OP-Ed & Features - Sunday, July 26, 2009 12:26
The bane of IMF funding – borrow at your own riskBy Zak Rose, Staff writer
Depending on whom you ask, “International Monetary Fund” is a dirty phrase. It evokes images of scheming westerners forcing innocent, hard done by states to neglect their citizens and sell-off their resources. When people compare the IMF’s numerous failures to its few successes, they feel confident that this image is accurate. They feel, or at least strongly suspect, that the IMFs true agenda is not to aid developing nations, but to perpetuate uneven terms of trade that advantage of the West.
In brief, here is the reasoning behind that view: the IMF lends money to states on the condition that they make certain fiscal policy decisions. They tend to insist that countries generate fast capital by focusing on primary product exports – food, metals, coffee, etc. At the same time, they insist that states curtail government spending – which includes slashing imports – meaning that states are unable to obtain the materials they would need to industrialize. In essence, states are pressured to sell inexpensive products without the ability to develop a manufacturing infrastructure. They sell cheap and buy expensive.
The downsides here are obvious. States are trapped on the disadvantaged side of uneven terms of trade. They have to buy expensive products from overseas, having no ability to make them at home, while only earning modest revenue from their cheap exports. Moreover, primary product export economies are famously fragile. If a state focuses on selling its abundant supply of, say, pineapples, a minor drop in the global price of tropical fruit can devastate the whole economy. Diversified and industrialized economies, on the other hand, are far less affected by the vicissitudes of the market.
IMF cuts in government spending do not stop with imports. Social services are cut. Wages are lowered. In other words, maintaining a standard of living becomes increasingly difficult for citizens in all walks of life.
The bottom line for most countries that have accepted IMF loans and policies has been failure. They may amass capital in the short-run, but they sacrifice long-term and lasting growth. Meanwhile, the population suffers. Given that this is the outcome more often than not, and given that, in spite of this, the IMF continues to advise the same “band-aid” strategies over and over, many people have come to regard the IMF as some kind of evil, insidious organization.
Still, it is worth keeping in mind that the IMF is asked the impossible: to step into sinking, collapsing economies and save the day. When its efforts fail, it receives all the blame. Furthermore, mistrust of the IMF means it is being approached increasingly later in the process of economies’ decays, making them even more difficult to bail out. Perhaps the IMF’s harsh structural adjustment programs are often the best solution, but frequently, the best solution is not good enough.
Of course this argument has been made before and is highly speculative. The fact is the IMF pushes strategies that rarely work, and has made little effort to adapt or become accommodating to the needs of the borrowing countries. That their inflexible and dubious strategies benefit the West is hard to swallow as coincidence. This, however, does not mean that people should decry the IMF. It means that people should focus their attention on the world leaders who chose to invite the IMF into their homes.
The IMF needs to be regarded as exactly what it appears to be and nothing more: an institution which pushes for harsh social policies in the developing world that benefit the West, and have a chance of benefiting the borrowing country in a specific, limited way. They offer short-term capital at the expense of long-term growth. Sometimes, only sometimes, it is worth borrowing their money.
It is hard to accuse the IMF of equivocation and manipulation when their habits have been clearly established. Disastrous IMF experiences in developing countries these days are the fault of the governments who choose that path. Countries need to fully understand the IMF before borrowing from it, and by now they have no excuse not to. States need to stop hoping for loopholes in the policies and need to stop hoping that the IMF will change – from this delusion the catastrophes arise. The IMF will not change; it will continue to offer stop-gap solutions which favour Western consumers. If that is what the country needs, governments should accept the cost and live with it. If the country needs something else, governments need to demonstrate the willpower to turn down IMF aid, rather than take out loans and hope for the best.
The IMF is not charitable or flexible, but it delivers what it promises: short term solutions according to a strict, liberal free-market standard. The world has seen how the IMF operates and the price it asks. Leaders need to examine whether or not structural adjustment is appropriate before borrowing. If it turns out that the most important goal is halting the IMF’s perpetuation of West-favouring mechanisms, the solution is not to raise accusations of neo-imperialism after the fact – the solution is walking away.
An ounce of prevention…
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