What is the IMF?
The International Monetary Fund is one of three international organizations created at the "Bretton Woods" conference in 1944. (The other two were the World Bank and the General Agreement on Tariffs and Trade.) The original aim of the IMF was to oversee the international monetary system, and to step in to bolster countries that were facing temporary balance-of-payment problems. The idea was to prevent the kind of chain reaction that caused world currencies to collapse during the Depression. The Fund originally included 39 member nations, each contributing a certain share of the money.
Today, the IMF has 182 member nations and a staff of about 2600 in 110 countries, with headquarters in Washington, D.C. The Fund is administered by a 24-member executive board and chaired by Michel Camdessus of France. Over time, the IMF has come to play a much more active role than simply as a short-term donor to countries with a budget imbalance. Critics say the IMF operates mostly in the interest of global investors, and at the expense of workers in developing countries. Typically, the IMF requires countries that apply for loans to slash social spending, privatize state-owned industries, curtail workers' rights and emphasize production for export - all with the goal of enabling the country to pay off its debts.
Where does IMF money come from?
IMF money comes from contributions paid by each member country. The U.S. is the biggest IMF contributor, and therefore, under the IMF's structure, has greater voting strength in IMF decisions than other countries. The biggest IMF donors are the U.S. (18% of the total); Germany (6%), Japan (6%), Britain (5%), France (5%), and Saudi Arabia (3.5%). President Clinton has asked Congress to increase the U.S. contribution to the IMF by about $18 billion - a 50% increase. However, the U.S. wouldn't just deposit this money into the IMF kitty. Instead, the money would remain in the U.S. treasury until the IMF needed it. And the IMF would have to return whatever money it spent, with interest.
Where does the money go?
Big IMF recipients have included Mexico, Russia, and the Philippines (which has been under IMF "supervision" for 30 years). But all previous IMF loans are dwarfed by the current aid bundles going to East Asian countries in crisis. Last year, the IMF loaned a total of $121 billion to Thailand, Indonesia, South Korea, and the Philippines.
There's El Nino, there's tornadoes...
and then there's that other kind of natural disaster, which, we're led to believe, is just
as uncontrollable as the weather:
GLOBALIZATION
In the next year or so, many economists are predicting, a nasty globalization low pressure area is going to park itself over the U.S., causing us to lose somewhere between 700,000 to 1.5 million jobs, mostly in manufacturing. This time, the bad economic weather blew in from Asia. The collapse of Asian currencies and financial markets over the past year - and the reaction to that collapse - has already caused astounding job and wage loss for workers in South Korea, Indonesia, Thailand, and the wider region. In stage two of the crisis, Asian economies export some of their misery to the U.S. and elsewhere. These countries can't afford to keep buying American imports; instead, they're putting all their energies into generating income by exporting their goods. This will mean a growing trade deficit in the U.S., a flood of cheap imports, and the resulting loss of manufacturing jobs here. Tough luck, eh?
MORE THAN LUCK
Actually, there's a lot more than luck going on here. The world's biggest banks and investment houses made a lot of conscious decisions that helped create the Asian crisis. And now they, and the International Monetary Fund (IMF), are making another series of decisions that will only exacerbate the problem.
Last year the Fund loaned a total of $121 billion to East Asian nations facing financial collapse (Thailand, Indonesia, South Korea, and the Philippines) - far more than the IMF has ever lent before. Sadly, the funds will not find their way into the pockets of newly poor and jobless workers in these countries. Instead, they will go to pay off bad loans made in East Asia by European, Japanese, and American banks and investors.
IMF IS RUNNING LOW
It was such a lot of money that now IMF funds - which come from the Fund's 182 member nations - are nearing depletion. And so, this spring, President Clinton asked Congress to make billions more American dollars available to the IMF. Although this money won't be heading straight to Asia, it will be used to replenish the IMF kitty that has been depleted because of its Asia bailout.
In other words, we are being asked to pull out our wallets in the interests of seeing that Citibank and Chase don't take too bad a hit from the East Asian currency collapse.
You might think with this kind of money and all those jobs at stake, we'd have heard more about the IMF's moves before now. But, as consumer advocates Ralph Nader and Robert Weissman recently noted in a scathing letter to U.S. Treasury Secretary Robert Rubin, the decisions made by the world's financial powers are almost always shrouded in secrecy. "Your handling of the South Korean/Citicorp bailout," they tell Rubin, "is a textbook study of the dark side of globalization. It is time for you to remember that you are employed by the people of the United States, not by the banks and financial houses on Wall Street."
Below, we attempt to shed a little light into the dark corners of the IMF's Asian bailout.
WHAT HAPPENED IN ASIA?
For years now, we've been hearing American business crowing about the Asian "tiger" economies and their amazing levels of growth. In the early nineties, international investors - European, Japanese, and American banks, mutual fund investors and others - swooped into Asia, from South Korea to Malaysia, looking to make some fast money. Their loans helped finance much of the incredibly rapid growth in those countries. From Jakarta, Indonesia, to Bangkok, Thailand, speculators financed the construction of massive skyscrapers, auto factories, and microchip plants.
But, critics say, that wild surge of foreign investment helped set the stage for the current collapse. Many saw it coming. The International Confederation of Free Trade Unions and its Asian regional organization have long denounced the "casino economy" created by this massive influx of foreign capital. Eventually, all that borrowing and debt, the speculation by investors, and reckless investment decisions helped bring about the disaster we're seeing now. When things started to go awry, the foreign investors panicked, yanking their money out of Asia, and quickly the Asian currencies collapsed. Because their currency was devalued against the dollar, banks did not have the funds to pay dollar loans back.
