FRIENDS OF THE EARTH imf Arming NGOs With Knowledge: A Guide to the International Monetary Fund This handbook was made possible by the generous support of the Charles Stewart Mott Foundation, the Conservation, Food, & Health Foundation, the John D. and Catherine T. MacArthur Foundation, and the W. Alton Jones Foundation. Written by Carol Welch With contributions from Sarah Borchelt, Robert Naiman, Matt Siegel, Marijke Torfs Special thanks to our NGO colleagues around the world, particularly those who contributed ideas and reactions to portions of the report. Editing by Ross Hammond Production and Design Editor: Mark Whiteis-Helm This report will be made available for free via the Internet. Please point your web browser to http://www.foe.org. Additional copies of this report are made available for $10 each (includes shipping) from: Friends of the Earth 1025 Vermont Ave. NW, Suite 300 Washington, DC 20005 (202) 783-7400 fax: (202) 783-0444 For information about this handbook, contact: Carol Welch Friends of the Earth 1025 Vermont Ave. NW, Suite 300 Washington, DC 20005 (202) 783-7400 ext. 237 fax: (202) 783-0444 firstname.lastname@example.org Friends of the Earth 1 Table of Contents Introduction ............................................................................................................................2 Evolution of the IMF................................................................................................................3 IMF Structure ..........................................................................................................................5 What’s Wrong With the IMF? ................................................................................................11 Global Economic Governance in the New Millennium..........................................................20 Campaign Strategies ............................................................................................................29 Sources and Useful Literature ..............................................................................................34 Glossary ................................................................................................................................35 NGOs and Useful Contacts ....................................................................................................36 2 Arming NGOs With Knowledge: A Guide to the International Monetary Fund Introduction T he International Monetary Fund (IMF) The IMF’s ever-expanding mandate, the so-called “mission is one of the most powerful actors in the creep”, increases its power as the IMF tackles new issues such global economy. As a multilateral insti- as banking and financial systems, good governance, including tution it lends billions of dollars to issues such as judicial reform and land reform, and social sec- countries experiencing extreme eco- tor spending. Unfortunately, the IMF’s growing authority and nomic imbalances and mobilizes billions operational secrecy has intimidated and mystified citizens’ more from rich creditor nations and groups that would like to change the way the IMF operates. other international financial institu- tions. The richest countries in the This handbook explains the nature, structure and activities of world, the Group of Seven (or G-7),1 the IMF in order to de-mystify the institution and explain how have given the IMF the power to bestow a “seal of approval” on it affects people’s lives. It also presents the criticisms that var- borrowers’ economic policies. This seal of approval is neces- ious citizens’ groups have had of IMF operations, and specific sary for poor countries to get debt relief from creditor nations, strategies for targeting the Fund and other related institutions. and it influences the decisions by private investors and aid Despite the Fund’s growing power, the time is ripe to push for agencies on whether to lend and invest in those countries. In comprehensive changes at the IMF. The global financial crisis this way, the IMF has tremendous power over the lives of mil- has sparked an unprecedented debate among policymakers lions around the world. and within the media on the role of the IMF as no other recent event has. The growing international citizens’ movement call- The IMF’s power is confined mainly to the poorest countries, ing for comprehensive debt relief for the world’s poorest and, following the most recent global financial crisis, to emerg- countries is proof that people can and are getting educated and ing markets as well. Rich industrialized nations have not mobilized on issues of economic injustice. borrowed from the IMF in about 20 years, and IMF approval has no impact on these countries’ stock markets or bond This rising chorus of criticism has caused creditor govern- issues. However, it is the rich countries that dominate deci- ments and institutions like the IMF to acknowledge some of sion-making and set policy at the IMF. With their dominant their failings, and has pushed them to consider policy meas- voting share, the wealthiest countries have been able to use ures that a few years ago were unthinkable. Citizens’ groups the IMF to further their global economic agenda. In the United should seize this opportunity to take the next steps: state their States, this agenda has been dubbed the “Wall Street-Treasury demands and present concrete proposals and alternatives. complex,” a description of the particularly close-knit relation- With the IMF’s door now unlocked, civil society has the chance ship that the U.S. Treasury Department (which sets U.S. policy to push it open completely. for the IMF) has with Wall Street investors and bankers. In making the world safe for investors, the IMF and its ruling shareholders have run roughshod over citizens by excluding them from the decision-making process and keeping important information off limits. Friends of the Earth 3 Evolution of the IMF In July 1944, representatives from 45 countries gathered at as the increasing privatization of balance-of-payments financ- Bretton Woods, New Hampshire in the United States to devise ing, the IMF’s original mission became increasingly obsolete. a stable global economic system that would avert calamities But, rather than closing its doors, the IMF began reshaping its like the Great Depression and its lingering impacts, which cul- functions and redirecting its activities. It began shifting its minated in World War II. The anchors of the “Bretton Woods activities from determining currency values to monitoring System” were the International Monetary Fund (IMF) and the exchange rate policies and increasing its lending to countries International Bank for Reconstruction and Development with balance-of-payments difficulties. (IBRD), now known as the World Bank Group. The IMF was charged with providing a stable international monetary system The oil price shocks in the early 1970s were the saving grace that would promote trade while the IBRD was to aid in the for the IMF. Its financial resources, once again, became des- reconstruction of Western Europe, essentially by funneling perately needed, this time by non-oil producing developing American money to European development. countries. The oil price hikes in 1973-74 had resulted in large earnings of hard currency for oil producers, and massive IMF Mission: International Monetary System deficits for oil importers. To finance these deficits, private World Bank Mission: Development banks used the huge deposits of oil-producing nations to extend cheap loans to oil-importers. The IMF’s primary task was to monitor and manage a system of stable exchange rates in which the value of all the world’s The oil price hikes, however, caused prices of many consumer currencies were based on gold and the U.S. dollar. In order to goods to rise in industrial countries, increasing inflation. To provide the stability for this system, the U.S. government guar- curb inflation, industrial countries raised interest rates, which anteed the value of the dollar in gold at a set rate of $35 per slowed growth significantly and caused an enormous global ounce. This system was to be the basis for international trade, recession by reducing demand and increasing the cost of bor- which was considered the engine of economic growth and pros- rowing globally. With shrinking demand in the rich countries perity. It is worth noting that very few developing countries and higher interest rates on loans, poor countries’ economies played any role in the creation of the IMF due to their relatively deteriorated rapidly. When a second round of oil price increas- small economies and the fact that many were not yet inde- es occurred in 1978-79, the credit-worthiness of deeply pendent nations. indebted countries was so damaged that private commercial banks were reluctant to continue lending to them. This forced The IMF’s second major function was to provide countries with many developing countries to turn to the IMF for help in short-term financing from its vast reserves of foreign curren- financing their growing balance-of-payments deficits. cies and gold to help them overcome temporary balance-of-payments deficits and support their exchange rate By mid-1982, the aggregate external debt of non-oil producing values. These reserves came from the contributions by IMF developing countries was more than $600 billion, more than founding members, based on the size of their economy. In the half of which was on commercial (higher interest) terms. As beginning, it was industrialized countries that primarily uti- creditors became more nervous about countries’ ability to lized these funds. repay, loans became increasingly short term. Low commodity prices, higher import prices and capital flight further weak- ened these countries’ position. The crisis hit its peak when Mexico defaulted on its debt payments in August 1982. The The IMF Reinvents Its Mission IMF was called on during this time, first with Mexico and then with a long list of other indebted countries, to provide balance- In 1971, the U.S. government abandoned the gold standard due of-payments assistance and orchestrate debt-restructuring to inflationary pressures and the costs of the Vietnam War. This negotiations with the international banking community. The action undermined the Bretton Woods monetary arrangements objective was to get these countries back on their feet and by creating a system of “floating” exchange rates in which a repay their debts as quickly as possible. The quid pro quo for currency’s value was determined by the market or through gov- these IMF-arranged financing packages was that countries had ernment intervention rather than through the IMF and based to submit to draconian economic-adjustment conditions. on gold. With the abandonment of the fixed rate system, as well 4 Arming NGOs With Knowledge: A Guide to the International Monetary Fund Beginning in the early 1980s, structural adjustment programs (SAPs) became the cornerstone of the IMF’s mission to restructure debt-ridden economies. The IMF designed SAPs to decrease domestic consumption and to generate more exports, more investment, and more domestic savings. Specifically, these policies promoted export-oriented growth, reductions in public spending and the state’s role in the economy, and increased taxation. They also sought to increase countries’ trade competitiveness by prescribing currency devaluation. As the IMF has continued promoting SAPs, their scope has broad- ened into areas such as financial and banking sector policy, wage policy and governance issues (including judicial sector reform and budget transparency). Bailing Out Private Finance The financial crises of the 1990s added an even greater dimen- In the wake of this global financial catastrophe, the IMF has sion to the IMF’s power. When the Mexican peso came under tried to shift the blame from its inadequate surveillance and assault in 1995, the IMF rushed in with emergency lending to harmful adjustment policies to the borrowers’ failure to dis- prop up the currency. It did the same in Thailand in 1997 and close accurately their financial position. Although the true then in Indonesia, Korea, Russia and Brazil. The IMF has used failure of the IMF’s performance remains largely ignored by these opportunities to pursue its economic development agen- governments, the issue triggered a worldwide debate among da. Taking advantage of its leverage over these countries in policymakers and economists about the IMF’s effectiveness crisis, the Fund demanded extensive changes across all areas and role in devising economic policies. Since more than $1.5 of their economies, including banking laws, labor laws and gov- trillion crosses international borders every day, many critics ernment spending. are arguing that the IMF is no longer capable of carrying out its core mission to oversee and regulate monetary policy. The financial crisis of the 1990s differed from the debt crisis of the 1980s in important ways. The most significant difference is The power to make or break an economy has, in many ways, that in the 1990s the crisis involved private actors (mostly shifted to private financial markets and speculative capital. banks in Japan, Europe and the United States) lending to com- The IMF and its members have acknowledged this fact by panies and banks in emerging markets while in the 1980s it adopting policies aimed primarily at keeping the private finan- was these same banks lending to sovereign countries. So, cial market content, even if it means undermining other rather than the threat of countries defaulting on their debts, economic goals, such as employment creation or the expansion during the 1990s crisis it was the threat of private firms of domestic demand. defaulting on their debts. Another difference was that during the 1990s, default was easily avoidable as the problem was liq- uidity shortages. Despite these differences, the IMF employed the same tactics for solving both crises, including high interest rates and devaluation. This approach drove up debt and bank- ruptcy rates, which increased the insolvency of domestic businesses and sparked a recession.2 The IMF’s approach also forced governments to assume the debt that private firms had taken on, thereby socializing private debt. In addition, foreign lenders were repaid with IMF money, thereby bailing out bankers with public funds. The domestic result is that citizens have been stuck footing the bill for this international bailout. Friends of the Earth 5 IMF Structure The IMF is an intergovernmental monetary and financial Executive Board/Board of Directors: organization comprised of 182 member countries. Membership is restricted to countries that can control their external rela- The Board of Governors delegates the day-to-day decision- tions and are willing to implement IMF regulations described making power to the Executive Board, which consists of 24 in the original Articles of Agreement. The first article of the appointed and elected Executive Directors. Eight member Articles of Agreement sets out six purposes for the organiza- countries (China, France, Germany, Japan, Russia, Saudi tion: Arabia, the United Kingdom and the United States) are empow- ered to individually appoint an Executive Director. The other • To promote international cooperation by members on inter- 16 are appointed by groups of member countries. The national monetary issues. Executive Board is responsible for member-country matters • To facilitate the expansion and balanced growth of interna- such as surveillance assessments, program approval and tional trade and, through this, contribute to high levels of implementation of policy decisions. It meets at least three employment and real income and the development of pro- times per week in formal session. ductive capacity. Interim Committee: • To promote exchange stability and orderly exchange arrangements and facilitate the avoidance of competitive The Interim Committee is an advisory body made up of 24 IMF currency depreciation. Governors. The Committee advises and reports to the Board of Governors or ministers. The Interim Committee meets twice a • To foster a multilateral system of payments and transfers for year and advises the Board of Governors on issues regarding: current transactions and seek elimination of exchange restrictions that hinder the growth of world trade. • the management of and changes in the international mone- tary system, including the success or failure of the • To make financial resources available to members, on a tem- adjustment process; porary basis and with adequate safeguards, to permit them to correct payments imbalances without resorting to meas- • proposals by the Executive Board to amend the Articles of ures destructive of national and international prosperity. Agreement; and • To seek reduction of both the duration and magnitude of • sudden disturbances that pose a threat to the international payments imbalances. monetary system. Development Committee: GOVERNING SYSTEM The Development Committee is a joint committee of the World Bank and IMF. It studies and recommends measures to pro- The Board of Governors: mote the transfer of financial resources to developing countries, with special attention to the problems of the least- The Board of Governors is the highest decision-making body in developed countries. The Committee meets twice a year, the IMF. It consists of one Governor and one Alternate generally at the same time and place as the Interim Governor appointed by each member country. The Governors Committee. Its 24 members are generally finance or develop- and the Alternates are usually ministers of finance or heads of ment ministers. Each member state that appoints an Executive central banks and have the authority to speak for their govern- Director and each group of members that elects an Executive ments. They receive advice on the functioning of the Director is entitled to appoint one delegate to the committee. international monetary system from an Interim Committee, The Development Committee is considered to have less influ- and on the special needs of poorer countries from a ence than the Interim Committee, however, issues of central Development Committee. Board members are not appointed concern to the IMF, such as the Enhanced Structural for a fixed term, but rather retain their positions until their Adjustment Facility and debt relief, fall under the jurisdiction successors are appointed. The Board has specific powers such of the Development Committee. as the admission of new members, the determination of the quotas, and the allocation of SDRs (see below). The Board of Governors meets during the IMF’s Annual Meeting. 