IMF:in need of reform, not new personalities

May 22nd, 2011

This ought to be the moment for fundamental change at the IMF.   Born as a tool of US-Western global control at the end of the Second World War, dominated by the US 17% share of the vote on the Board, it promoted financial liberalisation that reduced many poorer countries to crisis, failed to foresee and therefore avert the financial crises that rocked the world (Thailand 1997, Argentina 1999, Wall Street 2008, Greece Ireland and Iceland 2009-10), and then pursued prescriptions (so-called structural adjustment programmes) which forced failing economies deeper into debt by subordinating their domestic needs to Western capital.   Will this now change?   

Despite some recent modest easing of these counter-productive policies, the IMF still remains committed to de-regulation, privatisation and fiscal austerity.   Its goal is not about balanced global economic development, but about maximising access for Western capital and maintaining US dominance over the world’s financial and economic systems.   But that aspiration is fast disappearing when there has been next to no reform of the dysfunctional global banking system, soaring trade deficits and colossal indebtedness remain unaddressed, a currency war between US and China is looming because of the Chinese refusal to revalue the yuan against the dollar, and the Doha trade talks after a decade of talking to no effect seem doomed.   Whilst the protectionism that aggravated the 1929-33 financial collapse has so far been avoided, if the IMF cannot in future hold the ring between competing economic interests as global imbalances worse, there can be no guarantee against a slide into economic war.

The IMF also has a tainted record on several other counts.   It encouraged the development of financial derivatives which finally provoked the 2008 crash, on the grounds that it would spread financial risk and reduce instability when in fact it did the reverse.   Its constant record of imposing financial masochism urgently needs to be replaced by job-creating growth strategies for countries in trouble, but that will require the new director to face down intense resistance from Western governments and multi-nationals.   The worsening Eurozone crisis and fear about the consequences of an ever likelier Greek default might give the IMF the leverage to press for structural change that is becoming inevitable – either an acceleration of the move towards political and monetary union (which currently seems unattainable) or a two-tier EU or provision for a manageable exit from the Euro for those countries that cannot sustain competitiveness against German industry.

Then there is the vexed question of recognising the global shift of power from West to East which can only intensify and allowing the rising BRIC and other emerging economic powerhouses more of a say in the running of the global economy.   Otherwise there is a very real risk of the IMF (and the West) being sidelined as new regional groupings (like the recent Chiang Mai initiative) agree to p;ool currency reserves in order to circumvent any appeal to the IMF for aid with all the harmful conditions that that entails.

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