November 14, 2008
CEPR Warns of Dangers of IMF Resurgence
G-20 Should Not Promote IMF Monopoly on Lending to Developing Countries
For Immediate Release: November 14, 2008
Contact: Dan Beeton, 202-239-1460
WASHINGTON, D.C. -- The Center for Economic and Policy Research warned of the dangers of allowing the IMF to control lending to developing countries during the current economic crisis."
The IMF answers mainly to the U.S. Treasury Department, with some minor influence from Europe," said CEPR economist and Co-Director Mark Weisbrot. "Treasury is using its influence just as it did 10 years ago during the East Asian economic crisis, to channel international bailouts through the IMF and to determine the conditions attached to such lending, and to select the recipients of such aid according to its own political preferences."
Weisbrot noted that during the Asian financial crisis, the U.S. Treasury department scuttled proposals for an Asian Monetary Fund, which could have prevented much of the damage that occurred, in order to maintain the IMF/Treasury monopoly on bailouts in the region.
Weisbrot called for countries with large surpluses of international reserves to channel any aid to developing countries outside of the IMF, either through regional, multi-lateral, or bi-lateral arrangements.
"Competition is necessary, and will also improve the performance of the IMF," said Weisbrot.
Economist Dean Baker, also Co-Director of CEPR, noted that "capital has been fleeing some developing countries for the banking systems of the rich countries, because the rich countries have created a subsidy by guaranteeing large parts of their financial system."
"It would be unfortunate if Washington were to take advantage of this situation to reward its friends and punish countries that do not adhere to its preferred policies."
Weisbrot noted that the $100 billion now allocated by the World Bank for middle-income countries, as well as the $100 billion contribution from Japan to the IMF, would also effectively be under the control of the U.S. Treasury.
Weisbrot also pointed out that the IMF, in negotiating agreements so far with Ukraine, Iceland, Hungary, and Pakistan, is "showing some of the same weaknesses that caused it to exacerbate the losses of output and employment in countries like Indonesia, Thailand, and South Korea during the Asian crisis."
According to press reports, Pakistan's recent interest rate hikes were a result of IMF pressure. Ukraine is expected to balance its budget in 2009 and tighten monetary policy as part of an IMF agreement, as well as float its currency.
"There is a real danger that the IMF will impose pro-cyclical or other inappropriate policies for developing countries, as it did 10 years ago," said Weisbrot. "Also, capital controls may be necessary in some countries, and the IMF will not allow that."
In the ten years since the crisis, most middle-income countries have steered away from the IMF, with some building up huge reserves to avoid having to borrow from the Fund.
The Center for Economic and Policy Research is an independent, nonpartisan think tank that was established to promote democratic debate on the most important economic and social issues that affect people's lives. CEPR's Advisory Board of Economists includes Nobel Laureate economists Robert Solow and Joseph Stiglitz; Richard Freeman, Professor of Economics at Harvard University; and Eileen Appelbaum, Professor and Director of the Center for Women and Work at Rutgers University.