Vote For (Or Against) The IMF

The Washington Post is widely read on Capitol Hill and the reception among key people to The Hearing blog (run by us and the Post) has been generally very positive.   Members of Congress and their staff want to get you more involved in their discussions around economic policy, and we’re experimenting with ways that will help your opinions – whatever they are – get across at a time and in a manner that increases their impact.

To that end, we’re developing on-line polls in which you can register your views on questions that are currently being debated – either in general terms or as specific legislation – on the Hill (of course, longer comments are also welcome; it’s a blog, after all).  Today’s question is about whether the United States should provide an additional $100bn to the IMF, as was agreed at and immediately after the recent G20 summit; this is for a hearing held by a subcommittee of House Financial Services, which starts at 10am.

We’ve argued consistently that supporting the IMF can play an important role in stabilizing the global economy, and the Obama Administration handled this aspect of the G20 summit well.  But have they made the case for why this is important, how the IMF will change, and what could happen if the recapitalize-the-IMF ball is dropped?  Do you really believe the Europeans will follow through on their promise not to press for (yet) another European as the next Managing Director of the IMF (and there are some signs of backsliding on this issue)?  Without that, can the IMF fully rebuild its legitimacy?

Does the money for the IMF feel like essential stabilization or a bailout for countries that shouldn’t be bailed out?  What would it take to persuade you to support the Administration on this point?  Post your comments here or at The Hearing, but the poll is only at The Hearing.

By Simon Johnson

26 responses to “Vote For (Or Against) The IMF

  1. Valerie Gagnon

    From what I am understanding, the IMF plays a crucial role in stabilizing countries under throw of financial crisis. The world’s economy cannot be parceled out between deserving and undeserving countries. All members in need must have access to the IMF’s vital recapitalization offers under it’s strict guidance.

    Valerie Anne Gagnon

  2. We broke it We own it

  3. Get rid of it.

    The IMF creates a moral hazard. Have an organization set up to rescue a country in crisis increases the likelihood that a crisis will occur.

    http://tr.im/le8B

  4. It appears that the IMF has had a few problems this past year or so. Its ill-timed reduction in force (giving golden parachutes to only some 400 or so staff, after some 600 had applied) was poorly managed and left many staff upset. The Managing Director was caught in bed with a staff member (whose husband was also on IMF staff) — the MD’s wife called it a “one-night stand” – perhaps to the chagrin of all concerned. And only recently the IMF appears to have messed up on the external debt statistics of some of the Eastern European countries. Oh well, as long as the Fund continues to kowtow to the US Treasury about what it can or cannot publish about the US economy — the US maybe should continue to support a place where we can generate more Tim Geithner clones – if they can properly pay their U.S. income and social security taxes.

  5. The key question, it seems to me, in additional IMF funding, is how will the funds be used.

    As we’ve learned, funds for “financial stabilization” need to be matched to a viable plan for recovery, as in any investment.

    If Government (of all stripes) is willing to stand up to Big Finance- clear the books of non-performing debt and apportion the losses (you know, have a true cleansing recession) such that finance could, as Giethner said, became a help instead of a drag on the economy- then additional funds seem a wise investment. If, instead, more funds are used to finance a few more months/quarters of “muddle through” then I’d vote against.

    Without a plan and some sign of a willingness to implement it, debates in Congress or elsewhere seem to me a waste of time.

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  7. strike three

    The US, however, is the champion and the protector of the global market. Americans have served as the consumers of last resort for the world. We’ve largely spurned industrial policy — other than that associated with the military industrial complex, agribusiness and finance. We’ve followed — from Reagan to Rubin — a high dollar policy that made imported goods a bargain and US exports expensive. We’ve allowed our global corporations and banks to define our trade policy, while borrowing $2 billion a day to cover record trade deficits. As William Greider summarizes, we’ve assumed that aiding multinationals in the global economy served the national interest. “That is how America became a debtor nation with its steadily weakening industrial base and stagnant wages. That condition became the predicate that led to financial crisis.”

    Now those days are over. Our trading partners must be put on notice that the old order isn’t coming back. The US can no longer afford to borrow unsustainable amounts to buy stuff made abroad with the jobs our companies have moved there. We need to lower the dollar and balance our trade. We need to build things in America once more.

