Multinational Monitor Editors blog

Have things changed at the International Monetary Fund? Or is the world just witnessing yet another in a long series of global economic double standards?

IMF Managing Director Dominique Strauss-Kahn says that the “need for public intervention” to address the global financial crisis “is becoming more evident.” Strauss-Kahn has urged for a global fiscal stimulus, writing that, “Timely and targeted fiscal stimulus can add to aggregate demand in a way that supports private consumption during a critical phase.” The IMF has announced its support for the fiscal stimulus plan in the United States — a country with significant budget deficits and massive foreign debt.

The support for government intervention runs directly counter to the IMF’s longstanding support for strait-jacketing governments in poor countries, by demanding “structural adjustment” — a series of market fundamentalist, corporate-friendly policies, including hyper-restrictive macro-economic policies.

So far, there is little evidence that the IMF is changing the way it operates in developing countries. But maybe the times are changing, whether the IMF likes it or not.

The IMF gets its power from a gatekeeper role in international finance and donor circles. International lenders and government aid donors commonly limit their lending and aid donations to countries in the IMF’s good graces. The logic is that the IMF is competent to determine that the recipient countries are pursuing sensible economic policies, and therefore equipped to manage loans or aid.

The IMF has capitalized on its gatekeeper role to demand countries pursue a cookie cutter, market fundamentalist agenda of blind deregulation, sell-offs of public assets to corporations (privatization), opening up economies to foreign investors, tariff cuts, and government spending cuts.

There is overwhelming evidence of the failure of the IMF’s policy agenda. Mass privatization has led to enormous concentrations of wealth and encouraged corruption. Deregulation has contributed to financial crises, including those that foreshadowed the current global crisis centered in the United States. The overall economic model had impoverished tens of millions and left developing countries poorer. And government budget ceilings and inflation targets have prevented countries from expanding desperately needed investments in healthcare and education. Indeed, the IMF’s own Independent Evaluation Office has found that the Fund requires poor countries not meeting Fund inflation targets to divert most new donor aid. Instead of spending additional donor money on healthcare, for example, countries must use it to build up foreign reserves or pay down domestic debt.

Although the Fund has promised that it would reform the way it imposes conditions on poor countries, a new report from Eurodad, the European Network on Debt and Development, finds that, over the last six years, IMF conditions have not changed in number or kind.

One thing has changed, however. Impressed by the IMF’s repeated failures, middle-income countries have paid back their loans to the Fund, and are not taking out any news ones.

This in turn has two consequences. For now, at least, the IMF has lost its hold over most middle-income countries — but it maintains its iron grip on the world’s poorest countries. And, the Fund is experiencing a financial crunch of its own. It had depended on the interest payments from middle-income countries to support its budget.

Developing countries are not shedding tears over the IMF’s financial distress. “At long last, the IMF is experiencing first hand serious budget cuts,” says Cheikh Tidiane Dieye of Environment and Development in Africa (ENDA), based in Senegal. “The poetic justice of this is palpable. In Senegal, the IMF has mandated budget cuts for years. As a result, we have been unable to invest in health care, education and other essential services. If the IMF’s loss of financial power is accompanied by a loss in political power, this could be good news for all Africans.”

The IMF’s governing body has just approved a proposal that would involve cutting its staff by about 20 percent and selling some of its gold stock to create a trust fund that would fund administrative operations in the future.

The gold cannot be sold without U.S. approval, however, and the U.S. representative to the Fund cannot support gold sales without Congressional authorization.

Health, development and labor organizations in the United States are mobilizing so that Congress approves gold sales only after achieving fundamental changes in IMF policy. Last week, 80 U.S. organizations — including Action Aid International USA, the AFL-CIO, Africa Action, the Bank Information Center, Essential Action (which I direct), 50 Years is Enough, Global AIDS Alliance, Health GAP, Jubilee USA Network, the ONE Campaign, Oxfam America, RESULTS USA, Service Employees International Union (SEIU), and the Student Global AIDS Campaign — urged Congress not to approve gold sales until first achieving real change at the Fund.

