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IMF does not deserve more power

Author: Murat Kotan

Published: 2009-04-24

www.eurodad.org

On 25-26 April the IMF/World Bank spring meeting takes place. At the G20-summit in April it was

decided to considerably reinforce the position of the IMF in the international economy. The Dutch

government as other European governments is a proponent of this. There is however a need for more

international democracy and an explicit mandate for development. Even if the IMF would be given

$7,5 trillion instead of the planned $750 billion; the problems of the poorest countries will not be solved

and no substantial improvement in reaching the Millennium Development Goals will result from this.

Democracy

Of the 184 countries that are IMF members, four Western countries have almost one third of the total

votes and ten Western countries together have almost half of the votes. There is international

consensus on the deficit of legitimacy and the need to reform the governance structures of

international non-representative organizations such as the IMF. However, the changes that are in

preparation are small. In April 2008 it has been promised to improve the representation of Low-income

Countries and Emerging economies within the IMF. Although a positive step, all in all if these

measures are carried out this would mean that the voting rights of 46 low-income-countries excluding

India will increase only with 0.29 percentage points (0.7 including India). For the 51 African countries

as a whole the increase is less than 0.24 percentage points.

IMF-money and IMF-policy

The share of the planned $750 billion IMF-money that is available for poor countries is modest and

inadequate to help them withstand the crisis. According to calculations of Oxfam, of the $1,100 billion

in measures which the G20 have agreed on $50 billion might become available for Low-income

Countries, mainly in the form of loans that lead to a heavier debt burden.

Furthermore the IMFs own Independent Evaluation Office has shown for 2007 that under the IMF-

program for poor countries (PRGF), money goes into raising international reserves and debt servicing

instead of into for example investments in healthcare and education. Of each $10 extra aid money

$9,50 flows obliged to raising the international reserves for countries with low reserves. If the money

does not go to building reserves, between $7,20 and $8,50 of each $10 goes into servicing debts.

Thus only a fraction of the extra money can be actually spent by governments. (IEO 2007) Moreover

Lower-income countries are in the coming time also obliged to service billions of dollar in debt, among

others to the IMF and the World Bank.The use of IMF-loans and the associated policy conditions have consequences for important

development indicators in areas in which the IMF has nor a mandate nor any expertise. A recent study

by American scientists Abouharb and Cingranelli for example finds that a longer period under an IMF

program increased government use of torture and extra judicial killing and also worsened the overall

human rights conditions in developing countries. Human rights, targeted poverty reduction and factors

such as gender equality are matter on which the IMF has no expertise, but that are of overwhelming

importance (also for economic growth).

Accountability

The IMFs own evaluation office is extremely critical of the lack of accountability of the Fund and the

lack of space for countries and civil society organizations to get their voice heard. There are noagreed standards against which to assess the actions of the IMF and no adequate mechanisms for the

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organization and its governing bodies to be held accountable by the membership or by appropriate

stakeholders. (IEO 2008) Countries are at the mercy of bureaucrats who experience no

consequences of their actions but who have much power. Especially delegates of Low-income

Countries are intimidated: 56% of the authorities and 67% of the Directors from Low-income countries

feel they can criticize IMF staff rarely or only on some issues without negative repercussions. (IEO

2008)Whether the specific form of globalization of the previous decades has been positive or not, it has

certainly been insufficient in social respect: more then 2.5 billion people still live on less than $2 per

day and each day 30,000 children die due to poverty and preventable diseases. It is very implausible

that multilateral institutions which so far controlled the international economic system are now all of a

sudden prepared or have the ability and knowledge to make substantive changes in this. It is from this

perspective therefore incomprehensible that EU governments support an institute that has performed

so badly and carries absolutely no responsibility for the consequences of its actions. To what does the

Fund owe this support? Especially now the Fund is receiving more resources, it is the moment to

demand changes. Governments should make explicit in clear language what they expect from the IMF

and how they think of keeping the IMF accountable to this.

A sustainable and legitimate solution for the challenges ahead requires more than reforms in thefinancial sector. For this it is necessary that a democratic international institute with an explicit task to

fight poverty and to promote the millennium goals has more control over the world economy. The work

of the Commission of Experts on reforms of the international monetary and financial system

established by the UN and its recommendations (among which: spending of 1.0 percent of the national

economic packages of industrialized countries in developing countries, liquidity support to regional

financial initiatives and the prevention of an IMF/World Bank monopoly, an end to all forms of export

subsidies by developed countries and the setting-up of tax-free and quota-free market access for

economically less developed countries and a strengthening of international conventions such as the

UN Convention against Corruption and the UN Commission on International Cooperation in Tax

Matters) must have a much more important place in the discussions concerning reforms of the

international economic and monetary system and must be supported more expressly by the

Netherlands and other EU governments. Additionally, governments should insist that the IMF and the

World Bank do not conduct policies that go against the recommendations of this UN commission.

Murat Kotan

CoordinatorJubilee Netherlands

References

- Abouharb en Cingranelli. 2009. IMF programs and human rights, 1981-2003. Review of International

Organizations 4: 47-72.

- IEO. 2007. The IMF and Aid to Sub-Saharan Africa. Independent Evaluation Office of the IMF:

Evaluation Report.

- IEO. 2008. Governance of the IMF. An evaluation. Independent Evaluation Office of the IMF:

Evaluation Report.

- Oxfam International. 2009. What Happened at the G20? Initial analysis of the London Summit.

Oxfam briefing paper, April 2009.

http://www.jubileenederland.nl/http://www.jubileenederland.nl/http://www.jubileenederland.nl/