IMF Articles for Shan

Article Number 1

IMF, Capital and Us: The Economics of Imperialism. by Radhika Lal.

URL: www.igc.org/trac/feature/india/globalization/sanskriti.html

It is always useful for those in power, or those desirous of acquiring it, to wage

hegemony, to portray their interests as the interests of all, to claim that their success

leads to the success of others, even when all that can be held out to the masses is the

"trickling downs" and scraps from the high table. For multinational corporations

(MNC's) desiring unrestricted access to markets and production sites, the world view

that best expresses this need, portrays exchange as a human characteristic, private

property or wealth as the prime motivator of economic effort, the market as the most

efficient mechanism for translating private vice (greed) into public virtue, and trade as

the means of achieving an efficient allocation of global resources as each country

specializes in the production of goods for which its resources are best suited. Low

levels of economic income and growth are attributed to restrictions on free trade and

the crowding out of the private sector by public sector initiatives. The process of

development is said to involve the expansion of the market mechanism to areas

previously untouched by it, or presently integrated with it but regulated by other

institutions such as the state, with the newly privatized resources and markets created

being "opened" to all sectors (read MNC's).

Historically, multilateral institutions such as the World Bank (WB), the International

Monetary Fund (IMF) and the International Trade Organization setup in 1944 at

Bretton Woods, have been perfectly positioned to push this agenda for MNC's.

Although registered as UN specialized agencies, the management of these institutions

have never answered to the UN or adopted similar decision-making procedures. The

Bank is answerable to its board of Governors, consisting of the Ministers of Finance of

its member countries, and here as in that of the IMF, it is money that speaks since

voting power is based on the size of the financial commitments of the member

countries. In more recent years the Big Five have been the US, Japan, Germany,

France and England. In the beginning, the project was to provide the institutional

framework and financial resources necessary to ensure that the reconstruction of the

war-torn capitalist economies of Europe took place along non-statist and free trade

lines. By the late 1940s, this role had either been fulfilled or been supplanted by other

institutional mechanisms such as the US's Marshall Aid plan. Attention then shifted to

"developing" the countries of the South.

In carrying out this agenda there has been a division of labor between the Bank and the

Fund. The IMF acts as a monitor of the world's currencies by helping to maintain an

orderly system of payments between all countries and by lending money to those of its

members with serious balance of payments deficits (Footnote 1). The Bank, on the

other hand, focuses on the use of loan capital to develop the South and to channelize

resources into particular areas.

Regardless of the cause of the Balance of Payments deficit situation, finance is only

made available to the country after it has agreed to implement measures advocated by

the IMF to put its house in order. The agreement to implement these measures is

supposedly indicative of the fact that the country wishes to be taken seriously by the

international (financial and business) community. In the short run, the IMF recommends

stabilization of the economy and in the long run, structural adjustment policies (SAPs)

are mandatory. It is argued that the economy (a neutral term, no talk of the people

affected ) needs to be subjected to "shock therapy", a necessary albeit painful process

of belt tightening and austerity which are expected to change the country's

import-export imbalance. The measures advocated include: (a) a reduction in the

government deficit to help reduce the trade deficit directly as well as indirectly by

deflating the economy (read: contracting the flow of income created by government

spending) (b) an adjustment of the exchange rate wherein devaluation is typically called

for. This is justified on the grounds that it will reduce export prices and increase import

prices thereby increasing exports and decreasing imports, (c) adjustment of domestic

prices to reflect true costs of production. "Imbalances" in the allocation of resources in

the economy are attributed to biased pricing policies. The country needs to "get prices

right" if the economy is to grow. This is to be achieved by removing price biases (e.g.

subsidies) as well as the institutional structures making for them. The latter include

unions, regulations, including, of course, those instituted by peoples struggles for health

and safety, since they all "interfere" with the functioning of that nice market mechanism

thing. The devaluation strategy to increase exports also often fails as the same formula

is prescribed to many Third World countries who then end up competing with each

other on a limited range of commodities creating a collapse of prices of export goods.

Export revenues stagnate while the import bill continues to go up leaving the country in

a far worse situation than it began. The Third World considered to be labor and natural

resource abundant and capital-scarce, is expected to concentrate on the production of

agricultural and resource intensive industries and leave the production of

"capital-intensive " goods to the west. This takes the focus away from the fact that there

is a definite bias in how productivity has been achieved -- i.e. via mechanization and

automation of the functions earlier performed by labor. Countries, advised to put their

money into labor-intensive techniques have an incentive to lower wages still further

since the relatively lower wages are typically used to offset the productivity differential

involved. This also works to the benefit of the multinational firms that choose to

produce in the Third World.

It is critical to understand that, to the extent that it is only the implementation of these

measures that can unlock the door to finance not only from the Bank, but also from

other lending agencies, the IMF has tremendous power in influencing a country's

economic possibilities. Even when so-called donor countries bypass the Bank and

resort to bilateral aid or loans, they do so under the cover provided by the IMF. Major

banks wanting to find outlets for their surplus capital, operate with the IMF providing

the funds to underpin the riskiest loans and the muscle to squeeze repayment from the

debtors. This means that an indebted country has little maneuvering space and cannot

play off one financial institution against the other. All of this is not to suggest that IMF

policies are always imposed on unwilling Third World victims. Third World elites and

governments have been quick to use the cover of the IMF to push through policy

measures that they would otherwise have had trouble getting through.

The World Bank is a bank. One should not mistakenly assume that because it states

that "poverty reduction remains the centerpiece of the Bank's work" that it will forget

either its bottom line or the financial interests of its members. It has four bodies: the

International Bank for Reconstruction and Development (IBRD), the International

Development Association (IDA) dubbed by some as the Bank's charity window, the

International Finance Corporation (IFC) and the Multilateral Investment Guarantee

Agency, the first two of which are the most important. The IDA is funded by the

multilateral aid budgets of its 158 member countries as well as on IBRD transfers and

repayments on earlier IDA credits. The IBRD raises its funds on the international

capital markets at low rates of interest and re-lends it to countries with a poor credit

status at higher rates. But for the borrower countries the terms are more advantageous

than they would have been had they tried to raise funds themselves in the international

market.

However, as Graham Hancock, author of Lords of Poverty, points out: "what we have

here then is an institution that functions in an "aid-like" manner and that lends to some of

the poorest countries and riskiest countries on earth... [however] it is also an institution

that consistently makes a profit and is regarded as highly credit-worthy by money

managers on Wall Street and in the city of London (p. 54)." The Bank's secret for

making money lies in the fact that it contracts with governments to repay the loans, by

any means necessary, on pain of lending drought. With the combined power of the

major capitalist countries and financial institutions against it, the risk of a country

defaulting and walking away is minimal. And of course, the poverty reduction

centerpiece does not apply when it comes to collecting payment nor, it appears, when

making responsible decisions about the projects selected for funding.

In general, the Bank makes three kinds of loans: (I) specific project related loans, (ii)

sector adjustment loans where only part of the money goes to meet the direct cost of

the project while the rest goes to support sector-specific IMF-type policy changes; (iii)

structural adjustment loans (SALs) which are completely disconnected from projects

and are disbursed in short order in return for major policy changes at the national policy

level. Conditions, or conditionalities in Bankspeak, attached to such loans relate to

IMF recommended policies on the issue of tariffs, exchange-rate management, and

reduction of the government's budget and scale of involvement in the economy. Some

of loan money has also been known to go into lining the pockets of government officials

and technocrats in exchange for creating a conducive environment for foreign private

capital to operate and for handing over policy making power to the IMF-WB.

In the past, a major part of the Bank's sectoral funding has gone into the construction of

giant hydroelectric dams, transportation systems, power stations, oil, gas and

coal-mining projects thus opening up areas rich in natural resources for private capital

and making it cheaper for energy/resource intensive plants to be operated therein. The

Bank carries out the feasibility studies, makes proposals and typically contributes about

a third of the total sum required, the rest having to be raised by the government of the

recipient country possibly via co-financing from other bilateral and multilateral trade

agencies.

Given the typical scale of operation and the sums spent on bank projects, it might be

reasonable to expect that the Bank would use scarce resources rationally and also

deliver economies of scale given its unique and powerful economic position.

However, complete irrationality appears to reign. Most often the decisions include

inappropriate choice of suppliers and techniques of production that raise the foreign

component of the total bill but result in no particular gains in efficiency, viability, or

costs of production. In many cases, the selection of sites are inappropriate in

technical-economic terms leaving aside human and environmental costs involved which

in any case are only peripherally considered, thus working to keep the project

estimates down. Estimates of the project's economic viability more often than not bear

no relation to reality and should the prices charged reflect the cost of production,

services could never be delivered at anything like a reasonable price. Many of the

projects funded by the Bank are not success stories even by the Bank's own criteria. A

June 1992 WB report concluded that less than 20% of its structural adjustment

technical assistance loans to Africa are substantially effective. The 1992 Wappnhans

report found that Bank staff determined that more than one-third of the Bank's 1991

projects to be failures. Reports on, and demonstrations of, the people affected make

these numbers appear to be gross underestimates of the levels of failure involved.

Unfortunately this does not appear to be simply a question of bad economics reigning

at the Bank. What appear to be bizarre choices when it comes to the choice of

suppliers, technology, site etc. begin to make some sense if it is realized that it is the

interests of the donor country's corporations that dictate them. Welcome to

Development Inc. and the Aid Regime. The message of erstwhile President of the WB,

Mr. Eugene Black was simple: "our foreign aid programs constitute a distinct benefit to

American business." The three major benefits are (I) foreign aid provides a substantial

and immediate market for United States goods and services; (ii) foreign aid stimulates

the development of new overseas markets for United States companies; (iii) foreign aid

orients national economies towards a free enterprise system in which the United States

firms can prosper. Former US President Nixon put it more bluntly, "Let us remember

that the main purpose of aid is not to help other nations but to help ourselves."

