IMF is Dead

The burden for any revisionist advocate in the International Monetary Fund (IMF) brouhaha as exposed by Stiglitz, himself included, is simple: he has to prove that the organization has not been enseeped entirely with the wrong principles, and it still has the potential to rise above its initial demise on what it should ideally be doing, as opposed to what it has done for the past sixty years or so of existence.

Stiglitz himself pointed out the blatant perversion of its once Keynesian principle, but after enumerating the scathing criticisms against the organizational performance of the IMF, he commences in his ranting spree and asserts that change can still be had – that the IMF can still rise above its inherent susceptibility to these external encroachments.

But can it really? Or is he merely being an apologist after strongly antagonizing the IMF?

This paper will attempt to answer as to whether the IMF has, for obvious intents and purposes, abandoned its initial purpose and if this is so, it will try to establish whether revisionism is still an apt tact, or will complete abandonment (and the resurgence of a better-crafted and well-established organization) be a better alternative.

The Initial Problem

It is conceded that the IMF, when it was established in the aftermath of the Second World War, had aspired for a noble ideal: it wanted to help in the distribution of economic wealth and, inevitably, in the advocacy of marginally uplifting the shaky economic foundations of less developed countries, especially those who were hardest hit by the war.

However, these highly-commendable aspirations were not substantially reinforced in terms of organizational thrust nor (in) the tangibility of a complete set of principles that was to guide the IMF in its future discretions. As a matter of fact, Stiglitz himself acknowledged this blatant diversion of its claimed and initial obligation with his observation that the ‘problem is with ideology, not economic analysis and valid observation’.

Note that the problem with ideology, especially those that are firmly anchored in a blind subscription to the fundamental and dogmatic principles behind it, is that it has the tendency to shield itself from outside criticism and carry on with its line of work, even when it has proven to be more destructive than constructive – because this is how fundamental ideologies operate: their convictions are almost always near absolute.

Moreover conflict, adds Benjamin Friedman in his analysis of Stiglitz’s book, happens because even during its early stages, the IMF catered both to the developing countries and to the financial markets – thrusts which are often in conflict with each other, he further adds.

With this in mind, we can very well see that even during its conception as a supranational entity, it was already an organization that had no clear vision of what its priorities were – because although it was infused with the noble ideal of extending benevolence to economically-disparaged countries, it was also fundamentally skewed towards the fiscalization of international affairs. And because we cannot conclusively plot out the certainty as to which side had more substantial gains over the other, it is imperative therefore that we answer this by closely seeing how the IMF fared in the years that followed, specifically during the past decade, and especially in the execution of its duties and functions to the countries which asked for its help.

Track Record

For the past two decades, the IMF has been in the sidelines as several countries that were plagued by helplessness and economic fatalism were continually and blindly led into their demise – or to the more cynical observer, the IMF was in fact the reason why these countries have succumbed to their eventual self-destruction. And this observation is for good reason – we have the East Asian experience of 1997, the Soviet disintegration of 1998, and the Sub-Saharan collapse of 1998.

In all three instances Stiglitz claims that the IMF, in its misguided decisions, only ‘..subverted the growth of democracy, hampered local economic growth, and enriched multinational corporations.’

How did this actually materialize according to Stiglitz?

His main contention is that these developments were largely borne ‘..from a ‘shock therapy’ tact in a rush to market economies without first establishing institutions to protect the public and local commerce, and the local social, political and economic conditions were largely ignored.’ Moreover he adds that ‘..privatization without land reform or strong competitive policies resulted in crony capitalism, large businesses run by organized crime, and a feudal structure without a middle class.’

Let us attempt to localize this contention for better appreciation and for more clarity as regards his claim – and for this purpose, we can take a look at the Indonesian financial collapse of 1998.

During that year, the economy was in steep decline and as a result, Indonesia pleaded for an external intervention, or a financial bailout, in order to stabilize the economy. For its part, the IMF responded by imposing higher taxes and introducing budget cuts as part of its ‘shock therapy’ approach and in order to guarantee that the debt incurred will be paid off eventually – the cuts, mind you, were taken from the state’s initial appropriation for the basic welfare services, i.e. food subsidies and what-not.