6 Arming NGOs With Knowledge: A Guide to the International Monetary Fund The Managing Director: adopted a resolution to allow for a special one-time allocation of SDRs aimed at equalizing members’ SDR allocations in pro- Every five years the Executive Directors select a Managing portion to their quotas. The intention was to boost the reserves Director to serve as chairman of the Executive Board. The of some members which in turn would allow some of them to Managing Director participates in the meetings of the Board of borrow more resources at a relatively lower cost. This resolu- Governors, the Interim Committee and the Development tion will become effective when three-fifths of the IMF’s Committee. The Managing Director is responsible for oversee- members representing 85 percent of voting share approve the ing the staff of the IMF who currently number about 2,700. The resolution. Current approval is well below the required major- IMF has a reputation as a highly centralized, hierarchical insti- ity. tution. The Managing Director therefore has a great deal of power in determining IMF policy, programs and operations. Quotas: The Managing Director is by tradition a European. This posi- tion is now held by Michel Camdessus, who is serving his third Each member of the IMF pays a quota, which is essentially a five-year term. country’s “subscription” to the IMF. The subscriptions of the members are the main source of the Fund’s financial resources. Seventy five percent of a member’s original sub- scription is payable in the country’s own currency and 25 FINANCIAL, VOTING percent is to be paid in SDRs or one of the five main currencies that comprise the SDR. Quotas can be used: & BORROWING STRUCTURE • To form a pool of money from which the Fund can lend to Special Drawing Rights (SDRs): members in financial difficulty. SDRs are the unit of currency used by the IMF. They act as a • As the basis for determining how much the contributing reserve asset for IMF members, and serve to denominate IMF member can borrow from the Fund when it encounters diffi- transactions and accounts. If the IMF determines that there is culties in its international finances as well as the amount a a long-term global need to supplement reserves, it has the member can be called upon to provide to the Fund when its authority to create additional SDRs, much like a treasury can international reserve position is strong. The more a member create more currency. The value of one SDR is determined contributes, the more it can borrow in time of need, subject daily by taking an average of currencies from the United to access limits. Access limits for regular facilities are set at States, Germany, Japan, France, and Great Britain — coun- 300 percent of a quota, except for the Supplemental Reserve tries selected because of their large share in the global trading Facility, which is based on need. system. The weights of the currencies comprising the basket are based on the country’s exports, as well as the amount of • To determine a country’s share in an allocation of SDRs. the country’s currency that is used as reserves by IMF mem- • To determine the voting power of a member. The higher the bers. Effective in January 1999, the Euro replaced the quota—the more money a country pays as its “membership deutsche mark and French franc. fee”—the greater the share of votes. Periodically, the IMF allocates SDRs to its members based on A member’s quota is determined by a variety of economic indi- the size of countries’ quotas in the IMF (see below). The cators, including national income, reserves and how much its process for allocating SDRs starts with a recommendation by currency is used in international trade. The greater role a the Managing Director, with the approval of the Executive country plays in the international economy, the higher its Board, to the Board of Governors. Affirmation of an allocation quota. At least every five years, the IMF’s Board of Governors requires an 85 percent majority of voting power. SDR alloca- reviews the quotas, and if it deems appropriate, recommends tion decisions are valid for five-year periods. an adjustment of members’ quotas. The last review, the Eleventh General Review, resulted in a 45 percent quota The last SDR allocation was made in 1981. Since that time, 39 increase, bringing the IMF’s quotas from SDR 146 billion countries have joined the IMF (many are economies in transi- (about $200 billion) to SDR 212 billion (about $290 billion). tion from East and Central Europe) and have never received an This took effect in early 1999. The last quota increase took SDR allocation. In September 1997 the Board of Governors effect in 1992. Friends of the Earth 7 Once the IMF Board of Directors agrees to the quota increase Switzerland) called, strangely, the Group of Ten. Another SDR amount and distribution of quotas, member-country govern- 1.5 billion is available under an associated agreement with ments then generally have two years to approve the quota Saudi Arabia. The GAB is to be used only in exceptional cir- increase. Discussion about quota increases have traditionally cumstances, such as when a country’s balance-of-payments been an important opportunity for NGOs to raise problems with problems threaten to destabilize the international monetary IMF programs and policies, by lobbying their government rep- system. The GAB is reviewed and renewed every five years. In resentatives to attach reforms to funding the quota increase or 1983, the review resulted in GAB being enlarged from SDR 6 withhold funding for the IMF. billion to the current SDR 17 billion. The GAB has been acti- vated 10 times, mostly recently in July 1998 to finance an Voting: arrangement with Russia. Unlike the United Nations, which uses a system of one-country- Following the Mexican financial crisis, policymakers were con- one-vote, the IMF uses a system of weighted voting power. cerned about the IMF’s ability to handle future financial crises Each member has a basic allotment of 250 votes. On top of the with its existing resources. The final communiqué from the G- basic allotment, each member has one vote for each SDR 7 summit in Halifax, Canada in 1995 called on the world’s 100,000 of its quota. The variable allotment is designed to rec- stronger economies to develop financing arrangements to ognize differences in subscription and to protect the interests enable the IMF to respond to financial crises. The result was and ensure the cooperation of those members that account for the New Arrangements to Borrow (NAB) which supplements the greater part of international trade and financial transac- the GAB with an additional SDR 17 billion in credit lines. The tions. In theory, most decisions made by the Board of NAB entered into force in November 1998, and was activated Governors or the Executive Board can be adopted by a simple for the first time shortly thereafter, in December 1998, to majority of votes. However, in practice the IMF tends to oper- finance an arrangement with Brazil. There are 25 participants ate by consensus and rarely takes formal recorded votes. For to the NAB, with commitments based on these countries’ quo- more important decisions, a larger majority is required. A 70 tas in the IMF. NAB is to be the first and primary recourse percent majority is needed to decide upon operational issues when the IMF needs to supplement its ordinary resources. such as rates of charges on the use of the Fund’s resources and the rates of interest on the holdings of SDRs. An 85 percent Like the GAB, the NAB is reviewed and renewed every five majority is required for matters including the structure of the years. A proposal by the IMF Managing Director to activate the Fund, changes in quotas, the allocation of SDRs, and the use of GAB and/or the NAB must be agreed to by the participants in the Fund’s gold reserves. Given the fact that the United States the arrangements, and then must be approved by the Executive controls about 18 percent of the votes, it has veto power over Board. During periodic reviews, the NAB may accept new mem- matters requiring an 85 percent majority. bers, but only with the approval of the IMF and of participants Borrowing: representing an 80 percent share of the credit lines. At other times, an 85 percent vote by the IMF Board of Directors can The borrowing capacity of the IMF is unlimited in the sense amend the NAB agreement and include additional participants. that the IMF has full freedom to decide whether to borrow and how much. If a certain currency is needed to replenish IMF holdings or to finance a transaction, it is able to borrow from a member country. Furthermore, the IMF has the authority to IMF ACTIVITIES: SURVEILLANCE, borrow from sources in or outside the member’s territory, such as private lenders and commercial banks, after seeking con- FINANCIAL & TECHNICAL ASSISTANCE currence of the member. Surveillance: Since 1962, the Fund has had a line of credit called the According to its Articles of Agreement, the Fund is supposed to General Arrangements to Borrow (GAB). Under the GAB, the oversee the functioning of the international monetary system IMF can borrow, at market interest rates, up to SDR 17 billion and exercise tight surveillance over its members’ exchange (about $29 billion) from 11 of its main industrial members (the rate policies. The two principal ways that the Fund fulfills United States, Germany, Japan, France, United Kingdom, Italy, these functions are through the annual Article IV consultations Canada, the Netherlands, Belgium, Sweden, and since 1984, with member countries and in semi-annual World Economic 8 Arming NGOs With Knowledge: A Guide to the International Monetary Fund Outlook discussions. Through the Article IV consultations, the from the Fund. This generally comprises a country’s “reserve Fund assesses each member country’s macroeconomic and tranche,” and is not subject to conditionality or charges. If a structural policies that form the basis of a country’s exchange country needs to borrow more, it then taps into “upper credit rate policy. Staff reports on these consultations are discussed tranches,” which are subject to conditionality. by the Board, which provides policy recommendations to mem- ber countries. The IMF may also provide countries that are not Conditionality was created to ensure that borrowers will adopt drawing on IMF resources with closer monitoring through a the Fund’s policy measures to improve their balance-of-pay- shadow program or a precautionary arrangement ments positions so that they will be able to repay the IMF in a timely manner. (Timely repayment is essential since IMF The Fund’s failure to recognize the economic indicators that resources are supposed to be used temporarily in order to be pointed towards a pending financial crisis in Mexico has been available to all members). According to the principles of condi- the subject of much discussion and debate. At the 1995 tionality, the debtor government must pursue adjustment Economic Summit in Halifax, Canada, the G-7 urged the IMF to policies that: improve its surveillance by requiring more timely information • reduce the basic imbalances in the economy, both in exter- on key economic data, establishing standards for timely publi- nal accounts and in domestic resource use; cation of this data, and engaging in closer and more continuous policy dialogue. The IMF was also told to focus on countries • enable the member to avoid or lift existing restrictions on where financial tension is most likely to have spill-over effects trade and external payments; and to be more critical and demanding during the policy dia- • overcome the member’s problem within a moderate period logue. of time; and After the Asian financial crisis, the G-7 once again directed the • augment the member’s monetary reserves so that it will be IMF to require more comprehensive and timely reporting of able to repurchase its currency from the Fund. economic and financial statistics. The IMF also commissioned an external review of its surveillance function. Short-Term Financing: Stabilization Polices Technical Assistance: Typically, IMF stabilization programs are short-term and aim to raise government income and lower government expenditure The IMF provides technical assistance to its members in three in order to improve the country’s balance-of-payments position broad areas: design and implementation of fiscal and monetary and reduce the need to borrow foreign currency. The borrower policies; institution-building, such as the development of cen- commits to meeting economic targets which almost always tral banks, treasuries, tax and customs departments and include limits on the expansion of credit and the reduction of statistical services; and drafting and review of economic and public expenditures. Government income is raised largely financial legislation. The IMF also conducts trainings and sem- through value-added taxes (VATs), which are often increased inars through its technical assistance program at the IMF and/or extended to cover more products. Institute in Washington, DC, at regional institutes in Vienna and Singapore, and through other regional institutions. Expenditure-reducing policies are designed to curtail demand and usually include the contraction of money supply and cuts Financial Assistance: in government spending. These cuts are mainly achieved through reductions in government programs, decreases or The IMF makes its resources available to member countries by freezes in wage levels and civil service retrenchment. In theo- selling SDRs which members purchase with their own curren- ry, trade balances and reserves should improve as imports are cy. Members are obligated to repurchase the Fund’s holding of reduced and domestically produced goods are freed for export. their currencies by paying in SDRs (or other currencies as defined by the IMF) within a specified period. Medium-Term Financing: Structural Adjustment Programs (SAPs) The IMF provides assistance through several different facilities depending on a country’s specific macroeconomic and struc- The Fund’s medium-term SAPs are based on the belief that the tural problems. A member country with balance-of-payments private sector is more effective and dynamic than the public difficulties can immediately withdraw 25 percent of its quota sector and that it responds better in a market economy. Friends of the Earth 9 Adjustment policies, therefore, have the privatization of public quarterly performance criteria and pass semi-annual reviews. enterprises as a prime objective. This has the additional bene- Repayments are to be made in three to five years. fit of generating capital for the elimination of current account deficits. At the same time, a smaller, more effective state can, Extended Fund Facility (EFF): When balance-of-payments theoretically, direct its social services in a more targeted fash- problems arise from structural factors—such as distortions in ion. production, trading patterns and prices—the EFF gives coun- tries some more time and resources to address their Deregulation also includes elimination of controls on goods, balance-of-payments problems. The EFF generally runs for investments and financial systems. The theory behind financial three or four years and countries must repurchase their cur- deregulation is to allow interest rates to rise, thereby encour- rencies within four to ten years. aging savings and ensuring that money is