Numerous studies bear this out. A major portion of aid is actually spent in the country

of origin. Foreign exchange loaned by the Bank enters the coffers of the central bank of

the developing countries where it is immediately earmarked (by the donors) for the

purchase of imports from their countries thereby returning the capital to its erstwhile

location.

There has, however, been a slight shift away from the funding of economic white

elephants in recent times primarily because of the tremendous pressure brought upon

the Bank by Third World peoples movements, most recently the Narmada Bachao

Andolan - an Indian People's protest movement against a WB funded hydroelectric

project in the Narmada Valley. This not only includes the creation of such "shock

absorber" bodies within the Bank such as the Inspection Panel, but also a seeming shift

in funding priorities (Footnote 2). By 1996, agriculture and rural development

constituted 29% of the total loans, education 14%, the environment 6%, industry and

energy 8%, infrastructure and urban development 15%, population, health and nutrition

19% and 9% was for adjustment related work. This does not necessarily work against

the Fund-Bank ideological project which is to keep the world safe for capitalism in

principle, and for MNC's in practice.

It is important to remember that markets are not expanded simply by seductive

marketing techniques and via the aid regime but also by educating or more

appropriately constructing a subject willing/desiring to consume. A case in point is the

massive involvement of the Bank in primary education in Third World countries such as

India through select NGO's and the simultaneous forced withdrawal of the State from

the domain of education. At a basic level, schooling involves the disciplining of the

majority to obey (excepting of course those who need to be schooled how to

command) and to view the capitalist system's division of resources and labor as just

and meritocratic.

This shift in the Fund-Bank project - their involvement in the creation of the

desiring/consuming subject and their efforts to weaken the State in all but its repressive

function - are consistent with the changes in the world economy since the late 1960s. If

in the past the Fund-Bank-MNC objective with regards the Third World was one of

finding cheap and viable production sites, with the saturation of markets in Western

Europe and North America, (productivity increases bear no necessary relation to the

growth of the market - productive capacity has periodically tended to outstrip demand

since there is no limit to expansion from the side of production but demand does tend

to reach saturation levels with reference to the prevailing income distribution and

"tastes") MNC's are seeking the Third World out not just as production sites but also

as markets. Hence the emphasis in the literature on the creation of a global consuming

class which is susceptible to a high intensity marketing.

Not all projects, however, rely on trickle-downs for the poor. Some projects seem to

be targeted to specially improving their position. Given the poverty reduction

centerpiece of the Bank it is worth spending a few lines on evaluating the Bank's foray

into Urban Shelter projects. Supporters of these projects stress the placement of

erstwhile squatters in new sites (moved no doubt because they were probably

occupying potentially valuable real estate or because their presence interfered with

"Urban Beautification Plans") that are more "developed" and where the poor will

acquire the right to those properties, on a sort of perpetual lease so long as they pay

the rents or the maintenance charges assigned them for the provision of services (that

they never asked for in the first place). However, predictably, in many of the projects,

a substantial number have faced eviction for non-payment of rent. In the meantime, as

development of the property has raised its real estate value, the real beneficiaries of the

urban shelter projects are the real estate interests who buy up the properties left behind

by evicted tenants. Extending the domain of marketization and private property has not

been the route to happiness and enrichment of the poor. The commodification of

subsistence resources -- water, fodder, shelter has meant loss of access to

traditional/state forms of support even as their integration into the market provides little

relief.

But supporters of the Bank-Fund liberalization project point to the change in world

growth and investment patterns that they claim have worked to benefit some of the

developing countries compared to the post-WWII period when most of Foreign Direct

Investment had been undertaken by 5 nations: US, Japan, Germany, France and

England investing in each other with the exclusion of Japan. It is true that the macro

picture has changed somewhat especially with the emergence of China as a major

production site and a major market. By 1993, 75 % of foreign investment stock was in

the developed countries, and 25% was in the developing countries. In terms of inflows

the numbers were 62% and 35% suggesting a movement in favor of the developing

countries over time. However, most of the latter is concentrated in a handful of

countries: China followed by Singapore, Argentina, Malaysia, Mexico, Indonesia,

Thailand, Hong Kong, Columbia and Taiwan. In 1993, the US was the largest recipient

of FDI followed by China which had 13% of the total flow. However two issues come

to mind at this point. Are these "success" stories the result of implementation of

IMF-World Bank policy? Evidence for Korea, the most touted case, points more to a

favorable geo-political configuration that worked to Korea's benefit: the desire of the

US and others to see the non-communist neighbors of communist countries flourish, the

demand stimulus from the Vietnam War that worked to benefit most of the designated

Asian Tigers, and a strong developmental state as opposed to free market policies

which are usually the staple of World Bank economic advice. Secondly, without going

into the issue of whether it is desirable to reproduce the South Korean model, it is still

fair to ask whether it is possible. Given the nature of the factors and conditions outlined

above, I would answer not. One would have to evaluate the nature of its bourgeois

class, the general conditions facing the country and the manner of its integration into the

world economy.

What is happening in this period of so-called globalization is that certain regions are

being connected via relations of production and consumption whereas others like many

parts of Africa are literally disappearing from the economic and social landscape visible

to the Developed Capitalist World.

The possibility of being part of the global consuming elite, receiving the fat salaries that

the multinational institutions have to offer (per diem amounts at the Bank and Fund

being higher than most monthly salaries) might allow the representative members of the

upper and middle classes to feel at one with the Bank's world view. But this fictitious

unity can only be maintained so long as one chooses to ignore the manner in which

these lifestyles are paid for and by whom. Ignoring the issue does not make it go away.

From time to time, the growing unevenness both within and across countries, the

increased impoverishment of peoples especially those taken "from plan to market",

manifests itself in explosive violence which only the foolish and ignorant would attribute

to non-capitalist traditional, tribal emotions rather than as the mobilization of peoples by

nationalist projects which claim to be seeking to reverse conditions or to isolate their

group from the experience of uneven development and impoverishment. Consider the

case of Yugoslavia. Observers point out that multiethnic Yugoslavia was once a

regional economic success. In the two decades before 1980 its Gross Domestic

Product (GDP) growth rate averaged 6.1%. By 1990, the annual rate had collapsed to

a negative 7.5%, and industrial production to a negative 10% growth rate. In 1991 the

GDP declined by a further 15%, while industrial output shrank by 21%. The IMF had

induced devaluation of the currency, wage freezes, sharp cuts in government spending,

elimination of socially-owned worker-managed companies, unabated price increases

and it effectively controlled the central Bank. As Michael Chossudovsky points out

:state revenues that should have gone as transfer payments to the republics and

provinces in this hour of need went instead to service Belgrade's foreign debt. The

republics were largely left to their own devices. In one fell swoop, the reformers

engineered the final collapse of Yugoslavia's federal fiscal structure and mortally

wounded its federal political institutions. By cutting the financial arteries between

Belgrade and the republics, the reforms fueled secessionist tendencies that fed on

economic factors as well as ethnic divisions, virtually ensuring the de facto secession of

the republics.

Those of us who do not buy into the Capital-Bank-Fund project need to be able to

demonstrate not only the conditions against which we struggle, but to provide

alternatives to the Fascist nationalism of the right, to its appropriation of the repressive

apparatus of the state even as it talks endlessly of freeing civil society from the state.

The question that stares us in the face at the end of the day is how shall we be free of

the tyrannies of the free market and the structural hierarchies endemic to civil society?

Radhika Lal is a graduate student of Economics at the New School for Social

Research, New York

Footnote 1: The Balance of payments (BoP) refers both to the trade and capital

accounts of a country with the rest of the world. To the extent the BoP is always in

balance, a deficit in one account (e.g. a trade deficit when imports exceed exports)

means there must be counterbalancing surplus in the other. (e.g. on the capital account

as when the total inflows of foreign currency exceed the outflows).

Footnote 2: The only project that has been to date reviewed and resolved by the

Inspection Panel is the Arun III project in Nepal where the report of the panel was

partially responsible for the Bank backing out of the project. However, in the

meantime, the World Bank has been at it again, forcing the Nepali and Indian

governments into a treaty to construct a completely unsubstantiated project - the

Mahakali dam.

Source: Sanskriti, Oct 2, 1996

__________________________________________________________________________

Article Number 2

THE IMF IN AFRICA AND ASIA; ILLUSIVE FOR IMF RECIPIENTS

THE IMF. MARKET REFORM AND ECONOMIC CRISIS. Gloria Emeagwali. AFRICA AND ASIA. Most current

Structural Adjustment and Economic Reform Programs around ...

URL: members.aol.com/gafrin/imf.htm

THE IMF

MARKET REFORM AND ECONOMIC

CRISIS

Gloria Emeagwali

Professor of History and African Studies, Central Connecticut State University,

ARREST THE IMF

Most current Structural Adjustment and Economic

Reform Programs around the world have a common

international context of origin. In this site we explore

some of the various dimensions of the IMF record not

only in Africa but also in Asia because we observe

similarities in terms of initial conditions, imposed

conditionalities, ideological orientations, implicit and

explicit objectives and impact on the countries hosting

the IMF programs. These consequences include the

following:

1.Forced devaluation

2.Forced privatization

3.A free fall in the value of the domestic currency

4.Lower purchasing power

5.A fall in the standard of living

6.Unemployment and retrenchment of workers

7.Inflation and the phenomenon of rising prices

8.Food riots and social unrest

9.Challenges to trade unions and labor

10.Substantial challenges to human rights

organizations

11.Increased mortality with the mandatory removal of

subsidies on health

12.Declines in school attendance along gender lines

13.Challenges towards democratic governance

14.The rise and/or consolidation of military

dictatorships

15.De-industrialization as the economies are

inundated with cheap foreign products

16.Reduction in the number of nationals owning

industries due to privatization and an invasion of

foreign capitalists

17.Intensified unequal development amongst ethnic

groups

18.Ethnic tension

19.Transfer of as much as 40% of the domestic budget

in debt repayment to the creditors/bankers of

Euro-America

20.De facto loss of sovereignty

21.The feminization of poverty

The above effects have been documented

extensively in Nigeria, Zimbabwe, Zambia, Kenya,

Sierra Leone, Somalia, Rwanda and other African

countries. In the case of the Caribbean, Jamaica

and Trinidad are outstanding cases. Indonesia and

South Korea are the most recent cases in the Asian

case. In most cases democratization becomes more

and more illusory since dictatorial generals or

factions of the army sympathetic to the draconian

IMF conditionalities have often seized power. The

Babangida coup of 1985 in Nigeria is a great

example. This coup has been called called "the

IMF coup." In some cases as in Somalia and

Rwanda, total chaos and ethnic conflict ensue as

the national pie shrinks and unequal development

amongst regions and between one ethnic group and

another, intensifies. The IMF cannot always be

blamed for the crises preceding the bailout. In

several cases domestic elites plundered the wealth

of their countries and engaged in blatant

mismanagement of national resources. In some

cases they were associated with the wastage of

resources in non-productive prestige projects and

siphoned off vital resources to Swiss and other

Western banks. We should note, though,that the

IMF prescription has seldom helped to solve the

crisis and the agents and agencies that seem to gain

from its advice are in most cases foreign banking

and financial institutions, invariably protected by

the IMF.Poor peasants, factory workers and civil

servants usually pay the price of the draconian

conditionalities imposed by the IMF rescue squad.

