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It's a rite of Spring in Washington: as winter fades and the cherry blossoms burst into their pale pink splendor, the International Monetary Fund (IMF) and World Bank hold their annual Spring Meetings. It was not so long ago, in the pre-9/11 world, that the event attracted protestors, police crackdowns, and pre-emptive strikes against them. "Better the finance meeting had been held offshore, like other nefarious cartels do, than to reinforce the image of our nation's capital as a two-bit capitalist dictatorship," wrote Washington Post columnist Courtland Milloy in 2000, after the police rounded up scores of bystanders, including tourists, and threw them in jail.
Today the IMF attracts relatively little attention, mostly because it has become a shadow of its former self. The protests – among many others throughout the developing world – helped bring about this historic change by shining some light on an organization that has spent most of its 63 years operating under the radar.
The Fund's portfolio of loans has been sharply reduced: from $96 billion as recently as 2004 to just $20 billion today. About half of that $20 billion is owed by Turkey. But much more importantly, the Fund has lost its enormous power to pressure middle-income developing countries to adopt a whole set of economic policies that were often not in their interests.
The IMF's power was based on an informal arrangement that put the Fund at the head of a powerful creditors' cartel. A government that didn't meet the Fund's conditions wouldn't be eligible for most loans from the World Bank, other multilateral lenders such as the Inter-American Development Bank, rich country governments, and sometimes even the private sector. This gave the IMF enormous leverage: often it could present governments with an "offer they couldn't refuse."
Since the US Treasury Department holds a veto over IMF decisions, this power was even more concentrated, and was in fact the major avenue of US influence over the economic policies of developing countries. This power began to erode after the East Asian Financial crisis in the late 1990s, where the IMF's intervention was widely seen as having increased the regional economic damage and imposing unwanted conditions on the affected countries, such as South Korea, Indonesia, and Thailand. These countries and others have since accumulated large international reserves and will never have to go back to the Fund.
The Fund's contribution to Argentina's economic collapse (1998-2002) and its unwillingness to help with the country's recovery further damaged the IMF's reputation. Argentina also showed that the IMF and associates' "help" was unnecessary, disregarding their advice to become the fastest-growing economy in the Western Hemisphere over the last five years.
Then Venezuela began to make billions of dollars of its international reserves available to neighboring countries such as Argentina, Bolivia, Ecuador, and others. This broke the back of the creditors' cartel by offering an alternative source of credit with no strings attached.
The Fund sees itself as a victim of its own success – the world hasn't had any major financial crises in recent years and developing countries can borrow from private sources at relatively low interest rates. Some economists think the Fund will regain its power when the next crisis hits.
But it won't. The IMF has lost power because its policy prescriptions didn't work. The areas where it had the most influence, such as Latin America and Africa, have experienced profound economic growth failures. The fastest growing countries in the world over the last 25 years – e.g. China, Vietnam, and India – were free from the Fund's influence. The next important step will be for the poorest countries in the world, which are still in the grip of the IMF's cartel, to become independent.
Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C., and co-author of Political Forecasting: The IMF's Flawed Growth Projections for Argentina and Venezuela.