Exposing the IMF and World Bank

While talk about North-South relations seems to have gotten muffled under the world recession, one voice still can be heard urging a new, more just international economic order. The voice is that of Amir Jamal, Tanzania's finance minister.

Jamal has been at the forefront of the battle developing countries are waging to change the way the world's financial institutions are run. In mid-1980, Jamal participated in the "Arusha Initiative", a meeting held in Tanzania of critics of the post-1945 world monetary system. At A rusha, Jamal and others called for a revision of the Bretton Woods System, which established the IMF and World Bank in 1946, granting to the industrial countries - particularly the United States - the lion's share of power in the institutions.

On September 7, Jamal delivered the keynote address at a conference critical of the role of the IMF and the World Bank.

Here follows an edited version of his speech:

"The IMF and the World Bank were primarily established to revive and safeguard the economies of the already industrialized societies, which were most adversely affected by the World War. The purpose was to provide a secure framework of agreed rules of exchange within which to ensure the reconstruction of war-torn Europe and the economic growth of the already industrialized countries.

Those who were preoccupied with the prevailing values of trade and exchange placed themselves in a strong position of being able to control the course of these institutions.

On achieving political independence, almost all developing countries have acceded to membership of the two institutions and have thus willingly compromised their position themselves from the very inception of their political independence. They had to start, ipso facto, to deal with inherited structures of production, trade and exchange, even as they looked for ways and means of giving them new direction and purpose. These structures were already part of a global network with the IMF as its central point of reference.

The newcomers of the world, as empirical evidence so amply illustrates, had little choice but to accept the scheme of things which history had pre-empted for them.

However, it is now getting increasingly clear that more and more of the millions who populate the developing countries want to know the value of membership of these institutions and what is it likely to mean in the years ahead?

The industrialized market-oriented countries increased their material prosperity significantly in the post-war years of fixed exchange rate regimes ordained by the IMF. The capital formation which had taken place within their respective boundaries enabled them to increase economic inter-dependence in a variety of ways. Most significantly this has been achieved through the emergence of transnational corporations weaving a fabric round the globe by drawing sustenance from the premises of the Bretton Woods' institutions, eventually reaching a decisive stage in international economic structuring when they could actually ignore and by-pass these institutions when it suited them to do so, in the interest of expansion and extension.

At the same time these institutions continued to enforce compliance of the doctrine of free trade from others too weak and too needy to be able to protest, even if such compliance precipitated social upheaval in the form of street riots and like eruptions.

The role of the Bretton Woods institutions, the IMF, the World Bank, calls for serious scrutiny.

The least that the industrialized countries ought to do in the name of human decency is to ensure that these global institutions which are under their control assist the poor countries in making adjustment at a pace and in a manner that takes into account the immense accumulated pressure under which they are endeavouring to stay afloat, instead of demoralizing them with allegations that they were pursuing faulty economic policies.

Economic policies cannot be managed on quick sands. A priori, they assume the existence of a certain equilibrium, however fragile, at any given time. When the poor countries have been delivered a cumulative body blow of such considerable magnitude as to put their economies in reverse gear - this is particularly true of many African countries - they should not be pushed into getting into still greater indebtedness through totally unrealistic adjustment policies. Strong policies of adjustment are being demanded from the low-income countries, despite the IMF's own judgement that, for the most part, their present plight is the result of factors outside their control. Furthermore, commodity prices are now the lowest in thirty years, and developing countries are being asked to withhold stocks from the market. Is no one going to ask the IMF to make significant adjustment in its own policies?

The primary concern of the powers that be seems to be to ensure that the banking system is not destabilized. The economies of the poor countries, which by definition do not receive the resources of private banks on anything other than very short-term, are supposed to be able to remain illiquid for an indefinite period of time, no matter what suffering this may cause to their people. The time frame needed for effective adjustment on their part is in sharp conflict with the short-term nature of the private banks' framework of operation. The diversion of resources within the short-term framework for providing a safety net for commercial banks means depriving resources to facilitate the adjustment of the ill-equipped economies of the poor countries which necessarily need a longer time framework for effective adjustment.

Are the industrialized countries convinced that it is in their interest that the poor countries be pushed to the wall? Is the IMF convinced that it has any chance of helping the poor countries to regain their equilibrium internally as well as externally with such shock treatment as is being prescribed by it, to the group of countries which are least equipped to withstand it after the shocks already given to them with such devastating cumulative effect?

The IMF and the World Bank are monumentally all-pervasive. In varying degrees, by omission and by commission, their global impact is not only that of consolidating the historically inherited asymmetry in the community of nations but also of creating despair and despondency when the need is that of giving hope and self-confidence.

Today the paradox of pockets of illiquidity which cannot afford to borrow commercially on the one hand, and on the other hand excess liquidity which cannot be recycled to already too vulnerable debtors, is extremely frightening. Here is a classical situation where indeed there is a hairbreadth of difference between the sublime and the diabolical. It depends on the turn the financial managers collectively take or fail to take.

Those in positions of power and responsibility need to understand the nature of the crises we are all in now. The contortions being forced on the entire global financial system cannot continue indefinitely.

These institutions can only be what those who wield power over them wish them to be, or through shortsightedness, default and lack of imagination render them to be what they become - man-made dinosaurs. And yet this tragic state of affairs is surely totally avoidable. It does not have to be a global greek tragedy inexorably unfolding itself. Human ingenuity in the environment prevailing at the time created these institutions through the exercise of power and wisdom of those who arrived there first, primarily to secure their own perceived interest. But others have now come and are part of the same globe. It is neither wise nor intelligent to keep on insisting that simply because some arrived first that they alone have the right to determine how a global equilibrium should be maintained.

These institutions can be restructured and given a truly global mandate for achieving global equilibrium, by ensuring prosperity for many instead of a few, in the course of the next 50 years. Their impact can indeed transcend the most sanguine expectations of their original founders. But this will be achieved only if statesmanship and courage can be combined by those in power so as to endow these institutions with basic human values."