We should note also that the IMF apparently has a

pretty bad monitoring system and often seems to be

taken by surprise.

(Click here) Gloria T.Emeagwali(ed), Women Pay

the Price: Structural Adjustment in Africa and the

Caribbean, New Jersey, AWP

IS THE PROCESS OF IMPOVERISHMENT AND PAUPERIZATION

OF MOST OF THE WORLD IN PROGRESS?(See Jeffrey Sachs,1997)

PAUPERIZATION, DICTATORSHIP

AND HUNGER

The IMF is a power unto itself (Jeffrey Sachs)

Why is Africa Married to the IMF?

IMF Report of Jan 16,1998

Oxfam Debt Papers

DEBT AND STRUCTURAL ADJUSTMENT

AFRICA

Africa's Debt- World Bank report

Strategic Action Issue Area: Africa's Debt ( APIC)

Debt forgiveness , Jubilee 2000 Coalition

Overview

What about Asia? Any Connections?

Asian Financial Crisis (Harvard)

Countdown to Collapse

Chronology and detailed focus on the Asian Crisis

(Roubini, NYU)

What is the IMF's Agenda for Asia (Walden Bello)

Individual Countries

Roubini's extensive links on individual Asian

countries (Roubini, NYU)

Ethnic tension in Indonesia: Scapegoating the

Chinese

Bernie versus Bob and the IMF bailout of

Indonesia (Mother Jones)

Thai's currency crisis

The IMF Korea Bailout

INTERSECTIONS

Endgame for Suharto and his illgotten wealth?

Not necessarily. Suharto may come out slightly

bruised but not

battered, judging from the Nigerian example.

In the Nigerian case this is what happened:

1.The Shagari civilian regime fell into the debt

trap by 1983

2.The Buhari regime (military) struck but was

clearly unwilling to do business with the IMF.

Buhari envisaged barter, direct counter trade

with Brazil and other Third World economies

and other innovations as an option

3.A pro-IMF coup was staged by Ibrahim

Babangida, endorsing the draconian

conditionalities.

4.Street protests, Indonesian-style, engulfed the

nation. Many died. Students were killed.

5.But Babangida got the sanction of the IMF and

new bailout loans.

6.Riots continued. Democratic opposition was

silenced and their leaders jailed indefinitely,

1994

7.BUT Babangida went laughing to the Swiss

banks

8.Eventually another military heavyweight,

seized the baton in a new coup d'etat and a new

wave of riots and imprisonment continued : A

"gentleman"s" agreement?

9.General Abacha aimed at becoming a new

civilian president, 1998

10.The US administration endorsed the plan

amidst a "he-said" "she-said" brouhaha

involving Clinton and Rice, April 1998. His

death in June 1998 buried this project and

many gave a sigh of relief.

11.Needless to say that the removal of subsidy on

health and education continued and the

Nigerian education system continued to

crumble under the weight of IMF

conditionalities

12.Babangida stayed in the background and

continued to enjoy a multi-billion fortune.

General Abdulsalam Abubakar, a new military

leader promised to initiate democratization

processes and return the trigger-happy

soldiers to the barracks in free and open

elections.This he apparently did. In March

1999, Olusegun Obasanjo, a former head of

state and military leader won the Presidential

election. We shall comment on the new

developments from time to time.

Nigeria.com

Nigerian News

BBC

The Black World Today

African News

OTHER GREAT LINKS

THIRD WORLD NETWORK

Z MAGAZINE

AMNESTY INTERNATIONAL

PUBLIC CITIZEN GLOBAL TRADE WATCH

Article Number 3

IMF to widen debt relief for poorest nations, says paper

The Indian Express. The Financial Express. Latest News. EIW. Market Indicators. Screen. Celebrity Chat.

Express Computers. Express Power. Letters....

URL: www.expressindia.com/fe/daily/19980919/26255274.html

IMF to widen debt relief for poorest

nations, says paper

REUTERS

Frankfurt, Sept 18: The International Monetary Fund and

World Bank plan to provide debt relief for more Third World

nations by prolonging the so-called heavily indebted poor

countries initiative, a German newspaper reported on Friday.

Citing a confidential draft decision to be submitted for

approval at the IMF's annual meeting at the end of

September, Sueddeutsche Zeitung reported the debt waiver

will total $2.8 billion.

The proposal involves extending the HIPC initiative launched

in 1996 by two years to allow additional countries to qualify

for debt relief, Sueddeutsche said.

The draft names Angola, Burundi, the Democratic Republic

of Congo, Equatorial Guinea, Liberia, Myanmar, Sao Thome

and Principe, Somalia and Sudan as special problem cases,

the newspaper reported.

The IMF estimates that by the end of 2000 some 26

countries will fulfil the conditions to qualify for the HIPC

initiative, Sueddeutsche said.

So far seven countries have qualified for debt relief the HIPC

initiative, which wasapproved in September 1996.

But the new proposals envisage linking debt relief more

closely to social developments in a country and to find interim

solutions for some states until HIPC measures take effect, the

newspaper reported.

Sueddeutsche said the indebtedness of African countries was

of particular concern because of political instability on the

continent.

In addition, some of the most heavily indebted states were

suffering from the decline in raw materials prices as a result of

the Asian crisis.

Copyright © 1998 Indian Express Newspapers (Bombay)

Ltd.

Article Number 4

IMF seeks global economic control

The Indian Express. The Financial Express. Latest News. EIW. Market Indicators. Screen. Celebrity Chat.

Express Computers. Express Power. Letters....

URL: www.financialexpress.com/fe/daily/19980923/26655174.html

FINANCIAL EXPRESS FRONT PAGE

Corporate

Economy

Expressions

Markets

Leisure

Wednesday, September 23, 1998

IMF seeks global economic control

Paul Hellyer

The International Monetary Fund (IMF) was part of a 1944

agreement by the major capitalist powers. Its role was to

facilitate convertible exchange by providing temporary

assistance to countries which had depleted their forex

reserves. This allowed them to pursue high growth and full

employment through a low interest rate policy. It was an era

when capital controls were permitted and the IMF was

actually mandated to ask for such controls if deemed either

necessary or desirable.

The IMF, it appears, has never requested capital controls nor

suspended credits even when there was a large or sustained

outflow of capital. For most of the Cold War period, its

importance as an emergency lender took second place to

official grants and credits designed as much for political as for

economic advantage.

With the advent of commercial bank lending to Third World

countries, and the increasing deregulation and globalisation of

financial services, the IMF has abandoned its raison d'etre

almost totally.

Instead of a lenderof last resort, it has become the enforcer

for international banks and financial institutions and performs

a role comparable to the bouncer at a glitzy bar. The big

banks invite Third World countries to line up for drinks on

credit. But when they drink too much and exceed their credit

limit, the IMF takes over as an enforcement agency.

Its tactics are brutal. It refuses to allow supplicant countries

to impose capital controls. Instead it demands that they raise

interest rates to attract foreign investment. This slows the

economy and results in increased bankruptcies and high

unemployment.

Governments must also reduce expenditures for health and

education. Food subsidies, in most cases, have to be

eliminated. Instead of growing food for its own citizens, the

government is coerced into growing crops for export to earn

the US dollars to repay the IMF.

It was this kind of a Draconian policy which led me to ask, in

a book that I published in 1996, if the IMF had not outlived

its usefulness. Since then I havecome to the conclusion that it

has. It would be a great boon for the world to wind it up and

turn its assets over to the World Bank to use partly for debt

forgiveness to the world's poorest countries, including a

number of African countries, and partly to provide a massive

amount of capital for micro-banking, which would offer hope

and opportunity to millions of impoverished people

worldwide.

As ours is not a world of logic and common sense, however,

one has to assume that the ideal is unlikely to happen in the

short run and that it is more profitable to deal with more likely

scenarios.

The IMF's current policy line turns the original Bretton

Woods on its head. Instead of recommending or at least

permitting capital controls to mitigate the consequences of

massive inflows and outflows of capital, it takes the opposite

position. It does this on the pretext that global financial

markets reduce the cost of capital and permit a better

allocation of resources worldwide.

This neo-classical assumption isrefuted by the actual trends

since the 1970s. Removing capital controls has opened the

floodgates to an accelerating volume of financial flows. World

trade, by contrast, has little more than doubled.

The explosive growth of cross-currency financial flows has

been paralleled by increasing volatility of both nominal and

real exchange rates and by sharply rising real interest rates.

Instead of reducing the cost of capital, it has become more

expensive. International bank lending also surged many times

faster than economic activity.

