The G-20 summit meeting in
The G-20 will also have to make some decisions about the International Monetary Fund (IMF): how much money will they get and what will be their role in the coming months and years? The Obama Administration has proposed an additional $100 billion, in the hope that this will raise $500 billion of new funding. The European Union has committed a similar amount (75 billion Euros).
This could be a mistake, unless the IMF is required to eliminate the harmful conditions that it often attaches to its lending. About ten years ago, in the last major international economic crisis – which began in Asia – the
These countries learned their lesson and piled up reserves so as to never go back to the IMF again. The Fund, without taking responsibility or firing anyone (much like some American corporations recently) claims to have learned some lessons and also to have changed its policies. But there are too many disturbing signs that it has not.
For example, in at least nine agreements that the Fund has negotiated since September 2008, including Eastern European countries,
The IMF has long had a double standard when it comes to dealing with economic downturns. For the rich countries, it can be quite Keynesian: it is currently recommending a global fiscal stimulus of 2 percent of GDP. But for the developing countries that are actually forced to follow the Fund’s advice, there is often a different story: they "cannot afford" these expansionary policies during a recession.
This attitude can defeat the purpose of loaning money to developing countries in a downturn, which is to enable them to pursue expansionary policies. The main reason they "cannot afford" to do what the U.S. or other rich countries do during this recession – e.g run large budget deficits – is that they may run out of foreign exchange reserves (mostly dollars). In other words, if they grow at a normal pace while other economies shrink, their imports will grow faster than their exports, and their trade balance will worsen. The purpose of external support is to allow that to happen, rather than shrinking the economy to improve the trade balance.
In some sense it is not really fair to blame the IMF for its failed policies, since the Fund has a boss: the U.S. Treasury Department. Although it has 185 member countries,
There was understandably discontent in the
What hope, then, for reform? For immediate reforms, there is the pressure from organized civil society that successfully forced some $88 billion of poor country debt cancellation over the past decade. Coalitions such as the UK’s 138-organization "Put People First" are pressuring the IMF and World Bank to refrain from inflicting harmful conditions on poor countries, and to cancel more debt; and for the rich countries to live up to their aid commitments. In the
More ambitious proposals for longer-term reform come from the UN Commission headed by Nobel laureate economist Joseph Stiglitz. This commission is proposing a Global Economic Council, an expanded global reserve system, and other institutional arrangements – including steady aid to poor countries – that would not be subject to the veto of rich countries as are the IMF and World Bank currently. This week the government of
In the mean time, the most important reforms will take place at the national and regional level, bypassing the G-7 and the nominally expanded G-20.
If the developing countries are willing to show the G-7 that they can walk away from any agreements that can harm them, while creating alternatives on the ground at the national and regional level, the governments of the rich countries may eventually see the need for serious international financial reforms.