By G. Pascal Zachary
The International Monetary Fund could once dismiss its critics as left-wingers, idealists or even kooks. No longer. The so-called "lender of last resort" for governments the world over, the IMF is widely viewed by conservatives, centrists and progressives as a deeply flawed institution.
Insular, autocratic, ham-handed and bereft of innovative ideas, the Washington-based IMF is blamed for failing to contain the Asian fiscal crisis of 1997, worsening Russia's economic collapse, and funding the Suharto regime's attack on pro-democracy forces in Indonesia. This year, when it seemed that the IMF's image could sink no lower, the agency engaged in a pathetic squabble over who would become its new president. The choice in April of a drab German bureaucrat underscored the atmosphere of crisis enveloping the agency.
Best known for its infamous "structural adjustment" programs that force poor countries to slash social-safety nets, the IMF now faces the prospect of an adjustment of its own. An influential bloc in Congress wants to sharply scale back the agency, starving it of funds. Others favor more radical approaches, including scrapping the agency altogether. Here's a quick scorecard on the IMF debate and the stakes for progressives.
Why not kill the IMF?
This has an immediate appeal. The IMF is so compromised that it is hard to believe it wouldn't sabotage any serious reforms. Killing the agency would send a powerful message: not only can the world's poor get even for a change, but badly run international agencies can be eliminated.
A world without the IMF isn't just wishful thinking. Respected analysts of the world economy are starting to question whether the IMF is indeed essential. They argue that the very prospect of an IMF bailout creates a "moral hazard," thus increasing the chances that a government will act in a financially reckless manner. Better to get rid of the IMF, some libertarian economists argue, than to allow national governments to think they are too important to go bankrupt.
Some on the left agree that the IMF should go. But rather than using the agency's death as an invitation to experiment with fewer rules on the international economy, they would build a more just and effective system in its place. What could replace the IMF? The world economy does need a lender of last resort. Global capitalism is too unstable to let governments bear the full brunt of the market's whims. It is one thing for investors, customers and lenders to punish a corporation for its mistakes. When Ecuador goes bust, it's not government officials but the country's poorest citizens who suffer most. So any successor to the IMF would have to assume the responsibility of bailing out some countries under certain circumstances.
But this doesn't need to be handled by gray functionaries beholden to the economic establishment. A successor agency should first apologize for the past sins of the IMF. Then it should draw on a wide panel of distinguished citizens, from all walks of life, to establish a set of goals for its technocrats. Finally, its leader should be chosen not from the ranks of finance ministers and academic economists, but from people committed to improvements in human welfare, not just bond ratings.
Why stop there?
Why not shut down the World Bank, an even more deeply compromised organization, whose rationale for lending to developing countries is even hazier than the IMF's? Both institutions have used loans to reward U.S. political allies. They seem to turn off the money tap in the face not of corrupt governments, but governments who aren't in a position to advance Western interests. Shuttering both the IMF and the World Bank would set off a chain-reaction, calling into doubt the necessity of the Asian, African and Latin American development banks, which basically serve regional elites, and for the wiping out of the U.N. Development Program, an agency whose sole purpose seems to be the employment of people who want to block reforms in their home countries.
A clean slate has advantages. International institutions could be designed with today's needs in mind, not those of 50 years ago. Merely threatening to shutter these agencies could ease reforms by making it clear that the alternative to intransigence is extinction. But whatever the tactical advantages of pushing the line of "Death to the IMF," it is unlikely to be successful since there's nothing that American and global elites fear more than that a free-for-all over future management of the world economy would lead to paralysis or, even worse, the emergence of left-leaning institutions that respond too clearly to popular mandates. So progressives must couple a radical approach with a well-conceived reformist position. In this way, progressives can take advantage of conservative political clout, while conservatives can utilize progressive ideas and ideals.
How could the IMF be reformed?
Tinkering with the IMF sounds less romantic, but it could achieve lasting results. By rewriting the IMF's charter, reformers could create the foundation for a more politically neutral approach to the international economy. Indeed, they could achieve much of what they would desire from a brand-new agency.
To start with, the IMF could be made more friendly to the public - and not just by cosmetic changes. Leading members of non-governmental organizations could be asked to sit on IMF panels, serve as a watchdog for the agency and offer regular advice. The IMF's chief, while still being subject to political pressures from rich nations, could be required to appear before an international congress prior to his or her selection and to continue to address public concerns throughout his or her tenure. All IMF agreements with individual countries could be made public before taking effect. This alone would vastly alter the agency's landscape. Finally, a ban could be placed on the IMF's notorious practice of conditioning loans on the imposition of cuts in welfare, wages and credit.
What if nothing changes?
In truth, the IMF probably will weather the current storm; refuse to change more than superficially; and continue to operate, perhaps even a generation from now, much as it does today. The forces of inertia are powerful when it comes to the management of the world economy. It is easy to scare even the most populist politicians by holding out the possibility that democratizing the IMF will cause an even worse economic disaster. Scare tactics, after all, are what the IMF knows best. Still, there is reason for optimism. Never in its history has the IMF's credibility as an arbiter of economic wisdom been so low. Nor does anyone accept, as many once did, that the IMF is an agent to promote human welfare. It is worth remembering that in its inception the IMF was presented as a means of achieving modest financial safeguards in a world reeling from war. None of its founders ever intended the IMF to become a sort of secret world government with only the flimsiest public oversight.
G. Pascal Zachary, a contirbuting editor of In These Times, is the author of The Global Me: New Cosmopolitans and the Competitive Edge, to be published in July by Public Affairs.