FacebookTwitterGoogle+RedditEmail

The IMF Has Lost Its Influence

Sometimes historic changes take place quietly, while no one is looking. Great institutions lose power with a whimper rather than a bang. Such is the case of the International Monetary Fund (IMF), which will hold its annual fall meetings with the World Bank next week in Washington D.C.

Just a few years ago, the IMF was the most powerful financial institution in the world. When financial and economic crises swept across East Asia in 1997, it was the IMF that laid down the painful conditions that governments had to meet in order to access more than $120 billion in foreign funds. When the financial contagion spread to Russia and Brazil, the IMF followed, brokering the multi-billion dollar loans that — however unsuccessfully — were intended to prop up overvalued currencies on the brink of collapse.

Those days are over. The Asian countries began, after their nightmarish experience with the Fund in 1997-1998, to pile up huge international foreign exchange reserves — partly so they would never have to go begging to the IMF again. But the final blow to the Fund came from the country that IMF First Deputy Managing Director Anne Krueger reportedly calls “the A-word”: Argentina.

Argentina suffered through a terrible four-year depression, beginning in 1998. A country that had recently ranked among the highest for living standards in Latin America soon had the majority of the country falling below the poverty line. Many Argentines blamed the IMF, which had played a major role in designing the policies that led to the collapse, and seemed to prescribe just the wrong medicine during the crisis: high interest rates, budget tightening, and maintaining the Argentine peso’s unsustainable link to the U.S. dollar.

In December of 2001 the government defaulted on $100 billion of debt, the largest sovereign debt default in history. The currency and the banking system collapsed, and the country sank further into depression. But only for about three more months. Then, to most people’s surprise, the economy began to recover.

The recovery began and continued without any help from the IMF. On the contrary: in 2002, the Fund and other official creditors (including the World Bank), actually took a net $4.1 billion — more than 4 percent of GDP — out of Argentina. But the government was able to chart more of its own economic course, rejecting IMF demands for higher interest rates, increased budget austerity, and utility price increases. Argentina also took a hard line with foreign creditors holding defaulted debt, despite repeated threats from the Fund. When push came to shove in September 2003, Argentina did the unthinkable: a temporary default to the IMF itself, until the Fund backed down.

The result: a rapid and robust economic recovery, with a remarkable 8.8 percent growth in GDP for 2003 and 9 percent for 2004. With a projected 7.3 percent GDP gain for 2005, Argentina is still the fastest growing economy in Latin America.

Prior to Argentina’s 2003 showdown with the Fund, only failed or “pariah” states with nothing left to lose — e.g. Congo, Iraq — had defaulted to the IMF. That’s because of the IMF’s power to cut off not only its own credit but also most loans from the larger World Bank, other multilateral lenders, the rich country governments, and even much of the private sector. This has been the source of the IMF’s enormous influence over economic policy in developing countries: in effect, a creditors’ cartel led by the Fund, which is answerable primarily to the U.S. Treasury Department.

But Argentina showed that a country that was flat on its back could stand up to the IMF, and not only live to tell about it, but even launch a solid economic recovery. This changed the world. Although the IMF still carries a lot of weight in poorer countries (for example, in Sub-Saharan Africa), its influence in the middle-income countries has plummeted. The Fund is now a shadow of its former self.

Reformers over the last 15 years debated whether change would come about through the IMF altering its policies, or through the Fund losing influence. That debate has now been settled by history. The IMF has not been reformed, but its power to shape economic policy in developing countries has been enormously reduced.

MARK WEISBROT is co-director of the Center for Economic and Policy Research, in Washington, D.C. He is the author, with Dean Baker, of Social Security: the Phony Crisis. He can be reached at: weisbrot@cepr.net

 

 

 

 

 

 

 

 

 

CLARIFICATION

ALEXANDER COCKBURN, JEFFREY ST CLAIR, BECKY GRANT AND THE INSTITUTE FOR THE ADVANCEMENT OF JOURNALISTIC CLARITY, COUNTERPUNCH

We published an article entitled “A Saudiless Arabia” by Wayne Madsen dated October 22, 2002 (the “Article”), on the website of the Institute for the Advancement of Journalistic Clarity, CounterPunch, www.counterpunch.org (the “Website”).