Reflecting on the current Asian collapse, Alan Greenspan,

chairman of the US Federal Reserve Board, observed that

"excessive leverage" and short-term bank lending "may turn

out to be the Achilles' heel of an international financial system

that is subject to wide variations in financial confidence".

Indeed it may. A system under which mega banks print

money willy-nilly to lend to almost anyone in the world who

will line up for it is inherently unstable. The IMF bailouts

onlyexacerbate the situation.

The 1995 Mexican bailout sowed the seeds of the current

Asian crisis. The assurance that the IMF will ride to the

rescue encourages international bankers and speculators to

make still riskier loans. They escape the consequences of

their actions, while the costs of their excesses are socialised

and picked up by taxpayers at large.

In the face of all the evidence, it is more than astounding that

the IMF with the active encouragement of the Clinton

administration is now pressing for broad new powers. The

IMF is seeking global authority over ability of national

governments to control capital inflows and outflows including

the power to require member countries to commit to full

capital- account liberalisation.

This move should be recognised for what it is. It would mean

the end of national sovereignty in economic matters. No

country would be a master in its own house. The IMF seeks

the power to control the world economy.

Only the holders of financial assets - a tiny fraction ofthe

world's population and the ones whose needs have already

been met - have anything to gain from perpetuating the global

mythology. Even they have reason for concern. A globalised

financial system dominated by highly leveraged banks is a

recipe for disaster. When that disaster strikes the social

consequences are completely unpredictable.

This is the reason I would not give the IMF any additional

resources that would encourage it to continue on its present

path. The IMF has not earned the trust of the people who

pay the bills and should be cut off at the pass before it can do

more damage to more people - Third World Network

Features.

Copyright © 1998 Indian Express Newspapers (Bombay)

Ltd.

Article Number 5

THE CLAIRE FOSS JOURNAL

URL: www.cfoss.com/currencies.html

DESTROYING NATIONAL CURRENCIES

by Michel Chossudovsky

Professor of Economics, University of Ottawa, author of THE GLOBALISATION OF POVERTY:

impacts of IMF and World Bank reforms (Third World Network, Penang and Zed Books, London;

1997). The author can be contacted at chosso@travel-net.com

Since the onslaught of the debt crisis in the early 1980s, the IMF has played a central role in exchange

rate policy, often requiring indebted Third World countries to devalue their currency by 50% as a

"precondition" for the subsequent negotiation of a loan agreement. IMF-sponsored currency

devaluations have invariably resulted in abrupt price hikes and a dramatic compression of real earnings.

What is distinct in the cases of Korea, Indonesia, and Thailand is that the devaluation (which preceded

the bailout agreement and the imposition of sweeping macroeconomic reforms) had not been explicitly

demanded by the Washington-based bureaucracy. Rather it was the result of speculative pressures on

currency markets exerted by the large merchant banks and financial institutions (through the use of a

variety of speculative instruments).

In the context of the Asian financial crisis, "institutional speculators" (rather than the IMF) have come

to play an indirect role in the process of macroeconomic reform. In other words, international banking

and financial institutions have (in a de facto sense) dictated country-level foreign exchange policy

through the deliberate manipulation of currency markets. In this context, "institutional speculators" are

involved in "setting the stage" for the subsequent IMF bailout operation. They are also involved in

routine consultations with the Bretton Woods institutions pertaining to the various components of the

macroeconomic reform package included in the bailout agreements (e.g. the deregulation of Korea's

financial sector and the opening up of Seoul's bond market to foreign capital).

In turn, the same Western and Japanese financial and banking institutions (routinely involved in

currency and stock market speculation) are the creditors of Asia's central banks. They also hold large

amounts of short term debt and have, therefore, a vested interest in averting loan default by Asian

financial institutions. Not surprisingly, these same Western and Japanese financial institutions have

pressured G7 governments to implement the bailout operations of which they are the ultimate

beneficiaries--i.e. the 57 billion dollars under the IMF sponsored agreement with the Seoul government

will be used to reimburse Korea's creditors.

How will these multibillion-dollar operations be financed? The contribution of the Bretton Woods

institutions and the Asian Development Bank (ADB) constitutes but a fraction of the total. The largest

contributions to the bailouts are from G7 governments, requiring the issuing of vast amounts of public

debt.

In other words, G7 governments have come to the rescue of the merchant and commercial banks by

accepting to finance the bailout, yet to undertake this objective, G7 national treasuries are obliged to

issue large amounts of public debt which is invariably underwritten by the large merchant banks. In

other words, the "beneficiaries" of the bailout are also the underwriters of the public debt operation

required to finance the bailout. An absurd situation: G7 governments are "financing their own

indebtedness"...

While the bailouts are conducive to the building up of public debts (in both the Asian and G7

countries)--thereby reinforcing the stranglehold of the creditors over the conduct of economic policy--

tens of billions of dollars of public money are transferred into the hands of private financial institutions

leading to an unprecedented accumulation of private wealth. In turn, the macroeconomic reforms

imposed in the context of the IMF sponsored bailouts are conducive to a dramatic collapse of the real

economy leading to the impoverishment of millions of people.

Michel Chossudovsky

Department of Economics University of Ottawa Ottawa ON K1N 6N5 Canada Fax: 1-613-7892050

E-Mail: chosso@travel-net.com Alternative fax: 1-613-5625999

Article Number 6

Poverty around the World

This part of the globalissues.org web site looks into some of the causes of poverty. Why are poor nations poor? What are the roles of the IMF, debt ...

URL: www.globalissues.org/TradeRelated/PovertyAroundTheWorld.asp

Politics have led to dire conditions in many poorer nations. In many

cases, international political interests have led to a diversion of

available resources from domestic needs to western markets. (See

the structural adjustment section to find out more about this.) This

has resulted in a lack of basic access to food, water, health,

education and other important social services. This is a major

obstacle to equitable development.

Inequality

As well as increased growth, the reduction

in inequality and income differences are

believed to be key in reducing poverty in the

coming years, according to research by the

Overseas Development Institute.

A Canadian study suggests that the

wealthiest nations do not have the

healthiest people. Instead, it is countries

with the smallest economic gap between the rich and poor.

Poverty has also been described as the number one health

problem for many poor nations as they do not have the

resources to meet the growing needs.

Latin America has the highest disparity

rate in the world between the rich and

the poor. The foreign policy of the US in

that region has often been criticized for

failing to really help tackle the various issues

and only being involved to enhance US

national interests or even to interfere and

affect the course and direction of a nation

in the region.

However, it is hoped that programs based

on shared responsibilities between the

state, business and civil society will prove

to be a possible step towards reducing

poverty in Latin America and the Caribbean.

(Also, check out this great report from

Foreign Policy in Focus, about Latin America.)

In some countries, a combination of successive military

governments and the debts that they have incurred have often

most affected the citizens, most of whom are poor. Nigeria is

one such example, as this link shows. Indonesia is another

example as part of this Noam Chomsky interview by the Nation

magazine reveals.

The Wealthy and the Poor

While it is recognized that strong institutions, a functioning

non-corrupt democracy, an impartial media, equitable distribution

of land and a well structured judicial system (and other such

factors), etc. help in realizing a well functioning nation, lack of

any of these things can lead to a marginalization of a sector of

society. Often, it can be a very large sector.

For example, those likely to lose out in such an equalizing effect

are the rich, elite power holders.

By being able to own and/or influence one of these

above-mentioned things, millions of people are affected.

This is a pattern seen throughout history. Take for

example the medieval days of Europe:

The wealthy of the time controlled land via a feudal

ruling system and hence impoversihed the common

people intentionally.

The rulers (Kings etc), would proclaim their

"Divine Right" to rule over their subjects.

They had an army of Lords and Bishops to

advise on policies that benefited these groups

(religion was used -- and still is -- to control

and influence people, while Lords and Knights

were an extension to the ruling family that

would carry out the wishes.)

They would heavily tax the people of their

land.

Not allowing the peasants to own the land

upon which they lived meant that they would

be stuck in poverty and dependency.

When the elite could no longer tax the poor,

they started to tax the wealthy nobility.

It was only at that point did the

revolutions such as the French

Revolution take hold (because now the

nobility had their wealth affected and

were able to influence the peasants to

fight for their cause.)

While this helped bring more rights, once

the "people" won, there were

concessions made that allowed the elite

to retain their power, but to share it a

bit more.

In the same way, today, rich corporations

influence the media, politicians and various

institutions to foster an environment that

benefits these few people. Dressed in rhetoric

about how this is good for "everyone" it

becomes difficult to break from this pattern.

Today's globalization, is another example (in a

more international context) where the

wealthier are able to determine the rules

shape the international institutions in these

images and influence the communication

mechanisms that disseminate information to

people.

The elite in the United States of America then,

follows the same pattern seen throughout

history. As the world tried to break free from

their imperial rulers (i.e as seen by the wealthy

nations fighting over themselves in World War

I and II and the subsequent fights for freedom

in the colonial nations) the United States

emerged as the intact wealthy nation to

continue the same process.

Trading superiority was maintained by raiding and

plundering areas deemed as a threat.

When the old European centers of wealth

(various cities) would face an external threat

to their trading and production capabilities

(usually from rural areas where costs could be

reduced and efficiency be the same or more),

to preserve the threat to their wealth and

prosperity, these peripheries would be raided

and their means of production would be

destroyed.

The cities would fight over each other for

similar reasons.

For continual support, those rulers would

proclaim various reasons to their people, of

maintaining security and so on (not unlike

what we hear today about national security).

Even some laws were established that

basically allow these practices.

A strong military was therefore necessary to

maintain (just as it is today) to ensure those

trade advantages were unfairly maintained.

These mercantilist processes continue today.

"The powerful and cunning had learned to plunder

by trade centuries ago and societies ever since

have been caught in the trap of those unequal

trades. Once unequal trades were in place,

restructuring to equal trade would mean the

severing of arteries of commerce which provide the

higher standard of living for the dominant society

and collapse of those living standards would almost

certainly trigger open revolt. The world is trapped in

that pattern of unequal trades yet today." -- J. W.