only borrowed for the most profitable investment projects. To promote greater inte- Under both the stand-by and EFF, members may borrow up to gration into the world market and to divert productive 100 percent of their quota on an annual basis, with a cumula- resources to the export sector, countries are encouraged to: tive cap set at 300 percent. The IMF may make exceptions to the access limits. • lower their exchange rates in order to become more com- petitive in the market; Emergency Facilities: • reduce trade barriers to force local industries to become The new Supplemental Reserve Facility (SRF) was set up more competitive in order to survive cheap imports; in the wake of the Asian financial crisis. It is for countries fac- • provide incentives to increase exports, such as tax relief and ing an extreme balance-of-payments problem caused by a financial subsidies; and sudden loss of market confidence and subsequent capital flight and attacks on its currency reserves. • encourage foreign investment by creating free-trade zones or providing tax breaks. To use the SRF, the country’s need is supposed to be very short- term and able to be reversed rapidly through policy changes. These are a general set of IMF-promoted policies rather than The SRF has no set access limit, but is instead based on a a comprehensive list of measures. It should be noted that in country’s need, ability to repay, its previous track record with practice there are few clear lines of distinction between stabi- the IMF and the IMF’s own liquidity situation. The SRF carries lization and adjustment programs. The IMF bailouts of Asia, a higher interest rate than other IMF facilities—300 basis which were short-term stabilization programs, had far-reach- points higher than the regular rate of charge on lending for the ing structural reform measures in corporate governance, first year, increasing by 50 more basis point each six months banking regulation and many other areas that go beyond the after, with a cap of 500 basis points. Countries must repur- traditional fiscal and monetary concerns of stabilization pro- chase their currencies within two to two-and-a-half years. grams. Emergency financing may also be provided to a country facing a natural disaster or emerging from conflict. A member LENDING FACILITIES: REGULAR, requesting emergency assistance must describe the economic policies it plans to follow and state its intention to avoid intro- EMERGENCY, SPECIAL & ADJUSTMENT ducing exchange or trade restrictions. In general, assistance is limited to 25 percent of quota, though exceptions can be made. Regular Facilities: In 1995, the policy on emergency assistance was extended to Stand-by Arrangement: This facility is the principal mech- cover post-conflict situations. In general, the qualifying crite- anism for traditional IMF assistance. Stand-by arrangements ria are the same, though the support must be part of a larger are typically designed to provide short-term assistance to international effort aimed at providing technical assistance countries facing a temporary or cyclical balance-of-payments and capacity building. The country must also state its econom- problem. Credit is made available in four tranches, each the ic framework and its intention to move as soon as possible into equivalent of 25 percent of quota. Stand-by arrangements can an upper credit tranche or Enhanced Structural Adjustment be less than a year and up to three years. Countries must meet Facility program (see below). 10 Arming NGOs With Knowledge: A Guide to the International Monetary Fund Special Facilities: Adjustment Facilities: The IMF has also established special lending facilities that are The Structural Adjustment Facility (SAF) was established in designed to respond to specific types of balance-of-payments 1986 as a longer-term, concessional lending facility. One year problems. These include the Compensatory and later the Enhanced Structural Adjustment Facility Contingency Financing Facility (CCFF), the Buffer Stock (ESAF) was established and essentially subsumed the SAF. The Financing Facility and the Systemic Transformation function of ESAF is to extend three-year, low-interest loans (at Facility. These address problems such as sudden changes in 0.5 percent interest) to low-income countries that belong to export earnings for reasons beyond a country’s control (eg. the International Development Association.3 It is designed to crop failures and commodity price fluctuations), and the service poorer countries that require more extensive adjust- adjustment process of the former communist countries. ment in order to achieve growth and a sustainable balance-of-payments position. As a result, the facility differs from previous IMF operations in both its time frame and the scope of the attached macroeconomic policies. ESAF extends loans based on a comprehensive three-year Performance Criteria, Policy Framework Paper (PFP) developed by the IMF, World Bank and borrowing government.4 The PFP delineates explicit- Benchmarks & Prior Actions ly the macroeconomic and structural policy measures that must be followed to strengthen the country’s balance-of-pay- Accessing resources from the IMF is conditional upon the ments position. The programs include quarterly targets to achievement of certain performance objectives: assess performance. Though IMF resources are supposed to be used only temporarily to correct short-term imbalances, many Performance criteria are the quarterly targets that ESAF borrowers have had programs for many years, some countries must meet in order to get further loan dis- even for more than a decade. The conditionality attached to bursements. Failure to meet performance criteria can ESAF loans is also extensive, and goes beyond the original trigger the suspension of further tranche disbursements. (trade and monetary) areas of IMF authority. This has made These criteria include set targets in the area of credit ESAF a very controversial facility, particularly among citizens’ policy, government or public sector borrowing, trade and groups. Despite this controversy and a large degree of opposi- payments restrictions, foreign borrowing and reserve tion toward ESAF, the IMF and its members want to make levels. ESAF a permanent, self-financing program. Structural benchmarks provide additional measures The ESAF Trust has a total asset base of over SDR 10 billion by which the IMF judges a country’s program. If there are (about $14.5 billion). Access to ESAF is normally topped at problems meeting a few performance criteria, the degree 190 percent of a country’s quota over a three-year program of compliance with structural benchmarks can influence period, with provisions of up to 255 percent in exceptional cir- the IMF’s decision on whether to disburse additional cumstances. Repayments are to be made in five to ten years. funds. Structural benchmarks comprise a wide array of Eighty countries are currently eligible to borrow under ESAF. measures, including social-sector spending, poverty-alle- viation efforts, labor-law revision, and military expenditures. As a result of a prior IMF Board decision, environmental issues may not be given the status of per- formance criteria or structural benchmarks. Prior actions are the measures a country must under- go to indicate its seriousness to comply with IMF economic policies and to ready itself to take on an IMF loan program. Friends of the Earth 11 What’s Wrong With the IMF? Top Secret brief summaries of Board discussions are now being made available after Board meetings, these are generally sanitized. Lack of Transparency in IMF Operations Executive Director statements are not released, and even the schedule and agenda for Board meetings is not publicly avail- The IMF has long been criticized for the high degree of secre- able, making it virtually impossible for citizens to make timely tiveness surrounding its policies and programs. In recent and relevant input into decisions. Furthermore, the virtual years, however, the IMF has made some significant strides absence of formal recorded votes in the IMF Board masks gov- toward releasing more information such as making loan docu- ernment positions and prevents public awareness about the ments much more available. While a welcome change, the IMF nature of debate within the IMF and between countries. still has a long way to go in making its information widely avail- able to the public. Limits to Information Access Gaps in Information Provision The IMF has taken important steps to make its web site more useful. However, the IMF should develop more ways to provide The IMF appears to be consciously changing its practices and information in poorer countries where Internet access is limit- improving its information policy. For example, most of the ed. Timely disclosure of information is another major problem recent loan documents— the Policy Framework Papers that the IMF needs to address. Currently, loan documents are (PFPs), Memoranda of Economic and Financial Policies and released after the Board votes to approve the loans. With Letters of Intent—have been posted on the IMF web site and drafts of loan programs unavailable it is impossible for civil many recent internal evaluations have been made public. The society to have input into their government’s agreements with IMF recently adopted a position favoring the release of loan the IMF. Even parliamentarians may not see a draft of the IMF documents, which should increase pressure on governments to agreement until it is approved even though they will be partly release these documents. responsible for its implementation. Withholding loan agree- ment information is a serious deterrent to fostering greater However not all governments have released their loan docu- ownership of economic programs and is in many ways a threat ments, and some documents that have been released lack to sovereignty and democracy. important information. Only some, for example, contain the policy matrix attached to the loan that stipulates the conditions that must be fulfilled and their deadlines. Other documents do not have a clear section stipulating prior actions, performance Making the Grade? criteria and structural benchmarks that must be met and by Lack of Accountability & Evaluation when. These are extremely useful portions of the loan agree- ment that inform citizens of the pace and order of economic The principle of accountability asserts that decision-makers policy implementation and they should be clearly delineated in should be held responsible for the consequences of their deci- a standard way in each loan document. sions. Accountability therefore necessarily encompasses the issues of transparency and evaluation. Transparency ensures The IMF should also release more of its surveillance documents. that interested parties outside an institution have access to For example, the IMF only releases a 4 page summary of its information pertaining to what decisions were made, who Article IV consultations, the annual economic analysis the IMF made them, what factors and options were considered and the does of its member countries. By only releasing a short summa- criteria on which decisions were based. Evaluation allows the ry, outsiders do not have insights into the true economic public to ascertain whether or not the decisions made were the conditions of IMF member countries. In March 1999, the IMF right ones. Evaluation also encourages the development of Executive Board did agree to institute an 18 month pilot project more effective policies and approaches. of voluntary release of the Article IV consultations. Information about the project and an address for sending comments may be The IMF fails to make the grade in terms of its own accounta- found at http://www.imf.org/external/pubs/pilot.htm. bility. A major reason for this is the absence of a systematic, independent evaluation mechanism. Without constant and rig- IMF management and the Board of Directors also need to take orous independent review, the IMF seems to want to hide its steps to improve the transparency of their deliberations. While performance and keep its operations from rigorous review. In 12 Arming NGOs With Knowledge: A Guide to the International Monetary Fund a direct response to outside criti- date, however, the IMF has largely cisms the IMF agreed in 1996 to deflected calls to become more participa- institute a system of external tory in its economic adjustment programs. review on an ad hoc trial basis. The November 21, 1997 Wall While it has made some efforts in recent IMF committed to two to three select cases to reach out to a wider audi- reviews per year, starting in 1997. Street Journal editorial ence, it generally claims that as an Unfortunately, the IMF is well institution providing short-term financial behind schedule, taking until March assistance and macroeconomic advice, 1998 to release its first review (of called the IMF “one of the consultation is not feasible or necessarily the Enhanced Structural desirable. Adjustment Facility). most secretive institutions The IMF contends that according to What Is Wrong with the Current Article V of its Articles of Agreement, Evaluation System? this side of the average which says that finance ministry and cen- tral bank officials are the contact points The IMF argues that it is a govern- ment-owned institution and missile base.” for the IMF, it is precluded from meeting with a wider range of country representa- therefore individual governments, tives. This lack of public participation in rather than the Fund itself, should the design of economic programs means be accountable to the public. The that IMF economic policies are less likely IMF contends that it needs to be accountable only to its mem- to be endorsed and followed by other government sectors and ber governments and that its current process of internal the public. This is a major reason for countries’ terrible record evaluation is sufficient for achieving that. The reality, however, of compliance with SAPs. An IMF study found that 75 percent is that the IMF has considerable influence (sometimes domi- of the ESAF programs it evaluated had fallen off-track.5 nance) regarding policy matters in many developing countries and its advice directly impacts on all strata of society. It may be true that broad public participation is more difficult in emergency bailout packages, where a rapid infusion of funds Although proposals for an independent evaluation unit have is necessary to stave off a run on the currency. However, most been discussed at the IMF, they have all been defeated by a of the IMF’s staff time is spent on countries with more chronic divided Board of Directors. There has also been a great deal of dissension within IMF management as to how useful an inde- pendent or quasi-independent evaluation unit would be. Some have argued that it is more useful to carry out internal evalu- Genuine Participation? ations because staff learn by evaluating their work and are more likely to absorb recommendations and conclusions if they Case of Korea themselves have carried out the evaluations. Some within the IMF also claim that the Executive Board fears that an external During the Asian economic crisis, the IMF attempted to unit would have a monopoly on evaluation that would deter initiate a wider dialogue in the context of its bailout pro- staff from conducting their own evaluations. gram. In Korea, for example, the IMF encouraged the establishment of a tripartite commission between the Korean government, employers and labor unions on issues of corporate restructuring, layoffs, severance pay Who Speaks For Whom? and other burden sharing issues associated with the eco- nomic program. This commission was advisory and The Need for Public Participation consultative. While the initiative was welcomed, the Civil society organizations around the world are becoming commission terminated after its first year because increasingly vocal in their demand that the public be involved unions did not feel that their concerns were being ade- in the design of economic development programs. As global quately incorporated and addressed, and there were no communications make the world smaller, more citizens are enforceable mechanisms to resolve grievances. challenging the costs and benefits of economic policies. To Friends of the Earth 13 balance-of-payments difficulties. In Deregulation impacts the labor force in these instances, there is more than a number of ways. One of the most sig- enough time to have significant public November 21, 1997 Wall nificant impacts is the abolishment of input in program design. Public partic- minimum-wage and collective-bargain- ipation is critical as macroeconomic Street Journal editorial: “a ing laws. In many cases, the IMF policy changes have major social and encourages countries to keep wages environmental impacts. What IMF pol- low in order to attract foreign invest- icymakers are ignoring is the fact that vigorous public discussion, ment. In Haiti, for example, the the local population is often the best government