< HOME  Thursday, September 14, 2006

IMF, World Bank going down the drain

After decades of siphoning the life-blood out of nation after nation's economies, the IMF and World Bank's golden days of collecting boatloads of interest from developing countries are over.

Not surprisingly, no one wants to do business with them anymore. They've lost their legitimacy; they've lost their income stream; and they'll soon be out of business.
[T]he IMF Executive Board [is] trying to steer through two reforms intended to "safeguard and enhance the Fund's credibility."

The first involve[s] reallocating the voting power of IMF member countries according to the current size of their gross domestic product [ostensibly] intended to increase the voting power of a selected number of big developing countries -- Korea, Turkey, China, and Mexico -- while laying the ground for eventually expanding the decision-making power of other developing countries.

The other initiative [would] give the Fund the new role of solving "global macroeconomic imbalances" -- a euphemism for disciplining countries with large trade surpluses like China.
They won't get away with either.
A bloc of about 50 developing countries objects to the proposed GDP-based formula. These countries see the move as dividing developing countries while producing only one real winner: the United States, which would increase its voting power under the new system. The second initiative has generated opposition for attempting to get the Fund to do Washington's dirty work of pressuring China to revalue its currency to reduce the massive U.S. trade deficit with Beijing.
Meanwhile . . .
[A] string of crises [plagues] the two agencies, also known as the "Bretton Woods institutions" after the site of the July 1944 conference where they were founded. The Fund, in particular, is in a state of demoralization. "Ten years ago, the IMF was flying high, arrogant in its belief that it knew what was the best for developing countries," notes one civil society policy paper. "Today, it is an institution under siege, hiding behind its four walls in Washington, DC, unable to mount an effective response to its growing numbers of critics."

* * *

The IMF's equivalent of Stalingrad -- where the defeat of the German Sixth Army marked the turning point of World War II -- was the 1997 Asian financial crisis, where it "lost its legitimacy and never recovered it," said to Dennis de Tray, a former IMF and World Bank official who is now vice president of the Washington-based Center for Global Development.

The Fund was blamed for pushing policies of capital account liberalization that made the Asian economies vulnerable to the volatile movements of speculative capital; assembling multibillion dollar rescue programs that rescued creditors at the expense of the debtors; imposing expenditure-cutting programs that merely worsened the downspin of the economy; and opposing the formation of an Asian Monetary Fund that could have provided the crisis countries with financial reserves to save their currencies from speculative attacks.
Sound familiar? It should.

Standard operating procedure - (1) deregulate financial markets, allowing banks and brokerages to seize control over economies; (2) bail them both out when things go sour; (3) insist that governments cut social programs and starve their people to make up the difference; and (4) maintain control over their brutal monopoly.

Too bad, it's a recipe for disaster and governments around the world are waking up.

The Fund went from one financial disaster to another. The Russian financial collapse in 1998 was attributed to its policies, as was Argentina's economic unraveling in 2002.

Resistance was not long in coming. In the midst of the Asian financial crisis, Prime Minister Mohamad Mahathir of Malaysia broke with the IMF approach and imposed capital controls, saving the country from the worst effects of the crisis.

Mahathir's defiance of the IMF was not lost on Thaksin Shinawatra, who ran for prime minister of Thailand on an anti-IMF platform and won. He went on to push for large government expenditures, which stimulated the consumer demand that brought Thailand out of recession.

Nestor Kirchner completed the humbling of the IMF when, upon being elected president of Argentina in 2003, he declared that his government would pay its private creditors only 25 cents for every dollar owed. Enraged creditors told the IMF to discipline Kirchner. But with its reputation in tatters and its leverage eroded, the Fund backed off from confronting the Argentine president, who got away with the radical debt-write down. [AWESOME!]

By 2006, underscoring the crisis of legitimacy of the institution, the governor of the Bank of England described the IMF as having "lost its way."