The letter says the Congress should require the IMF to: rescind the use of overly restrictive deficit-reduction and inflation-reduction targets; exempt expanded health and education spending in developing countries from IMF-imposed budget ceilings; permit developing countries to spend foreign aid for its

intended purposes; delink debt cancellation from harmful economic policy conditions; and disclose crucial documents currently kept secret.

If the gold sales deal is approved, the IMF will become self-financing, and the U.S. Congress will lose much of its power to demand changes in how the IMF operates. So the present opportunity will not soon present itself again. There is no certainty about when the gold sales authorization will come before Congress, but it now seems as though it may be delayed until 2009.

Perhaps the IMF under the leadership of Strauss-Kahn, who took the helm of the institution only last September, is ready to re-evaluate its market fundamentalist, corporate-friendly policy prescriptions for poor countries. A statement issued by the Fund last week said that African countries did not need to raise interest rates in response to inflation driven by higher prices of food and fuel, and that some subsidies might be permissible in some circumstances. This is perhaps a baby step forward.

But if the IMF is not ready on its own to jettison its long-standing policy demands for poor countries, it may soon find that it has no choice. Representative Barney Frank, D-Massachusetts, chairs the House Financial Services Committee, which must approve the gold sales proposal prior to the full House of Representatives considering the issue. At the 20th anniversary celebration of the Bank Information Center last week, he strongly denounced structural adjustment, stated as a matter of fact that gold sales will only be authorized if additional IMF gold is sold to cancel poor country debt, and made clear that he intends to obtain policy changes from the IMF as a condition of permitting gold sales.

Today marks the 40th anniversary of the assassination of Dr. Martin Luther King, Jr.

If the United States makes progress in closing the black-white income gap at the same rate it has since King was assassinated, there will be income equality in 537 years. If the racial wealth divide closes at the same rate as it has since 1983, it will take 634 years before African-American families have the same wealth as whites.

And that’s the optimistic way of looking at things.

“The Unrealized American Dream,” a new report from the Program on Inequality and the Common Good of the Institute for Policy Studies, shows that the United States has made significant, if wholly unsatisfactory, progress in closing racial education gaps. But income and wealth inequalities remain monstrous.

With the Iraq war continuing with no end in sight, this anniversary of King’s death is spurring some reflection on King’s actual views and actions — especially in the last years of his short life — rather than the standard iconization that focuses solely on his opposition to legal segregation. The real-world King harsly condemned the Vietnam War and was increasingly focused on questions of economic justice. He was killed in Memphis, where he had come to support striking garbage collectors.

Dedrick Muhammad is the author of “The Unrealized American Dream.” He says two key factors explain the failure to close income and wealth gaps.

First, the government investment programs of the 1930s and 1940s — everything from the New Deal job creation programs to the GI Bill of Rights — played a key role in building the broad U.S. middle class. But African-Americans were not able to participate in or benefit equally from many of those programs, because of legal and de facto discrimination.

Second, since the late 1970s, pro-corporate, pro-rich deregulatory and tax policies, along with corporate globalization, have led to an overall concentration of wealth in the United States. This has made income and wealth gaps much worse in the whole society. Middle class security has been weakened, and many working class communities and families have been devastated. There are relatively few, and proportionately fewer, African-Americans benefiting from recent decades’ wealth-concentrating policies and corporate power grabs.

Indeed, one way to look at the data compiled in “The Unrealized American Dream” is that the country made modest improvements in reducing inequalities through the 1960s and 1970s, but that things have been stagnant or gone backwards since the late 1970s. Black per-capita income as percentage of white income started at 54 percent in 1967, reached 60 percent in 1976, and has held more or less constant since. It was at 57 percent in 2005.

That’s income. Wealth is worse. Here are snapshots of the current state of wealth inequality:

* Median household wealth by race (2004) — White: $118,300. Black: $11,800.

* Median financial wealth by race (2004) — White: $36,100. Black: $300.

* Median home equity by race (2004) — White: $82,200. Black: $11,500.

