the greatest financial contribution and once the world’s largest economy (now second to China) has the most prestigious position with the ability to dictate global economic policy – and we know how well that has worked out.        

Given its prominent role, the United States continues to dominate IMF policy despite its own economic problems which, we can only surmise, has caused more than a little consternation among the Fund’s membership, many of which have suffered under unreasonable demands and onerous financial conditions that did nothing to lift its citizens out of degradation. Some might see a karmic payback here as the US becomes a victim of its own creation.

The irony has apparently escaped the mainstream media that the US, which is responsible for unnecessarily tight IMF monetary policy while preaching outdated supply-side economic policies to fragile, fiscally struggling nations, has suddenly found itself in a similar pickle as many countries who suffered previously from US economic and political pressure. It is worth noting that the US Treasury Department has pushed fiscal austerity, privatization and deregulation (aka market liberalization) as IMF pillars for developing countries while the US, in disregard for practicing what it preaches elsewhere, continued to live well beyond its means at home.  While IMF funds are available to bail out multinational banks, third world developing countries have found that demands to repay their debt is IMF's first priority while funds for education, health care or other public services may arrive too little-too late.       

Well known for arbitrary rules based on a free market ideology that punished  economically vulnerable countries which the IMF determined to be living beyond its means (not unlike US fiscal excesses during the Bush decade and beyond), the IMF uses a one-cookie-cutter approach with no recognition of each country’s individual cultural, political or economic diversity and has only served to intensify financial disasters around the world as it did for Thailand and Indonesia in 1997, Argentina in 2001 and more recently, exacerbation of economic downturns in Ireland and Greece.  Nor is there any empirical evidence that IMF austerity policies have improve a country's economic health - and instead have actually accomplished the reverse.

Joseph Stiglitz, author of “Globalization and its Discontents” and former senior vice president and chief economist of the World Bank has been critical of IMF’s unfulfilled promise of  ‘unprecedented prosperity’ which he saw as more concerned with opening new markets for Western financial institutions  

On June 29th , the US Senate voted 55 - 44 (S 679) to allow a special $100 Billion US line of credit to the IMF to help stabilize the global economy joining 90 other member nations in an IMF rescue effort.  Sen. Tester of Montana voted with Republicans against while Republican Senators Brown (Mass), Cochran (Miss), Kirk (Ill) and Lugar (Ind) joined Democrats to approve the line of credit.     

On June 20, 2011, IMF staff issued its annual Article IV Report on the current US financial situation.  Article IV consultations ensure that each country is adhering to its Articles of Agreement yet is considered a minor
'surveillance' tool as it provides the IMF with an opportunity, according to Stiglitz, to push its agenda on developing countries not dependent on IMF's financial aid.  The US-IMF relationship raises reasonable questions regarding the US obligation to IMF policies:

            As President Obama and the Congress are proposing cuts to the country's social safety net, is the IMF dictating an Austerity Economy on the United States?  If so, what are the conditions?
            What authority does the IMF have regarding the US on-going economic crisis and its  current deficit debate?

            What are the implications for the US given IMF policy that a country with low inflation but no growth and high unemployment qualifies as a disastrous macroeconomic situation?
              What are the implications if the US refuses to follow IMF dictates as Egypt did on June 30th as a result of public debate, when that country turned down loans that went ‘against the principles of national sovereignity.”  Egypt cited its earlier experiences with IMF requiring privatization of its banks and cuts to food, energy and health care subsidies. 

            Given historic US dominance of the IMF, is the IMF currently undercutting the American people by virtue of its own IMF Governor?    

            When, if and how does US IMF Governor Geithner present a public report including a record of his votes and discussions at Board meetings?

For some answers to those questions (and sure to raise more), check out the following documents:

IMF Press Conference - June 29, 2011

 "Tepid US Recovery Poses Challenge for Policy Balance"  6-29-2011

 IMF Statement on Article IV Consultations,  June 20, 2011


No comments: