Mode of operation of the IMF in the client countries

BRUSSELS:

The International Monetary Fund (IMF) was originally established to monitor the international monetary system (IMS) and provide short-term loans to nations experiencing balance of payments problems under the Bretton Woods exchange rate system. When the Bretton Woods system of fixed exchange rates finally collapsed in 1973, the IMF constantly found new purposes to extend its influence in countries (mainly in the Global South) in balance of payments crisis or at risk of default. linking bailouts to excessive austerity measures.

Its loans are linked—to use the IMF’s terminology—to “structural adjustment programs.” These programs focus on raising taxes and/or rejecting tax rate cuts, balancing the budget at all costs by setting unrealistic and unattainable tax collection targets, devaluing the currency, exacerbating inflation and raising interest rates, leading to higher borrowing costs for everyone.

These IMF bailout policies are anti-growth and support the stabilization of slow growth. GDP growth has proven strong in improving the lives of all classes of citizens, while low growth has shown that living standards are in decline.

Macroeconomic stabilization at the expense of high growth is based on a flawed assumption. Proponents of stabilization set a benchmark for debt sustainability, foreign exchange reserves, primary budget surplus and tax revenue targets.

Growth advocates focus on a set of supply-side economic policies: low tax rates across a broad tax base, restraint in government spending, free trade, sound money, deregulation, and privatization. If stabilization is the answer, then why are such anti-growth policies, implemented at the behest of the IMF, proven in the majority of cases to have actually increased a country’s dependence on the IMF over time.

The tragedy is that for the last 50 years the IMF has been delivering wrong advice around the world to countries lured by “free” IMF funds and thus forced into economically disastrous fiscal and monetary policies, creating a network of loan addicts.

These “free” loans have shown that governments are more likely to overspend, initiate coercive income policies, and encourage inefficient behavior by government bureaucrats. This borrowing also weakens the incentive to avoid mistakes and reduces the incentive to remain solvent.

In addition to justifying the fund’s lending as necessary to achieve sustainable economic adjustment in recipient countries, the evidence suggests that it cultivates client states. Among all members, 42 countries account for 78% of all cases in which a member country received a standby or credit extension from the IMF.

This is not the result of some “bad luck” or “accident” but of failed antiquated and counterproductive economic policies. In fact, IMF interventions have exacerbated, rather than prevented, the debt crisis.

In view of these counterproductive effects of IMF lending and the increasing role given to this institution, it seems appropriate to ask the more fundamental question of whether geopolitics also plays a role in IMF loan programs.

Loans tend to be larger and more frequent when a country has a larger quota, more professional staff come from an IMF country, and when a country is more politically and economically connected to the United States and major European states. Even voting patterns in the UN General Assembly by client states combined with the United States and European partners demonstrate the political-economic approach to IMF lending decisions.

This leads us to believe that the IMF is a bureaucratic political organization that makes political/economic decisions, exogenous to economic performance and other variables. Political economy analysis of the determinants of IMF loan programs isolates the effects of loan programs and shows a direct negative effect on economic reforms and economic growth.

Aware that they can be bailed out, at times, it encourages countries to avoid serious reforms, keeping them dependent for decades, namely Pakistan, on the IMF.

The policy of IMF financing is as clear as it is insidious, it is nothing more than a sophisticated way of subjugating the Global South through debt addiction.

The author is a philanthropist and economist based in Belgium