Smith, Institute for Economic Democracy

In this backdrop, how to developing nations contend with

poverty?

Often then, if governments try to improve situations

for their people, they may face pressure or even

military intervention by the powerful nations. (Ironic

then, that the foremost backers of free trade point

out that it will help reduce conflicts. It probably

would, if there was truly free but fair and managed

trade. Today's international trade is influenced by

the wealthy.)

The powerful nations of course claim this is to save

the other country, but it is usually to do with

protecting "their" national interests; namely a

constant supply of cheap resources.

Dictators and other corrupt rulers are often

placed/supported in power by the wealthier nations

to help fulfill those "national interests" in a similar

way the old rulers of Europe use the Lords and

Knights to control the peripheries and direct

resources to the centers of capital.

This means that it is hard to break out from poverty,

or to reduce dependency from the US/IMF/World

Bank etc. Structural Adjustment, as described in a

previous section on this web site, is an example of

that dependency.

Hence, many back the economic neoliberal policies without

realizing the background to it. It is another example that

while international trade and globalization is what probably

most would like to see, the reality of it is that it is not

matching the rhetoric that is broadcast.

"The Third World remains poor because the powerful strive to

dominate every choke-point of commerce. One key choke-point

is political control through the "co-respective" support of local

elites. Where loyalty is lacking, money will be spent to purchase

it. If a government cannot be bought or otherwise controlled,

corrupt groups will be financed and armed to overthrow that

government and, in extreme cases, another country will be

financed to attack and defeat it. ... The pattern has been well

established repeatedly throughout history and throughout the

world, as noted by the well-known philosopher Bertrand Russel,

An enormous proportion of the income of nations

and individuals, nowadays, is blood money:

paymeny exacted by the threat of death. Therefore

the most prudent nation is the nation which is in

the best position to levy blackmail....Modern nations

are highwaymen, saying to each other "your money

or your life," and generally taking both."

-- J.W. Smith, The World's Wasted Wealth 2, (Institute for

Economic Democracy, 1994), p. 134.

(To find out more about the political dimensions of the economy

of the world and to see the detailed links between history (how

it is both told and repeated), politics that are always at play and

the effects on the economy the world over, visit the Institute

for Economic Democracy web site. It provides much more

in-depth research into these backgrounds and in far more detail

than what I have summarized above.)

With this in mind, why would so many people not oppose such

things? There are many reasons, including:

Most people don't know -- this is not an accident. It is in

the interest of power-holders to ensure as little is

questioned by outsiders as possible. Whether it be via an

aristocracy or by simple distortion of information,

educational systems, or whatever, different nations have

had various means to handle this.

Those that have in the past may have been persecuted in

some way. In some societies those who try to say

something may just ridicule them due to embedded belief

systems which are being questioned, while in other

societies, people may even face violent oppositions.

Some dare not entertain the thought that the work they

may be doing could be at the expense and exploitation of

someone else. The following summarizes this aspect quite

well:

"[W]e should be familiar with the sincerity with which people will

protect the economic territory that provides them their

livelihood and wealth. Besides the necessity of a job or other

source of income for survival, people need to feel that they are

good and useful to society. Few even admit, even to

themselves, that their hard work may not be fully productive.

This emotional shield requires most people to say with equal

sincerity that those on welfare are "lazy, ignorant, and

nonfunctional."

Those above the poverty level vigorously insist that they are

honest and productive and fulfill a social need. It is important to

their emotional well-being that they believe this. They dare not

acknowledge that their segment of the economy may have 30

to 70 percent more workers than necessary or that the

displaced should have a relatively equal share of jobs and

income. This would expose their redundancy and, under current

social rules, undermine their moral claim to their share. Such an

admission could lead to the loss of their economic niche in

society. They would then have to find another territory within

the economy or drop into poverty themselves."

-- J.W. Smith, The World's Wasted Wealth 2, (Institute for

Economic Democracy, 1994), p. 90.

The World Bank and Poverty

The World Bank, being a major international institution, is worth

looking at to see how its policies help or impact poverty and

development around the world.

The World Bank produces an annual report, called the World

Development Report. The Bank regards this as its flagship report.

Most mainstream economists use this report in some way or

form, and it is one of the few reports on development that the

US mainstream media reports on (because it usually shows the

US, and its policies that it prescribes to the rest of the world, in

a favorable light.)

The way the 2000 report was released highlighted another

problem with the World Bank, and how it doesn't like to accept

criticism on the current forms of globalization and neoliberalism.

For the 2000 report, Ravi Kanbur, a professor from Cornell

University had been asked to lead up the report team.

Kanbur won respect from NGO circles as he tried to be inclusive

and take in a wide range of views, which the Bank doesn't

normally do (which is a problem in itself!). However, as the

report was to be published, he resigned because he was

unreasonably pressured by the Bank to tone down sections on

globalization, which, amongst other things called for developing

nations to accept market neoliberalism cautiously.

The World Bank was apparently influenced itself by the US

Treasury on this -- this is not new though; critics have always

pointed out that the Bank is very much influenced by the US and

thereby affects real progress being made on poverty issues

around the world.

The following quotes collected from the Bretton Woods Project,

reveals some interesting insights.

"The Washington Consensus has emerged from the Asia Crisis

with its faith in free markets only slightly shaken. Poverty

eradication is now the menu, but the main dish is still growth

and market liberalisation, with social safety nets added as a

side dish, and social capital scattered over it as a relish. The

overall implication of the resignation is fairly clear. The US does

not want the World Bank to stray too far from its agenda of

economic growth and market liberalisation. Ravi Kanbur's draft

has raised a few too many doubts about this agenda, and

strayed too much towards politics." -- The Nation, Bangkok, 5

July, 2000

"To keep the Bank afloat Wolfensohn has to steer between two

major constituencies. The first are the critics, the second is the

US Treasury. You don't need to be a World Bank economist to

do the cost benefit analysis. To save the Bank, and his own

reputation, it is essential that the Bank's policies and public

pronouncements do not err too far from its main shareholder

and political protector, the US Treasury." -- Focus on Trade,

Number 51, June 2000

Poverty in Industrialized Countries

But poverty is not restricted just to developing countries.

Industrialized nations are also seeing a sharp increase in

poverty. While the current forms of globalization is resulting in

additional wealth, the disparities are sharp. Less people are

turning out to be benefiting while an increasing number are left

behind.

Even in places such as Europe and USA, poor people still do not

seem to get enough attention or resources to help alleviate their

problems. For example, even though Britain is one of the most

affluent members of the European Union (EU), a report shows

that UK is the worst place in Europe to be growing up if you are

poor, as more children are likely to be born in to poverty there,

compared to elsewhere in the EU. The National Office of

Statistics shows that disparities between rich and poor continue

to grow in UK, as reported here by a UK newspaper, the

Independent.

150,000 people are homeless in Britain, yet the government

helped build the Millennium Dome, that cost over a billion US

dollars.

USA, the wealthiest nation on Earth, has the widest gap

between rich and poor of any industrialized nation, and

disparities continue to grow. Even as there are claims that

the economy is booming like it never has before, which is

somewhat correct from some perspectives, such as individual

profits etc, there is also an increasing gap between the rich and

poor. For example, as this summary of a report titled "Economic

Apartheid in America" mentions, "that the United States is the

only industrialised nation that "views health care as a privilege,

not a basic human right."". (Unfortunately the report itself not

available on the Internet, but is produced by United for a Fair

Economy where you can see many extracts and similar reports.)

This Guardian news report, for example, shows that poverty in

some European cities can be regarded as worse than certain

types of poverty in places you wouldn't normally think you could

compare with Europe -- like India.

Poverty and the Internet

The Internet has been hailed by many as the next information

revolution and a major step towards a more free society with

more opportunities for people to learn from a wider source of

readily available information. It is hoped and envisaged that

even the poorer and less fortunate people of the world can use

the Internet and the World Wide Web to learn and experience

things that would previously have seemed next to impossible.

However, with increased opportunities for the already well-off, it

the internet revolution has also seen a growing digital divide of

haves and have nots. The reality of the internet revolution, with

current trends, may not be as bright for all, as made out to be,

because some major obstacles need to be overcome, such as

Poor telecommunications

An inability to afford computers

Lower levels of education

Higher cost of providing Internet services

And it is not just the Internet that can open up many

possibilities for people who never thought this possible, but at a

more basic level, just easier access to impartial and less

biased information would help to alleviate many of the

problems we see, in the long run.

As the major businesses and nations around the world meet to

decide on ways to make more seamless the globalization of

e-commerce and e-trade, it will be interesting to see what

attempts at legislation and control is made for Internet access.

« Previous Page | Next Page »

The links below provides more insights about various

issues and causes of poverty around the world. Simply

click on one of them to find out more.

Poverty Main Page

Structural Adjustment -- a Major Cause of

Poverty

Poverty around the World

IMF & World Bank Protests, Washington D.C.

United Nations on Development Issues

Poverty Facts and Stats

Excellent Poverty Links for More Information

Back to Top | Home | Human Rights | Geopolitics | Trade & Poverty

| Environment

by Anup Shah

Created: Monday, July 20, 1998 Last Updated: Sunday,

September 10, 2000

"When I give food to the poor, they call me a saint. When I ask why the poor have no

food, they call me a communist." -- Dom Helder Camara

Article Number 7

URL: www.nettime.org/nettime.w3archive/199810/msg00030.html

To: nettime@Desk.nl

Subject: <nettime> IMF/U.S./EMU - Induced World Recession? - Chakravarthi

Raghavan

From: Pit Schultz <pit@midas.in-berlin.de>

Date: Tue, 06 Oct 1998 03:49:50 +0200

January 16, 1998

A group of prominent US economists warns of a severe world recession

resulting from these factors: IMF pressure on Asia to contract in response

to financial chaos, the European scramble to meet fiscal targets, and the

end of the US boom as credit expansion slows.