But, legitimacy isn't all they lost. They lost the money, honey.
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 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, mindful of the devastating consequences of IMF-imposed policies, have refrained from new borrowings from the Fund. These include the Philippines, India, and China. Now, this trend has been reinforced by the move of Brazil and Argentina earlier this year to pay off all their debts to the Fund and declare financial sovereignty.

What is, in effect, a boycott by its biggest borrowers is translating into a budget crisis for the IMF. Over the last two decades, IMF operations have been increasingly funded from the loan repayments of its developing country clients rather than from the contributions of wealthy Northern governments. The burden of sustaining the institution has shifted 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. These reductions have created what Ngaire Woods, an Oxford University specialist on the Fund, describes as "a huge squeeze on the budget of the organization."
And now, they have nowhere to go.

Boo-hoo. What's a poor vampire - I mean, banker - to do?
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 futile search to find a new role.

The Group of Seven tried 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. But the prospect of a government seeking access a credit line that could trigger the very financial panic that it sought to avert doomed the project.

Another proposal envisioned an IMF-managed "Sovereign Debt Restructuring Mechanism" -- an international version of a Chapter 11 bankruptcy mechanism that would provide countries protection from creditors while they came out with a restructuring plan. But when South countries objected that the mechanism was too weak and the United States opposed the proposal for fear it would curtail the freedom of operations of U.S. banks, this new prospect also collapsed.

The role of righting "global macroeconomic imbalances" assigned to the Fund during the spring meetings of the IMF leadership earlier this year is part of this increasingly desperate effort by the G 7 governments to find a task for an international economic bureaucracy that had become obsolete and irrelevant.
But, hey - they're not alone. Equally despised all over the world for their financial plundering, the World Bank is in the same boat.

A budget crisis is also overtaking the Bank, according to Ngaire Woods. Income from borrowers' fees and charges dropped from $8.1 billion in 2001 to $4.4 billion in 2004, while income from the Bank's investments fell from $1.5 billion in 2001 to $304 million in 2004. China, Indonesia, Mexico, Brazil, and many of the more advanced developing countries are going elsewhere for their loans.

The budgetary crisis is, however, only one aspect of overall crisis of the institution. The policy prescriptions offered by Bank economists are increasingly seen as irrelevant to the problems faced by developing countries, says de Tray, who served as the IMF resident officer in Hanoi and the World Bank representative in Jakarta.

The problem, he says, lies in the emphasis at the Bank's research department on producing "cutting-edge" technical economic work geared to the western academic world rather than coming out with knowledge to support practical policy prescriptions.

The Bank is currently staffed by some 10,000 professionals, most of them economists, [OMG!] and de Tray claims that "there is nothing wrong at the World Bank that a 40 per cent staff reduction would not fix."

American University Professor Robin Broad, an expert on the Bank, claims that the Bank is, in fact, in more of a crisis than the IMF but that this is less visible to the public. "The IMF's response has been to withdraw behind its four walls, thus reinforcing the public perception of its being besieged," she notes. "The Bank's response, however, has been to engage the world to hide its mounting crisis."

Broad identifies three elements in the Bank's offensive. "First, it goes out and tells donors that it is the institution best positioned to do lending to end poverty, for the environment, for addressing HIV-AIDS, you name it . when in fact its record proves that it's not.

Second, it has the world's largest 'development' research department -- funded to the tune of about $50 million -- whose raison d'etre is to produce research to back up predetermined conclusions.

Third, it has this huge external affairs department, with a budget of some $30 million -- a PR unit that feeds these so-called objective research findings to the press and fosters the image of an all-knowing Bank." But, she concludes, "This can't last. Inside the Bank, they know they're in crisis and are scrambling. And sooner or later, if we do our work, the truth will come out."

As it always does.
What is troubling for [some], however, offers an opportunity for [others] who have long regarded the current multilateral system of global economic governance as mainly concerned with ensuring the hegemony of the developed countries, particularly the United States. Proposals for alternative institutions for global finance have been circulating for some time.

The current crisis may be the break in the system that will make governments, especially those in the South, willing to seriously consider the alternatives.
It's only a matter of time before the whole thing comes crashing down. And when it does, those two hucksters will find themselves out on the curb - or perhaps, in the morgue.

