IMF Can't Be Transformed

By David Eisenhower

The IMF began life with a more modest mandate. It wasn't always "the rich countries' economic police force," as it is referred to by Neil Watkins of The Center for Economic and Policy Research. With the lessons of the Great Depression very much on their minds, the Bretton Woods' luminaries sought, in the words of a recent congressional commission investigating international financial institutions, "to promote international monetary cooperation, facilitate the expansion of international trade, promote exchange-rate stability and avoid competitive depreciation." To this end, the agreement "established a multilateral system for international payments for goods and services that assisted member states to correct balance-of-payment problems *" To accomplish these goals, the conferees established a regime of fixed exchange rates pegged to gold.

The IMF's initial rules favored productive capitalists and restrained money capitalists. Financial transactions were limited to the transfer of funds for purposes of financing trade and underwriting foreign investment. Various forms of international financial speculation were banned.

Wall Street chafed under these restrictions. In the early 1970s, the Nixon administration "closed the gold window" in a move to establish "a dollar standard regime." Once liberated from the "financial repression" of the original IMF, money capital immediately set about to reshape global financial markets and regulations. In time, new mechanisms would be institutionalized, which soon would "privilege * the interests of rentiers and speculators over the functional requirements of productive investment."

Downsizing, outsourcing and union-busting became standard operating procedure in the 1980s as leveraged buyouts and "shotgun" mergers yielded billions of dollars for speculators. In the meantime, inevitable international crises provided the opportunity for the IMF to begin to restructure the global economy. In order to qualify for an IMF loan to pay off creditors, countries had to follow the "neo-liberal" script of "structural adjustment." This meant: drastic reductions in government spending; sharply higher

interest rates; wholesale privatization; elimination of trade barriers; opening and deregulating of financial markets; encouragement of foreign investment; adoption of export led "growth" policies; and currency devaluation. A study of five countries who underwent structural adjustment found that millions of farmers were forced out of agriculture, thousands of small businesses went bankrupt, jobs and wages plummeted, poverty increased, basic education and healthcare was slashed and the environment was pillaged. Watkins found that IMF policies forced countries to develop "export processing zones" or "maquilas." In these zones labor organizing was "repressed" and sweatshop conditions were normal.

The conclusion reached by progressive critics of IMF policies was that these policies "failed." However, if we view the predictable consequences of IMF imposed austerity from the standpoint of how the world's productive system must be reconfigured to generate the volumes of surplus needed to satisfy the insatiable appetite of Wall Street, then IMF policies have been enormously successful. This was admitted in the recent report of the International Financial Institution Advisory Commission established by Congress. While granting that "poverty increased as living standards fell" in nations undergoing structural adjustment, the report says, "For the United States, there were benefits as well as costs. Import prices fell * this has been beneficial to consumers and purchasers of inputs for domestic production but costly to workers and firms that compete with imports."

Lowering the costs of "inputs" swells the general pool of profits circulating among the various centers of capital who dip in for their apportioned share. Furthermore, the "costs" borne by workers and their employers actually serve as market mechanisms, which "discipline," i.e. cheapen, the costs of domestic labor. This ultimately enlarges the overall pool of profit, provided, of course, that the cheaper labor has access to credit - something capital is only too happy to provide.

There is a self-serving and deeply flawed assumption shared by the architects of globalization, namely, that the free flow of goods and money around the world benefits everyone. This was the assumption of U.S. Secretary of Treasury Henry Morganthau, who at the founding of the IMF/World Bank, told all those gathered that they were there to create "a dynamic world economy in which the peoples of every nation will be able to realize their potentialities in peace and enjoy the fruits of material progress *"

Whether Morganthau really believed his rhetoric, or had his fingers crossed, is irrelevant. What is important for critics of the IMF is to thoroughly reject his "necessary illusions." No conceivable IMF "reform" could possibly transform it into anything other than a tool of imperialism. While its abolition would not affect the other weapons in the arsenal, its elimination would at least remove one source of global suffering.