has been pressured to placed to identify shortcomings in including full disclosure of exploit its low-wage labor and institute these programs. a freeze on wages. The government was also told to rewrite the labor code Until citizens feel that their country’s whatever reasoning now to eliminate a statute mandating interests are being adequately repre- increases in the minimum wage when sented in economic reform programs, guides the IMF, might raise annual inflation exceeds 10 percent.6 and until the IMF opens up a process By the end of 1997, Haiti’s minimum of genuine consultation with affected wage was only $2.40 a day, worth just peoples, IMF economic programs will the chances of world 19.5 percent of the minimum wage in continue to be plagued by policy fail- 1971.7 ures, avoidable mistakes and program leaders—and the IMF— breakdowns. The deregulation of labor standards in poor countries is especially devastat- arriving at the best possible ing to workers because they often are not permitted to organize and there- It Doesn’t Work for decisions.” fore are unable to bargain for better Workers working conditions. People end up working longer hours for less pay. As structural adjustment loans have Economically, the effect is equally neg- become increasingly interventionist, the IMF has played a ative: underpaid workers have little major role in restructuring the labor market in borrowing purchasing power, and this contributes to more shrinking of countries. Though labor market conditions are not within the IMF’s traditional short-term mandate, many of the IMF’s cur- rent SAPs advocate changes in labor laws and wage policies. The IMF has taken up the mantra of “labor market flexibility”— a polite way of saying deregulation—as the way to encourage foreign investment and make countries more competitive. The IMF promotes deregulation of labor markets because it contends that labor markets are overburdened with regula- tions, creating disincentives for employers to hire more workers. While this may be the case for individual sectors of an economy, the reality for the labor force as a whole is different. Deregulation tends to empower employers to fire “surplus” workers and use increased profits to enlarge executive salaries and corporate profits. According to the 1995 United Nations Trade and Development Report employers are using extra “flexibility” in labor laws to shed labor and downsize, rather than add to productive capacity and create jobs. 14 Arming NGOs With Knowledge: A Guide to the International Monetary Fund the economy and prevents the maintenance or establishment of small- and medium-sized businesses. Workers in industrialized countries suffer as well: not only are they are forced to com- Shutting Down Democratic pete with cheap labor in the developing world, they also face a Participation? decline in demand for Northern consumer goods in those same poor countries. One study found that structural adjustment Haiti’s ESAF program with the IMF has gone on and off policies have negatively impacted U.S. exports, and therefore track partly because of disputes between Haiti’s parlia- U.S. jobs.8 ment and the ruling Preval administration over elements of Haiti’s SAP, including plans for privatization. The IMF The deregulation of the economy also results in rapid and sub- is requiring the privatization of nine major state-owned stantial job losses as public sectors are quickly privatized. In enterprises including the airport, ports, telecommunica- many developing countries, the public sector has provided a tions and energy. Parliamentarians, however, believe great deal of employment. As the IMF forces countries to that the government should maintain control of these downsize government agencies, the ranks of the unemployed enterprises for reasons of national stewardship and their grow faster than the private sector can absorb them. potential to generate revenue. They claim that these Compounding this harsh reality is the lack of existing social enterprises were built using public resources and should safety nets that can support people when they lose their jobs. therefore serve the people. Many believe this is more Attempts by the World Bank and IMF to construct social safe- likely to happen if the enterprises are run by the govern- ty nets as part of their SAPs have not been nearly ment and not by foreign corporations. comprehensive enough to catch the number of workers who fall through the cracks. In Korea, for example, the financial crisis caused unemployment to rise from a pre-crisis level of 2 per- Wages and working conditions have been declining in the cent to almost 9 percent in February 1999. What’s more, United States by 1 percent annually for the past 20 years and unemployment insurance schemes adopted in the adjustment in poor countries at a much faster pace10. The IMF is not process reached only 10 percent of the unemployed labor force equipped, either in mandate or expertise, to get involved in by March 1999.9 labor issues, and its insistence on playing a role in these issues is making the situation worse for the world’s workers. The IMF’s approach to workers is purely market-based: labor flexibility will create the incentives for business and invest- ment, which will inevitably result in higher wages and improved working conditions as a country develops. But in fact, Poor Getting Poorer? at least one billion adults—more than 30 percent of the global While the reduction of world poverty is proclaimed as a major workforce—are unemployed or seriously underemployed. goal of multilateral lenders like the IMF, SAP policies too often hit the poor the hardest and sometimes exacerbate poverty and • In Mexico, the minimum wage now buys a third of what social inequality. Virtually all developing countries have imple- it did in 1981. This is largely the result of IMF policies, mented or are in the process of carrying out SAPs. While SAPs which required Mexico to index wage increases on have largely succeeded in shrinking government budget expected levels of inflation that were vastly underesti- deficits, eliminating hyperinflation, and maintaining debt-pay- mated. ment schedules, SAPs have failed to establish a foundation for environmentally sustainable, locally driven economic develop- • In Hungary, real wages fell by 24 percent between ment. 1989 and 1996.11 For example, IMF programs emphasize the achievement of a • In Croatia, news reports say the IMF has tried to pres- balanced budget. In order to balance the budget, the Fund typ- sure unions to give up a collective bargaining ically pushes governments to rapidly cut spending. Such agreement they signed with the government and agree spending cuts can force governments to shrink or eliminate to a smaller wage increase.12 important social programs, or institute cost-recovery pro- grams for social services that increase prices and often put health care and education out of reach for the poor. While the Friends of the Earth 15 The ways in which structural adjustment hurts the poor Cost Recovery in Zimbabwe undoubtedly are complex. For example, liberalizing the agri- cultural sector might have the benefit of eliminating corrupt In Zimbabwe, the Ministry of Finance saw cost recovery parastatals that pay cheap prices to farmers. However, liber- as the way to meet the IMF’s stringent requirements to alization can also mean that poor farmers lose access to reduce the budget deficit. Health fees for prenatal care, important price supports, or that the price of inputs like fertil- which were previously free, were imposed and primary- izers might dramatically increase. care fees increased by over 500 percent. Since low-income exemptions were effectively eliminated, The IMF, however, has been very simplistic in its assumptions much of the vulnerable population was forced to pay of how SAPs will impact the poor, and there is rarely any these fees. The result was a decline in prenatal clinic explicit analysis of proposed adjustment measures, their attendance and an increase in the number of babies born impacts on the poor, possible trade-offs or mitigating meas- before arrival at the hospital, most likely because moth- ures. The only external review that has been conducted of the ers were attempting to minimize their hospital stay.13 IMF’s adjustment program, the Enhanced Structural Adjustment Facility (ESAF), called for an explicit assessment of the positive and negative impacts of proposed adjustment measures and an identification of which societal groups would IMF has increasingly recognized the importance of social spending and criticizes military spending, tough fiscal targets sometimes make it impossible for the government to invest adequately in social programs, rural development, and other necessary human and physical infrastructure. SAPs and Gender SAPs affect men and women in different ways, yet the Revenue-raising adjustment policies can also hurt the poor. IMF and World Bank make no attempt to address this Changes in the tax system often emphasize easy-to-collect, issue. SAPs continue to disproportionately hurt women regressive sales taxes that disproportionately affect the poor. since they directly affect women’s access to the Short-run revenue concerns, without consideration of long-run resources necessary to meet their basic needs and for efficiency and equity concerns, often govern privatization. The child rearing, household maintenance and food produc- result in too many cases has been the conversion of govern- tion. For example, devaluing the currency decreases ment enterprises into private monopolies that are run by elites consumers’ purchasing power, making it more difficult to or foreign interests with few local ties. Tightened credit secure essential goods, a responsibility that usually falls requirements and higher interest rates meanwhile make it vir- upon women. Through the deregulation of labor markets, tually impossible for small farmers and businesses to invest. women’s labor is increasingly exploited because more Although the liberalization of trade does make imported items women contract to work at home where regulations are less expensive, most people in low-income countries consume non-existent and wages are low. Layoffs from privatiza- little besides basic necessities. The increased affordability and tion also disproportionately affect female workers since presence of luxury goods is a dubious achievement of SAPs. they are often the last to be hired and the first to be fired. Layoffs of government workers, wage constraints, higher inter- Cuts in government spending can particularly hurt est rates, reduced government spending and the closure of women. For instance, when education costs rise due to domestic industries all contribute to the shrinking of the cuts in government funding, females are the first to be domestic market. The weak state of the domestic market exac- withdrawn from school. When health programs are cut, erbates worsening socio-economic conditions. Although there increases in user fees make basic healthcare unafford- may be a new dynamism in certain elite sectors, social and able for those who depend on it most. The shift from economic insecurity deepens for most people in countries sub- domestic to export-oriented agricultural production can jected to SAPs. The result can be increasing political undermine women’s ability to provide for their families instability, such as riots over food prices, outbreaks of violence by increasing the production of food for export and reduc- and widespread disaffection with (and non-participation in) ing the amount cultivated for household consumption. electoral political systems. 16 Arming NGOs With Knowledge: A Guide to the International Monetary Fund most likely be harmed and hurt by adjustment. It also called for tries are extracting natural resources at unsustainable rates. an analysis of the short- and long-run costs and benefits of Countries that have IMF (and other foreign) loans must also measures, as well as an explicit assessment of how fast adjust- pay back their debts in foreign currency, usually U.S. dollars, ment should be done. These recommendations however have which requires that countries accumulate hard currency. One largely been ignored. of the quickest ways to get hard currency is to liquidate natu- ral resource stocks. For example, the 33 most heavily indebted and poorest African countries have forest loss 50% greater than forest loss in the other African countries.14 Delivering Degradation How IMF Policies Hurt the Environment The global environment has been another casualty of the way Guyana Case Study the IMF currently does business. In the push for rapid liberal- ization and deregulation around the world, IMF loans and Guyana provides a text book case of how shortsighted bailout packages are paving the way for resource exploitation economic policies compromise environmental health and on a staggering scale due to the failure of the IMF to recognize long-term prosperity. Development of the mining and the economic and social value of natural resources. The IMF forestry industries is the cornerstone of Guyana’s IMF- has not taken environmental impacts into consideration on supported economic development strategy. Mining has lending issues; environmental ministries of borrowing govern- transformed local ecosystems, polluted waterways, ments are locked out of formal IMF policy discussions; destroyed forests and ruined soil quality. Large-scale environmental NGOs are not consulted on program conditions mining permits (largely owned by foreign companies) and projected impacts; and the IMF’s alleged collaboration now cover 10 percent of the total surface area of the with the World Bank on identifying environmental hazards of country. The forestry sector is equally disastrous: timber programs is not transparent or even documented. concessions now span the majority of the country’s forests and logging rates far exceed the sustainable rate. The IMF’s focus on free trade and export-led growth can have significant environmental impacts. To increase exports, coun- Much of this resource extraction is the result of IMF, World Bank and Guyanese government efforts to make investment attractive to corporations. In 1988, the gov- ernment issued a new investment code regarded as one of the most liberal in Latin America. There are almost no restrictions on what and how much foreign investors may own and environmental impact assessments are not available to the public. Budget constraints in Guyana led to low levels of funding for the environment ministry, weakening the govern- ment’s capacity to enforce existing environmental laws. Government mining and forestry commissions have been criticized for lacking either trained staff or the power to regulate concessions. The authority to hand out logging concessions was vested in a small, unaccountable office under presidential control. Sources: The SAP in the Forest, Dominic Hogg, Friends of the Earth England, 1993, and Social Exclusion and Development Domination, Marcus Colchester, Forest Peoples Programme, 1998. Friends of the Earth 17 IMF programs also place a premium on increasing competi- tiveness and attractiveness to foreign investment, which encourages countries to lower environmental standards. Government spending cutbacks inevitably target the environ- mental ministry as one of the first agencies to come under the budget axe. This has happened with many major IMF bailouts, including in Brazil, Russia, and Indonesia—countries that are also renowned for their great biodiversity. The result, accord- ing to conservation groups like the World Wildlife Fund (WWF), is a downward spiral of environmental management and pro- tection that primarily benefits transnational corporations. In all but one of WWF’s nine country studies on the impacts of structural adjustment, staffs of natural resource departments were reduced, budgets were cut and mandates were scaled back. Under current SAPs, many of the poor become poorer, and this cycle of poverty places greater threats on the environment. As the poor try to survive, they cut down trees to build makeshift a comprehensive debt agreement (including, for the first time, homes and to provide heat for their families. As they are forced multilateral lenders), HIPC has been a failure for the following off farmland by large landowners, they turn to marginal lands reasons: for subsistence, which leads to more deforestation and soil erosion. Inadequate funding. The IMF’s (and other creditors’) contribu- tion to HIPC is insufficient. Furthermore, instead of using its own resources to provide immediate debt relief the IMF has sought bilateral sources of funding for HIPC. By refusing to use A World in Chains its own funds, the IMF is abdicating its role in the debt crisis. IMF and the Burden of Debt HIPC’s terms and conditions are too stringent. The debt-to- The overwhelming debt burdens of poor countries is a major export ratios that determine eligibility for HIPC are too high contributor to the crisis that grips the economies of most and are based on