IMF does not deserve more power

Author: Murat Kotan Published: 2009-04-24 www.eurodad.org

On 25-26 April the IMF/World Bank spring meeting takes place. At the G20-summit in April it was decided to considerably reinforce the position of the IMF in the international economy. The Dutch government as other European governments is a proponent of this. There is however a need for more international democracy and an explicit mandate for development. Even if the IMF would be given $7,5 trillion instead of the planned $750 billion; the problems of the poorest countries will not be solved and no substantial improvement in reaching the Millennium Development Goals will result from this. Democracy Of the 184 countries that are IMF members, four Western countries have almost one third of the total votes and ten Western countries together have almost half of the votes. There is international consensus on the deficit of legitimacy and the need to reform the governance structures of international non-representative organizations such as the IMF. However, the changes that are in preparation are small. In April 2008 it has been promised to improve the representation of Low-income Countries and Emerging economies within the IMF. Although a positive step, all in all if these measures are carried out this would mean that the voting rights of 46 low-income-countries excluding India will increase only with 0.29 percentage points (0.7 including India). For the 51 African countries as a whole the increase is less than 0.24 percentage points. IMF-money and IMF-policy The share of the planned $750 billion IMF-money that is available for poor countries is modest and inadequate to help them withstand the crisis. According to calculations of Oxfam, of the $1,100 billion in measures which the G20 have agreed on $50 billion might become available for Low-income Countries, mainly in the form of loans that lead to a heavier debt burden. Furthermore the IMFs own Independent Evaluation Office has shown for 2007 that under the IMFprogram for poor countries (PRGF), money goes into raising international reserves and debt servicing instead of into for example investments in healthcare and education. Of each $10 extra aid money $9,50 flows obliged to raising the international reserves for countries with low reserves. If the money does not go to building reserves, between $7,20 and $8,50 of each $10 goes into servicing debts. Thus only a fraction of the extra money can be actually spent by governments. (IEO 2007) Moreover Lower-income countries are in the coming time also obliged to service billions of dollar in debt, among others to the IMF and the World Bank. The use of IMF-loans and the associated policy conditions have consequences for important development indicators in areas in which the IMF has nor a mandate nor any expertise. A recent study by American scientists Abouharb and Cingranelli for example finds that a longer period under an IMF program increased government use of torture and extra judicial killing and also worsened the overall human rights conditions in developing countries. Human rights, targeted poverty reduction and factors such as gender equality are matter on which the IMF has no expertise, but that are of overwhelming importance (also for economic growth). Accountability The IMFs own evaluation office is extremely critical of the lack of accountability of the Fund and the lack of space for countries and civil society organizations to get their voice heard. There are no agreed standards against which to assess the actions of the IMF and no adequate mechanisms for the

organization and its governing bodies to be held accountable by the membership or by appropriate stakeholders. (IEO 2008) Countries are at the mercy of bureaucrats who experience no consequences of their actions but who have much power. Especially delegates of Low-income Countries are intimidated: 56% of the authorities and 67% of the Directors from Low-income countries feel they can criticize IMF staff rarely or only on some issues without negative repercussions. (IEO 2008) Whether the specific form of globalization of the previous decades has been positive or not, it has certainly been insufficient in social respect: more then 2.5 billion people still live on less than $2 per day and each day 30,000 children die due to poverty and preventable diseases. It is very implausible that multilateral institutions which so far controlled the international economic system are now all of a sudden prepared or have the ability and knowledge to make substantive changes in this. It is from this perspective therefore incomprehensible that EU governments support an institute that has performed so badly and carries absolutely no responsibility for the consequences of its actions. To what does the Fund owe this support? Especially now the Fund is receiving more resources, it is the moment to demand changes. Governments should make explicit in clear language what they expect from the IMF and how they think of keeping the IMF accountable to this. A sustainable and legitimate solution for the challenges ahead requires more than reforms in the financial sector. For this it is necessary that a democratic international institute with an explicit task to fight poverty and to promote the millennium goals has more control over the world economy. The work of the Commission of Experts on reforms of the international monetary and financial system established by the UN and its recommendations (among which: spending of 1.0 percent of the national economic packages of industrialized countries in developing countries, liquidity support to regional financial initiatives and the prevention of an IMF/World Bank monopoly, an end to all forms of export subsidies by developed countries and the setting-up of tax-free and quota-free market access for economically less developed countries and a strengthening of international conventions such as the UN Convention against Corruption and the UN Commission on International Cooperation in Tax Matters) must have a much more important place in the discussions concerning reforms of the international economic and monetary system and must be supported more expressly by the Netherlands and other EU governments. Additionally, governments should insist that the IMF and the World Bank do not conduct policies that go against the recommendations of this UN commission. Murat Kotan Coordinator Jubilee Netherlands References - Abouharb en Cingranelli. 2009. IMF programs and human rights, 1981-2003. Review of International Organizations 4: 47-72. - IEO. 2007. The IMF and Aid to Sub-Saharan Africa. Independent Evaluation Office of the IMF: Evaluation Report. - IEO. 2008. Governance of the IMF. An evaluation. Independent Evaluation Office of the IMF: Evaluation Report. - Oxfam International. 2009. What Happened at the G20? Initial analysis of the London Summit. Oxfam briefing paper, April 2009.