As always, workers were the first to suffer. Many of those skyscrapers are now empty, the auto and microchip plants shuttered. In November, Indonesian employers confirmed that half of the nation's 4.3 million day laborers in the construction industry had lost their jobs, with another 500,000 to follow. In Thailand, 120,000 workers lost their jobs last year, and unions estimate a total of a million jobs will evaporate before the crisis is over.
ENTER THE IMF
Enter the IMF, ready to supply the cash - but at an astounding price. The IMF has a standard prescription for countries in financial trouble, and it's a very controversial one, even among mainstream economists. In exchange for loaning massive sums to South Korea, Thailand, Indonesia, and the Philippines, the IMF imposed stiff conditions aimed at forcing these countries to reshape their economies to be able to pay off their primary debt and the IMF loan.
The idea is to force the country to shift resources away from domestic use and toward the servicing of foreign creditors and markets. Interest rates are held high, producing a cruel recession. The recession reduces demand for imports, forces down wages, and makes exports the most attractive outlet for industrial capacity. Money earned from exports then is recycled to pay foreign bankers and bondholders.
A key part of the prescription is to turn trade deficits into surpluses by increasing exports and decreasing imports. And in this way, IMF austerity manages to cause pain not only to the workers in the country getting the loan, but to workers in other countries, like the U.S. The Asian crisis is expected to add as much as $100 billion to the U.S. trade deficit, costing us lots of jobs.
The IMF's standard plan usually causes a drastic drop in employment, cut wages, and social unrest in the countries receiving its loans. Even one former IMF economist estimated that the IMF's "Structural Adjustment Programs" have been responsible for the deaths of some 6 million children each year since 1982. And there are big questions about the long-term effects of IMF "rescue" as well. A Heritage Foundation study reported that of 89 less developed countries that received IMF loans from 1965 to 1995, 48 are no better off than they were before they received the loans, and 32 are worse off. (The Heritage Foundation, like some other right-wing institutions, is critical of the IMF not because of the pain it inflicts on workers, but out of suspicion of any global entity that regulates business.)
Economic observer Doug Henwood notes that this time around, the IMF is doing even more reengineering than usual. Their target: The job security provisions that have been a traditional part of Asian societies. In Korea, the IMF demanded what it called "greater labor flexibility" - meaning elimination of laws that protect workers from layoffs. Mainstream economists admit that IMF austerity will probably cost Korea a million jobs this year.
"The IMF has been quite clear that this is a new kind of restructuring they are requiring," says Henwood. "They really want to redo the whole class structure in those countries. They want to eliminate all those state institutions, which essentially worked. It's revolting to see the IMF denouncing these institutions as gross failures."
BUT FOR BANKERS, IT'S NOT SO BAD
Hard as it is to do, it's instructive to look at the IMF bailout of Asia from a multinational banker's point of view. You went in and made a lot of reckless loans in Asia, and netted some good money. But when the economic balloon seemed about to burst, you panicked and tried to take your money and run. Only to find that your debtors no longer had the cash to pay you back.
Fear not! The IMF funds now pouring into Asia are aimed mostly at helping out people like you. The austerity measures the IMF has imposed on the population are intended to improve your chances of getting at least some of your money back.
And, for you, there's even more good news. Under the IMF's terms, the Asian countries are required to fling open their doors for further foreign ownership, rolling back restrictions on such investment. Before he was elected Korean president in February, Kim Dae Jung opposed this aspect of the IMF bailout: "Now foreign investors can freely buy our entire financial sector, including 26 banks, 27 securities firms, 12 insurance companies and 21 merchant banks..." he complained. (Unfortunately, once in office, he quickly bowed to international capital's demands.)
BARGAIN BASEMENT PRICES
Not only that, these assets are up for sale at bargain basement prices right now. And so, writes the Preamble Center's Mark Weisbrot, foreign investors now "hover, like ambulance-chasing attorneys at a major airline disaster, hoping to convert the crisis to their own advantage." Business Week called it "the invasion of the bargain snatchers."
The fact that Asian investors will be protected from the worst pain of their bad investments has a lot of politicians and economists worried. In fact, some economists say that the IMF bailout is teaching investors that there's money to be made and little penalty to pay for wild and sloppy speculation, and that maybe they should go somewhere else and try it again. Say Nader and Weissman in their letter to the Treasury Secretary: "Why should investors not believe that bailouts will inevitably follow large scale financial collapses through an obligatory new form of profit-propping foreign aid?"
Nader and Weissman go on to suggest a few things the Treasury Secretary should do about all this, including to "disclose the list of the big banks that are the ultimate recipients of the bailout." The Clinton administration, they argue, should not be asking Congress to approve more money for the IMF. The IMF, they maintain, "has demonstrated that it is too secretive and too enchanted with pull-down austerity measures (which hurt working people in Third World countries and ultimately boomerang to hurt working people in the U.S.) to merit support. The administration should use its considerable influence to reform the IMF before asking Congress and the taxpayers to support greater funding."
- Laura McClure
Back to LP Press May
1998 Index Labor Party
Press Current Issue Labor
Party Press Archives Labor Party Home Page