export levels and national income rather than developing countries today. For the 41 most heavily indebted human development needs. These levels exclude many debt- poor countries, total external debt rose from $55 billion in ridden poor countries, and mean that any debt relief granted 1980 to $215 billion by 1995.15 Debt has continued to climb in will be insufficient to deliver a country to economic health. most countries. As a result, governments have been forced to divert scarce resources away from spending on health, educa- Tied to SAPs. The IMF’s Enhanced Structural Adjustment tion, environmental protection and other vital social services Facility (ESAF) has been directly linked to the HIPC Initiative. and instead dedicate them to pay what are essentially To qualify for HIPC relief, a country must go through at least unpayable debts. The origins of the debt crisis are many, from government corruption to misguided aid policies and projects. But the consequence is that people who had no role in con- The Link Between Debt and SAPs tracting the debt in the first place, particularly the poor, are forced to service the debt. A recent study by the Development GAP found a positive correlation between the debt levels and the number of Recognizing that debt threatened the viability of the interna- years a country was under adjustment. The study found tional economic system, the world’s rich governments, the that, on average, the longer a country was undergoing World Bank and the IMF finally agreed in late 1996 to launch structural adjustment, the higher its debt is likely to be. the Heavily Indebted Poor Countries Initiative (HIPC). While The study can be found at http://www.developmentgap.org. initially promising because it brought all creditors together for 18 Arming NGOs With Knowledge: A Guide to the International Monetary Fund three years of an ESAF program, its emphasis on financial liberalization which is notoriously difficult to com- is relatively new and increasingly sig- plete because of its unacceptable nificant as capital flows have grown levels of austerity. The IMF has linked "Instead of being a lender larger both in volume and volatility. any additional contributions it might make to HIPC to the financing of a per- of last resort, the Though the IMF is not mandated by its manent ESAF, despite the Articles of Agreement to demand controversial record of that facility. financial liberalization this has not International Monetary stopped the IMF from pushing it with Some academics and NGOs charge that poor countries and recipients of the the IMF and its policies are themselves Fund has become the recent Asian bailout. While some reg- creating debt, and that attempts to ulations on capital inflows can be address the debt crisis in the context of politically motivated and designed to IMF adjustment programs are counter- enforcer for international protect privileged sectors, govern- productive. Adjustment is certainly ments should be able to establish about integrating countries into the banks and financial regulations to protect their country global economy and increasing their from dependence on short-term, spec- trade with the rest of the world. By ulative capital flows. Chile, for opening up their economies, countries institutions and performs a example, has required that a portion open themselves up to more foreign of capital inflows be deposited for at investment, which can increase their role comparable to the least a year in a non-interest bearing debt. Trade liberalization means account. These types of “speed increased imports, as well as exports. bumps” on capital flows tend to lessen If imports increase more than exports, bouncer at a glitzy bar..." the risk of rapid withdrawal of foreign this can also lead to increased debts. capital that can destabilize an econo- (Paul Hellyer, former my. Such regulations help ensure that Responding to the pressure of the investments are productive rather international NGO movement to cancel than speculative in nature. While the the debts of poor countries, the IMF, Deputy Prime Minister recent global financial crisis has World Bank, and creditor governments caused the IMF and the G-7 to down- are beginning to revise the HIPC pro- of Canada) play publicly their advocacy of gram by lowering eligibility thresholds financial liberalization, they are still and increasing financing for debt relief. pressuring countries to maximize for- However, the system still works to pro- eign investment and discouraging tect creditors’ interests and ensure a regulations that govern the amount steady flow of repayments, rather than freeing up vast and the type of capital that enters a country. amounts of resources that could be dedicated for health, edu- cation, rural development, and environmental protection. Conventional wisdom holds that financial liberalization is only an issue for emerging markets. The external review of the IMF’s ESAF program, however, found that in sev- The Global Casino eral of the countries examined, most notably Zambia and How the IMF Increases the risk of financial crisis Zimbabwe, financial sector liberalization was done pre- maturely and before the markets were stabilized and To encourage foreign investment and promote export-led eco- adequately regulated. The result was high interest rates nomic growth, the IMF tells countries to dismantle barriers to and increased government debt that squeezed out other investment, trade or any other regulations that might govern important spending programs and which made lending the nature and amount of investment flows. While the IMF has prohibitively expensive to domestic borrowers. had authority to pursue trade liberalization since its inception, Friends of the Earth 19 It is estimated that speculative interests govern 90 percent of all global capital flows. Furthermore, as economies becomes dependent on short-term capital, governments are forced to take economic policy measures to ensure that the capital will not be quickly withdrawn, without resorting to capital controls. Often, the government tightens the money supply and props up interest rates, making credit unaffordable to all but the wealthy. The IMF has pressured a large number of its borrowers to carry out financial deregulation coupled with restrictive mone- tary policies. The result, according to the 1995 United Nations Trade and Development Report, is high and volatile interest and exchange rates. Volatility in the market discourages invest- ment in fixed assets and infrastructure which developing countries need. This volatility particularly hurts small- and medium-sized businesses that lack the financial resources to ride out periods of high-interest rates. Ironically, the IMF is seeking to amend its Articles of Agreement to give it more authority over capital flows and financial liberalization. The amendment could give the IMF the power to make capital account liberalization a condition of receiving IMF loans. The result could make it more difficult for countries to exercise their sovereign rights to implement capi- tal controls and other measures designed to curb the excesses of foreign capital. 20 Arming NGOs With Knowledge: A Guide to the International Monetary Fund Global Economic Governance in the New Millennium The financial disasters in the emerging markets combined with decades of intractable poverty and elusive development in the poorest countries prove the need for dramatic reform of inter- national economic policy and of the international financial institutions. Proposals vary for reforming global economic institutions like the IMF. Some NGOs and academics call for handcuffing these institutions, which they claim cause more harm than good. Others call for an entirely new set of rules for the global finan- cial system and argue that only totally new institutions with different missions and functions could serve to enforce these rules. Still others believe that the current institutions are here to stay and that the most logical strategy is to reform them through bargaining with policymakers. Whatever the preferred strategy, citizen movements share the same objective: to improve the economic, social, and environmental prospects of all the world’s citizens while respecting sovereignty and increasing people’s power to determine national policies. reform, is fundamentally undemocratic and disregards nation- al sovereignty and citizens’ rights. This position holds that The following section presents some of the positions on how the imposing any economic policies on a country—even “good” current international financial system and its key institution, ones — has harmful long-term effects. Foreign control of the IMF, can be transformed. These positions are not exhaus- national matters, it is argued, emasculates the ability of coun- tive, and there is some overlap in perspective and associated tries and citizens to make their own decisions, build domestic strategies. Ultimately, it is up to readers to decide the path, or capacity and learn first-hand what works. Few critics believe the combination of paths, that they will take. that national economic policy in Mozambique should be deter- mined by the United States, Germany and Japan. But to support maintaining or increasing the IMF’s power is in effect to support such an arrangement. The IMF Is Unreformable An argument for reining in the IMF also centers on whether the One position that has gained support in recent years is that the IMF fulfills a role useful enough to justify its existence. Harvard IMF is beyond reform. Proponents of this position argue that economist Jeffrey Sachs, for example, who has called for the the root problem is that the IMF has too much power and uses IMF to “get out of Africa,” argues that a country’s scarce that power destructively. Therefore the most important strate- resources would be best utilized if redirected from debt servic- gy is to reduce its power and not engage with the IMF in any ing to basic health services, primary education, AIDS prevention dialogue that the Fund could use to bolster its public image. programs, and environmental protection programs, among oth- Reducing its power is also necessary to level the playing field ers. These types of programs are more likely to address the root between citizens’ movements and the IMF if real reform is to problems of Africa’s impoverishment than SAPs. be achieved. Even in the context of a debt crisis, many have argued that Proponents of this position point out that IMF policies funda- there is no need for the IMF. The IMF bailouts in the Asian mentally reflect the controlling interests of the IMF, banks and financial crisis did not stop the financial panic—indeed, the multinational corporations, particularly those from the United crisis deepened and spread to more countries. What finally States. As long as control of the IMF by these interests is stopped the panic were direct negotiations with the banks in unchallenged, proposed reforms of IMF policies and operations East Asia that forced them to roll over their loans. Without the will have little impact in developing countries. possibility of a major IMF bailout, countries would get better deals from the banks. Related to this position is a belief that the structure by which the IMF operates, using conditionality as the means to impose Friends of the Earth 21 Proponents of this position generally do not engage in direct largest share of votes. When it comes to formal votes on alter- dialogue with the IMF, preferring to focus their strategy for ing the IMF charter, authorizing the use of IMF resources for change on shrinking the IMF’s power by, for example, opposing special purposes, or other important issues, the United States increases to the IMF’s resources or areas of activity. They has effective veto power. Even on issues that only require a would also oppose any attempts by the IMF or its member gov- simple majority, the United States can, and often does, throw ernments to make promises for long-awaited reforms in return its weight around. for new funding. The vague hope that sometime in the distant future the IMF will transform itself, these critics charge, is not The IMF’s decision-making structure is problematic in other enough to merit increases in IMF resources today. ways as well. Most decisions are made by consensus, with few formal recorded votes, and Board discussions are off limits to the public. Recently the IMF pledged to make public more summaries of Board discussions. But given its tendency to Redirect the IMF release sanitized versions of documents – such as the Public Information Notices (PINs) that summarize Board discussions Other IMF critics believe that institutions like the IMF which of Article IV surveillance reviews—this pledge may not amount have the support of powerful governments and finance min- to much. istries, are here to stay and that the more politically feasible strategy is to work toward transforming the existing institution The IMF needs to make its decision-making process much more into an effective and useful agency for the world’s poor. NGOs transparent and accountable. The results of Board votes holding this position essentially have two schools of thought on should be recorded and made publicly available. The same how the IMF should be “redirected” into a more beneficial should be done for Executive Director statements at Board institution. meetings (some directors have already expressed a desire to make their statements available). The Board should release One school of thought is to change the outlook and expertise of minutes of its discussions expeditiously after its meetings and the IMF so that it enforces policies that benefit citizens. The in a form considerably more substantive than the PINs. implication is that the IMF would expand its staff and employ a wide range of policy conditions in areas such as labor rights, IMF management should also increase its accountability. Some social protection, environmental policy and others. The advan- reformers have argued that the IMF Managing Director should tage of such an approach is that the IMF has the ability to testify before national parliaments. Others would propose enforce so-called “positive conditionality”. “term limits” for the Managing Director and for Executive Directors as well. Some argue that continuous terms place too The second school of thought holds that the range of IMF poli- much power in the hands of a Managing Director to shape the cy prescriptions should shrink significantly and that the IMF institution, while some Executive Directors become too should focus more on its original mandate of short-term stabi- entrenched in the institution and begin to represent the insti- lization. In this scenario governments and other institutions tution’s interests, rather than their government’s interests. better equipped to handle issues such as labor, poverty and the environment would have more influence on the policy develop- Transparency ment and would work with the IMF to identify the full range of impacts of its stabilization policies. The IMF web site (http://www.imf.org) contains a great deal of useful information. But NGOs believe that IMF efforts toward The areas of reform are many, and capture the various inter- transparency should be deepened in two ways. One is to ests of civil society groups. increase the types of documents that are made available. Changing the Governing and These would include: Operating Structure of the IMF 1. Article IV Consultations and their supporting documents, Institutional Decision-Making such as Staff Reports and Staff Concluding Analysis. These documents provide important information about the IMF’s The IMF acts too much in the interests of the United States, surveillance activities, particularly in non-borrowing coun- which exerts a great deal of influence because it holds the tries. Some IMF members and staff contend that the 22 Arming NGOs With Knowledge: A Guide to the International Monetary Fund release of these would “spook” the market and might pro- Prior to Board deliberations the IMF and its member govern- voke crises. While the most sensitive information does not ments should release drafts of Policy Framework Papers, need to be made public, providing more accurate informa- Letters of Intent and policy matrices so that the public and a tion to the markets may actually reassure lenders over time wider range of government officials have an opportunity to pro- and reduce the size of crises that do arise. Currently, the vide comments, raise objections or propose alternatives. IMF only releases a four-page summary of its Article IV Furthermore, the meeting dates and agenda of the Board of consultations. Such a short summary does not give much Directors should be publicly available so that outside parties insight into the true economic conditions of IMF member have an opportunity for input. countries. In March 1999 the IMF initiated a pilot project for the voluntary release of Article IV consultations. This is Accountability a step forward, but there are still many IMF members, par- ticularly Southern governments, that are resisting full The IMF must establish an effective, independent review mech- publication of Article IV documents. While still proceeding anism for its policies, program, and operations to improve its with the pilot project, the IMF might also consider publish- accountability to the taxpayers who fund it and the people who ing a document for each country that is more substantial live under its loan programs. This review mechanism should be than the PIN. permanent so that it can consistently evaluate the IMF’s pro- grams and ensure that the review body’s recommendations are 2. All evaluation and audit documents. carried out. It should have a mandate and set budget so that it does not have to keep coming back to the IMF Board for new 3. The Policy Framework Paper (PFP), Letter of Intent, and assignments and verification of its activities. This would help Memorandum of Understanding. The IMF should press avoid stonewalling by members of the IMF Board and delays more countries to release these documents, possibly even that would inevitably come up when the Board is dealing with making it a condition of an IMF loan (some IMF members crisis situations. and IMF management favor this condition). Loan docu- ments should be more standardized in format, with the Any evaluation unit must be independent from IMF manage- policy matrix, timeline for policy implementation, perform- ment and should therefore report to the Board of Directors. It ance criteria, structural benchmarks and prior actions all should be staffed or regularly consult with a diverse array of clearly specified in each country’s loan agreement. The IMF experts— including gender and poverty experts, environmen- should also release previous PFPs and Letters of Intent tal scientists and analysts, business and labor experts—in which would increase the accountability of the IMF and order to assess adequately the full range of impacts of IMF borrowing governments for past loans. policies. Evaluations should be public. 