Although it was not our intention, counsel for Mohammed Hussein Al Amoudi has advised us the Article suggests, or could be read as suggesting, that Mr Al Amoudi has funded, supported, or is in some way associated with, the terrorist activities of Osama bin Laden and the Al Qaeda terrorist network.

We do not have any evidence connecting Mr Al Amoudi with terrorism.

As a result of an exchange of communications with Mr Al Amoudi’s lawyers, we have removed the Article from the Website.

We are pleased to clarify the position.

August 17, 2005

 

More articles by:

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. and president of Just Foreign Policy. He is also the author of  Failed: What the “Experts” Got Wrong About the Global Economy (Oxford University Press, 2015).

Weekend Edition
April 20, 2018
Friday - Sunday
Paul Street
Ruling Class Operatives Say the Darndest Things: On Devils Known and Not
Conn Hallinan
The Great Game Comes to Syria
Jeffrey St. Clair
Roaming Charges: Mother of War
Andrew Levine
“How Come?” Questions
Doug Noble
A Tale of Two Atrocities: Douma and Gaza
Kenneth Surin
The Blight of Ukania
Howard Lisnoff
How James Comey Became the Strange New Hero of the Liberals
William Blum
Anti-Empire Report: Unseen Persons
Lawrence Davidson
Missiles Over Damascus
Patrick Cockburn
The Plight of the Yazidi of Afrin
Pete Dolack
Fooled again? Trump Trade Policy Elevates Corporate Power
Stan Cox
For Climate Mobilization, Look to 1960s Vietnam Before Turning to 1940s America
William Hawes
Global Weirding
Dan Glazebrook
World War is Still in the Cards
Nick Pemberton
In Defense of Cardi B: Beyond Bourgeois PC Culture
Ishmael Reed
Hollywood’s Last Days?
Peter Certo
There Was Nothing Humanitarian About Our Strikes on Syria
Dean Baker
China’s “Currency Devaluation Game”
Ann Garrison
Why Don’t We All Vote to Commit International Crimes?
LEJ Rachell
The Baddest Black Power Artist You Never Heard Of
Lawrence Ware
All Hell Broke Out in Oklahoma
Franklin Lamb
Tehran’s Syria: Lebanon Colonization Project is Collapsing
Donny Swanson
Janus v. AFSCME: What’s It All About?
Will Podmore
Brexit and the Windrush Britons
Brian Saady
Boehner’s Marijuana Lobbying is Symptomatic of Special-Interest Problem
Julian Vigo
Google’s Delisting and Censorship of Information
Patrick Walker
Political Dynamite: Poor People’s Campaign and the Movement for a People’s Party
Fred Gardner
Medical Board to MDs: Emphasize Dangers of Marijuana
Rob Seimetz
We Must Stand In Solidarity With Eric Reid
Missy Comley Beattie
Remembering Barbara Bush
Wim Laven
Teaching Peace in a Time of Hate
Thomas Knapp
Freedom is Winning in the Encryption Arms Race
Mir Alikhan
There Won’t be Peace in Afghanistan Until There’s Peace in Kashmir
Robert Koehler
Playing War in Syria
Tamara Pearson
US Shootings: Gun Industry Killing More People Overseas
John Feffer
Trump’s Trade War is About Trump Not China
Morris Pearl
Why the Census Shouldn’t Ask About Citizenship
Ralph Nader
Bill Curry on the Move against Public Corruption
Josh Hoxie
Five Tax Myths Debunked
Leslie Mullin
Democratic Space in Adverse Times: Milestone at Haiti’s University of the Aristide Foundation
Louis Proyect
Syria and Neo-McCarthyism
Dean Baker
Finance 202 Meets Economics 101
Abel Cohen
Forget Gun Control, Try Bullet Control
Robert Fantina
“Damascus Time:” An Iranian Movie
David Yearsley
Bach and Taxes
FacebookTwitterGoogle+RedditEmail