9 Comments:

At Thursday, September 14, 2006, Blogger The Great Revealer said...

Excellent article, excellent indeed!

The repurcussions are huge. While some readers may not pick up on the true significance of such a long development, it affects our everyday lives -- including the onset/decision of starting wars.

The Rothschilds and Ashkenazis' empires are built on stealing money through the use of fraudulent banking schemes such as the "Central Bank" owned by them and the use of "Fiat Currency". This was the main reason why they 'overthrew' the Czarist government in the Soviet Union (and subsequently massacred his ENTIRE family), and set up the "Jewish" Joseph Stalin (more correct term is Ashkenazi Khazar) as the dictator.

Interesting development indeed. Now we await to see the reactions on the part of the Ashkenazi/Rothschilds...

 
At Thursday, September 14, 2006, Blogger Goofy said...

The article is to the point!

However, I believe that at least the World Bank used to be a professional and constructive institution. Take a look at its website today and you will realize that it has lost its way.

It all came to an end with the Asian financial crisis, which was more economic aggression by the US/the international banking community than anything else. The IMF under orders from the US Treasury designed capital flights which overnight created financial crisis, which were allowed to persist to become fully fledged economic crisis, which in turn made it impossible to translate ridiculously low exchange rates for IDR into increased export earnings. Trade finance was only resumed when the Islamic financial institutions took serious initiatives to address the misery.

What did the World Bank offer the poor Indonesians? Wolfensohn under a rare meeting with poor people in Jakarta encouraged them to support the Rupiah, when it was in free fall! His bank and IMF had persuaded the Indonesian government to abolish all currency regulations thus providing taxi drivers and housewives to speculate in IDR/USD fluctuations!

His successor Wolfowitz was at the time US ambassador to Indonesia and did his best to create distrust in the country and worked hard in the US for an embargo on Indonesian products because of religious intolerance, which had not really started at the time, but which was surely in the making!

If the Indonesians are not keen to borrow from Wolfowitz and his bank, who can blame them?

The World Bank's chief economist Joseph Stiglitz (who later became a Nobel Prize laureate) had integrity enough to resign from the Bank. That was not the case for Dennis de Tray, who stayed on in Jakarta pursuing the new agenda of destroying the Indonesian economy rather than building it up.

In the World Bank's report "Indonesia - Sustaining High Growth with Equity" May 1997 the bank wrote: “The Government appears to have public debt under firm control. Its policies of debt prepayment have achieved impressive results to date, and there are indications of more prepayments to come”. And “...the Government needs to reiterate at every opportunity that debt of the private sector will not become a liability of the public sector in the event of default”. That was all forgotten less than 6 months after the report came from the printer. Now the explanation for the misery was what we had all suspected all along: lack of transparency, crony capitalism etc.

Stiglitz' book Globalization and its discontents is well written, but it is probably a bit too diplomatic for the reader, who has not studied the Asian financial crises already.

Stiglitz' critique of the IMF is concentrating on the fact that its Letters of Intent were primarily based on its interpretation of the psychology of international lenders rather than solid economic theory. That made it possible to dictate completely different remedies according to international political likes and dislikes. The currency board model, which was fine for Argentina og for a while also for Russia was completely rejected in Indonesia. The US government wanted to support and protect Jeltsin, but wanted to get rid of Suharto.

Considering that psychology was given so much weight by IMF it was quite amazing to notice that it did its utmost to undermine the internal and international credibility of the Indonesian economy. In effect it took 9 months for Indonesia to obtain disbursements from IMF in amounts corresponding to Indonesia's own deposits in IMF, and the time was used by IMF for good measure to spread doubts of Indonesia’s economy (often the IMF instalments were delayed because IMF was not satisfied or did not feel that the Indonesian government was sufficiently committed to reorganize its economy which had in fact been designed jointly by the “Berkeley Mafia” of brilliant Indonesian economic technocrats and the World Bank. It climaxed with a designed run on a dozen Indonesian commercial banks which for good measure were not backed by any depositor guarantee scheme. Capital flight by foreign lenders who had lent short term to the private sector in Indonesia was a natural consequence.