4. Reports by IMF management to the Interim Committee and An evaluation unit should be responsive to the needs of civil Development Committee. society as well. For example, an evaluation unit could receive suggestions for review from civil society and should publicly 5. Detailed summaries of Executive Board meetings. list these requests in the IMF’s annual report and on the web site. It is important to recognize, however, that merely releasing documents is not sufficient to become adequately transparent. The IMF would be more accountable if there was a mechanism Therefore the IMF should also make information available to to field complaints by individuals or citizens’ groups about the public in a way that is useful. The improvements in the harm caused by IMF programs. The World Bank’s Inspection IMF’s web site are useful for many people, but perhaps not for Panel serves this type of function by hearing charges of viola- civil society in the poorest countries for whom Internet access tions of Bank policy. A similar type of ombudsperson or office is difficult to obtain or prohibitively expensive. The IMF should would hold the IMF directly accountable for its actions. Like an make documents available out of its Resident Representative evaluation unit, it would need to be independent of IMF man- offices. It should also collaborate with the World Bank, UN agement and therefore report to the Board of Directors. agencies and the borrowing government to make information available through various outlets. Country program informa- An ombuds office would have authority to receive and investi- tion should also be available in local languages. gate complaints. It is worth acknowledging, however, that in Friends of the Earth 23 the case of the IMF an ombuds function could be more compli- cated because the IMF does not have an operations manual that details IMF policy for staff, making judgements about Increasing Parliamentary harm, policy violation and the office’s jurisdiction more difficult Involvement to determine. Thus the IMF would have to first develop and make public the rules and procedures that its staff must follow Since 1988 the Brazilian constitution requires that the in their various operations. These rules and procedures would Brazilian Parliament give authorization for external then define the scope of the office’s jurisdiction. The intention loans, including IMF loans. Through parliamentary reso- is not to punish the IMF, but to guarantee that citizens affect- lutions this power has been given to the Brazilian Senate. ed by IMF policy prescription and programs have some sort of While this process has not worked perfectly—authoriza- access to justice for unreasonable and significant harm caused tion has in the past been fairly pro forma—it has served to them, and that the IMF bear responsibility for any role it as an important tool for Brazilian NGOs. In the recent may play in that harm.16 debate over social safety net loans given to support the 1998 IMF-led bailout of Brazil, Brazilian NGOs worked Although the exact configuration of an independent review with the Senate to examine the safety net program’s mechanism is a negotiable matter, what is non-negotiable is effectiveness. the adoption of the principles associated with a credible eval- uation process. These include independence, relevance, inclusiveness and transparency. Its operations must be pub- national parliamentary bodies the power to sign off on any IMF licly reported, its advice must be pertinent and useful and it loan. must be comprehensive enough to be effective. The IMF itself has recognized this by initiating its pilot ad hoc external review The IMF should also take steps to consult more broadly with process. However the pilot study has revealed that as a Board- government officials and civil society in its regular economic managed process that does not have its own staffing, secure surveillance functions and through its Resident budget, or permanence, it is subject to delay due to the Board’s Representatives. The IMF should offer incentives for Resident busy schedule and potential stonewalling from hostile Board Representatives to meet with a wide range of civil society members. groups. These could include establishing a set of “best prac- tices” on consultation based on the performance of particularly Participation talented and dedicated representatives that would serve as a model for other representatives and mission teams. Despite some claims to the contrary, public participation is feasible at the IMF and could be accomplished through sever- In genuine emergency situations, such as a run on a currency, al mechanisms. The first step would be to broaden the array of the IMF would need to respond rapidly and may not have the government officials who sit at the negotiating table. In gener- time to do public consultation. But participation could be built al, IMF loan negotiations involve only finance ministry and into the program’s follow up or review. central bank officials of the borrowing country. Decentralization Article V.1 of the IMF’s Articles of Agreement states that “each [IMF] member shall deal with the Fund only through its treas- One of the most important ways that a global institution can ury, central bank, stabilization fund, or other similar fiscal become more responsive and accountable to civil society is by agency, and the Fund shall deal only with or through the same coming into more direct and routine contact with the public. agencies.” This article needs to be amended or abolished so Decentralization is a trend backed by many international insti- that more government officials and parliamentarians may par- tutions, such as the World Bank and the United Nations, as a ticipate in loan negotiations. At times, with government way of getting more “in touch” with their clients. The IMF, how- sanction, the IMF meets with outside bodies such as labor ever, remains a very centralized bureaucracy with most of its unions and industry associations. Amending Article V.1 would staff stationed at its headquarters in Washington, DC. Mission give the IMF more leeway to do this. A further proposal to teams travel abroad but generally spend the short time there increase the participation of government officials is to give in the capital meeting with officials. Furthermore, mission teams have little negotiating autonomy–they are sent with a 24 Arming NGOs With Knowledge: A Guide to the International Monetary Fund IMF staff also need to spend more time understanding the envi- Productive Citizen Participation ronment in which they are working. Many have been critical that IMF staff do not read the local newspapers, venture out- Switzerland, which has been a leader in calling for side of the capital or speak the local language. The IMF should greater public participation and transparency at the IMF, take steps to correct these problems, including conducting proves that broader participation in discussing economic greater outreach in the country and making more of an effort policy is possible. The Swiss government has invited to develop a genuine feel for the country. NGOs to participate in its Article IV consultation. How to Become an Agent of Sustainable Development? Though the IMF has no mandate to address such issues, it has clear agenda and all aspects of the negotiations must be involved itself in longer-term restructuring of economies which cleared by headquarters. often has profound social, development and environmental impacts. But even if the IMF returned to its original mandate To become more responsive to the needs of its members and of economic surveillance and short-term financial assistance it their citizens, the IMF needs to increase its visibility in bor- must still address the impacts of its economic stabilization rowing countries. One way to do this is by building up its policies on poverty and income distribution, the environment Resident Representative program. The IMF has about 70 field and people’s rights. staff or Resident Representatives stationed throughout the world. Usually, there is one representative in each field office There are constraints to the IMF’s capacity to promote pover- which is often minimally staffed and tends to be housed at the ty alleviation, environmental protection, and human and labor central bank of the country. The representative is supposed to rights. Other organizations, such as the World Bank, are better meet with government officials and civil society, and monitor equipped in staff expertise and routine activities to pursue program compliance as well as the economic and social condi- many of these issues. The challenge then for the IMF is to tions. explore the niche that it can play in promoting sustainable development. The following section details ways that the IMF In 1997 the IMF conducted an internal evaluation of the could help lay the framework for an economy that promotes Resident Representative program but has not released it. In sustainable development. general, the IMF has not used the Resident Representative pro- gram effectively. The list of representatives is not well publicized and many citizens’ organizations are not aware of the program or how to utilize it. The fact that representatives’ offices are housed in secluded central bank facilities exacer- bates the problem. The external ESAF review proposed several changes to improve the Resident Representative program, including to: increase the staffing of Resident Representative offices; station Resident Representatives in each IMF borrow- ing country; station senior, proven IMF staff in the field; and devolve greater authority to Resident Representatives. Currently, the program is too dependent on the skills and ini- tiatives of individual representatives. While some representatives make an effort to reach out to more groups and establish better relations, others keep themselves isolated. The IMF should consider establishing “best practices” guidelines that would set the performance standards for all Resident Representatives. Friends of the Earth 25 Debt Relief: Gold Reserves: One of the most important steps the IMF could take to promote The IMF has gold reserves currently worth about $30 billion. sustainable development in poor countries is to help relieve Keeping such vast amounts of gold reserves made sense when these countries of their overwhelming debt burdens. Debt relief countries were following the gold standard and could cash in would free up tremendous resources that governments could their currencies for the equivalent amount in gold. The IMF then dedicate to health care programs, basic education, sani- still records in its books the value of the gold when it was pur- tation and rural development. The people who bear the burden chased (SDR 35 per ounce). Therefore if the IMF sold or of debt are the poor who are deprived of adequate services revalued its gold at current world prices, which are much high- because their cash-strapped governments must spend more on er, it would actually make a profit on the sale and could use debt payments to creditors like the IMF than they spend on some of those proceeds to finance debt relief. social services. However, tapping the gold reserves has also been floated as a The 42 poorest, most heavily indebted countries owe about way of making the IMF’s ESAF program self-financing, which $7.8 billion to the IMF. By establishing the HIPC initiative, the would put the IMF permanently in the development business. IMF has taken the first step toward providing debt relief for If NGOs want to mobilize all resources available for debt relief, these countries. However, the resources committed so far are they must insist that gold reserves not be manipulated as a insignificant compared to the scope of the problem. The IMF way to finance ESAF rather than immediate debt relief. Use of has the capacity to tap several sources of funds to dramatical- the ESAF Reserve Account and the Special Disbursement ly alleviate poor countries’ debt burden. Sources include: Account is also being avoided since the IMF and its member governments want to use these resources as the base for the IMF Reserve Accounts: self-financing ESAF. The IMF originally pledged to contribute SDR 180 million For more information on the technicalities of canceling poor (about $250 million) for the HIPC initiative, funds that were to country debt owed to the IMF visit http://www.house.gov/bank- come from its ESAF Reserve Account. The ESAF Reserve ing/61599sa2.htm Account is set up to cover losses that may arise from defaults or arrears on ESAF loans, which are financed partly by contri- Poverty Alleviation and Social Impacts butions from certain IMF members and partly from IMF borrowings from its richer members. To use this money, credi- The external review of the IMF’s Enhanced Structural tors to this account have to unanimously agree to release the Adjustment Facility (ESAF) criticized the IMF’s failure to fac- money. tor in the potential impact on the poor of its stabilization and adjustment programs. It is this neglect that has earned the IMF The countries that extend loans to the IMF for ESAF have the ire of development and social justice groups around the insisted on maintaining 100 percent collateral coverage for all world. their loans in the Reserve Account.17 While creditors under- standably want a collateral account to cover them in the event The IMF is beginning to acknowledge that its programs can no of a default, ESAF creditors’ insistence on 100 percent collat- longer afford to ignore basic human needs if economic and eral coverage is unreasonable and excessive. If creditor social development goals are to be achieved. However, the countries did not demand collateral coverage, or settled for a IMF’s current strategy to address this issue is focused on lower percent, the IMF would have up to $3 billion available increasing funding for social safety nets and better targeting for debt relief from the Reserve Account. them to vulnerable groups. Increased social spending is an important step. However, it is not enough to ensure that sus- The Special Disbursement Account (SDA) is another reserve tainable and equitable development becomes the driving force account originally set up for a loan program that no longer behind economic policies. exists. This account has about SDR 2.1 billion (about $2.9 bil- lion). These resources could also be used to help wipe out One proposal to mitigate the impact of IMF policies on the poor countries’ debt obligations to the IMF. is to force the Fund to stick to its original focus on stabiliza- tion. If this were possible, structural issues could be handled 26 Arming NGOs With Knowledge: A Guide to the International Monetary Fund by other institutions and agencies more equipped to deal with These proposals run counter to nearly everything that the G-7, longer-term growth and development. IMF and World Bank are currently promoting. Yet it must also be pointed out that most of their current programs are aston- In the