Anyone who has picked up a newspaper in the last several months has heard of the International Monetary Fund. This relatively obscure yet immensely powerful institution has been sprung to the front pages of the worlds newspapers by the Asia financial crisis and the funds role in bailing out the economies of Thailand, Indonesia, and South Korea.
The International Monetary Fund (IMF) was created in 1944 to oversee the global financial system and to extend short-term loans to countries facing liquidity problems. In the last several decades, however, the IMF increasingly has become involved in "structural reform" of its borrowing nations. While still providing short-term assistance, the IMF also attaches loan conditions that require fundamental changes in national economic policies. Even more recently, the IMF has begun to attach "good governance" conditions to its loans.
This deeper role has sparked a great deal of controversy. Critics from the Right argue that the IMF is interfering with the market by providing a guarantee of financing if a countrys economy, including the private sector, experiences a crisis. Critics from the Left want the IMF to recognize the impact of its policies on social cohesion, labor conditions, poverty, and the environment.
Because of its magnitude, the financial crisis in Asia has sparked an unprecedented examination of IMF policies and their impact. The Asian bailouts illustrate the IMFs new approachthey require changes in the countrys banking and financial sectors and crack down on corruption. However, they also include the typical components of "structural adjustment programs" that have sparked longtime criticism of the IMF.
Although the IMF admits that the Asian economies are fundamentally sound, it is imposing tight austerity measures as part of the loan packages. These measures include strict spending limits, tax increases, tight money supply, high interest rates, and rapid privatization. As in Africa and Latin America, these policies have had a devastating impact on the poor and the environment in Asia.
FOR EXAMPLE, in order to earn hard currency and boost exports, the IMF is urging Indonesia to increase palm oil exports. However, clearing land for palm oil plantations was a major factor behind last years devastating fires that engulfed Southeast Asia. In addition to the massive environmental degradation, the fires have enormous health costs, with some estimates at $1 billion, and have forced indigenous people off their land.
Compounding these problems are the IMFs tight spending requirements, which set caps on social expenditures. With the increased poverty resulting from economic turmoil and worsening health problems due to the fires, the Indonesian governments ability to respond to the needs of the poor will be severely curtailed.
The credit restrictions imposed in the Asian countries to limit inflation have had the extremely negative effect of bankrupting small and medium businesses. The bankruptcies and layoffs may lead to more than a million unemployed in South Korea and more elsewhere. Coupled with currency devaluations and soaring import prices, purchasing power for the poor and middle classes has been wiped out.
While no one denies the immediate negative impact of the IMFs bailout packages, many American government and corporate officials claim that the restructuring will achieve greater efficiency and future economic prosperity. While it is clear that crony capitalism in Asia did little to benefit the poor, it is not clear that U.S. support for the IMF packages is aimed at helping Asias poor. U.S. officials have tried for years to gain access to Asian markets. Now the IMF is accomplishing this in a matter of months. With the enormous leverage it has over cash-strapped nations, the IMF has been able to open up the economies of Thailand, Indonesia, and South Korea to foreign competition. And with the massive number of bankruptcies, American companies are buying up Asian firms at bargain-basement prices.
The opportunity to benefit financially from the Asia crisis perhaps partly explains the quick response of the United States and the world financial community to the difficulties in Thailand, Indonesia, and South Korea. Compared to the lack of international mobilization in response to North Koreas crisis of starvation, the profit motive seems a likely explanation. It is no surprise that citizens around the world question the intentions of financial leaders in the United States and the international financial institutions as they attempt to resolve only some of the worlds economic crises.
CAROL WELCH is an international policy analyst for Friends of the Earth-US with a focus on FoEs IMF reform campaign.