By Henri Valot
CIVICUS
August 18, 2006
Over 2006, the Global Call to Action against Poverty agreed to launch a month of mobilization on the 16th September (to coincide with the IFI Annual Meetings) building up to a climax on a global white band day on the 17th October. The month will be launched with highly visible public awareness-raising street actions, stunts and media events. These actions will culminate in a global white band day of mobilization around the International Day on Eradication of Poverty, on October 17th.
Civil society organisations that attended the "Strategy Session on the International Monetary Fund" at the Institute for Policy Studies in Washington, DC, on the occasion of the IMF-World Bank 2006 Spring meeting drafted a Consensus Declaration and Strategy Paper titled "The IMF: Shrink It or Sink It", which has been circulated globally for endorsement in advance of the critical Fall meeting of the Bretton Woods institutions that will be held in Singapore on 13-20 September 2006. The paper clearly states: Like old nuclear reactors, the IMF is dangerous and, many argue, must be retired. The optimum solution to the problems posed by such Jurassic institutions is to decommission them. But if this is not yet possible at this point in the case of the Fund, then its power to do harm and its reach must be drastically curtailed.
Another important contribution to the debate comes from the Global Unions Group and the World Confederation of Labour with their joint statement to the 2006 Annual Meetings of the IMF/WB titled: "Reform of the IFIs to Create Effective Instruments Against Global Inequity and Financial Instability". The international trade union movement proposes a more consultative approach by rethinking the roles that they currently play. According to the statement, the international financial institutions (IFIs) could play a positive role in favour of a more equitable globalization, but this would require developing totally different approaches on issues such as trade liberalization, privatization and labour market deregulation, which have been imposed on developing countries through the IFIs' loan conditions or coercive policy advice. Even though much more needs to be done, the progress made over the past year in debt cancellation for poor countries shows that, when the IFIs choose to work in cooperation with the global trade union movement and other civil society organizations, important advances can be made towards achieving the Millennium Development Goals.
I want to reflect here on the opportunities that the upcoming Annual Meetings of the IMF/WB offer us. Following new mandates given to the IMF at last April's spring meetings, the annual meetings are scheduled to discuss implementation of decisions aimed at enhancing the IMF's role concerning international financial stability in a global economy characterized by unsustainable trade imbalances, commodity price pressures, currency fluctuations and sharp inequalities of income. The new mandates include multilateral consultations of "systemically important members", increased surveillance over exchange rates, and the design of a new crisis-prevention loan facility. The annual meetings will also discuss proposals for changing the distribution of votes and representation in the governing structures of the IMF.
These Annual meetings have always been important occasions for social movements, people's organizations, NGOs and other formations to hold international activities and actions at the site of the meetings, that articulates critique, express protest and assert alternatives to the role, policies and operations of these institutions. While the analyses, positions and calls of these movements and groups are not homogenous, there is no debate that the IMF and the WB cannot be allowed to operate the way they have been doing in the past. Profound changes have to take place, and these changes will not happen without active public intervention and pressure not only on the IMF and WB but also on the governments that are in control of these institutions. Moreover, what is agreed by all is that the International Monetary Fund is perhaps at its most vulnerable state in years. It is suffering a triple crisis--a crisis of legitimacy, a budget crisis, and a role crisis--that is unparalleled in its 62 years of existence.
A Legitimacy Crisis: The Fund's reversal of fortune stems mainly from the Asian financial crisis, which brought down the famed tiger economies in the summer and fall of 1997. The Asian crisis was the "Stalingrad" of the IMF, and it never really recovered from it. The Asian financial debacle gave impetus to an ongoing review of the structural adjustment programs that the Fund, along with the World Bank, had imposed on over 90 developing and transition economies since 1980. Few of these had succeeded in bringing about the growth, reduction in inequality, and decrease in poverty that the countries undertaking these programs had been promised. Indeed, IMF "shock therapy" programs in Russia and Eastern Europe added millions of people to the poverty rolls in the 1990s.
In 2002, with the Fund still reeling from the Asian financial crisis, Argentina collapsed, defaulting on $100 billion of its $140 billion foreign debt. Perhaps more than any other country in the world, Argentina had followed to a "T" the neoliberal prescriptions of the IMF, including radical deregulation, radical tariff liberalization, and financial liberalization. When this mix of policies unraveled in 2001 and 2002, so did the IMF's credibility since it had thrown in billions of dollars in stabilization loans in support of them.
A Budget Crisis: The crisis of legitimacy has had financial consequences. In 2003, the Thai government declared it had paid off most of its debt to the IMF and said it would soon be financially independent of the organization. Indonesia ended its loan agreement with the Fund in 2003 and recently announced its intention to repay its multibillion dollar debt in two years. A number of other big borrowers in Asia, including the Philippines, India, and China, mindful of the devastating consequences of IMF-imposed policies, have refrained from new borrowings from the Fund. Now, this trend has been reinforced by the recent moves of Brazil and Argentina, which, in paying off all their debts and declaring financial sovereignty, have implicitly asserted that they do not want to borrow again. What is, in effect, a boycott on the part of its biggest borrowers is translating into a budget crisis since over the last two decades the IMF's operations have been increasingly funded from loan repayments by its developing country clients rather than from the contributions of wealthy Northern governments, which deliberately shifted the burden of sustaining the institution to the borrowers. The upshot of these developments is that payments of charges and interests, according to Fund projections, will be cut by more than half, from $3.19 billion in 2005 to $1.39 billion, in 2006 and again by half, to $635 million in 2009.