That last figure is crucially important, because although home values are plummeting for almost everyone in the United States, African Americans were disproportionately steered into the worst-term, higher-cost, rip-off subprime loans. A January report that Muhammad co-authored, “Forclosed: State of the Dream,” concludes that the subprime crisis “represents the greatest loss of wealth for people of color in modern U.S. history.” The report estimates African-American borrowers will lose between $71 billion and $92 billion from subprime loans (Latinos will lose a comparable amount).

Muhammad notes that while the deindustrialization of the last quarter century has hardest hit working class African Americans, the current housing crisis is going to hit hardest at the middle class. Upper-income African Americans were almost as likely to be steered into high-cost mortgages as lower-income African Americans, and twice as likely as lower-income whites.

In short, when the data is in for 2008/2009, racial wealth inequality will almost certainly be worse than it was a few years ago.

There’s little mystery about how to redress racial and overall income and wealth gaps. The key features include: a rebalanced tax policy; federal involvement to assist people get fair mortgages for home purchases; single-payer healthcare; massive public investment in infrastructure and to meet pressing environmental needs; real guarantees for workers to organize unions without employer interference; and a reversal of corporate globalization.

Muhammad says we are now in a “serious step-back recession.” But he remains hopeful. The mounting dissatisfaction with the state of the economy, he says, offers “the opportunity to advance a progressive agenda” — the economic justice agenda for which King was working when he was killed.

Philip Morris International today starts business as an independent company, no longer affiliated with Philip Morris USA or the parent company, Altria. Philip Morris USA will sell Marlboro and other cigarettes in the United States. Philip Morris International will trample over the rest of the world.

Public health advocates have worried and speculated over the past year about what this move may mean, but Philip Morris International has now removed all doubts.

The world is about to meet a Philip Morris International that will be even more predatory in pushing its toxic products worldwide.

The new Philip Morris International will be unconstrained by public opinion in the United States — the home country and largest market of the old, unified Philip Morris — and will no longer fear lawsuits in the United States.

As a result, Thomas Russo of the investment fund Gardner Russo & Gardner tells Bloomberg, the company “won’t have to worry about getting pre-approval from the U.S. for things that are perfectly acceptable in foreign markets.” Russo’s firm owns 5.7 million shares of Altria and now Philip Morris International.

A commentator for The Motley Fool investment advice service writes, “the Marlboro Man is finally free to roam the globe unfettered by the legal and marketing shackles of the U.S. domestic market.”

In February, the World Health Organization issued a new report on the global tobacco epidemic. WHO estimates the Big Tobacco-fueled epidemic now kills more than 5 million people every year.

Five million people.

By 2030, WHO estimates 8 million will die a year from tobacco-related disease, 80 percent in the developing world.

The WHO report emphasizes that known and proven public health policies can dramatically reduce smoking rates. These policies include indoor smoke-free policies; bans on tobacco advertising, promotion and sponsorship; heightened taxes; effective warnings; and cessation programs. These “strategies are within the reach of every country, rich or poor and, when combined as a package, offer us the best chance of reversing this growing epidemic,” says WHO Director-General Margaret Chan.

Most countries have failed to adopt these policies, thanks in no small part to decades-long efforts by Philip Morris and the rest of Big Tobacco to deploy political power to block public health initiatives. Thanks to the momentum surrounding a global tobacco treaty, known as the Framework Convention on Tobacco Control, adopted in 2005, this is starting to change. There’s a long way to go, but countries are increasingly adopting sound public health measures to combat Big Tobacco.

Now Philip Morris International has signaled its initial plans to subvert these policies.

The company has announced plans to inflict on the world an array of new products, packages and marketing efforts. These are designed to undermine smoke-free workplace rules, defeat tobacco taxes, segment markets with specially flavored products, offer flavored cigarettes sure to appeal to youth, and overcome marketing restrictions.

The Chief Operating Officer of Philip Morris International, Andre Calantzopoulos, detailed in a March investor presentation two new products, Marlboro Wides, “a shorter cigarette with a wider diameter,” and Marlboro Intense, “a rich, flavorful, shorter cigarette.”

Sounds innocent enough, as far as these things go.

That’s only to the innocent mind.