  8. le grain de sable

    IMF ?
    Don’t cry for me Argentina

    Think back to November 1998: Brazil’s currency was highly overvalued and most economists expected the peg — its fixed exchange rate against the dollar — to collapse. Enter the IMF, arranging a “rescue” package of $42 billion in loans, and its usual application of leeches to bleed the patient: sky-high interest rates and budget cuts, guaranteed to slow the economy and put the burden of “adjustment” on the poor.

    Within two months the Brazilian real had collapsed anyway, leaving the country with nothing to show for the IMF plan but a pile of foreign debt and a stagnating economy.
    The Fund plays a destabilizing role in these crises, by setting targets that the country’s government must meet in order to “reassure financial markets.” But these targets may be politically difficult to meet — as well as unnecessary or even harmful to the economy.

    And when the country fails to do what it is told, the crisis worsens. In Argentina’s case the government budget deficit target for 2001 has been increased from less than 1 percent, to now 2.3 percent of GDP. These are very tight constraints for an economy in the midst of a long recession: for comparison, the US ran a budget deficit of 4.6 percent of GDP during our last recession (1991), and 6.1% coming out the previous, deeper recession (1983).

    The Meltzer Commission, a bi- partisan Congressional panel appointed to review the IMF’s practices, recommended a number of steps to downsize this institution, and reduce the likelihood of these repeated and often disastrous economic failures. Maybe it is time to put some of these reforms in place.
    http://www.commondreams.org/views01/0515-01.htm

  9. le grain de sable
  10. The IMF paradigm – drastic domestic consumption cuts (largely by cutting social safety nets) and export led growth – will fail in a _global_ downturn.

    The IMF needs a new paradigm. Yet it has not articulated that paradigm, though it has expressed an urgent need to extend loans to developing economies.

    Why? So countries can sustain their consumption by incurring more debt?

    I voted in favor of extending the IMF needed funding to avert a total meltdown, but the poll is missing an option: reform the IMF. And that does not mean re-hiring old hands.

    The great mystery is this: Why are the current administration and the powers-that-be obsessed with restarting debt-led growth? Why have we commited ourselves to reflating the money supply by subsidizing debt-and-spend rather than printing new currency and allowing the deleveraging of an unstable financial architecture?

    Fiscal-led recovery without real monetary expansion (that is, real currency replacing debt) will end with more debt; we will cripple ourselves and the world, and leave our children poorer.

    Print money. Spend it on infrastructure (energy, environment, education, physical construction, etc.). Phase down capital asset ratios to prevent an inflationary rebound.

    Otherwise, we are impoverishing ourselves in order to subsidize the (fantastically profitable) creation of private money through bank credit.

    Also, set higher capital-asset ratios for banks that are so large that they create systemic risk (this will fix Too-Big-To-Fail, and help counter sector concentration through M&A).

  11. I don’t know about downsizing – we do need an agency to facilitate global financial stability – but the IMF needs a radically new mission.

    And a new ideology… Or maybe just less ideology and more practical sense.

    And new people – the arguments for rehiring the old ones are the same as the arguments for rehiring bank executives for failed banks.

  12. Reg Blassman

    Mr. Johnson
    As you worked with the IMF, I assume you are fully aware of the perception of this group of debt overlords.

    The question you are asking is: Are you aware of the gross theft and support of regimes that are not only corrupt but murderous.

    Yes, the world is aware, that cat is outta the bag. The world is aware that the IMF is positioning itself to be a savior to the world, again. When it is little more than another level of debt loaded onto countries who think the IMF is there to help.

    Just another corrupt washington cabal that try to pass themselves off as international. The IMF is just another name for the federal reserve, and we all know how criminal their behavior is.

    Read
    http://www.amazon.com/Bad-Samaritans-Secret-History-Capitalism/dp/1596913991

    or watch this series on Argentina’s financial takedown by a government aided by the IMF.

    Cat is outta the bag, Mr. Johnson. And the fact that you still support this group speaks volumes about where your motives and methods lie.

  13. Reg Blassman

    lol, what gave you that understanding – how about some sources?

  14. Apumich, if stability is the goal, then get rid of the debt and all the possible “cartels” (IMF, the fed, ECB, and others) that produce it. I believe that if people look at a lot of the economic crises they will find too much debt was the biggest problem. Stop supporting possible “cartels” that believe more and more debt is best for an economy and/or world economy.