Naturally, this resulted to food riots and more civil mayhem than there already were, because the after-events of this ill-fated move proved that the imposition of higher taxes and the substantial cuts to basic welfare services, compounded by the lack of strong local political and social institutions for sustained and prolonged stability, was a lethal and fatal combination altogether.

And even if these glaring examples of ill-informed decisions continued to plague most of the countries that the IMF purportedly wanted to ‘help out’, this same line of tact and strategy was employed time and again, triggering the consistent and systematic collapse of already hard-pressed countries that were desperately gearing up for survival.

In contrast to these unfortunate experiences of countries which strongly implemented the conditions set forth by the IMF, East Asia (specifically South Korea) and China have a different story to tell – and these are awe-inspiring stories which ought to be emulated by those that also aspire for greater economic prosperity in the long haul.

South Korea strongly resisted the IMF conditions during its turbulent economic decline of 1995, whereas China rejected any IMF money in exchange for drastic changes within its economic policies and tax schemes. Note that presently, both countries are considered to be part of the forerunners in the roster of countries that are rapidly industrializing.

This disparity of outcomes highlights the unfortunate observation that even if the IMF has failed in providing for a viable resuscitation mechanism for desperate countries, it should not, at least, be privy to the eventual demise of the same. But a look at how it has fared thus far, and in comparison to the economic prosperity of countries which deliberately digressed from these IMF maneuverings, we see that not only have they been very unhelpful, but they have, in fact, even been uberly-detrimental

Mismanagement by Accident?

One of Stiglitz’s main concerns, and one which he personally feels strongly about, is the apparent lack of transparency in the affairs of the IMF – he detests the closed door meetings and strongly calls for drastic changes in the affairs of the IMF.

But let us not be dismissive nor be oblivious to realpolitik as we raise the question: Is it really coincidental that these meetings inconspicuously happen behind closed doors and not within places that guarantee full public disclosure?

Again, Friedman says that these are not just random mistakes, but a ‘..Washington Consensus’ – which add up to something unattractive, if not outright repugnant, in several different ways..’

These persuasions and this embodiment of their market principles: they define the underlying conviction of the IMF – for these are the tangible gauges of what the IMF has advocated for thus far – and the people which populate its roster of officers and directors are strong testaments to the inherent principles of the organization and the degree of entrenchment that Neoliberalism has within the established psyche of those who sustain the existence of the IMF as an organization.

Right at the onset of the IMF’s creation, it was clearly an extension of the Reagan experiment as it facilitated the diffusion of his own brand of ‘trickle down’ economics into the world setting. However, now we question: Is this still true today?

Again, Friedman tells us that this is the case even today – as a matter of fact, he asserts that even until now, this is betrayed by the fact that both IMF Managing Director Stanley Fischer and Treasury Secretary Robert Rubin both left for multimillion dollar jobs at Citigroup – joining their erstwhile bosses in the IMF as well who have left earlier to work for the corporate giants in the US.

Again, the message that this gives out needs no further elaboration – an average reasonable person can concoct, from these damning expositions, the hidden truths behind the organizational workings of the International Monetary Fun – and the degree of neoliberal entrenchment inevitably makes us ask: is it still viable for us to resuscitate the IMF as a potent distributor for international economic wealth?

Conclusion

Given all these factors, I am of the impression that revisionism will not be a viable strategy for the IMF if it genuinely wishes to redeem itself in the international political and economic scene.

Revisionism presupposes that something can still be done – that intervention is still possible and the organizational workings of the IMF still manifest that it can be infused with a new principle – but fact is, it has failed in those respects, and it would be futile to even attempt to resuscitate the dead.

As substitute to these inherent failings of the IMF, there ought to be a creation of another supranational entity which has established principles and a clear definition of how it will carry out its duties to its member-states – this time, there should be no room for ambiguities because it is often these gray areas which are abused by certain exploitative and opportunistic elements to advance their selfish and self-serving aims.

And with the establishment of a tangible working program for this new body, I personally believe that the IMF can find its redemption as an organization which truly caters to the economic needs of countries who continually look up to the IMF as the beacon of international democracy and worldwide solidarity.