IMF Bailouts: Familiar, Failed Medicine for Asian 'Tigers'

By Soren Ambrose
2 January 1998

This is an op-ed piece I wrote in mid-December on the IMF bailouts in East Asia and the media's ignorance of the IMF's track record in the rest of the world. The Washington Post has now been considering it for two weeks, and may use a revised version of it in their Jan. 11 (Sunday) "Outlook" section. The revisions would reflect recent developments in the Clinton Administration's accelerated drive for IMF funding; it now looks like they're going to try to attach a request for $18 billion to the bill extending the stay of U.S. troops in Bosnia.

I've gotten a few requests to post this, and finally after the Post's latest delay have decided to do so. If it is revised and published, I'll post the new version.

The recent spate of currency crises in East Asia -- and the consequent enormous "bailouts" of Thailand, Indonesia, and most recently South Korea -- has catapulted the normally obscure but immensely powerful International Monetary Fund (IMF) into the headlines. A front-page article in the New York Times (December 8), deceptively headlined "IMF's New Look: A Far Deeper Role in Lands of Crisis," was perhaps the most prominent example of the media's belated discovery of an institution with a well-documented history of taking over economies.

There is nothing new about what the IMF is doing in Asia. The policies being imposed on, say, South Korea, are remarkably similar to those imposed on most of the countries of Latin America, Africa, and South Asia. And the disastrous consequences of IMF policy are old news for the people of over 90 countries (containing over 80% of the world's population) which have been forced over the last 15 years to sign onto IMF structural adjustment programs (SAPs) or similar austerity packages. They know what the people of East Asia are just learning -- that the IMF's loans and its all-important certification of creditworthiness for international aid and investment are tied to cuts in spending on health and education, currency devaluation, rising interest rates, opening up to foreign ownership of domestic businesses, and the open-ended perpetuation of poverty.

The latest study to confirm the failures of these policies was issued on December 8 by a joint task force of the International Labor Organization and the United Nations Development Program; it charges that structural adjustment in Africa has been "purchased at the price of economic contraction, high unemployment and massive poverty."

Of course the object of the East Asian bailouts is not to relieve the burden on the poor, but rather to re-gain the "confi- dence" of foreign investors. To rescue corrupt executives and risk-taking investors, the IMF insists that the risks and burdens be shifted squarely to the people of South Korea, Indonesia, and Thailand -- people who cannot escape by selling their shares, moving their investments, or declaring bankruptcy. The people will always be there to shoulder the debt, just as the IMF will, if it has its way, always be there to police that debt and enforce its dictates on debtor countries.

The humiliation being expressed by Korean officials and media -- called by major papers the "virtual loss of economic sovereignty" -- has been felt all around the world. If the humiliation was temporary, if the enforced austerity of SAPs truly did lead to economic recovery and higher standards of living for the majority of the people in borrowing countries, it might be bearable. But experience shows the devastation of structural adjustment is not temporary. An IMF review of 19 countries with SAPs found that the types of indicators it watches suffered: current accounts deficits rose from 12.3% of GDP to 16.8% of GDP under structural adjustment, and the ratio of the countries' debts to their exports also rose, from 451% to 482%.

But it is the indicators that reflect the hardships of daily life that are most shocking: in Mexico, whose 1982 debt crisis and "rescue package" from the IMF marked the beginning of the age of structural adjustment around the world, real incomes fell between 1982 and 1992 while infant deaths due to malnutrition tripled, the minimum wage (adjusted for inflation) declined by 60%, and the percentage of the population living in poverty increased from 48.5% to 66%. Under the IMF bailout following the 1994 peso crisis, brought on by a decade of IMF-designed policies, probably one million people have been laid off.

Structural adjustment programs are devised to ensure that borrowing countries will continue to pay the interest on crushing, unpayable debts to First World countries and international institutions (including the IMF itself), but the principle continues to rise. Mexico launched the debt crisis in 1982 with a debt of $82 billion; by 1994, the debt had reached $140 billion (an amount which the bailout increased by $48 billion). The poorest region of the world, sub-Saharan Africa, paid over $100 billion on its debt during the 1980s, but still saw its debt burden triple, to about $300 billion. The rising principle not only means that SAPs are not solving the debt problems, but that countries suffering under them will remain in thrall to the international financial institutions indefinitely.

Confronted with 15 years of structural adjustment programs that have failed to bring prosperity, IMF chief Michel Camdessus now speaks, eerily enough, of a "second generation of reforms." Such talk is not reassuring, coming as it does from a man who recently acknowledged to a group of U.S. church leaders that realizing the benefits of the IMF's macroeconomic model may require the "sacrifice of a generation."

People living under the IMF's heel have had to confront these harsh realities in their struggle to survive. To avoid seeing their children's generation sacrificed, they are organizing to oppose the IMF's sado-monetarism. Labor unions, women's groups, and other civil society organizations are educating people about structural adjustment and calling on their governments to reverse the harsh austerity measures and encourage meaningful investment in the domestic production that constitutes the real, rather than the speculative, economy.

The time has come to examine the economic model that the U.S. and the other G-7 countries are imposing on the rest of the world through the IMF and the World Bank. While small middle classes may be fostered temporarily here and there, and islands of wealth built up for transnational investors in capital cities and export processing zones around the world, the great majority of the world's people are being excluded. The time has also come to re-examine how an undemocratic, secretive, and unaccountable institution like the IMF can come to wield such enormous power despite such a remarkable track record of failures.

Congress will have just such an opportunity in the spring of 1998, when the Treasury Department requests an appropriation of over $35 billion in new taxpayer money to further increase the power of the IMF. This week, the IMF requested an additional boost in its quota, which could add $7 billion to the U.S. share. A useful precedent was set by its rejection last month of $3.5 billion for the IMF's bailout fund. Sensing Congress's uneasiness with the IMF, Treasury Secretary Rubin this week rebuffed Camdessus's request for an additional boost in its quota, which could have added $7 billion to the U.S. share. Congress has the power to deny more funds to the IMF, or condition them on greater consideration for labor rights and poverty alleviation. It is not yet too late to use our democratic processes to prevent the structural adjustment, and systematic impoverishment, of the rest of the world. For, just as democratic governments long ago recognized that war was too important to be left to the generals, the economies of the world are far too important to be left to the economists at the IMF.

Author Attribution:

Soren Ambrose chairs the Steering Committee of 50 Years is Enough: U.S. Network for Global Economic Justice, a coalition of over 200 organizations fighting for the fundamental transformation of the IMF and the World Bank.