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Friday 11 November 2011

Colonization to Globalization-5-IMF worse than Shylock

They broke their word:
 World Bank was charged with eradicating poverty and International Monetory Fund with global economic stability.
  WB keeps a few perssonel based in the countries. IMF has only one representative. For projects, both send teams to LDCs for three week missions.
One has to travel gain knowledge of the conditions on ground. Members of WB/IMF mission sit in five star hotels and pore over numbers.
In 1997 per capita income in Ethiopia was $ 110.00. Famine and drought killed two million people. P.M Menes Zenawi had fought for seventeen years against Marxist Menigistu Haile Marium and won in 1991. All IMF parameters were fulfilled, no inflation, growth 9%. Ethiopia had increased funding to villages and reduced military expenditure. It had concentrated development effort on 85% of the population. IMF did not like that. Ethiopians were building schools and health clinics and had flexible policies, but IMF could not see the logic.
Ethiopia, using its reserves, which was getting lower interest than it was paying on the IMF loan, had paid back some loans early.  IMF objected to the repayment without its approval. IMF standard operating procedure is neo-colonialism.
But IMF gives A grade to countries with double digit inflation, high unemployment but balanced budget. It suspended aid to Ethiopia. Other agencies followed IMF and suspended aid too.
IMF philosophy is that aid should not be spent but kept in reserve to pay foreign creditors.
Ethiopia’s entire banking is smaller than that of Bethesda Maryland (population 55,000). IMF wanted Ethiopia to open its markets to giants like Citibank. To compete was impossible, the foreign banks squelch national banks and offer loans to MNCs rather than to local business. IMF demanded liberalization of finance markets to allow interest rate to be determined by the market, which Europe and US did not do till 1970s. US provided easy loans to agriculture. In Ethiopia the difference between lending and borrowing rate was lower than in many LDCs.
              Kenya followed IMF advice and saw fourteen banking failures in 1993-94. Interest rates went up and farmers could not borrow for seeds and fertilizers. Kenya is a rich land but rampant corruption plus IMF imposed high interest rate led to disaster.
In the USA, given wisdom is that inflation goes up if unemployment goes down below 6%, inflation would go up (it fell actually to 4%, inflation did not go up). IMF advised increase in interest rate; the Fed ignored it. Other countries can not do so.
IMF teaches that unemployed do not want to work; it was due to greedy unions and governments interfering with markets for high wages, so wage would not be lowered.

The depredations of IMF:
Botswana’ per capita income is $100.00. Economy is agriculture based with scarce water resources and rudimentary infrastructure. Unlike the Congo, Nigeria and Sierra Leone, it used its diamonds resources wisely; from 1961 to1997 it had a growth rate of 7.5%. It talked to a variety of advisers including the Ford foundation. They held open sessions, unlike IMF which talked only to finance ministers.
Uganda produces coffee. The British kept the natives down. There were only two African master sergeants; one was Idi Amin.
IMF MD, Michael Camdessus (1998) publicly humiliated Indonesian president into handing over economic sovereignty for a badly needed loan, which was in fact used to bail out private sector foreign creditors. (Examples from history-Admiral Percy in Japan, opium wars in China and maharajahs of India and the British).
 In the 1997 South Asian crisis, IMF not only cut off funds to South Korea but also bullied other agencies to break off negotiations.
IMF monitors not only macroeconomic management but also money supply and forces country’s parliament to change laws with in one to three months.
These requirements are called conditions of schedule of repayment. Each of the hundreds of condition, collectively called conditionalities, has its own rigid timetable. Loans are are released in installments, which are based on the steps taken for liberalization of the market. The net result is even worse economy. It generally reduces the likelihood of repayment of the loan leading to more control of IMF over the country.             
They turn a loan into a policy tool.
Going way beyond its charter, it asked South Korea to make its central bank independent of political process, which often led to downturn like the one in Europe in 2001. It did not allow lowering of interest rate needed to bring down unemployment (motive profit, not welfare.
IMF pushed political agenda in South Korea to ask Korean Central Bank to focus on inflation, which it did not have and forced it to move up the date of open markets to certain Japanese goods which could not possibly help the crisis.
IMF has the curious concept of Fungiblity. Money going in for one purpose frees up other money for other purpose with no impact on intended purpose. Money used for a commercial road frees funds for a road for the convenience of the elite. 
IMF behaves in an inconsistent manner. It halted loan to Kenya due to corruption, but continued it to Russia and Indonesia.
 Separation of economics from politics narrows the perspective and is not rational.
IMF writes a draft report before its team visits a country and only fine tunes it during a visit. It is ‘Boiler plate’; whole paragraphs are borrowed from one to another country. Sometimes the name of the other country is left behind on the report (I had a personal experience of this kind of stupidity. I asked for a loan to build a hospital in Karachi. The lending agency asked for a feasibility report. I asked a consultant to draft a report and submitted it to the lending agency. One senior officer of the agency called me one afternoon. The report had a note of approval of the agency! I told him to keep his documents more securely and hung up).
In the IMF bars citizens from discussion and also not told what was in the agreements. It keeps secrets even from WB in joint missions; they are limited to a few in IMF and fewer in recipient countries.
LDCs have little voice in international economic institutions.

Dr. S. Akhtar Ehtisham
(607) 776-3336
P.O. Box 469,
Bath NY 14810
All religions try to take over the establishment and if they fail, they collaborate with it, be it feudal or capitalist.

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