Book Review-Unholy Trinity: The IMF, World Bank and WTO (Chapter Three: The IMF (PP. 66-127))

The book is written by Prof. Richard Peet and Published in 2009 by Zed Books New York – London.

The aftermath of WWII has brought a complicated Bretton Woods gathering, a prime cause for an intricate global governance system. It incubates non-state but powerful global governance systems-the IMF, WB, and WTO. It has purported to keep the power balance of the developed nations though it seems indifferent and equally benefiting all nations. It accumulated power and influence encircling 185 states of the word at its mercy hands. Most of which are decent but affected drastically and disastrously on their membership with IMF.

IMF is formed, trained, and shouldered neoclassicism and neoliberal line of thinking serving the ideological (especially economic ideology) interests of the developing nations contextually. It has devised an indirect and concealed style of governing global economies of developing nations via provision of short-term loans on austere conditionality which is devastating to the debtor countries in the long run. It has exchanged current problems of poor countries with short-term loans bearing lasting negative impacts on their economy. It has ignored the lives of the poor. It advocates privatization, deregulation, and cutting back of subsidies and public services which would in turn cause a rise in food prices, costly social services, and unemployment. Not only this, it snatches the regulatory power of governments not to cure the problem it resulted. It denies developing countries the chance to follow their developmental trajectory. They are denied of their wish to follow the path that they would like to develop differently. At the end of the day, a multifaceted turmoil filled with recurrent riots and demonstrations pooling or cooling an economy; and hampering developmental endeavors of poor countries has been occurred.


Structure of the IMF


Although it come into life via formal dealings at Bretton Woods conference and made under the UN system. Its structure is deliberately made to serve the interest of developing nations. The selection of managing directors, the voting structure, and the decision making processes negates the interest of members sharing least quota. Therefore, the allotted or permitted quota determines the country’s economy and volume of trade. Although, it is made to regulate the international monetary system facilitating international payments, and managing exchange rates among national currencies, it utterly influenced macro-economic policies of its members, especially developing nations. It influences state budget, management of money, exchange rates, and financial policies of governments. Thereby, it able to control the national income, total national consumption, investment, and money supply. Its lending conditionality posed not only fund rules but fund-suggested policy guidelines which may or might be the choice of borrowing countries. Especially, when IMF’s subscriptions rise, its power also expanded. And, able to drive economies of transitional, post-communist or emerging middle income countries. Its mandate is obscured. It is neither a development bank nor an aid agent. Later, IMF’s fund approval signals other financial institutions that a country’s economic policies are on the right track. Thereby, it becomes a banker’s guide to creditworthiness.


IMF Policy (1945-71)


IMF was formed to serve the interest of European and North-American nation states economic needs post war period. First, it seems centered on exchange rates and balance of payment but it has a further concern deep into economies of developing nations. Especially, it is argued that conditionality is a U.S. conception. Other countries e conditionality but a U.S. executive director vetoed the opposition. Concerning exchange rate, IMF firstly supports fixed or par value exchange rate system.  In 1960’s, fixed exchange rate criticized for its inadequacy to deal with rapid fluctuations in an increasingly global trading system. Instead, arguments were forwarded for a fluctuating rate determined by demand and supply in international market for currencies. However, IMF, owing to its Keynesian grounds and for its self-preservation, proper rate of exchange is made as to a country’s economic policies. This paves an avenue for manipulation and abuse in determination of exchange rates.


Crises and Transition (1971-79)


In 1970’s, IMF re-emerged as an international lending organization. In mid 1970’s, it tried to make the international monetary system operate smoothly restoring confidence in major currencies via making temporary loan during balance of payment crises. Hence, it began to operate in the interest of developing nations. It appeared as a kind of global Keynesian club under the direction of USA.

The history of IMF lending can be traced back when later British applied to IMF standby loan. There was no conditionality; rather general policy statements and brief letter Of intent. This enabled British to be the first user of the Fund for twenty five years. This can be attributed for the fact that British is a cofounder of the club. Even, later Britain was required a detailed letter of intent; she began to shift to central banks of USA, Japan, and western European countries. In doing so, the free-trade oriented IMF’s stand was challenged. Even if USA and western European countries tried to influence Britain’s policy direction via IMF, it was not as such materialized. Using IMF conditionality has been used to penetrate domestic sovereignty easily and without much political cost.


