(As printed in the July 1998 issue of
the S.A. Humanist Post)
IMF SEEKS WORLD POWER
(From a speech by Paul Hellyer, former Deputy Prime Minister of Canada,
April 21 1998 to the (Canadian) House of Commons Standing Committee on Finance,
on a bill entitled Financial Assistance to International Financial Institutions
and Foreign States).
The International Monetary Fund (IMF) was part of a 1949 agreement by the
major capitalist powers. Its role was to facilitate convertible exchange
by providing temporary assistance to countries that had depleted their foreign
exchange reserves. This allowed them to pursue high growth and full employment
through a low interest rate policy. It was an era when capital controls were
permitted and the IMF was actually mandated to ask for such controls if deemed
either necessary or desirable.
I am informed that the IMF has never requested capital controls nor suspended
credits even when there was a large or sustained outflow of capital. For
most of the cold war period its importance as an emergency lender took second
place to official grants and credits designed as much for political as for
economic advantage.
With the advent of commercial bank lending to third world countries, and
the increasing deregulation and globalisation of financial services, it has
abandoned its raison d'ˆtre almost totally. Instead of a lender of last
resort it has become the enforcer for international banks and financial
institutions and performs a role comparable to the bouncer at a glitzy bar.
Its tactics are brutal. It refuses to allow supplicant countries to impose
capital controls. Instead it demands that they raise interest rates to attract
foreign investment. This slows the economy and results in increased bankruptcy
and high unemployment. Government must also reduce expenditures for health
and education. Food subsidies, in most cases have to be eliminated. Instead
of growing food for its own citizens the government is coerced into growing
crops for export in order to earn the U.S. dollars to repay the IMF.
It is this kind of Draconian policy which led me to ask, in a book that I
published in 1996, if the IMF had not outlived its usefulness. Since then
I have come to the conclusion that it has. It would be a great boon to the
world to wind it up and turn its assets over to the World Bank to use partly
for debt forgiveness to the world's poorest countries, including a number
of African countries, and partly to provide a massive amount of capital for
micro banking which would offer hope and opportunity to millions of impoverished
people worldwide.
The IMF's current policy line stands the original Bretton Woods on its head.
Instead of recommending or at least permitting capital controls to mitigate
the consequences of massive inflows and outflows of capital, it takes the
opposite position. It is making capital controls a major target of attack
in direct violation of Article VI. It does this on the pretext that global
financial markets reduce the cost of capital and permit a better allocation
of resources worldwide.
This neo-classical assumption is refuted by the actual trends since the 1970s.
Removing capital controls has opened the flood gates to an accelerating volume
of financial flows. Foreign currency transactions have increased from about
$18-trillion a year to some $250-trillion a year - $1-trillion a day, a fourteen
fold increase. World trade, by contrast, has little more than doubled. The
ratio of foreign exchange transactions to trade soared from six to one, to
about thirty-five to one. The explosive growth of cross-currency financial-flows
has been paralleled by increasing volatility of both nominal and real exchange
rates and by sharply rising real interest rates. Instead of reducing the
cost of capital it has become more expensive.
International bank lending also surged many times faster than economic activity.
Outstanding international bank loans grew from 4 percent of Gross Domestic
Product (GDP) of the twenty-four countries of the Organisation for Economic
Cooperation and Development (OECD) to 44% between 1980 and 1991. All of this
has been paralleled, however, by slackened growth of investment, savings,
output, trade volume and productivity in both the third world and the OECD
countries, with the main exceptions the East Asian þmiracleþ
economies - now joining the pack.
In practice this theoretically perfect control mechanism has resulted in
one crisis after another. The increasing frequency and severity of the crises
and the fact that they have been unpredictable has eroded the credibility
of the Washington-IMF line. Reflecting on the current Asian collapse Allan
Greenspan, Chairman of the U.S. Federal Reserve Board, observed that "excessive
leverage" and short-term bank lending "may turn out to be the Achilles heel
of an international financial system that is subject to wide variations in
financial confidence."
Indeed it may. A system under which mega-banks print money willy-nilly to
lend to almost anyone in the world who will line up for it, is inherently
unstable. The IMF bailouts only exacerbate the situation. The 1995 Mexican
bailouts sowed the seeds of the current Asian crisis. The assurance that
the IMF will ride to the rescue encourages international bankers and speculators
to make still riskier loans. They escape the consequences of their actions
while the costs of their excesses are socialised and picked up by the tax
payers at large.
In the face of all the evidence it is more than astounding that the IMF is
now pushing to have its articles amended. With the active encouragement of
the Clinton administration it is pressing for broad new powers. The IMF is
seeking global authority over national governments' ability to control capital
inflows and outflows including the power to require member countries to commit
to full capital account liberalisation.
This move should be recognised for what it is. It would mean the end of national
sovereignty in economic matters. No country would be master in its own house.
The IMF seeks the power to control the world economy. The urgency, according
to the IMF's First Deputy Managing Director, Stanley Fischer, is dictated
by the fact that the alternative mechanism to achieve the same ends - the
M.A.I. (Multilateral Agreement on Investment) - has been slowed down recently.
The world should view the prospect with fear and trembling. It should be
obvious to all except the most encrusted ideologue that the world financial
system has been completely disconnected from the real economy. Wall Street
(or Bay Street) is in cyberspace and programmed to ignore the real needs
of the vast majority of the world's population still in need of food, clothing
and shelter. Only the holders of financial assets - a tiny fraction of the
world's population whose needs have already been met - have anything to gain
from perpetuating the global mythology.
Even they have reason for concern. A globalised financial system dominated
by highly leveraged banks is a recipe for disaster. When that disaster strikes
the social consequences are completely unpredictable.
This is the reason I would not give the IMF any additional resources that
would encourage it to continue on its present path. Nor would I make support
for needy countries conditional on their submission to the IMF's hurtful
demands. Nations that have been brought to their knees by the IMF's sharp
whip are understandably resentful and Canada should not contribute further
to the source of their anger. It has not earned the trust of the people who
pay the bills and should be cut off at the pass before it can do more damage
to more people.
There are of course, other financial reforms essential to a stable world
economy. But as of to day a total reformation of the IMF is the most urgent.
An urgent appeal to all MAI-not groups from Paul Hellyer : Please bombard
(your) Prime Minister and (your) Treasurer with letters, faxes and e-mails
urging them not to give the IMF broader powers. They are taking the booty
out the back door as we guard the MAI front. Its wings should be clipped.
It should receive no new money and no new powers. Furthermore, it should
be ordered to cease and desist from the policeman' role announced recently
by U.S. Trade Representative Charlene Barshefsky. Instead of trying to abolish
controls on international capital movements, Article VI of the IMF's charter
must be enforced.
From "Economic Reform Australia" May/June '98 |
