Global Policy Forum

The Danger of IMF Policies


By Author Joia S. Mukherjee and Brooke K. Baker

June 1, 2009


AS THE WORLD financial crisis continues, rich and poor countries seek money to meet their budgetary obligations and fund vital domestic programs, including health and education. At the G-20 meeting in London last month, an agreement was reached to increase the resources of the International Monetary Fund by up to $750 billion to assist developing countries in this time of crisis. In this spirit, the Obama administration authorized an additional $100 billion credit line to the IMF and the sale of IMF gold to help create an endowment for the fund's operating expenses. Both proposals are in the war supplemental bill that passed the Senate before recess and will be conferenced by House and Senate members early this week.

IMF policies have consistently constrained government spending in poor countries with the goal of decreasing a hypothetical risk of inflation and of limiting the size of the public sector. These IMF policies are especially dangerous when poor countries are plunging deeper into poverty as their economies shrink and revenues fall.

Unfortunately, neither Congress nor the administration imposed needed reforms on the IMF's ultra-conservative lending policies. The United States has a controlling interest in the IMF and can mandate reforms that exempt health and education from the spending caps. While the IMF claims it is voluntarily loosening its fiscal stranglehold, a recent review of nine post-crisis loan agreements shows that the IMF continues to restrict government spending, mandating wage, employment, and general public-sector cuts.

The irony of this perverse approach to human development has never been clearer. Today, market-based, financial-sector strategies have failed so miserably that nothing but massive public spending can rescue even the wealthiest economies. The United States itself has used trillions of dollars of public monies to stimulate the economy and secure private institutions. Yet expansionary public spending will not be possible in poor countries if the IMF is given free reign to restrict public expenditures.

Given the G-20 consensus to revitalize the nearly moribund IMF, it is critical that the language hammered out in conference this week instructs the IMF to exempt health and education spending from its usual restrictive economic criteria. Likewise, if the IMF is authorized to sell off 12 million ounces of its gold reserves to build its own financial security, it should reserve at least $5 billion in nondebt-creating assistance to poor countries in the form of grants or debt relief.

Last week, Representative Maxine Waters of California circulated a letter in the House of Representatives that spells out important reforms for the IMF, in an effort to transform new monies to the IMF from a blank check to a more compassionately structured strategy for human development. Representative Jim McGovern was the only Massachusetts member to add his name to this letter. The other Massachusetts representatives still have time to add theirs.

Representative Barney Frank, who will be deeply involved in the conference discussions as chairman of the Financial Services Committee, and Senator John Kerry, the chairman of the Foreign Relations Committee, have vital roles to play in improving the IMF. Both committees can mandate reform of the IMF as a condition of this large investment - specifically, reform that exempts governments' health, education, and development spending from Draconian fiscal restraints.

As the world economy struggles, protection of people made most vulnerable by the failures of globalization is a critical responsibility of the nations most responsible for the crisis. Allowing increased public spending in rich countries while restricting public spending in poor countries is not only hypocritical, it will worsen existing inequalities, particularly in health and education. These are the indicators most tied to development. The IMF must not be allowed to continue to defund and constrict social protection in this time of economic collapse. The US government and our elected representatives from Massachusetts should demand clear language in the war supplemental bill that assures that IMF monies will allow robust investments in social needs.


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