In 1977, IMF’s fund was begun to be used by post-communist and third world governments. Now, IMF intent was revealed. It is assured that it is a means of first world control over third world economies. This turning point was also a result of oil price rise by OPEC countries. When third world countries stranded to pay oil imports and began to borrow from commercial and investment banks, IMF borrowed money from its members and narrow the gap. Members share increased; and IMF began shift from first to third world countries. Conditionality was used expressly. In addition, stabilization programs were introduced. Conditionality expanded IMF’s surveillance power and stabilization programs opened door for financial programming of third world debtor countries.


The Debt Crisis of the 1980’s


This is a period when Mexico and Brazil were highly hit by IMF conditionality (upon public spending and state deficit). The game was played triangularly. The IMF, western governments and fist world war governments on the one end; the government of the impoverished and oil importing countries on the second end; and the people of the affected countries on the last third end. By mid 1980’s, ¾ o Latin American countries and 2/3 of African countries were subjected to joint IMF-WB supervision. The used loan by debtors was sold in private markets and changed into investment. And, IMF instructed debtor countries to ensure economic stability for loan repayment from the investment. Rescheduling of debts in alliance with WB was also reached; to increase the amount of loan available from both institutions and the commercial banks. This further made conditional upon policy improvements. Later, via Brady plan, another rescheduling calling forgiveness of debts and debt reduction reached for the sake of implementing structural adjustment programs. However, each and every alternative has its own side effects to debtors.


Capital Account Liberalization


Primarily, IMF was established to carryout multilateral system of payments for current transaction. It had only the mandate to regulate transaction in goods and services appearing in the current account of countries balance of payment. However, later it has amended its Articles of Agreement and began to carryout capital transactions transferring capital. This extended its jurisdiction and mandate to regulate global capital movements. As a result, Thailand, Korea, Philippines, and Indonesia faced a chronic problem, when their national capital liberalized suddenly. It caused sudden integration of domestic financial market to the international one. This is known as markedly the East Asian Crisis. However, IMF reasoned for inadequacy of financial sector supervision, poor assessment and management of financial risk; and the traditional tie between business and government. For this, IMF again tried to lend further introduce stabilizing measures arguing that capital account liberalization is good for channeling resources to their productive use for increment of economic growth and welfare. Today those middle income South East Asian and Latin American countries refrained from resorting to the Fund during crises. Still, now capital account liberalization is IMF’s live agenda.


New Debt Crises in Latin America


In 1970’s and 80’s, Latin American countries followed free market policies and were grown. However, during late 1990’s to early 2000’s, they followed IMF-approved stabilization and restructuring programs and become economically depressed such as Argentina. Later, Argentina encountered many intricacies and assured that the problem emanated not only from IMF but also U.S. Treasury Department. 


Protesting the Fund


IMF policies drawn massive and violent protests when conditionality turns to be onerous and pose devastating consequences. Controversies arose between USA and Britain; first and third world countries; and governments and the institution, IMF. Problems from rise in food prices to devastating economic policies caused protests in the form of riots, strikes, political demonstrations in Egypt, Argentina, Morocco, Nigeria, Venezuela, and Indonesia. Rapid urbanization and poor lives, recent substantial political activism, greatest hardship and suffer; and injustices worsened protests. For this, police and military snatched many lives. For all these, IMF was responsible. Protests were occurred opposing service of foreign loans at the expense of poor lives.  Peoples question their social contract; their political allegiance owed to their government.




Recent demonstrations have been coordinated by NGOs and protest groups. Even there are specifically formed groups to oppose IMF and WB such as Jubilee 200, Jubilee South, International River Alliance, Nicaragua Network, religious organizations and missionaries. They called-50 years domination and devastations of IMF and WB is enough. Now, 205 organizations formed a coalition calling a profound transformation of IMF and WB.


