IMF changing slowly, but how much?
0 
Some of the IMF-sponsored macroeconomic policies that have provoked so much ire in the past continue today. The Fund is currently squeezing Ukraine, for example, to reduce its spending, and suspended its disbursement of funds to the government in order to force budget tightening. This despite the fact that Ukraine's economy shrank by about 15 percent last year, and its public debt was only 10.6 percent of GDP. A country in this situation should be able to borrow as needed to stimulate the economy, and reduce its deficit after it has accomplished a robust recovery. In nearby Latvia, the IMF and European Commission are lending with conditions that have already resulted in the worst cyclical downturn on record, and it is not clear when or how fast the economy will eventually recover.
It also remains to be seen whether the IMF will follow through and change its actual policy on capital controls. If it were serious, it could actually help countries design and implement such policies successfully. But the Fund's agreement last year with Ukraine, a country that seems to have successfully used capital controls during the downturn, called for these to be phased out.
Most bad policies result from either the power of special interests or ideologically-driven mistakes. The Fund appears to be gradually re-thinking some of its ideologically-driven mistakes, which is a good thing for the institution - and because it is influential, for the world. But the problem is that it is still run by "special interests." First, it is controlled by the finance ministries of the high-income countries - principally the U.S. Treasury department. The borrowing countries have practically no say in decision-making; the 2006 changes in voting shares lowered the rich countries' majority from 52.7 to 52.3 percent, and proposed changes will take it to 50.9 percent. No significant change there since 1944.
But there is another obstacle to policy change at the Fund that is equally important: within the G-7 governments that run the IMF, their finance ministries are also dominated by special interests. This is certainly true of the U.S. Treasury Department, which has had a disproportionate number of personnel that were previously employed by Goldman-Sachs. To see how influential these corporations are in the U.S. government, we need only look at the "nothing-burger" legislation that the Congress is considering for financial reform, despite massive public anger and the financial sector's well-publicized excesses in the bubble years leading up to the recession. How much change can we expect from the IMF on such key issues of capital controls while Wall Street and European banks still hold sway over the Fund's directors?
This column was published in The Guardian Unlimited on April 1, 2010.
Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He received his Ph.D. in economics from the University of Michigan. He has written numerous research papers on economic policy, especially on Latin America and international economic policy. He is also co-author, with Dean Baker, of Social Security:The Phony Crisis (University of Chicago Press, 2000) and president of Just Foreign Policy.
