SUNS  4138  Tuesday  27  January  1998

Finance: IMF plays to the gallery for more money



Washington, Jan 23 (IPS/Abid Aslam) - The International Monetary Fund (IMF), facing an uphill struggle to win increased funding from the US Congress when it resumes session next week, declares it costs US taxpayers no money and faithfully serves their government's interests.

Those assertions, made by the agency's second-highest official, has drawn the ire of US non-governmental groups, who slammed them as misleading and not in the interest of citizens here - and especially not beneficial to borrowing countries.

Financial turmoil in Asia has made the IMF "almost a household name, but... its role in Asia is not widely understood," the agency's First Deputy Managing Director Stanley Fischer said Thursday.

"I must emphasise that the IMF is not a charitable institution. (It) makes loans, not grants. Nor does it carry out its operations at taxpayers' expense," Fischer said in a speech to the private Bankers'
Association for Foreign Trade.

Fischer's remarks came as the US administration geared up to ask Congress to approve some US$ 19 billion in new funding for the IMF.
Nearly US$ 16 billion would cover Washington's portion of a 45% increase in the IMF's capital base, and US$ 3.5 billion would be to help the Fund cope with financial crises.

[President Clinton's troubles over a sex scandal case, irrespective of the merits and final outcome, probably would hamper the administration's efforts to win congressional approval, according to
some Washington observers.]

About one-third of the 431 members of Congress, according to Congressional sources and political analysts, are willing to approve the new funding. This is a Congressional election year, and lawmakers are said to be especially sensitive and in many cases opposed to the US$ 120-billion-IMF-managed bail-outs of Thailand, Indonesia, and South Korea. They see these bailout packages as a misuse of taxpayers' contribution.

The IMF is "deeply aware...that our support derives ultimately from the legislatures that vote to establish their countries' quotas," or membership subscriptions, he noted. These "are not fundamentally an expense to the taxpayer. Rather, they are investments," because they
earn interest and help ensure the stability and prosperity of the world economy.

"The best way of understanding the IMF is to recognise that it is a credit union," Fischer said. When a country joins the Fund, it pays in a quota. Normally, one-fourth is paid from the country's foreign
reserves and the rest in its national currency. "This is like a deposit in the credit union, and the country continues to own it," he added.
Members whose quota money is used for an IMF loan receive market-rate interest.

Thus, Fischer argued, "the provision of financial resources to the Fund has involved little cost, if any, to creditor countries, including the United States."

Indeed, the United States enjoys a special premium as the IMF's largest shareholder. Washington, with more than 18% of IMF shares, "effectively has a veto over major Fund decisions," Fischer said. A nation's voting power in the IMF is based on the size of its quota.

"The way he is presenting this is as if we had excessive liquidity we needed to invest somewhere," according to Lisa McGowan, an economist and coordinator of a US 50 Network Organisation. "The fact is that these are government funds and when you take US$ 19 billion out of the budget it means you can't spend it on anything else."

In fact, immediate alternatives for the money include underfunded social programmes and investments in the domestic economy, McGowan said. Diverting money from these efforts to the IMF represents "a huge opportunity cost," she argued.

The IMF has faced increasing hostility from Congress since 1994, when lawmakers withheld three-quarters of a US$ 100-million-contribution to the Fund's Enhanced Structural Adjustment Facility (ESAF), pending satisfactory progress on a range of reforms aimed chiefly at making the agency more transparent to the public.

Fischer "did not mention that ESAF contributions are grants to the agency from governments," said Carol Welch, international policy analyst at Friends of the Earth.

The IMF uses ESAF loans to finance structural adjustment programmes in the poorest countries. "For the countries that borrow and have to go through structural adjustment, the costs are tremendous," Welch said.

In the United States, "the issue for citizens is not whether the money makes a market rate of interest in some account, but the policy role of that money," McGowan said.

"If the money is used to increase the power of an institution that works against the interest of workers in the United States, not to mention those in Asia, then it is disingenuous to say that it is an
investment on our behalf," she added, highlighting IMF insistence that wages and labour protection be lowered in borrowing countries, and that these countries then try to boost their economic fortunes by increasing exports.

As many as 1.1 million US workers could lose their jobs due to plummeting of Asian currencies, making imports more expensive and exports cheaper, the Economic Policy Institute, a prominent Washington think-tank with ties to U.S. labour groups, warned Friday.

Mainstream economists here expect the US trade deficit to grow from US$ 100 billion to US$ 200 billion over the next 12-24 months. The resulting job losses likely will be greatest among male manufacturing workers - an important political constituency in this Congressional election year, the Institute said.