Debt Relief and Anti-poverty Discourse


Moral outrages urged debt relief for poor countries since indebtedness and poverty worsened when IMF shifted to low-income countries. Hence, IMF is forced to take averting measures. IMF has introduced Heavily Indebted Poor Countries (HIPCs) Initiative, Comprehensive Poverty Reduction Strategy Paper (PRSPs). HIPCs aimed at substantial debt reeducation with policy reforms to raise long term growth and reduction of poverty. Whereas, PRSPs is aimed at generating fresh ideas about strategies and measures for shared growth and poverty reduction goals attainment. All these discourse are managed with WB.


In addition, IMF has been speaking evaluation of its internal structures and policies. It has established Permanent Independent Evaluation Office (IEO) composed of experts from Harvard, Oxford and Free University of Amsterdam. The IEO has started its work visiting indebted countries in Africa, Asia and Latin America and discovering IMF negatively impacted many countries of the world.


Evaluating the IMF


The power of IMF stemmed from both direct and indirect control it maintains over granting of loans to governments in crises. Power is exercised in its stabilization and structural adjustment programs following a desperate government loan. This enables IMF to understand reshuffle economies towards a neoclassical version via deregulation, privatization, and anti-state policy areas. It has changed world’s economic philosophies; and prevailing attitudes and policy making towards economic liberalism. It has undergone silent revolution in economic policy making via free-market oriented austere conditionality. It has been discovered that it has changed its short-term assistance for long term dependency as assured by UNCTAD and Conservative Heritage Foundation.


Questioning Faith


IMF adheres to neoliberal economic thought blindly on grounds of faith than proven science. It has been a tool of maintaining power, interest, hegemony and discourse. USA played its dominant role in IMF by through its Treasury Department. IMF also holds Keynesianism for institutional regulation of the world economy.


The Banker’s View of the World


Following frequent indebtedness crises in many countries, bankers found that media exaggerates a simple problem of liquidity in to wholesale national solvency. Besides, media attributes problems for regulatory defects of borrowing and lending countries than the basic structure of the global economy. Bankers believe that solutions to financial problems came from collective efforts by international agencies, governments and central banks. For this, bankers called for collective capability of dealing with crises via banking associations and institutions together with think tanks. As a result, many research institutions composed of banks and financial organizations engaged in lobbying legislators, regulators and policy makers for the interest of the banking community. In addition, they conduct studies, held conferences and advocacy programs to provide information fruitful for sound decision making in banks. They used to establish creditworthiness of debtor countries than calling forgiveness of debts and easing interest rates. They are also critical of IMF’s operation, especially in managing loans. They are against IMF member’s intervention in its foreign lending; and austerity of conditions inhibiting long term creditworthiness and cannot work similarly across regions.


Decline and fall of the IMF


IMF has been subjected to well-founded, high and increasing levels of criticisms. Since IMF is still influential in poorer regions like Sub Saharan Africa where they are in need of debt relief and help for paying higher food and fuel prices with the global inflation, it can be taken as a suppressing tool of the North.


If IMF continues as it is, it decline and fall may not be far. For this, the ejection of IMF resident from Ecuador’s central bank, IMF’s advice rejection by China, the Russian President-Vladmir Putin’s speech that IMF and global institutions should play much lesser role and called for a new architect of international economic relations; and many countries like Indonesia, Bulgaria, Macedonia and Philippines’ rush to pay their debt earlier signals that IMF bring a profound transformation. Political costs associated with fund borrowing posed unprecedented challenge to IMF. Another challenge to IMF is the building of regional alternative. The establishment of Bank of the South by Argentina, Venezuela, Bolivia, Ecuador, Paraguay and Brazil is a good example.


On its part, IMF has been suggesting ongoing advice, monitoring and support for countries even after repayment of their debt. It has started policy supporting and signaling tasks. This made it as an international credit rating agency. It has undergoing internal structural adjustment up to firing staff or inducing them to resign. Now, it also speaks for reform in its voting structures to enhance participation of low-income countries. IMF is refocusing on current global problems-rising food and fuel prices far beyond monitoring and advising.


Having said all this, assuring whether IMF persists as a main actor in changing global governance structure is still questionable.

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