Interesting enough Indonesia in cooperation with the World Bank had designed a regime for foreign borrowing which effectively protected the Indonesian government from risks assumed by the private sector. There was absolutely no legal way the Indonesian government could be held accountable for the private borrowing, which was often outrageous on the sides of borrowers and lenders alike. However, the IMF as usual had more sympathy for the Western bankers than for the common people in Indonesia.

If anybody cares to study the old Letters of Intent with Indonesia, Korea etc. it becomes clear that they had pretty little to do with solving the financial crisis. About 2/3 of them were trade political issues, which the US government had never solved to its satisfaction. So, for example Indonesia had to open for import of fully assembled cars!

IMF even took an active role in Indonesia’s environmental destruction as it forced Indonesia to permit export of logs and sawn timber, forbidden for many years as part of its sustainable development policy, which prescribed that export of wood should be limited to plywood and other finished wood products in order to economize with natural resources.

Anyway, IMF delivered what they had been told to deliver, to bring down President Suharto who had grown too self confident for the US.

 
At Thursday, September 14, 2006, Blogger efsaturn said...

Excellent article. Thanks for finding it and adding your comments and emphasis, so we can get the good/important stuff right away.

Every since I saw a movie about Jaimica and its relationship with IMF, I have known that the spin for the general public is all wrong. And that the strings that come with this money can only bring countrys' economies down and they can not prosper.

What this means, or what changes are in store, I don't know, but right now, change is good. I hope it falls! What ramifications that will have on US economy, don't know.

 
At Thursday, September 14, 2006, Blogger qrswave said...

hey thanks for your comments.

I think few people realize just how significant these developments are. The financial system is in meltdown mode. This is precisely why they're demolitioning countries left and right - to ensure future generations of borrowers.

And that hit today on the Russian banker was no coincidence. There is some heavy duty sh*t going on in the underworld that we like to call the banking system.

 
At Friday, September 15, 2006, Blogger Nepos Libertas said...

qrswave, nice job. Exhausting research and commentary, no doubt.

IMF & World Bank are inherently evil as well as Federal Reserve. Not to mention the exploitative misadventures of Citibank and other American banking institutions that seek to exploit the developing countries to squeeze their treasuries dry to hoard the wealth to store elsewhere....always in the USA.

Thomas Jefferson had so much to say about the private banking system in countless letters that he must be a self-taught professor of economics and finance. He's one of our American prophets and his stern warnings have the ring of truth in them.

Andrew Jackson, despite his hostile attitude towards Native American of the Southeast, have this to say in foresight:

"You are a den of vipers and thieves.
I intend to rout you out, and by the Eternal God, I will rout you out!"

[Stated in reference to the wildcat bankers of his day]

The predatory banking cartel will get their just deserts when the time come.

Greed, vanity and grandoise opulence at the expense of national happiness and economy know no boundaries. When the vipers and thieves reveal their true colors, they should be dragged out for indiction on charge of treason and sentenced to death by hanging, because they seek to exploit the world civilization while hiding behind the gold-plated institution banks and silver-plated mansions as the U.S. economy lay in tortuous pain under the oppression of ever-increasing debt as the dignity of social justice and fair & just economical liberty become degraded to extinction to accelerate the rise of the tyrannical combination of plutocracy and fascist authoritarianism.

 
At Friday, September 15, 2006, Blogger OWN-the-NWO said...

KICK ASS BLOG TODAY


BRAVO

 
At Friday, September 15, 2006, Blogger Akber said...

qrswave,
Great job - finally got around to reading it.

 
At Friday, September 15, 2006, Blogger A_Resident said...

Great Work, Great Post, Thanks!

 
At Friday, September 15, 2006, Blogger Citisucks said...

Great Article. Guess who one of the major corporate terrorist former World Bank assholes works for. Yup, Citigroup, after all they are always looking for people experienced in starving the poor to death.

 

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