By Chakravarthi Raghavan

Third World Network Features

A group of economists at the prestigious Jerome Levy Economic Institute,

USA, has warned that the IMF policies in Asia, the US fiscal stance, and

disinflationary policies in Europe could push the world into a recession on

a scale not seen since the severe 1974-5 downturn.

New policies and institutions are needed to ward off global recession, says

the report of the economists.

The Jerome Levy Institute (at Bard College in upstate New York, USA) is an

autonomous, independently endowed research organisation named after Jerome

Levy, who, contemporaneously and independently of Kaletsky, had anticipated

Keynes and his well-known work. Levy's son was a well-known financial wizard

on Wall Street.

The seven well-known macro-economists who drew up the statement are: Matt

Forstater, Wynne Godley, Jan Kregel, Otto Levin-Waldman, George McCarthy,

Dimitro Papadimitriou and L Randall Wray.

They identified these forces as combining to send the world economy

spiralling down: IMF pressure on Asia to contract in response to financial

chaos, the European scramble to meet fiscal targets, and the end of the US

boom as credit expansion slows.

Market forces cannot be counted on to ward off recession. With America no

longer in a dominant position there is a vacuum in the governance of the

world economy.

The least America can do is sustain growth at home, use all its influence to

persuade other countries and international institutions to support expansion

globally, and lead an initiative to develop new global policies and

institutions to generate growth with balanced international trade, payments

and capital transactions.

In their statement, the scholars said that the financial chaos in Asia and

disinflationary policies in Europe mean that far too many countries outside

the US are now looking to exports as the main engine of growth, and

collectively they cannot possibly succeed.

If the IMF makes fiscal restriction a condition for providing financial

assistance to countries in trouble (as it is now doing in Asia), even when

their fiscal policy has not been lax, the recession will be aggravated.

There is a danger that the US will become part of the problem rather than

part of the solution, the scholars further warn.

Even without a downturn in the rest of the world, the US is now close to the

peak of its boom. The economy has grown for over six years, despite the

government's restrictive fiscal policy and despite the deteriorating trade

balance; but this has only happened because of a sustained growth in private

expenditure based on credit expansion which cannot continue much longer.

When the US economy turns downward, the federal budget will move back into

deficit as revenues fall. And, if the authorities respond to this by cutting

the budget further, the downturn at home will be aggravated, compounding the

forces making for recession abroad.

The statement points out that the indebtedness of US households is unusually

high relative to their income and as asset prices are inflated, any

downturn in aggregate demand may be translated into a debt deflation.

The present position is particularly dangerous because appropriate

institutions for world governance do not exist; nor is there any consensus

about the principles according to which world production, trade, and

payments should be managed.

'We do not accept the view that unrestrained market forces, having created

an intolerable situation, will magically come to the rescue. Indeed, the

rescue package now offered in Asia is living proof that even the IMF does

not believe that "free markets" can resolve these problems.'

The proper response of the US, in the face of recession at home and abroad,

will be to maintain demand by relaxing fiscal and monetary policy. Far from

looking for budget balance early in the next century, the US should be

prepared for deficits that will arise due to a demand shortfall that could

total $200-300 billion.

At the same time the US should be using its influence to get the IMF, and

the governments of its member countries, to adopt policies which expand

demand and international trade in a balanced and non-inflationary way. And

urgent consideration should be given to the development of new institutions

for economic governance at a world level.

The scholars say their assessment is in stark contrast to the conventional

wisdom that rules current policy and analysis. Over the past decade, policy

has been guided by the view that opening domestic markets to free trade

would generate export-led growth, while fiscal retrenchment and a smaller

role for government would together generate increased private sector

investment; these factors combined would be sufficient to produce sustained

world-wide growth.

But the growth delivered by this policy stance has been lower than during

most of the post-war period. Satisfactory growth has been limited to Asia,

and, to some extent, the US, the UK and a few Latin American countries.

Analysis reveals that global growth has been caused largely by the expansion

of investment in the US, China, and the 'Asian Tigers'.

Thus, only the US and Asia have acted as 'engines of growth' in the 'new

global economy'. As a result, world economic growth has averaged no more

than 2% per year during the past decade (somewhat slower than during the

turbulent 1980s), while growth in Europe has been so slow that it lost

millions of jobs.

The economists expect that troubles among the Asian Tigers and the IMF

intervention will reduce regional demand for capital investment, which in

turn will reduce demand for imports of investment goods. Further, austerity

in Asia (combined with Japan's attempt to restructure its public finances

via the reimposition of the consumption tax) will reduce demand for

consumption goods, making it difficult to find outlets for the new

productive capacity that resulted from high levels of investment in Asia,

in the US, and to a lesser extent in Latin America.

If European countries seriously attempt to meet Maastricht requirements and

if the US continues to move toward a balanced federal budget (and even

beyond, as some projections now show a budget surplus), world demand is even

less likely to be sufficiently high to meet existing capacity.

In sum, the global economy has been investing in a high-tech, efficient

production machine at a time when aggregate demand is likely to fall. This

would be the case even in the absence of further disruptions in financial

markets, the economists warned.

The flaws in the conventional policy analysis and IMF policy, and the basis

for our pessimistic outlook for world economies, become apparent when viewed

from a global perspective. Export-led growth combined with fiscal austerity

cannot succeed for all countries simultaneously; while one country can have

a surplus on its trade account and a balanced government budget, this

requires that at least one country runs a trade deficit.

The increased reliance on exports as domestic demand fades is thus occurring

at precisely the moment when trade, viewed globally, is contracting. IMF

policy, relying on currency adjustment and domestic restriction, simply

cannot be the answer to the problem.

As for the prospects for the US economy, the scholars warn that the economy

will enter a new phase of recession when the impetus from private

expenditure financed by borrowing becomes exhausted. And the next recession,

when it comes, may well be aggravated by another debt deflation, perhaps

more serious than experienced in 1989.

Although the US economy has put in a good performance since 1991, any

euphoria should be tempered by the fact that the growth rates of output and

productivity have been unremarkable by historical standards. Real GDP and

productivity have only expanded at average rates of 2.8% and 1.3% per annum

respectively, since the beginning of 1991.

While the government deficit has fallen, the deficit in the current balance

of payments has risen, since 1991, by about 1% of GDP and this has

reinforced the disinflationary impact of the government's fiscal policy. So

far from being offsetting 'twins', the government and balance-of-payment

deficits have both moved decisively in the same direction so that the

financial balance of the private sector has moved from substantial surplus

into record deficit.

In the third quarter, the private sector's financial deficit - that is, the

excess of total private expenditure over disposable income - was over 2% of

GDP, with the implication that the private sector has been borrowing on an

unusually large scale.

The expansion of real GDP since 1991 has been dependent to an unprecedented

extent on the expansion of private fixed investment, which has accounted for

nearly a quarter of the rise in total final expenditure - a higher

proportion than ever before and very much higher than in the late 1980s

boom.

Personal consumption has contributed moderately to growth but, despite the

fact that there was no great rise in the flow of net lending to the

household sector, the level of household indebtedness has gone on rising

relative to income and now looks alarmingly high. Household indebtedness

(defined to include mortgages) had reached 92% of disposable income in the

second quarter of 1997 - a record level, miles higher than what it was

before the credit crunch in 1990.

Looking to the medium term, it is difficult to identify possible sources of

any sustained growth in demand. The government's intention implies that its

fiscal stance will remain restrictive in the medium term, although some

slight relaxation is supposed to take place after 1997.

Nor are the prospects for foreign trade bright. Since the middle of 1997,

exports have been showing signs of weakness, well before the rising dollar

has has its full effect... Net export demand is likely to provide even less

stimulus in the future than in the past.

Real private fixed investment has fluctuated since 1960, but the rise since

1991 has been so large as to suggest that sustained further expansion, on

anything like the same scale as in the recent past, is unlikely. The

business sector has never in the past run a financial deficit for very long

and every time it has done so there was subsequently a fall in fixed

investment led by a fall in inventory accumulation. When investment falls,

since it has been the sole source of recent economic growth, a downturn is a

likely consequence.

'Our conclusion is that the impulses which have driven the expansion so far

will peter out fairly soon... and a new period of recession is likely to

begin within the next 18 months and perhaps much sooner.'

The effects of the recession will be exacerbated by the new welfare reforms,

which will throw more people into the labour market, while spending cuts

will lower consumption demand. - Third World Network Features

-ends-

About the writer: Chakravarthi Raghavan is Chief Editor of SUNS (South-North

Development Monitor), a daily bulletin, and Third World Network's

representative in Geneva.

When reproducing this feature, please credit Third World Network Features

and (if applicable) the cooperating magazine or agency involved in the

article, and give the byline. Please send us cuttings.

For more information, please contact:

Third World Network

228, Macalister Road, 10400 Penang, Malaysia.

Email: twn@igc.apc.org; twnpen@twn.po.my

Tel: (+604)2293511,2293612 & 2293713;

Fax: (+604)2298106 & 2264505

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Article Number 8

IMF Paper

The All-Too-Visible Hand: A Five-Country Look at the Long and Destructive Reach of the IMF. April 1999. Edited and

Published by ...

URL: www.developmentgap.org/dgap/imftitle_and_overview.html

Edited and Published by

www.developmentgap.org

www.foe.org

The Development Group for Alternative Policies (The Development GAP) is a not-for-profit

international development policy and resource organization founded in 1977. It brings grassroots Third World perspectives, information and experience to bear on bilateral and multilateral economic policymaking and program development.

Founded in 1969, Friends of the Earth US is an environmental advocacy organization with affiliates in

62 countries. Friends of the Earth is dedicated to protecting the planet from environmental degradation;

preserving biological, cultural and ethnic diversity; and empowering citizens to improve the quality of

their environment -- and their lives.

The Development GAP and Friends of the Earth would like to thank the Charles Stewart Mott

Foundation and the Moriah Fund for supporting the preparation and publication of this document. The

views expressed herein do not necessarily reflect those of the Foundations.