event the IMF did return to its original mandate of short- ishingly unsuccessful. The IMF’s internal review found that term balance-of-payments stabilization it would still have to only about half of the ESAF borrowers studied lowered their work with government officials and institutions like the World budget deficits. Debts continued to increase, and, while hyper- Bank to identify how stabilization affects the poor. In other inflation was slowed, as many countries went from low to words, as the IMF reduces budget deficits, bolsters central moderate inflation as did those who went from moderate to low bank reserves, and contains inflation, it would also need to inflation. The creditors must acknowledge that they do not have identify how budget cuts are conducted and revenue is the answers, that their programs have failed, and that new increased, and what that means for citizens. approaches are needed. However, governments may still have the need for longer-term adjustment, and may still desire financial assistance for doing so. Whether the IMF succeeds in retaining its adjustment pro- grams, or adjustment is handed off to the World Bank or other Collaborating with the institutions, there are still many changes that need to be incor- World Bank on Social Issues porated into orthodox adjustment programs. The IMF is currently working with the World Bank on a The desire to undergo economic adjustment, however, must pilot basis to enhance their collaboration, particularly in come from governments and their citizens. The IMF, as well as the social area. The Bank is to identify potential vulner- the World Bank, must become much more tolerant of national able groups who might lose out under adjustment, and priorities and conditions. This could include allowing borrow- these studies are to feedback into the design of an eco- ers to slow the pace of trade liberalization and privatization, nomic program that incorporates the needs of vulnerable pursue their own industrial policy (as South Korea and Taiwan groups. While a step forward, collaborative work should did) or increasing wages to boost demand. characterize every loan program. These studies should be public and included with the loan program documents. In areas such as revenue generation, the international finan- cial institutions have traditionally insisted in imposing value-added taxes, with minimal success in generating increased revenues. Therefore, tax policies should have greater flexibility. In Africa, for example, a good deal of rev- Addressing the Needs of Women enue has been generated through tariffs, which trade SAPs have profound effects on the lives of many women liberalization rapidly removes. Countries should be allowed in developing countries. For this reason, women need to more leeway in making a smoother transition to new policies. be involved in economic policy formation from the begin- Rather than insist that poor countries export more primary ning. In addition, a gender analysis should be commodities to the rich countries, adjustment policies should incorporated into the policy design that examines how promote value-added activities and regional cooperation and SAPs change the relationships between men and women integration. within the family, and within the work place and the com- munity. Policymakers must also analyze women’s access Civil society organizations all over the world are also calling for to and control over resources and how SAPs undermine increased investments in the areas of health, education, infra- them. Lastly, it is essential that gender equality is pro- structure development, environmental protection, rural moted on all policy levels and is stressed during the development and extension services as these are some of the implementation of programs. investments necessary for future growth. To invest in these areas, larger budget deficits may be necessary in the near term. Friends of the Earth 27 Supporting Labor Monitor and Publish Environmental Spending Figures As a macroeconomic institution, the IMF should not play a role In the past year, the IMF has responded to NGO concerns by in setting labor policy conditions. Rather, the IMF should work increasing transparency in the design of government budgets with relevant government officials, international institutions which it views as a key step toward avoiding unproductive like the International Labour Organization (ILO) and labor expenditures and curtailing corruption. As part of this initia- unions to identify and mitigate any potential negative impacts tive, the IMF should incorporate spending on environmental a loan program could have on labor conditions, wages and programs. Friends of the Earth’s view is that the IMF should employment. not expand its powers by subjecting countries to additional conditionality (such as ordering increases in environmental The IMF should establish procedures that will enable this con- spending). Publishing environmental spending figures in gov- sultation to happen. For example, loan programs should ernment budgets will put public pressure on governments to at involve a dialogue with labor prior to a loan agreement; the ILO least maintain, if not increase, environmental spending. This should be part of these discussions, and loan documents should type of disclosure also enhances the power of civil society to reflect and reference this dialogue. The IMF could also com- hold their governments accountable for budget decisions. mission studies on the impact of its loans on labor conditions— including on real wages, employment, work hours, jobs creat- Refrain from Weakening and Publish any Changes in ed, status of labor rights and unions. These reviews should Environmental Laws that are the Result of IMF become part of a feedback loop to inform new economic reform Structural Adjustment Discussions. programs. Environmental NGOs’ major concerns regarding IMF SAPs is It is also conceivable that the IMF could refuse to lend to coun- the institution’s emphasis on creating favorable conditions for tries that systematically violate internationally accepted private sector development and foreign investment, even if that worker rights, as agreed to under the ILO conventions, to means weakening environmental laws. The IMF should refrain which most nations are signatories. In fact, some labor unions from discussing laws related to natural resources as it is out- are calling on the IMF to enforce the core labor standards in side its area of expertise. If, however, any laws have in fact the ILO Declaration on Fundamental Principles and Rights at been streamlined, made more flexible, eliminated or strength- Work, adopted by the International Labour Conference in June ened as a result of loan negotiations and economic policy 1998. For more information, see the International changes, the IMF and government should publicize the Confederation of Free Trade Union’s web site at www.icftu.org. changes. In particular, changes to laws that deal with major extractive industries, such as mining, forestry, and fishing Environmental Protection should be disclosed. If an IMF loan program document dis- Commission Environmental Impact Assessments cusses proposed or revised environmental or resource laws for sectors such as mining or forestry, these laws should be refer- Determining the environmental costs of a particular macro- enced and included as an appendix in the loan document. economic policy may be more complicated than doing a similar Again, transparency will pressure governments and the IMF to analysis for an individual project. Yet it is still imperative that refrain from touching regulatory standards that protect the the IMF incorporate environmental impact assessments (EIAs) needs of communities and their environment. into its loans. Only a full assessment of a policy’s costs will allow the IMF to pursue policies promoting countries’ long- Include Environmental Ministers in Negotiations on term economic prosperity. While these EIAs should be IMF Programs incorporated into IMF policy and program design, the IMF should work with other institutions like the World Bank, The lack of broader government participation is a serious national environmental ministries and credible environmental impediment to creating programs that promote sustainable research organizations. The IMF should commission such insti- development. In countries where natural resources generate a tutions—which have more staff experience and expertise with significant portion of national income, it is particularly impor- environmental issues and EIAs—to conduct the studies and tant for environmental ministries to be represented in loan incorporate the results into its loan programs. negotiations so that sustainability and resource management issues enter into the economic discussions. Currently, some 28 Arming NGOs With Knowledge: A Guide to the International Monetary Fund IMF loan program documents and staff reports track natural account liberalization will only make the flows and volatility of resource exports around and during the loan period, but they international capital even greater. Ironically, Article VI of the contain no mention of what might be the sustainable use of IMF’s Articles of Agreement actually calls on IMF members to those resources. “exercise appropriate controls” with regard to capital outflows, and forbids the use of IMF resources “to meet a large or sus- Pursue Environmental Accounting as Part of IMF tained outflow of capital.” Technical Assistance and Data Gathering The IMF should refer to its own Articles and help members set One of the IMF’s functions is to gather data on the macroeco- up capital controls appropriate for their circumstances and nomic health of its 182 member countries, such as countries’ level of development. The IMF should recognize that countries gross domestic product. But such measures of economic require much longer to develop strong domestic banking sec- growth fail to capture the economic costs of natural resource tors, financial regulations and a deeper market that can handle extraction by assuming that natural resources are infinite. The the potentially de-stabilizing effects of capital. The IMF should Fund already houses a global statistics department and is in also publicly acknowledge the need for countries to prioritize charge of providing technical assistance on national income institutional development first and should give them the space accounting systems for finance ministries in developing coun- to pursue financial liberalization on their own terms. tries. It should take the lead in implementing “green” accounting systems that factor not only the benefits but also Furthermore, when financial crises with roots in the private the costs of resource extraction. sector do occur, the IMF should refrain from bailing out pan- icked foreign investors that are pulling out of a country. In Implement Green Taxes addition to the encouragement of further bad loans, IMF bailouts increase the public debt of the government and place As part of its fiscal policy advice, the IMF focuses on building what was a private sector burden on the backs of ordinary cit- governments’ capacity to collect taxes, generally through a izens. Other mechanisms to work out the private sector debt value-added tax (VAT) system. VAT is a regressive tax collection should be utilized to settle repayment problems between system, often taxing basic food products, medical services, and lenders and creditors. Without the IMF waiting in the wings rent and thereby imposes an undue tax burden on low-income with billions of dollars in bailout money, such arrangements consumers. Rather than focusing on regressive tax policies, the are much more likely to occur. IMF could encourage the generation of substantial taxes from large industrial producers and resource extractors that would influence economic activity in favor of the environment. Taxes could be used as a mechanism for countries to promote envi- ronmental goals by providing incentives for manufacturers to change production practices. They could also improve a coun- try’s economic competitiveness by encouraging more efficient energy and resource use and preventing environmental con- tamination and degradation. Taken together, these proposals to incorporate environmental goals into the IMF’s operations are appropriate, given the IMF’s role and mandate, and would have a significant impact on promoting environmental protection globally. Controlling Capital Flows The global financial crisis that ripped through Asia, Russia, and Brazil and caused recessions in many of the poorer countries shows the destructive effect that large volumes of internation- al capital can have. The IMF’s attempt to pursue capital Friends of the Earth 29 Campaign Strategies Follow the Money: Parliamentary passed a bill ordering future quota increases to be approved by parliament. NGOs could replicate this effort elsewhere. Strategy Since the IMF is a multilateral institution, international coor- In the United States, some of the most important initiatives on dination of reform strategies is very important, both for NGOs IMF reform have occurred when the U.S. Congress was asked and for parliamentarians. There have been several interna- to appropriate funds to the IMF. These Congressional appro- tional meetings of progressive parliamentarians interested in priations processes have provided citizens’ organizations with reforming the institutions of the global economy, including the an opportunity to criticize IMF operations and to demand the IMF. The 1998 quota increase legislation in the U.S. Congress taxpayers’ right to a certain “quality of performance.” In 1989, called for the establishment of an advisory committee to the 1992, and 1998, Congress wrote reform language into the IMF Interim Committee that would be comprised of elected IMF’s quota-increase appropriation, calling on the IMF to insti- members of the national legislatures of IMF member countries. tute certain changes and calling on the U.S. representative to NGOs should consider these networks as they work with par- the IMF to press for these changes. In 1994, Congress actual- liamentarians in their own countries. With parliamentarians ly withheld a portion of its proposed contribution for the ESAF coordinating reform strategies, more pressure will be exerted program, and stipulated that the remaining funds would be on multiple finance ministries, helping increase the chance of available when the IMF released more information to the pub- passing comprehensive IMF reform. lic. This move has helped persuade the IMF to make greater efforts at transparency. In other IMF member countries, however, funding for the IMF Finance Ministries is not approved by parliament and is instead channeled A government’s policy for the IMF is generally set within a through the finance ministry which is the government agency country’s finance ministry or central bank with close collabo- traditionally most sympathetic to the IMF. This makes it more ration between the two. Therefore, the finance ministry is an difficult, though not necessarily impossible, to demand that important target for IMF reform campaigns. Finance ministry contributions to the IMF be withheld until reforms are made. officials, particularly high-level officials, are also in close con- Irish NGOs, for example, successfully pressured Ireland’s tact with political leaders. If these political leaders are elected finance ministry to cease funding ESAF for several years. or in other ways subject to public opinion, then finance min- istry officials must take public sentiment into consideration Even if parliaments do not have authority over contributions to when formulating policy. NGOs can take advantage of this by the IMF they are still useful for monitoring IMF performance and present a good target for NGO lobbying. For example, par- liaments can hold hearings and inquiries, inviting their representatives at the IMF to testify and answer questions. Parliaments can also order finance ministry officials to file Holding the IMF Accountable reports on reform efforts that are being pursued. Other parlia- at a Natural Level mentary tools include issuing letters from members of Parliament to the finance ministry or IMF representative advo- In the United Kingdom, the Treasury Committee of the cating a policy position or articulating concerns about House of Commons commissioned a detailed report on programs. All these measures are important methods of gen- the IMF examining the evolution of the IMF, its trans- erating much wider debate about the IMF, educating more parency, accountability and role of the debt relief policymakers, raising political awareness and creating media initiative. Committee members met with policymakers, opportunities. academics, and NGOs and held extensive hearings. This inquiry resulted in several strong recommendations to NGOs can also attempt to change their own internal legislative the finance ministry for reforms and the type of policy it processes to give parliaments a greater say in