    If I’m remembering correctly, I read an article not that long ago on baselinescenario.com where they just figured out we have crony capitalists here in the USA. I’m appalled they just figured this out (assuming I’m remembering correctly and they are telling the truth). Their IMF solutions for crony capitalism in the third world countries (all the things to force an economy to become a net exporter) only helped the crony capitalists in the high wage countries by keeping price inflation low and wage inflation low and therefore raise debt levels with a properly conditioned consumer.

    I support getting rid of the IMF, the fed, the ECB, and others because I believe they believe in debt slavery for the lower and middle classes of the world for their own personal benefit and the benefit of the spoiled and the rich they represent.

    Reg said: “The IMF is just another name for the federal reserve, and we all know how criminal their behavior is.”

    Close enough.

  15. le grain de sable said: “Think back to November 1998: Brazil’s currency was highly overvalued and most economists expected the peg — its fixed exchange rate against the dollar — to collapse. Enter the IMF, arranging a “rescue” package of $42 billion in loans, and its usual application of leeches to bleed the patient: sky-high interest rates and budget cuts, guaranteed to slow the economy and put the burden of “adjustment” on the poor.

    Within two months the Brazilian real had collapsed anyway, leaving the country with nothing to show for the IMF plan but a pile of foreign debt and a stagnating economy.
    The Fund plays a destabilizing role in these crises, by setting targets that the country’s government must meet in order to “reassure financial markets.” But these targets may be politically difficult to meet — as well as unnecessary or even harmful to the economy.”

    Policies designed to slow the domestic economy and force that economy to become a net exporter to pay off the debt to the IMF, which then benefits the crony capitalists in the foreign countries???

  16. StatsGuy said: “The great mystery is this: Why are the current administration and the powers-that-be obsessed with restarting debt-led growth?”

    because restarting debt-led growth leads to more wealth/income inequality and asset prices being higher than they should be based on income???

    StatsGuy said: “Fiscal-led recovery without real monetary expansion (that is, real currency replacing debt) will end with more debt; we will cripple ourselves and the world, and leave our children poorer.”

    But not the children of the financial elite???

    What happens when the few financial elite own all the assets and all the currency? What happens to the rest of us common, ordinary people???

  17. Reg said: “Cat is outta the bag, Mr. Johnson. And the fact that you still support this group speaks volumes about where your motives and methods lie.”

    Turn something similar to that into a question, and then let’s see an answer.

  18. For a much less sensational and more thought provoking look into South American problems with globalisation, I highly recommend:

    Our Brand is Crisis
    http://www.imdb.com/title/tt0492714/

  19. I voted no because the US is building a huge debt that will likely cause inflation that will be very painful.

    Will high inflation of the dollar cause the developing countries pain also?

  20. I vote yes. The IMF plays a critical role, and must be supported by the US. All economies are tied together as was evidenced when Wall Street destabilzed foreign economies.

    “Bailing out” is a term that means a wealthy company, like an investment bank, will be infused with American cash because it is ostensibly “too big to fail”. This is thought to have a matastasizing effect on the American economy.

    “Bailing out” is not an applicable construct that apples to our supporting third world nations who are in chronic poverty. The two terms will only be conflated for political gain. Global interests and American interests are served by help lift poor nations out of poverty, which wealthy nations have often exacerbated.

    Neglecting and/or feeding poverty in foreign countries will make the world less safe for everyone, by increasing warfare. Neglect will also speed up global warming as the world’s poor, for example, will destroy the rainforests, dump more toxins in the oceans, and engage in illegality and undermine global cooperation in order to make a living.

  21. le grain de sable

    The international crisis that broke in summer 2008 demolished all the neo-liberal dogmas and exposed the deception behind them. Unable to deny their failure, the World Bank and the International Monetary Fund claim they no longer uphold the set of neo-liberal policies known as the Washington Consensus.For decades they have enforced the deregulation measures and structural adjustment programmes that have led to the current impasse.Yet, discredited though they may be, these two institutions are using the international crisis to return to the limelight.

    While the economic context is fast deteriorating, the banks are trying to keep the upper hand while placing a discredited and delegitimized IMF in the role of white knight — helping the poor and downtrodden to face the damages wrought by this current crisis. But the opposite is true. The principles defended by the IMF since the 1980s and denounced by CADTM since its inception are still the same. Governments that sign an agreement with the IMF in order to obtain a loan must still implement the same toxic recipes that aggravate the living conditions of their country’s people.