To order additional copies of this publication, please contact The Development GAP or Friends of the

Earth. Cost will vary depending upon volume of purchase and destination. This publication is available

on The Development GAP's and Friend of the Earth's web sites: www.developmentgap.org and

www.foe.org.

© 1999, The Development Group for Alternative Policies, Inc.

and Friends of the Earth

CONTENTS

OVERVIEW

THE MICRO-ECONOMIC IMPACT OF

IMF STRUCTURAL ADJUSTMENT POLICIES IN MEXICO

Alejandro Nadal

GENDER AND SOCIAL DIMENSIONS OF

IMF POLICIES IN SENEGAL

Yassine Fall

THE IMPACT OF IMF STRUCTURAL ADJUSTMENT POLICIES ON

TANZANIAN AGRICULTURE

Ross Hammond

THE IMPACT OF IMF STRUCTURAL ADJUSTMENT POLICIES THE

CASE OF HUNGARY

Károly Lóránt

THE IMF AND FINANCIAL-SECTOR REFORM

IN NICARAGUA

Oscar Neira

SUMMARY and CONCLUSIONS

OVERVIEW

On 13 November 1998, Brazil became the latest of the so-called emerging-market countries to receive

a financial "rescue" package fashioned by the International Monetary Fund (IMF) and the U.S.

Treasury Department, the principal force within the Fund. These packages, designed more to calm

skittish foreign investors than to put national economies on a path to sustainable development, have

been promoted as solutions to the increasing instability of the world economy.

As Asian economic and social crises deepen and the Russian economy continues to unravel, investors

have looked to the IMF for guidance as to whether prospective economic performance warrants their

continued involvement in those countries. With a war chest of funds and a staff of neoliberal

economists at its disposal and the power and influence of Northern governments and financial markets

behind it, the IMF not only sets the standards for such performance, it also forces compliance with the

carrot of emergency funding and the stick of discouraging the flow of private-sector and other

public-sector financing. When the going gets rough under IMF tutelage, the refrain is always the same:

deepen the reforms with more of the same medicine.

But how good has IMF advice been, and how accurate a guide has the Fund's stamp of approval been

for investors? The answer has become increasingly obvious. Before Brazil, the Fund had failed to

warn of the three previous big crashes of the decade -- Mexico, East Asia and Russia. In fact, right up

to the currency and stock-market collapses, the IMF was praising Mexico and the East Asian "tigers"

as models of economic success and rationality. Beholden to the interests of investors and blinded by its

own prescriptions to open these, and other, economies -- even before the necessary institutional,

financial and social infrastructure is in place -- the Fund has consistently failed to recognize, or at least

publicly acknowledge, the underlying weaknesses in these economies and its own contribution to the

debacles.

Both the absurdity and the danger of the position assumed by the IMF and its allies in the U.S.

Treasury are apparent in the cases of Brazil and Russia. In the former, they argued, the failure to

increase the social-security contributions made by civil servants risked bringing down the entire

international financial system. In the latter, they have steadfastly refused to deviate from the past IMF

prescriptions that have caused profound economic and social hardships and political unrest, thereby

risking the collapse of a nuclear power. In a short 20 years, these institutions, in the name of an

economic orthodoxy that has wrought widespread suffering, unprecedented inequities and alarming

instability, have effectively closed down the space in which citizen choice, democracy and economic

diversity can exist, much less flourish.

In order to shed more light on this disturbing phenomenon, Friends of the Earth and The Development

GAP, with the support of the Charles Stewart Mott Foundation and the Moriah Fund, have engaged

partners in Mexico, Nicaragua, Hungary, Senegal and Tanzania to assess IMF performance through

short case studies. The cases paint a consistent picture of an institution bent on fully opening

economies to foreign investors on advantageous terms at almost any cost -- the destruction of local

demand and domestic productive capacity, growing poverty and inequality, the deterioration of

education and health-care systems, the increased degradation of the environment, and, as has been

seen, a dangerously expanding vulnerability of these economies themselves to external forces beyond

their governments' control.

These countries were chosen because they are representative of trends in different regions and

because, through our partnerships with the authors and their organizations, The Development GAP and

Friends of the Earth were confident that the resulting studies would reflect a combination of economic

analysis and grassroots perspectives. Both of our organizations continue to carry out additional studies

across a broad range of countries and issues.

One such study, in which researchers affiliated with The Development GAP looked at 23 countries

that had adopted structural adjustment programs, shows very similar trends in Latin America, Africa,

Asia and Eastern Europe. Most everywhere, strict monetary polices, trade liberalization and an

emphasis on export promotion and on attracting foreign investment have devastated local businesses.

In rural areas, cheap food imports have undermined domestic food producers, causing a decline in

per-capita food production. Small farmers have also been hard hit by cuts in public spending on

extension and credit programs, contributing to a rise in rural poverty levels above and beyond the

increases in overall poverty experienced by most of the countries studied. Labor-market reforms have

compounded this expanding poverty by suppressing wages, undercutting permanent employment with

temporary hires and undermining the ability of unions to organize and bargain collectively. Women and

children, in particular, have suffered from the decline in safe and remunerative employment and in

social services. With a growing poverty and inequality accompanied by a rise in street crime, an ever

greater number of privatizations accompanied by corruption and a concentration of wealth, and

financial deregulation and rising interest rates accompanied by a diversion of lending from productive

to speculative ventures, the study reflects the distressing failings that have marked IMF interventions

during the past two decades.

Development in most countries in the South has been made even more difficult by the increase in

foreign debt that they have experienced while the IMF has involved itself in the management of their

economies. A Development GAP study of 71 countries that have adopted structural adjustment

programs prescribed by the World Bank and IMF in part to reduce the debt reveals a positive

correlation between the number of years that a country has an adjustment program in place and an

increase in debt as a percentage of GDP. The average (mean) increase in the debt/GDP ratio among

those countries studied was 49 percent.

Friends of the Earth research has found that in the recent bailouts in Asia, Russia, and now Brazil,

environmental spending has been drastically curtailed, while at the same time pressure on natural

resources is increasing. The results in these countries are accelerated environmental destruction, the

degradation of the country's resource base and the undermining of long-term prosperity. Additional

research by Friends of the Earth also shows that, in most countries undergoing structural adjustment,

opportunities to pursue "win win" solutions that both promote economic gain and protect the

environment are being squandered.

Despite the failings of its policies, the IMF wants its structural adjustment loan program for

low-income countries, the Enhanced Structural Adjustment Facility (ESAF), to be self-financing,

putting the Fund permanently in the business of running these countries' economies and further

weakening the ability of citizens and their representatives to hold the IMF accountable. At the same

time, it is virtually certain that Brazil will not be the last country to receive a "rescue" package from the

IMF to bail out foreign creditors and investors upon which an increasing number of countries have

become alarmingly dependent. What is needed is not only more democratically shaped economic

policies, but also a more democratically managed and publicly responsive and accountable IMF. In the

meantime, based on recent events and on the findings of studies such as those that follow, one thing is

crystal clear: the less power and influence that the IMF has over national economies, the better.

Return to The Development GAP Home

http://www.developmentgap.org/

Article Number 9

IMF TO THE RESCUE

NATION. DECEMBER 8, 1997 VOL. 150 NO. 24. IMF TO THE RESCUE AS EAST ASIA SINKS FURTHER INTO ECONOMIC

QUICKSAND, THE INTERNATIONAL MONETARY FUND IS ...

URL: www.pathfinder.com/time/magazine/1997/do..._to_the_re.html

AS EAST ASIA SINKS FURTHER INTO ECONOMIC

QUICKSAND, THE INTERNATIONAL MONETARY FUND

IS SWOOPING IN WITH MONEY AND ADVICE. BUT IS

THE IMF, WHOSE BIGGEST DONOR IS THE U.S., THE

PERFECT ACTION HERO, OR WILL ITS HELP ONLY

MAKE MATTERS WORSE?

BY RICHARD LACAYO

Over the centuries, Korea has seen its share of expeditionary forces. They used

to come in on sailing vessels and troopships. In the past two weeks they arrived

by commercial airliners--a bunch of innocuous number crunchers from the

International Monetary Fund. This particular force had been invited in by the

South Koreans, though not without a good deal of misgiving. Just a few weeks

before they arrived, Seoul had been calling the idea of an IMF rescue

unthinkable. Now the unthinkable is fully under way, and the fund's inspectors

have become supervisors of the world's 11th largest economy.

More than the fate of South Korea has dropped into the laptops of the

technocrats from Washington. The Asian crisis brewing since the summer has

reached the Code Red stage. With Thailand and Indonesia receiving IMF

bailouts, the fund has become the main hope for containing the East Asian

upheavals before they spread to Japan, and from there perhaps to the U.S.

Thailand, which came running to the IMF this summer, is getting a $17 billion aid

package. Indonesia will get about $23 billion. South Korea initially asked for $20

billion, but last week its Finance Minister indicated the package might be as much

as $50 billion. Financial experts put the amount closer to $60 billion when

assistance from individual nations and banks is added. By comparison, Mexico's

bailout three years ago cost $48 billion.

The fears that the crisis could move to Japan are very real. Those Asian nations

are major consumers of goods from Japan, which is suffering from its own

prolonged recession and instability caused by overextended financial institutions.

Japan's vulnerability was brought home last week by the collapse of the

100-year-old Yamaichi Securities, that nation's largest business failure since the

end of World War II.

A ripple-effect crisis in Japan could then be felt in the U.S. At the very least,

Japan would decrease its imports of American goods, thus widening its already

large trade gap with this country. At the worst, Japan would begin selling off

some of its $320 billion in U.S. Treasury securities, leading to a run-up in U.S.

interest rates and perhaps an end to the bull market.

Asian demand for American goods has started to slacken. And don't expect

many Asian leaders to have the political stomach to open their own markets

much further in this time of crisis, especially now that the U.S. Congress has

rebuffed President Clinton on fast-track trade legislation.