A Role Crisis: The erosion of the Fund's role as a disciplinarian of debt-ridden countries and an enforcer of structural adjustment has been accompanied by a search to find a new role. An attempt by the Group of Seven to make the Fund a central piece of a new "global financial architecture" by putting it in charge of a "contingency credit line" to which countries about to enter a financial crisis would have access if they fulfilled IMF-approved macroeconomic conditions fizzled out as it was pointed out that the spectacle of a government seeking access to the credit line could itself trigger the financial panic that the government sought to avert.
The IMF attempts to present itself as a "lender of last resort" for developing countries. But, for many Asian countries, a regional institution, which understands the complexities of a region better than the Fund and which would thus be less indiscriminate in imposing conditionalities, is the answer. There is also movement in Latin America towards a regional institution where one of its functions would be to serve as a source of capital and as a lender of last resort: the Bolivarian Alternative for the Americas (ALBA), pushed by Venezuela, Bolivia, and Cuba. But, one objection goes: East Asia and Latin America have significant capital resources to serve as a pool for a regional lender of last resort. But what about capital-poor Africa? This is the concern that has made many African governments reluctant to distance themselves from the Fund. One could oppose that, instead of relying on the IMF, African governments could possibly draw on the cooperation of relatively capital-rich developing countries such as China, Venezuela, India, and South Africa to set up a regional institution that would serve as a lender of last resort.
Campaign Demands
Responsibility in the broader context of the MDGs The IFIs would achieve greater legitimacy if they ensured that their policies were fully consistent with broadly accepted goals such as poverty eradication and the Millennium Development Goals (MDGs). Instead, the IMF's managing director issued a statement in June announcing that the IMF would seek to define "limits of Fund accountability and responsibility in the PRS [poverty reduction strategy] process and in the broader context of the MDGs". By turning its back on the MDGs, the IMF will make itself more irrelevant to the needs of the global community. Whether it be in designing a new emergency credit facility to assist countries in financial crisis or in redesigning the distribution of votes and representation in the IMF's governing structures, the IMF must assure that its financial instruments protect the interests of the most vulnerable members of society. The Fund should thus refrain from adopting an emergency credit facility which would require the borrowing country to adopt macroeconomic policies that increase job losses or to reduce social expenditures.
Rapid implementation of debt cancellation commitments
One year after the decisions of the World Bank and IMF, taken at the 2005 annual meetings, to cancel the debts of several poor indebted countries, we welcome the fact that the debt cancellation initiative has allowed the recipient countries to devote more of their resources to fighting poverty and improve the welfare of their citizens. We also urge the World Bank and IMF to build upon the momentum of last year's decision by providing debt cancellation to more countries. Noting that the African Development Bank (AfDB) already agreed to debt cancellation of eligible African countries, the international trade union movement calls on the Inter-American Development Bank (IDB) to follow the example of the AfDB and implement its own programme this year.
Debt cancellation must be implemented quickly and efficiently, without subjecting countries to burdensome economic policy conditionality. Countries like Haiti, which will see its debt relief delayed at least three years because of conditions attached to the debt relief programme, should not have to continue paying service on odious debts while its citizens are forced to forgo basic education, health and social services. The economic policy conditionality attached to debt relief, such as privatization, trade liberalization, or the requirement that countries adhere to IMF prescriptions of spending limitations, is often at odds with the MDGs, which put health, educational, and social needs at the centre of the development agenda. We call on the World Bank and IMF to honour their endorsement of the MDGs as well as their commitments to promote country ownership of development strategies by ceasing to attach economic policy conditionality to debt relief.
Stop reducing the costs of public services
Two of the Global Union Federations, Public Services International (PSI) and Education International (EI), have frequently informed the World Bank that certain efforts to reduce the costs of public services can undermine the quality of services and eventually hinder achievement of the MDGs. For example, EI has objected to the Bank's requirement that some African countries hire "volunteer teachers" as a condition for receiving financial assistance for education. The policy exists purportedly to achieve the attainment of MDG 2 of universal primary education at lowest cost possible, but EI has pointed out that the hiring of unqualified teachers leads to schooling of dubious quality. EI's position was recently supported by a report on Evaluation of World Bank Support for Primary Education issued in July 2006 by the Bank's own Independent Evaluation Group, which warned that the World Bank and client countries "will need to resist the persistent temptation to increase access first and improve learning outcomes later, since experience has shown that it is difficult to retrofit quality onto a system that is operating at a low level of performance". The practice of requiring some African countries to hire under-qualified teachers has continued.