    Responding to pressure from the IMF under the leadership of Dominique Strauss-Kahn, several countries faced with the consequences of the crisis have sliced workers’ wages and social benefits. Latvia reduced its civil servants’ incomes by 15%, Hungary suppressed their 13th month (after reducing retirement benefits as part of a former agreement) and Romania is about to move in the same direction. The potion is so bitter that some governments are reluctant to administer it. The Ukraine recently declared the conditions imposed by the IMF to be ‘unacceptable’, especially the gradual raising of retirement age and increased housing costs.
    In a period of severe monetary destabilization (as evidenced by the huge variations in parity between the dollar and the euro over the past year), the IMF proves incapable of implementing a tax of the Tobin-Spahn kind that would reduce exchange rate variations by controlling speculation, and that would provide the funds needed to put an end to poverty and make development possible.

    The global economic and financial crisis highlights the failure of the deregulated financial markets and freewheeling capital flow advocated by the IMF. A new international architecture is called for, based on the International Covenant on Economic, Social and Cultural Rights (1966) and the UN Declaration on the Right to Development (1986). Yet this logic will not prevail while the balance of power remains unchanged. Unless a sufficient number of governments respond to popular pressure and set up such an alternative, the World Bank and the IMF will be able to get over the current crisis, taking advantage of falling export commodity prices to bring weakened poor countries into a new state of loan dependency.

    ***********************************

    Stiglitz on the IMF by Greg Palast 2001

    Stiglitz helped translate a document, a `country assistance strategy’.
    There’s an assistance strategy for every poorer nation, designed, says the World Bank, after careful in-country investigation.

    But according to Stiglitz, the Bank’s `investigation’ involves little more than close inspection of five-star hotels. It concludes with a meeting with a begging finance minister, who is handed a `restructuring agreement’ pre-drafted for `voluntary’ signature.

    Each nation’s economy is analysed, says Stiglitz, then the Bank hands every minister the same four-step programme.

    Step One is privatisation. Stiglitz said that rather than objecting to the sell-offs of state industries, some politicians — using the World Bank’s demands to silence local critics — happily flogged their electricity and water companies. `You could see their eyes widen’ at the possibility of commissions for shaving a few billion off the sale price.

    And the US government knew it, charges Stiglitz, at least in the case of the biggest privatisation of all, the 1995 Russian sell-off. `The US Treasury view was: “This was great, as we wanted Yeltsin re-elected. We DON’T CARE if it’s a corrupt election.”‘

    Stiglitz cannot simply be dismissed as a conspiracy nutter. The man was inside the game — a member of Bill Clinton’s cabinet, chairman of the President’s council of economic advisers.

    Most sick-making for Stiglitz is that the US-backed oligarchs stripped Russia’s industrial assets, with the effect that national output was cut nearly in half.

    After privatisation, Step Two is capital market liberalisation. In theory this allows investment capital to flow in and out. Unfortunately, as in Indonesia and Brazil, the money often simply flows out.

    Stiglitz calls this the `hot money’ cycle. Cash comes in for speculation in real estate and currency, then flees at the first whiff of trouble. A nation’s reserves can drain in days.

    And when that happens, to seduce speculators into returning a nation’s own capital funds, the IMF demands these nations raise interest rates to 30%, 50% and 80%.

    `The result was predictable,’ said Stiglitz. Higher interest rates demolish property values, savage industrial production and drain national treasuries.

    At this point, according to Stiglitz, the IMF drags the gasping nation to Step Three: market-based pricing — a fancy term for raising prices on food, water and cooking gas. This leads, predictably, to Step-Three-and-a-Half: what Stiglitz calls `the IMF riot’.

    The IMF riot is painfully predictable. When a nation is, `down and out, [the IMF] squeezes the last drop of blood out of them. They turn up the heat until, finally, the whole cauldron blows up,’ — as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998. Indonesia exploded into riots.

    There are other examples — the Bolivian riots over water prices last year and, this February, the riots in Ecuador over the rise in cooking gas prices imposed by the World Bank. You’d almost believe the riot was expected.