The IMF didn't put itself at the center of this storm. It was placed there first by

the countries requesting help, then by the other Pacific Rim nations. For different

reasons, both lenders and receivers wanted a middleman to give them cover. For

all the embarrassment that attaches to it, a bid to the IMF allows recipient

governments to claim that an outside force is compelling them to make unpopular

but necessary reforms. Donor countries can also avoid taking the blame for the

pain that IMF requirements impose.

Agreement on the IMF's central role was the chief accomplishment of last

week's Vancouver summit of the Asia-Pacific Economic Co-Operation forum.

The U.S. had been trying to head off some efforts by Asian countries to set up a

separate, regional body to handle the bailouts. Such a move, Washington feared,

would have undermined the IMF, which over 50 years has built up the

expertise--and, even more important, the credibility--to handle these complicated

and politically sensitive operations. The salient point, said President Clinton, is

that "on a global level, the role of the IMF remains central." The language was

flavorless. The message wasn't: Eat your spinach.

For those unacquainted with the thrills of international economics, the IMF is in

essence both a bank of last resort and a fiscal reform school for wayward

economies. When countries such as Thailand and South Korea admit their

sins--too much debt, too much spending and a lack of controls on their banking

industries--the fund sends in the economists, armed with several financing

schemes. There are short-term loans to stanch the bleeding and stop the flight of

capital. The fund also negotiates for longer, 10-year credit agreements, as well as

so-called concessional loans, or grants, to the poorest countries.

The organization with all this power was established at the Bretton Woods

conference near the end of World War II. The goal was to build a new

international economic order and thus avoid a repetition of the prewar period's

spreading economic chaos, which had set the stage for Hitler. The organization

today operates from a headquarters in Washington only a few blocks from the

White House, which alone makes it suspect in the eyes of some countries. Its top

executives include managing director Michel Camdessus (a Frenchman) and first

deputy managing director Stanley Fischer (an American). They report to a

24-person international executive board. The IMF staff is small--just 1,100

professionals, including 759 economists--only one-fifth the size of its sister

agency the World Bank, which was established at the same time and funds

development projects in the Third World.

IMF staff members constantly roam the globe, visiting countries and meeting

with finance ministers and central-bank governors. "This is not ivory-tower

analysis," says Shailendra Anjaria, director of the external-relations department at

the IMF. "This is get-your-feet-wet, on-the-scene inspection." Because the IMF

releases its funds in periodic amounts, it has a lever to keep countries in line.

Says Deputy Treasury Secretary Lawrence Summers: "It's very important that

we put out fires without giving people an incentive to leave matches around the

next time."

The organization itself has operated with a high level of secrecy, if not mystery,

that has inflamed critics. The IMF seldom discloses the details of its agreements

with borrower countries. And IMF officials, in their public statements, speak in a

language that seems purposefully oblique, out of a professed fear of rattling the

financial markets. But lately the agency has tried to become more transparent in

its actions. In the recent Thai bailout, under IMF pressure the Thai's took the

unusual step of releasing a detailed, multipage summary of the loan agreement.

Even when they work, the remedies the fund imposes as the price for handing

out credit or money can be nasty, brutish and not so temporary. The Philippines

has been under IMF supervision for three decades. Following IMF admonitions,

the country has enjoyed considerable success in the past five years dismantling

government monopolies, selling off state enterprises and opening its banking and

telecommunications system. In fact, it had hoped to get out from under the IMF's

thumb soon before the crises started.

Applying to the fund means lost economic sovereignty, which is no small matter

for any country, especially a developing one in which colonialism is still a fresh

memory. The fund's recommendations also mean pain for the poor and working

class when governments adopt the fund's austere recommendations. Those

usually include slashing budget deficits, which often means higher taxes and

lower social spending, an end to subsidies on things like food and fuel, and

privatization of inefficient state-owned industries, with the inevitable worker

layoffs.

Is the IMF up to the immense and complicated task of curing East Asia of what

ails it? The fund's advocates say yes and point to its many successes over the

years, most recently in Mexico. That country recovered in record time from the

humiliating 1994 collapse of the peso by promptly adopting IMF reforms.

East Asia's troubles rest in large part on the region's intricately developed system

of crony capitalism, in which personal connections trump the rule of law or

markets almost every time. "What now has to be addressed is reform of banking

systems, the improvement of supervisory and regulatory functions of

governments," says Robert Hormats, vice chairman of Goldman, Sachs

International.

Other economic experts doubt that the IMF's normal medicine will work in Asia,

and some think it may even do more harm than good. "When the IMF was in

Latin America, they faced the typical hyperinflation problem and they knew what

they were doing," notes Harvard economics professor Gregory Mankiw. "But in

Asia the prescription is far less clear." Kevin Watkins of Oxfam--an

Oxford-based, nongovernment development agency--says the IMF may shortcut

Asia's recent progress. "What differentiates East Asia has been its ability to

create growth with equity," he says. "Now the IMF programs threaten to break

that link. You may have growth, but with continued poverty."

The IMF can worsen an already panicky situation, says Jeffrey Sachs, the

director of the Harvard Institute for International Development. In Thailand the

IMF plan required the government to close 58 financial institutions. When that

became known, "the panic intensified," Sachs says. "Rather than restoring

confidence, the IMF's intervention merely confirmed to investors that they were

right to flee." Meanwhile, financial institutions that will be closed because they

cannot satisfy strict standards of reserve capital will have their assets, mainly

foolhardy real estate developments, auctioned off. But that massive sell-off could

lead to a sharp fall in values that will affect the portfolio of even sound financial

institutions that hold the same type of properties.

One result of the IMF measures could be trouble in the streets. In 1989 alone,

Venezuela and Jordan were hit by riots after their governments, in an attempt to

satisfy IMF requirements, ended food and fuel subsidies that had kept prices

artificially low. The reaction in East Asia hasn't yet escalated to rock throwing.

But in October, amid the threat of massive demonstrations, the Thai Prime

Minister rescinded a fuel-tax increase that the government had adopted just three

days earlier to satisfy an IMF-mandated budget surplus. "There is no long-term

solution for the common people," laments Somsak Kosaisook, secretary-general

of Thailand's public-employees union. "They have to bear all the hardships of

higher prices and unemployment."

In the hope of softening the impact on the poor, the IMF is now including

social-policy directives as part of its loan package. This summer the fund signed

an agreement with Argentina in which Buenos Aires agreed to give priority in

budgeting to primary schools and health care and to strengthen the independence

of the judiciary. The agency's deal with Thailand includes provisions to help the

jobless.

It's not just the poor who flinch when they hear the letters IMF. The arrival of

the IMF can also mean pain for economic elites, who are expected to dismantle

the business culture that made them rich even while it dragged their nations into

crisis. In the Asian Pacific, where much of the current trouble was brought on by

buddy-buddy capitalism and closed-door banking practices, the fund wants more

stringent borrowing rules, more open bank reporting and freer trade policies.

But if the IMF is a house of pain, that's because it tends to countries that are so

deep in crisis that the only options are ones that hurt. By the time a country asks

for IMF aid, foreign investors have long since fled, international banks have shut

their lending windows, and the world's private capital markets are offering the

loan-shark interest rates that go to high-risk borrowers.

That situation largely describes East Asia today. In some important respects the

economies are sound: inflation is relatively low; growth and savings rates are

high. Korea's economy had until recently been expected to grow 6% this year.

But at the same time, wildly imprudent lending policies have led to mountains of

bad debt and economic instability. A speculative frenzy in real estate has

cluttered the skylines of Jakarta and Bangkok with empty office skyscrapers.

Unwise industrial investment has added new auto and microchip plants to a world

market already glutted with both.

The fund's bailouts in Asia will be money down the drain unless its prescriptions

become permanent reforms. For that the region will need strong political leaders

who are willing to battle the alliance of bureaucrats, business and labor interests

that benefited from the old system. Asian governments have been resisting the

details in IMF rescues. The bailout of Indonesia has been slowed by the

reluctance of officials to act against firms connected to the children of President

Suharto.

The IMF has tackled the problems of even bigger economies in the past. Back in

1963 a major industrial nation was scaring off foreign investors who were

nervous about its worsening balance of payments and were losing confidence in

its overall economic policies. The troubled country borrowed $250 million from

the fund that year and an additional $350 million the next. The rescue package

worked. The currency stabilized, and investor confidence was restored. Which

was the stumbling country that then needed the IMF's help? The United States.

--Reported by Bernard Baumohl /New York, Jay Branegan /Vancouver, Kim

Gooi /Hanoi and Bruce van Voorst /Washington, with other bureaus

All 181 member-nations of the IMF contribute to a pool of funds that the agency

then taps to aid troubled countries. The IMF now has about $200 billion, coming

mostly from the world's richest nations. The biggest givers:

U.S.-- $36 billion (18% of total)

Germany-- $11.2 billion (5.7%)

Japan-- $11.2 billion (5.7%)

Britain-- $10.1 billion (5.1%)

France-- $10.1 billion (5.1%)

Saudi Arabia-- $7 billion (3.5%)

Since 1965, the IMF has spent some $175 billion to aid dozens of

countries in economic crises

Mexico $18 billion

The agency was part of a successful $48 billion bailout in 1994 after the peso

collapsed

Russia $10 billion

Tough measures have helped drive inflation from 1,000% a year down to just

double-digit levels

The Philippines $700 million

Now comes perhaps the fund's toughest task: to stop the "Asian flu" from

becoming an epidemic

After years of international supervision, its economy has been strong--but will

that continue?

South Korea requesting $20 billion

That's just an initial request. The Koreans may eventually need more like $60

billion to $100 billion

Indonesia $10 billion

The brokered package will top $20 billion, and the country will have to

demonopolize industries

Thailand $4 billion

Epicenter of the crises. Total package: $17 billion. Dozens of reckless banks will

have to close