The Wall Street Journal reported on Philip Morris International’s underlying objective: “The idea behind Intense is to appeal to customers who, due to indoor smoking bans, want to dash outside for a quick nicotine hit but don’t always finish a full-size cigarette.”

Workplace and indoor smoke-free rules protect people from second-hand smoke, but also make it harder for smokers to smoke. The inconvenience (and stigma of needing to leave the office or restaurant to smoke) helps smokers smoke less and, often, quit. Subverting smoke-free bans will damage an important tool to reduce smoking.

Philip Morris International says it can adapt to high taxes. If applied per pack (or per cigarette), rather than as a percentage of price, high taxes more severely impact low-priced brands (and can help shift smokers to premium brands like Marlboro). But taxes based on price hurt Philip Morris International.

Philip Morris International’s response? “Other Tobacco Products,” which Calantzopoulos describes as “tax-driven substitutes for low-price cigarettes.” These include, says Calantzopoulos, “the ‘tobacco block,’ which I would describe as the perfect make-your-own cigarette device.” In Germany, roll-your-own cigarettes are taxed far less than manufactured cigarettes, and Philip Morris International’s “tobacco block” is rapidly gaining market share.

One of the great industry deceptions over the last several decades is selling cigarettes called “lights” (as in Marlboro Lights), “low” or “mild” — all designed to deceive smokers into thinking they are safer.

The Framework Convention on Tobacco Control says these inherently misleading terms should be barred. Like other companies in this regard, Philip Morris has been moving to replace the names with color coding — aiming to convey the same ideas, without the now-controversial terms.

Calantzopoulos says Philip Morris International will work to more clearly differentiate Marlboro Gold (lights) from Marlboro Red (traditional) to “increase their appeal to consumer groups and segments that Marlboro has not traditionally addressed.”

Another, related initiative is Marlboro Filter Plus, which claims to reduce tar levels. First launched in Korea, in 2006, Calantzopoulos says it has recorded “an impressive 22 percent share” among what the company designates as “Young Adult Smokers.”

Philip Morris International also is unrolling a range of new Marlboro products with obvious attraction for youth. These include Marlboro Ice Mint, Marlboro Crisp Mint and Marlboro Fresh Mint, introduced into Japan and Hong Kong last year. It is exporting clove products from Indonesia.

Responding to increasing advertising restrictions and large, pictorial warnings required on packs, Marlboro is focusing increased attention on packaging. Fancy slide packs make the package more of a marketing device than ever before, and may be able to obscure warning labels.

Most worrisome of all may be the company’s forays into China, the biggest cigarette market in the world, which has largely been closed to foreign multinationals. Philip Morris International has hooked up with the China National Tobacco Company, which controls sales in China. Philip Morris International will sell Chinese brands in Europe. Much more importantly, licensed versions of Marlboro are expected to be available in China starting this summer. The Chinese aren’t letting Philip Morris International in quickly — Calantzopoulos says “we do not foresee a material impact on our volume and profitability in the near future.” But, he adds, “we believe this long-term strategic cooperation will prove to be mutually beneficial and form the foundation for strong long-term growth.”

What does long-term growth mean? In part, it means gaining market share among China’s 350 million smokers. But it also means expanding the market, by selling to girls and women. About 60 percent of men in China smoke; only 2 or 3 percent of women do so.

The global vilification of Big Tobacco over the last decade and a half is one of the world’s great public health stories. Directly connected to that vilification has been a reduction in smoking, and adoption of life-saving policies that will avert millions of deaths.

Yet here comes Philip Morris International, now the world’s largest nongovernmental tobacco company. It is permitted to break off from Altria with no regulatory restraint. It proceeds to announce plans to subvert the public health policies that offer the best hope for reducing the toll of tobacco-related death and disease. The markets applaud, governments are mute.

What an extraordinary commentary on the political and ideological potency of the multinational corporation — and the idea that corporations should presumptively be free to do what they want, with only the most minimal of restraints.

Note: Essential Action, a group I direct, works to curb the global tobacco epidemic, and helped organize a public health call for government action in advance of the Philip Morris breakup.