MAI Shell Game - IMF
The International Monetary Fund (IMF) is a powerful and secretive institution established at the 1947 Bretton Woods conference along with GATT and the World Bank. The IMF was designed to provide short term loans to countries to cover trade-related cash crunches. However, starting in the early 1970s, the IMF began to change dramatically. Pushed by international banks and the U.S. Treasury Department, the IMF began to replace private banks and individual countries in making long-term loans to poor countries, but only on the condition that the countries restructure their economies, laws and priorities toward the single goal of repaying the loans. Dubbed "Structural Adjustment Programs," these IMF-dictated changes transformed the IMF into "the enforcer" for international creditors. The IMF's forced changes included shifts from staple crops to exotics for export to earn hard currency, cuts in education, health and other social spending, and wide scale divestiture of public assets. The result has been untold hunger, suffering and death. Now the IMF threatens to become a stealth venue for the MAI rules in three ways:
- The IMF is seeking to amend its official charter (the Articles of Agreement) to give itself formal power to require capital account liberalization -- that is, to force IMF member countries to remove capital flows and investment regulations. This change would implement a large part of the MAI agenda.
- Even if the MAI does not succeed in this major expansion, it is able to implement the MAI agenda on countries seeking loans. When countries borrow money from the IMF, the IMF often demands removing government safeguards against speculation -- the MAI agenda.
- Congressional supporters of the MAI agenda sought legislation in the last Congress to expand the IMF's mandate to include many MAI-style provisions, but were defeated.
The Push to Expand the IMF's Charter -- the Backdoor MAI
U.S. Treasury officials and the IMF's senior staff have a common goal: to expand the IMF's jurisdiction by amending two key articles of the IMF charter, Article 8 (General Obligations of Members) and Article 14 (Transitional Arrangements). The first of these articles binds IMF members -- 182 countries -- not to put restrictions on trade payments without IMF permission. Thus, for example, the IMF has the power to approve or disapprove any restrictions on payments by domestic companies for imports or repatriation of profits by foreign companies earned through trade. The other provision, Article 14, forbids trade restrictions, such as quotas. The proposed amendments would extend these prohibitions to cover capital flows, including those unrelated to trade, such as currency speculation. If the charter expansion is approved, the IMF also could reject a country's attempt to regulate foreign ownership of its media, communications system or infrastructure. If a country persisted in its regulation, the IMF could demand immediate repayment of its loans and deny future credit. Also, the formal disapproval of a country's policies by the IMF can damage that country's ability to borrow in private capital markets.
Despite previous plans to do so the IMF at it's October 1998 meeting, took no formal action to approve the charter expansion. The fallout from the Asian financial crisis had called into question the wisdom of unregulated capital flows. And, at the time of the meeting, the IMF's request for $18 billion in new funding from the U.S. was pending before the U.S. Congress, where the MAI agenda is unpopular. Statements from IMF officials and the Clinton Administration indicate, however, that they are still committed to this agenda and it is likely that at a future IMF meeting this drastic expansion in IMF powers will be brought up again.
Ongoing IMF Pressure To Remove Capital Controls -- All MAI All the Time
Even without the charter expansion the IMF imposes the MAI agenda wherever and whenever it can, to disastrous effect.
Prior to the Asian financial crisis, for example, the IMF pressured South Korea to remove restrictions on foreign capital flows. South Korean law required companies seeking to borrow more than a certain amount on international markets to obtain government approval. These rules were removed under IMF pressure. Subsequently South Korean firms piled up a heavy burden of short-term, dollar denominated debt, a key factor in the Asian financial crisis. When the South Korean currency crashed, these companies could no longer meet their debt obligations. Yet in the wake of the crisis, the IMF insisted that the South Korean government remove the few remaining restrictions on foreign speculators and multinational corporations. South Korea was forced to comply while its currency remained crushed. The second wave of IMF-fueled liberalizations has now led to buy up, often at fire sale prices, of many Korean government and private assets by multinational corporations.
Another example of the IMF pushing the MAI Agenda came in December 1997 with the conclusion of the WTO (World Trade Organization) Financial Services Agreement. Earlier in the year analysts had predicted that the talks would collapse due to resistance from Asian governments to provisions demanded by U.S.-based multinational corporations. But as part of their agreements with the IMF, these countries were forced to accept the very conditions that they had been resisting in the WTO negotiations. They subsequently dropped their opposition to these provisions in the WTO agreement. Thus the IMF was able to leverage its power to pursue a much broader agenda. According to the WTO, the Financial Services Agreement requiring countries to open their financial services sector to foreign companies covers more 95% of worldwide banking, insurance, securities and financial information services. These sectors are highly strategic for countries seeking to ensure that investment, both foreign and domestic, serves public ends. In Asian countries in particular, government regulation of the domestic banking sector has been a key component of national economic strategy. Conversely, dismantling this strategy and its protections for the domestic financial sector has been a key goal of multinational banks and financial corporations and the IMF.
In the last year, the publicity around the failures of the IMF's handling of the Asian and Russian economic crises, combined with congressional debate over the Clinton Administration's request for expanded IMF funding has forced attention (and thus a more informed opinion) with respect to the secretive IMF operations. These events significantly weakened the IMF. However, since the Clinton Administration's end-of-Congress move to ram approval of the of IMF funds ($17.5 billion from the U.S. alone) through, the IMF is seeking to reassert itself. Renewed vigilance on the part of non-governmental organizations will be necessary to block the IMF s efforts to extend its power.
Congressional Attempts to Extend the IMF's Power
The House Appropriations Committee approved legislation in the fall of 1998 to increase U.S. funding to the IMF. It was this language that the Administration used to push though the IMF funding. MAI supporters inserted language into the bill which would have dramatically increased the IMF's power. For instance, the IMF would have been required to become an enforcer of future investment agreements such as the MAI as a condition of receiving the U.S. funds. After a serious NGO campaign, congressional critics of the MAI succeeded in getting all language relating to investment removed before the Congress passed the appropriation.
However, this episode again illustrates the MAI potential of the IMF. Supporters of the MAI see the IMF as a natural home for MAI provisions. The IMF is powerful, secretive and unaccountable to labor, environmental and human rights concerns, and its officials are true believers in the MAI agenda. There is no reason to doubt that the IMF will be a main arena for the promotion of the MAI agenda in the years to come.
This factsheet was written with the contributions from Robert Naiman from the Preamble Center for Public Policy, 1737 21st Street, NW, Washington DC 20009, www.preamble.org, 202-265-3263, firstname.lastname@example.org.