    And it is. What Stiglitz did not know is that Newsnight obtained several documents from inside the World Bank. In one, last year’s Interim Country Assistance Strategy for Ecuador, the Bank several times suggests — with cold accuracy — that the plans could be expected to spark `social unrest’.

    That’s not surprising. The secret report notes that the plan to make the US dollar Ecuador’s currency has pushed 51% of the population below the poverty line.

    The IMF riots (and by riots I mean peaceful demonstrations dispersed by bullets, tanks and tear gas) cause new flights of capital and government bankruptcies. This economic arson has its bright side — for foreigners, who can then pick off remaining assets at fire sale prices.

    A pattern emerges. There are lots of losers but the clear winners seem to be the western banks and US Treasury.

    Now we arrive at Step Four: free trade. This is free trade by the rules of the World Trade Organisation and the World Bank, which Stiglitz likens to the Opium Wars. `That too was about “opening markets”,’ he said. As in the nineteenth century, Europeans and Americans today are kicking down barriers to sales in Asia, Latin American and Africa while barricading our own markets against the Third World’s agriculture.

    In the Opium Wars, the West used military blockades. Today, the World Bank can order a financial blockade, which is just as effective and sometimes just as deadly.

    Stiglitz has two concerns about the IMF/World Bank plans. First, he says, because the plans are devised in secrecy and driven by an economic ideology, never open for discourse or dissent, they `undermine democracy’.

    Second, they don’t work. Under the guiding hand of IMF structural `assistance’ Africa’s income dropped by 23%.

    Did any nation avoid this fate? Yes, said Stiglitz, Botswana. Their trick? `They told the IMF to go packing.

    Ultimately, what drove him to put his job on the line was the failure of the banks and US Treasury to change course when confronted with the crises, failures, and suffering perpetrated by their four-step monetarist mambo

  22. plereianswillrevolt

    WHO IS THIS GUY…..? …. and why does China have $2 trillion of dollars reserves. THEFT!~

    Beijing recently called for a greater role in international trade for the special drawing rights currency of the International Monetary Fund. But China is also fully aware that the United States can veto an I.M.F. decision. China’s call was more meant to sound an alarm to the United States.

    Many Chinese people increasingly fear the rapid erosion of the American dollar. The United States may want to consider offering inflation-protection measures for China’s existing investments in America, and offer additional security or collateral for its continued investments. America should also provide its largest creditor with greater transparency and information.

    We still call the dollar American gold. But the United States should not assume that this will never change.

  23. am: “The IMF creates a moral hazard. Have an organization set up to rescue a country in crisis increases the likelihood that a crisis will occur.”

    I am not a fan of the IMF, but I do not know that much about it. However, we do have some historical evidence in regard to financial crises. Has the rate of financial crises increased since the IMF was created?

    Do we have more fires since the advent of fire departments? Do we have more disease since the advent of the germ theory and allopathic medicine? I do not think so. Protection does not automatically produce moral hazard.

  24. I’d argue that having fire departments does produce a moral hazard, though I am not in favor of abolishing fire departments.

    Similarly, the IMF creates a moral hazard. However, I am in favor of abolishing the IMF.

  25. Thom Nealssohn

    Mr. Johnson:

    First – I applaud you efforts to bring more clarity and public sentiment to the Hill. I continue to be amazed that great organizations like the Washington Post fails to gather the demographic data on the poll respondents that would make it much more difficult to dismiss the responses.

    Gathering basic data – age, income level, declared political affiliation, profession for instance, behind a secure firewall would allow the Post to argue some statistical validity to the responses.

    My experience is that these “non-scientific” polls are too easily dismissed when the conclusion doesn’t meet the pundit’s personal conclusion. Offering some (very basic) demographics woudl at bare minimum, allow the Post to argue a point with some level of confidence that the opionions expressed represent some portion of the population.

    All other non-scientific polling, in my opinion, is merely a ruse to draw the respondent into viewing a website that they were more than likely visiting anyway.

    Again, let’s not lose an opporunity to allow the politicians to get some direct contact with the public outside of the lobbyists and professional media…

  26. Turkey Defies IMF Demand for Austerity

    Eight months into Turkey’s loan negotiations with the International Monetary Fund, signs the government doesn’t want a deal are stirring a backlash from businessmen and officials determined to force economic austerity.

    http://online.wsj.com/article/SB124354598639864063.html