SUNS4516 Monday 27 September 1999


Finance: Reform IMF, don't dissolve it, says Oxfam



Washington, Sep 24 (IPS/Abid Aslam) -- The International Monetary Fund (IMF), the physician to crisis-stricken and low-income countries, needs to heal itself.

So says the relief organisation Oxfam International in its report 'The IMF: Wrong Diagnosis, Wrong Medicine', released Friday as IMF governors gathered here for their annual policy-making sessions.

"Countries turning to the IMF face complex development challenges but Fund staff tend to see a single affliction: namely, overspending," says the report.

The Fund's response to ailing borrowers - described as "medicine" by its chief economist Michael Mussa - consists of a single formula: "budget austerity, high interest rates, and restrictions on public spending, says Oxfam..

"For many countries, this amounts to a strategy of treatment through asphyxiation," the report says.

Arguing that "reform, not dissolution, is what is needed", the report urges a series of reforms, many echoing calls dating back to the 1994-95 Mexican peso crisis.

The proposals enjoy some degree of support from members of the 'Group of Seven' (G-7) economic powers - the IMF's wealthiest and most powerful shareholders.

The G-7's preponderant voting power is a cause of many IMF shortcomings, Oxfam spokesman Seth Amgott acknowledges, but reformers also see it as an opportunity to advance their agenda.

For the most part the G-7, like the Fund, "judge the economic standing of the world's poorest countries - and their right to receive aid and debt relief - almost entirely on the basis of their adherence to IMF medicine, seldom stopping to ask if it has been sensibly prescribed."

"Economic growth and stability are vital to poverty reduction," Oxfam acknowledges. "But the IMF is not delivering, and in the absence of fundamental reform, the Fund will continue to act as a brake on progress towards the human development goals adopted by the international community for 2015."

These include halving income poverty, reducing by two-thirds the number of under-five child deaths, and achieving universal primary education.

Measured against these goals, the IMF has an abysmal record, according to Oxfam:

Twelve of 16 sub-Saharan African countries undergoing IMF programmes have cut public spending on education - in a region with 47 million children out of school.
In East Asia, the Fund has "prolonged and deepened a recession which has led to dramatic increases in poverty and deteriorating education indicators."
Brazil's 'rescue' by the Fund has seen a 25% plunge in spending on early childhood education.

Oxfam says there is "broad agreement" that reform of the IMF is overdue. "Unfortunately, there is less agreement on what direction reform should take."

The agency's political bosses - chiefly the US Treasury, or finance ministry - see an expanded future role for it. Proposals include extending IMF loan conditionality to cover trade as well as financial liberalisation and privatisation.

Oxfam sees these as part of "an unfortunate tendency on the part of industrialised countries to view IMF agreements as vehicles for imposing whatever conditions suit their strategic interests."

For example, according the report, "the decision to link IMF loan conditions for East Asia to the opening up of markets for automobile exporters and banks bears the heavy imprint of US Treasury influence."

Oxfam takes to task many IMF critics, however - especially those in the US Congress who would abolish the global monetary agency.

"Congressional hostility to the Fund often reflects a general hostility to multilateral agencies, which - in this case, mistakenly - are viewed as a drain on US taxpayer resources," the report says.

"In the developing world, too, attacks on the IMF also are frequently off target, especially when used by governments as a smokescreen behind which to hide the policy mistakes which produce economic mistakes."

Rather than be abolished, Oxfam argues, the IMF "should advise on the development of monetary and budget conditions for achieving economic growth...within a wider national framework for poverty reduction."

The group's proposals include:

Increasing Third World representation at the agency and requiring its executive directors to report annually to their national legislatures.
Releasing policy documents and loan agreements (so-called 'Policy Framework Papers' and 'Letters of Intent') and consulting the public over their content prior to signing.
Letting UN agencies and the World Bank track the IMF's impact on vulnerable groups.
Refitting IMF programmes so they speed growth, lessen inequality and increase investment in basic social services.
Removing the IMF as "the sole gatekeeper for debt relief for low-income countries", turning over decisions to each country's 'Consultative Group' of donors and creditors - with the Fund playing adviser.
Emphasising human development and economic recovery and restricting private creditors' claims against countries in crisis.
Setting up an international debt-relief mechanism along the lines of a bankruptcy court. The IMF and the UN Conference on Trade and Development could collaborate on the project.

Oxfam also urges the IMF to "allow governments to restrict movements of foreign capital" and opposes IMF and US proposals to give the agency a constitutional mandate to push capital account liberalisation.

The menu of reforms is long but not unrealistic, says spokesman Seth Amgott. "There's a great deal of pressure on the IMF at present. That's why they're talking about a commitment to social investment," Amgott told IPS. "The task before us is to improve not just their rhetoric but also their performance."