Close Down the IMF
International Monetary Fund director Dominique Strauss-Kahn is out after being charged with sexual assault against a hotel maid in New York. Unfortunately many members of the world’s governing elite stand ready to take his place. Who should succeed Strauss-Kahn ? a European or someone from the developing world? If the criterion is the welfare of ordinary people, the answer is simple: No one should succeed him. The IMF (along with allied agencies such as the World Bank) should be abolished. It does not improve most people’s lives, but rather imposes corporatist “neoliberalism” on troubled countries and suppresses the emergence of free markets.
The IMF is the centerpiece of Keynes’s postwar Bretton Woods scheme, designed to coordinate central banking worldwide and enable the economic planners in the United States and its closest allies to shape the world economy. When the system of fixed exchange rates ended in 1971, the IMF assumed a new mission: to be 9-1-1 for profligate, debt-ridden governments that couldn’t repay their loans to Western banks or buy enough exports to keep the Western economies humming.
The U.S. government forces American taxpayers to provide about 17 percent of the IMF’s $340 billion slush fund. Treasury Secretary Timothy Geithner is the U.S. member of the board of governors, with Federal Reserve Chairman Ben Bernanke the alternate governor. That should be enough to establish that the IMF’s agenda is not free markets. The agency claims to help troubled countries by monitoring the world economy, providing technical advice, and lending money to governments that can’t pay their debts. Its record is dismal.
The IMF has been bad at foreseeing crises. But why would bureaucrats living off the taxpayers, with no personal capital at risk, be expected to spot economic trouble? Bureaucrats can’t know what they need to know because the crucial knowledge doesn’t exist as easily accessible data.
The promise of “technical assistance” is a joke because economies aren’t machines but networks of human activity. The IMF’s advice ? commonly to raise taxes ? is usually counterproductive, but since it often carries the “free market” label, it creates public resentment against real market reform.
Even when it gives proper advice, say, to abolish price controls on food, the failure of the government to remove other interference with the market ? licensing, franchises, patents, and so on ? can impose hardship on already suffering people. The “free market” then is blamed. Food riots occurred some years ago in Egypt under just such circumstances, and as a result market reforms are widely distrusted there.
IMF loans seem altruistic, but in fact they bail out rulers from the consequences of their exploitative schemes ? sparing them the necessity of radical change, such as land reform and free banking ? and their creditors ? Wall Street banks typically. American farmers and other exporters have lobbied for increased U.S. contributions to the IMF in the belief that more loans to failing countries mean more sales abroad. If the loans are repaid, the money comes out of the hides of poor taxpayers in the developing world.
The IMF emphasizes that loans always come with “conditionality,” but that’s small comfort. The deepest violations of individual liberty and market principles are left untouched. Real markets require individual liberty, free banking, zero legal barriers to entrepreneurship, and property rights for ordinary people. Markets are not free when large tracts of land are controlled by a feudal elite, leaving most people little choice but to take whatever is given. Their acceptance may represent the “best available option,” but if their choice set has been artificially constricted, that’s not saying much.
For decades the IMF has fostered long-term dependency, perpetual indebtedness, moral hazard, and politicization, while sullying true market reform and forestalling revolutionary liberal change. The solution is not for the IMF to impose free markets, even if it had the will or the ability. That would smack of imperialism and, writes former World Bank economist William Easterly, would have “patronizing echoes of the White Man’s Burden.”
The IMF should be scrapped and the people suffering under kleptocracy left to discover for themselves the requirements for improving their own lives. How much more “help” from the West can they stand?
Sheldon Richman is senior fellow at The Future of Freedom Foundation and and editor of The Freeman magazine.