Imf Critique

Does the IMF needs Reforms?

From the reading it seems to me that both writers (Minton and Feldstein) are discussing the effects of IMF operations from the same perspective. Minton (1995) is talking about why the Bretton Wood institution needs reform while the other (Feldstein 1998) discusses the need for the IMF to refocus its agenda. While it is true that both discussions reflect most of the views from the Marxist perspective, it is equally right to say that they both also discuss why and how the IMF has become useless to the economies of the West. It is not surprising that the institution has outgrown its usefulness to the West because in my view, it has completed the purpose for which it was set up, this new and added responsibility it has taken is due to the fact that the West waned to use it as a “development tool” to other economies. But the approach they have tried and continue to use leave much to be desired by most economists except perhaps the western Capitalist economists who have suddenly become free market liberalizations apostles. While it is true that the IMF was created right after the heals of WWII to establish stable and fixed currency exchange rate, its ultimate mandate was the US answer to fixing the war ravaged economies of the West. To that end I will argue the institution succeeded and brought Western Europe from out of the woods. What surprises me the most though, is why the IMF veered from the modus opanadi it used to fix the Western European countries and has now been prescribing a “same remedy” solution to every nation that require their assistance. But to me the question of IMF conditionality for economic and financial assistance becomes personal having lived in a country under some of such conditions. I can tell you that until the 1980s, there was nothing wrong with the Ghana educational system. I can also tell you there was everything wrong with the political system because within a spate of five years there were three military coups and the country’s financial policies were in complete disrepair. There was corruption at every level of government as the military leadership who had taken over the country argued that the previous government was corrupt, they themselves were seriously looting the country. Under the leadership of the then leader of the Provisional National defense Council (PNDC), a former Air Force Flight Lieutenant Jerry John Rawlings approached the IMF for assistance thereby ushering Ghana into the unforgivable clutches of the almighty IMF. This institution prescribed everything from their usual economic Structural Adjustment Program which included the shrinking of government expenditure, increased taxes, open and free market trade system, privatization of almost all public enterprises as well as devaluation of the country’s currency, to educational reforms from the former British colonial legacy where students stayed in school for longer periods before they graduated to the US model, to the Cashand-carry system of health reforms. While the above conditions did not consider the socio-cultural background of the country, the attendant hardship it created on the citizenry was beyond description. What is interesting though, is that their conditions did not include political reforms. That is, there was no condition for the military government to embrace political pluralism (liberalization), so in effect they gave Ghana the financial assistance the government was requiring with all the attending conditionality above which meant higher taxes and a massive unemployment (48%), and an untold socio-economic hardship on the people of Ghana but left the very hierarchy of people who had plunged the economy into chaos in the first place untouched and