Stop using the Doing Business indicators
The report of the World Commission on the Social Dimension of Globalization, published in 2004, called for increased coherence between the IMF, World Bank, WTO, International Labour Organization (ILO) and other relevant UN bodies. A central recommendation was that the creation of full and productive employment and decent work were key instruments for poverty eradication and equitable development. Unfortunately, both the IMF and World Bank have limited their participation in the follow-up to joint discussions that analyse some labour and development issues, rather than engaging in policy coherence initiatives as the World Commission report recommended. In addition, the main instrument used by the IMF and World Bank in promoting labour market reforms has been the blueprint set out in the annual Doing Business report prepared by the Bank's Private Sector Development department, in which workers' rights and decent work objectives are clearly made subservient to investors' rights. The basic approach of Doing Business is that any labour law or regulation that is perceived to be an obstacle to the unfettered rights of private investors should be removed. The World Bank's Doing Business web site hails Palau – a Pacific island country of 21,000 inhabitants that is not an ILO member and has no labour code – as the world's overall "Best Performer" in terms of labour regulation. According the World Bank's Doing Business data base, Palau merits the Best Performer designation because, among other exemplary features, it allows workers to be required to work up to 24 hours per day and up to 7 days per week. For an employee having 20 years of seniority, employers are required to provide zero days of annual leave.
The World Bank should remove labour market regulation from the mandate of its private sector development department and stop using the Doing Business indicators as a basis for its labour market reform proposals. Any IMF or World Bank involvement in labour reforms should require that the reforms be based on tripartite dialogue involving unions, employers and government, and are consistent with the core labour standards and with other ILO conventions ratified by the country.
Fighting all kind of corruption
We welcome the World Bank's recent focus on improving transparency and governance in its client countries in an effort to eliminate corruption. However, this effort must be complemented by increased attention to the activities of private corporations, usually based in industrialized countries that are frequently implicated in corruption as much as the host government. The Bank's demand for greater openness on the part of the governments to which it lends will have far more credibility if the Bank were to improve the far-from-perfect transparency of its own operations. Additionally, the Bank's anti-corruption campaign will only be as effective as its seriousness in defending and supporting the "whistleblowers" – be they trade unions, other civil society organizations, the media, or the Bank's own staff – that expose corruption. Free and independent civil society organizations act to counter the "undue influence by powerful corporations", which the Bank's report identifies as an "underlying source" of grand corruption in some countries. Unions and other civil society groups are in a position to organize and mobilize the public to demand accountability from government. While the World Bank will naturally work with governments to address corruption, an effort to support and strengthen civil society organizations must be at the heart of its approach.
Democratizing those institutions
A redistribution of representation in the IMF and the World Bank must not be limited to increasing the vote of a few emerging economies but should also ensure an enhanced presence of the countries where the IFIs' policies have the biggest impact, notably low-income countries, many of which are African. The current situation at the IFIs' boards, where only two executive directors represent 47 sub-Saharan African countries while thirteen directors represent 30 OECD countries is just unacceptable.
We reiterate that the IMF must recognize the importance of civil society consultations to the success of its work, and must continue to pursue active engagement with trade unions. The consultations should be expanded to discussion of lending operations as well. Although they are currently negotiated in secret between the IMF and the government, loan agreements should be determined through more transparent and open discussions, including the trade unions and other civil society organizations.
Join the International Peoples Forum vs the IMF and the World Bank.
With Asian movements taking the lead, an international group of networks, movements, campaigns and NGOs are convening an International Peoples Forum vs the IMF and the World Bank on September 15 to 17, in Batam-Indonesia, a few days before the official meeting of the IMF and WB. The Global Call for Action against Poverty will be co-convening the Forum, and will launch its Month of Mobilization. Mobilization in Batam will be echoed by activities in capitals worldwide.
Through the International People's Forum, we aim to:
- Encourage international citizens intervention and action during the occasion of the Sept 2006 IMF-WB Meeting (beyond Asia); Project the international character of citizens initiatives and movements vs these institutions
- Provide space for citizens groups and movements to give expression of their critiques, demands and alternatives vs the IMF and WB, and address specific issues relevant to the context and agenda of the Sept 2006 IMF and WB Annual Meeting
- Promote linkages and solidarity among various groups involved in educational, campaigning and advocacy work on the IMF and WB, and facilitate venues for exchanges, joint study and strategizing, collective action
- Exercise and uphold the right of citizens to freedom of expression and assembly.
A major conference on alternatives to the IMF on the issue of "lender of last resort" should also be organized in 2007, with comprehensive research work undertaken this year in preparation for this event.
The IFIs' 2006 annual meetings are called upon to help define an appropriate role for the IMF in dealing with major global challenges to economic stability, to develop a coherent and effective World Bank strategy for combating corruption, and to make both of the IFIs more relevant to achieving development goals. Civil society organizations have shown their capacity to work in cooperation with the IFIs in order to make progress on debt cancellation for highly indebted countries and to ensuring that the IFIs' operations respect the internationally agreed labour standards. Consultation and cooperation with civil society organizations will be key to achieving successful reforms of the IFIs so as to make them into effective instruments against global inequity.
In Solidarity,
Henri Valot, MDG Campaign Manager, CIVICUS