demanding no change at all from them. So while everybody else was tightening our belts and getting thin, peoples in leadership positions were getting fatter. Do not get me wrong because I am not advocating that the IMF which is a bank, should give loans to countries who approach it for such assistance without condition, my issue with the institution is that why do they not go back to the basics and study individual national background. What are the socio-cultural bases for a particular country, what makes the country tick, what is the level of institutional development in the country, what are the political and economic impetus of the economy and how is the level of development of the country’s infrastructure? When all these questions are answered then the IMF in my view will be better informed to make decisions regarding what dose of what prescription the particular country will need (McQuillan & Montgomery. P.23). As it stands now, the IMF has one fits all solution and prescription for every country/economy it enters. It is operating like a doctor who prescribes a combination of Tylenol and Ibuprofen for every patient who visits his clinic. Having digress a little to tell you the human aspect of how it actually feels living in a country under an IMF austerity measure, let me go back to the premise of the discussion. First I agree to some extent with the Marxist argument that the IMF is a Western imperialist tool to force free market capitalist liberalism on the rest of the world. The reason for their argument is not far fetched if one consider the vigor and determination the West is trying to propagate this political-economic doctrine as the remedy for development for every nation under the guise of globalization and with the collapse of the communist Russia. While history shows that all these Western developed economies adopted protectionism and subsidized (and continue to subsidize) their fledging industries to get to where they are today, they all are religiously forcing free and open market economy and liberal democracy for developing countries as the way forward. So as put eloquently by Ha-Joon Chang (2002) in his article “Kicking Away the Ladder: How the Economic and Intellectual Histories of Capitalism Have Been Re-Written to Justify Neo-Liberal Capitalism” the West (IMF) preaching open free market to developing countries as opposed to some degree of protectionism is tantamount to kicking the ladder they (developed countries) used to get to the pinnacle of development away from the developing countries. Not only is it the IMF doing the dirty work for the West, the WTO is also in on this one. But on the other hand what I do not agree with the Marxist contention is the fact that first and foremost, the IMF is a Western institution and so regardless of what anybody says or does not say, the Fund will operate in the interest of its founders. Secondly, the IMF like any bank will never be good at advising nations to be self sufficient or to stand on sound footing, their advise to their customers will always be such that countries will adopt policies that will enable them to meet their obligation to the Fund. That is to say, policies that will ensure that countries that are given financial assistance by the ‘Fund’ will be able to pay their loans back with interest regardless of the sociopolitical and cultural impacts to its citizenry. Like ordinary banks and their customer, if you pay your bills on time and you have very good financial standing with them they scramble to give you loan. Some have all kinds of incentives for you, but the moment you start showing red, bouncing checks and you are overdrawing on your account, that is when the austerity measures towards you begin. That is when they tell you to attend financial classes where you begin to learn how to budget you household income, and that is when they tell you to forgo you favorite movie or stop taking your family to diner every so often. Having looked at the Marxist argument from the austerity conditions attached to the IMF financial assistance and the forcing of these conditions on the developing countries, let us see the IMF from the prism of Western or liberal capitalism. The West will let us believe that they do not need the IMF any more because the it has outlived its usefulness. It is true looking at the financial and banking credit crash of recent times. You see, the west have been operating on the IMF precept of less to no government interference of the market, live financial and economic matters to the free market to operate, governments

do not interfere, the market will make its own adjustments. The current and ongoing financial crash leading to massive unemployment and worse economic conditions since the great depression of the 1930s have proved that the IMF doctrine of free and unfettered and unregulated economic activities in itself is subject to very serious unforeseen disasters like the world is going through now. Yes one can say that the IMF is spearheading the West political and economic agenda of free and open market as well as political liberalization to the rest of the world since the end of the Cold War, but that is to me not surprising because the IMF like any other business enterprise will operate in accordance with its shareholders’ vision. I will conclude that whilst the Marxist have a reason to argue that the IMF is a western imperialist instrument to propagate liberalism and free market capitalism, which I agree, it is its one prescription fits all austerity conditions that borders me. Also in my view if the ‘Fund’ will be true to themselves and let the developing countries adopt some of the same policies the developed countries adopted on their way up (Protectionism and Agricultural subsidies) to build their infant economies instead of helping the developed counties to kick the ladder of development away from the developing counties like the IMF sister institution (WTO) is currently doing, the Marxist will perhaps see it from a different prism. To the liberal capitalist I will suggest they learn something from the moderate Marxists (Socialism) by not just see government as antecedent to economics, they all work together for the good of their countries. I am not suggesting that Western countries adopt socialism or anything close to that, what I am suggesting is that some amount of regulation, fundamental grass root common sense regulation to direct how the financial sector of the economy will operate will not hurt. In other words, there should always be some an=mount of oversight.

References:

Feldstein, Martin (1998), Refocusing the IMF, Foreign Affairs, 00157120, Mar/Apr98, Vol. 77, Issue 2 Minton-Beddoes, Zanny (1995), Why the IMF needs Reforms, Foreign Affairs, 00157120, May/Jun95, Vol. 74, Issue 3 Timothy Gorringe, Fair Shares: Ethics and the Global Economy, (London: Thames and Hudson, 1999). Trim Bissell and Robert Weissman, ed. False Profits: Who Wins, Who Loses When the IMF, World Bank and WTO Come to Town?, (Campaign for Labor Rights: US: Feb. 2000). McQuillan and Montgomery, The International Monetary Fund, Financial Medic to the World, p. 23