determining should pursue at the IMF. As a result, the UK represen- national policy at the IMF. In Brazil, the Senate must approve tative has been one of the strongest forces for reform all loans that Brazil negotiates with International Financial within the IMF Board of Directors. Institutions. Switzerland’s lower house of parliament recently 30 Arming NGOs With Knowledge: A Guide to the International Monetary Fund mobilizing letter-writing or postcard campaigns to the finance minister. Letter campaigns will ultimately force the finance IMF ministry to respond in some way to public concerns. Never before have the IMF and its main defenders had so many reasons to doubt their effectiveness: prominent academics and Another effective strategy, particularly when important deci- former government officials have shot down the IMF’s handling sions or votes are being taken, is to organize telephone “call of the Asia crisis while NGOs have stepped up exposure of the ins” to finance ministries related to a particular vote. Again, flawed foundations and negative impacts of the IMF’s programs such phone calls show that citizens are paying attention to gov- in most of the poorest countries. In addition, debate and advo- ernment officials and will hold them accountable for their cacy around the HIPC initiative have opened up the IMF to decisions. NGOs as never before. This opening is demystifying the IMF as a whole for NGOs, and it is showing the IMF that NGO analysis Finance ministries often will testify before parliaments or and experience can be critical to the IMF’s job, by pointing out make public statements or speeches, and these events can be missing elements and identifying potential pitfalls and unfore- important opportunities for citizen groups to present their seen consequences. Now is the time for NGOs to launch an assessments of finance ministry performance. Direct lobby vis- advocacy strategy aimed at IMF officials. However, it is also its to policymakers at the finance ministry is another way to important for citizen groups to realize that an endless cycle of push citizens’ agendas and determine where finance ministry meetings with the Fund without an end goal is not productive, officials stand on certain issues. and can in fact result in occupying endless hours and ulti- mately might co-opt NGO positions. Development Ministries The IMF is a very bureaucratic organization with policies being set along very well-defined hierarchical lines. Effective lobby- In general, finance ministries determine IMF policy for their ing at the IMF, therefore, requires meeting with those countries. However, in certain countries development min- specifically empowered to set policy and make decisions on istries are starting to play a more influential role, making issues of NGO concern. If this happens to be, for example, a strong public statements and demanding a greater role (such specific country loan program, NGOs should target the mission as representing their countries on the IMF/World Bank team for that country, as well as the senior-level staff in the Development Committee). For example, the British, Dutch and relevant department. German development ministers have all made powerful public statements about the need to integrate poverty alleviation The head of the country mission, or “mission chief”, is the goals into core macroeconomic policy. negotiator for the IMF with the borrowing country. The mission chief can be an important figure to meet with and lobby, par- In some countries, NGOs could use progressive and vocal ticularly on areas of central importance to the IMF, such as a development ministries to spark debate in the media and in devaluation or exchange rate policy in general. Under the mis- government circles about policy toward the poorest countries. sion chief is the desk economist for a particular country who is NGOs can bolster the political profile and position of develop- responsible for the number crunching. The desk economist is ment ministries and their concerns, and create a wedge an appropriate target for issues such as spending and revenue between finance and development ministries that can put generation, privatization and structural issues. Generally there finance on the defensive. This strategy can be particularly is one desk economist per country, though for larger countries effective in countries with strong overseas aid programs, such (such as Russia) there may be more. as the United Kingdom, Netherlands, Germany and the Nordic countries. This strategy would be too premature in a country The mission team works with the World Bank on country loan like the United States, where the Treasury Department is quite programs, particularly on structural and other longer-term dominant and where the aid budget is miniscule, making these issues. Effective lobbying on an individual country loan pro- officials much less powerful. gram therefore would involve targeting both World Bank and IMF country staff. In terms of setting loan program conditions, the IMF sets performance criteria in monetary areas (such as reserves, net domestic assets, government credit) and quanti- tative fiscal targets (eg. deficits, revenue ratios). The pace of Friends of the Earth 31 fiscal adjustment is usually determined by the targets at the an effective way for NGOs to meet with a wide range of repre- onset of the original loan program, and any slippages that sentatives to the IMF, to present their views to a variety of occur must be compensated for in subsequent arrangements. governments and to solicit government positions on IMF policy In fiscal targets, the World Bank can have some input on safe- issues. Many IMF Executive Directors have been quite acces- guarding key expenditure areas. In structural areas, the World sible to NGOs, particularly if the citizen groups represent a Bank has a say in benchmarks and performance criteria, range of constituencies and geographic regions. though the IMF may also set targets in structural areas on its own. Lobbying Executive Directors has been more useful on IMF policy issues, such as access to information and debt relief, The other power players on an operational level are the divi- than on specific loan programs. Unlike the IMF Managing sion chiefs and deputy division chiefs, who oversee programs Director, the IMF Board does not receive drafts of or see the for a regional group of countries and to whom mission chiefs negotiating position for country loan programs. Instead, the report. Division chiefs are in turn within a department. There Board is asked to approve or deny a loan program once it is are six area departments at the IMF, with divisional break- fully negotiated between the IMF and the borrowing govern- downs under each area: Africa, Asia and Pacific, Europe I, ment. While the Board may make comments and raise Europe II, Middle East and Western Hemisphere. In the area concerns, and in unusual circumstances, deny a program, in department, the top line of authority is the director, and under general the Board has relatively little influence on the ele- the director are deputy directors, assistant directors and advi- ments of specific loan program. sors. These four positions comprise the “front office”, which carries the greatest authority and ultimately clears each loan program in its area before it goes to the Executive Board. Advocacy Strategy The Policy Development and Review Department (PDR) also plays an enormously influential role both in policy and opera- in a Borrowing Country tions. PDR must clear every paper that goes to the Board, With regard to IMF reform, NGOs have probably had their including every loan program and each policy paper. Within greatest success in the areas of IMF transparency and PDR are divisions that oversee the ESAF program and formu- accountability and the least success in pushing for changes in late IMF policy toward the poorest countries. PDR is also the export-led growth model that characterizes IMF programs. critical as the IMF’s “think tank” and rapid response team Orthodox economics still fundamentally guides IMF programs. when the IMF faces a particularly difficult policy decision, such On a country level, however, civil society groups have had, and as when the IMF was called on to quell the financial panic are likely to have in the near future, greater success in influ- breaking out in Thailand, then Asia, and finally everywhere encing the economic policies advocated in a loan program. else. In the aftermath of such crises, it is PDR that articulates the IMF’s lessons learned and future actions. On an individual country basis, citizen groups can clearly delineate the adverse consequences of economic policies and On a policy level, Fiscal Affairs plays an important role in con- offer country-specific alternative proposals. On a country ducting academic analyses on new issues and thereby helps level, challenges to policy measures will not appear as chal- determine policy in areas such as government spending lenges to the economic model. Furthermore, on a country level, (including social spending) and revenue generation, such as civil society groups have some important leverage: they can tax and trade policy. On a program level, Fiscal Affairs some- promote public acceptance or disapproval of an IMF economic times sends representatives on country missions, and in these program and thereby affect the degree of program compliance. instances Fiscal Affairs may place a role in determining fiscal policy. In general, however, it is the desk economist in a divi- In IMF borrowing countries, civil society groups should have sion of the area department that determines how countries are regular contact with the IMF’s Resident Representative who is spending and earning revenue. supposed to meet with NGOs. NGOs should share their research and analysis, and regularly provide information to the Finally, the IMF Managing Director and the Board of Directors Resident Representative so that NGO viewpoints are constant- are ultimately the top lines of authority for approving IMF pol- ly being expressed. However, Resident Representatives lack icy and loan programs. Lobbying Executive Directors has been power when it comes to determining economic policy and loan 32 Arming NGOs With Knowledge: A Guide to the International Monetary Fund employment and expenditure is viewed as excessive in a given The Power of Public Mobilization country, it is likely that the public would demand changes, such as privatization or civil service reform. If state enterprises are The international Jubilee 2000 campaign, which is part profitable and are seen to provide a public good, the IMF of a worldwide movement to cancel the debts of the poor- should not impose an ideological-based policy. The IMF should est countries, demonstrates that massive public concentrate on promoting a transparent budget process, and organizing in the North on global economic injustice is allow local people to draw their own conclusions and propose possible and shows the power of grassroots mobilization. home-grown policies. Tens of thousands of people have turned out in the streets of Birmingham, England and Cologne, Germany at the 1998 and 1999 G-7 economic summits to demand debt relief. The success of the campaign in mobilizing public People Making a Difference opinion has put debt relief at the top of the international in the North and South agenda and has led to changes in debt relief initiatives that were unthinkable several years ago. Ultimately, the pressure to reform the IMF must be so intense that politicians will be unable to ignore it. This will only come from public mobilization and grassroots organization. conditions, so NGOs in IMF borrowing countries should also Policymakers must hear from their constituencies and know demand to meet with IMF mission teams, particularly the mis- that they care about IMF reform. The challenge of public mobi- sion chief, when they visit. lization falls largely on the Northern countries that determine IMF policies. In the South, public mobilization has occurred for Working with parliamentarians and the media can also be a decades as thousands of people have taken to the streets useful strategy for critiquing a program and offering alterna- denouncing IMF austerity measures. tives. Providing information to and working with sympathetic parliamentarians can be a particularly effective way of access- In the North, the public has to be convinced either that the IMF ing key decision-makers. NGOs may also want to consider affects them and that they should demand changes, or that alliances with other segments of civil society – such as labor global economic injustice is such a problem that they must act. unions, environmentalists, small business, and women’s The anti-apartheid campaign and the international Jubilee groups — to increase their bargaining position. Alliances with 2000 campaign to cancel the debts of the poorest countries NGOs in other countries can also be useful, as critiques of IMF show that it is possible to mobilize the public in the North on prescriptions and NGO alternatives can be shared and pushed issues that affect people in the South. with other IMF member governments, whose representatives will eventually have to approve a loan. For people in the North, the IMF matters for a variety of rea- sons, apart from the issues of global economic injustice and the Another tactic that NGOs can use to influence national eco- need to eradicate poverty. The development model puts nomic policy is courtesy of the IMF itself. The IMF is pushing tremendous pressure on borrowing countries to increase governments to become more open in their budget processes exports at any cost, even at the expense of low wages and envi- by clearly outlining and publishing government expenditures. ronmental degradation. Low wages hurt workers around the This increases public knowledge about government spending world as they are forced to compete against each other in a priorities — what funding is being cut to reduce a deficit, and downward spiral of wages. Environmental degradation can what is being protected. Ultimately, with this knowledge, NGOs also become a global problem: forest depletion affects global will be able to better lobby their governments to protect prior- warming and the loss of biodiversity is a threat to all humani- ity programs and activities and to cut wasteful and ty. unproductive programs. Citizens in the North should also be aware that their tax dol- NGOs could use these budget figures in other ways to influence lars are being used to support ineffective and often damaging program conditions and gain more autonomy for local people in programs. Entrenched poverty hurts people all over the world setting policy. If state-owned enterprises are considered a as it can lead to increased social and ethnic upheaval and polit- major drain on the government budget, or if civil service ically sensitive immigration problems that are extremely difficult and costly to deal with. Aid resources should be used Friends of the Earth 33 for direct poverty alleviation programs that have a track record of success. Spread the Word—Media Media is clearly an essential mechanism for communicating with and reaching target audiences. Particularly since the Asian financial crisis the media has played a critical role in provoking further debate about the IMF and forcing it to dis- seminate information. The IMF pays attention to the press: it issues a daily news summary that references articles pub- lished all over the world covering IMF-related issues. Effective media strategies include writing letters to editors in response to articles about the IMF and crafting opinion editorials for placement in newspapers. NGOs should also consider working with prominent academics, parliamentarians or government officials to increase chances of having their pieces placed in newspapers. These strategies are not exhaustive, and only some will be appropriate at different times and in different contexts. Advocacy aimed at one of the most powerful global actors requires creativity, resourcefulness, and patience! 34 Arming NGOs With Knowledge: A Guide to the International Monetary Fund Sources and Useful Literature The All Too Visible Hand: a Five Country Look at the Long and International Monetary Fund. Financial Organization and Operations of Destructive Reach of the IMF, Washington, DC: Development GAP and the IMF. Pamphlet series No. 45. Friends of the Earth, 1999. International Monetary Fund. International Monetary Annual Report Blecker, Robert. Taming Global Finance, Washington, DC: Economic (various years). Policy Institute, 1999. Lockwood, Matthew and Angela Wood. “The Perestroika of Aid? New Cavanagh, J., Wysham, D, Arruda, M., eds. Beyond Bretton Woods: Perspectives on Conditionality,” Bretton Woods Project and Christian Alternatives to the Global Economic Order. Boulder: Pluto Press with Aid, March 1999. Institute for Policy Studies and Transnational Institute, 1994. McGowan, Lisa. “Democracy Undermined, Economic Justice Denied: Cavanagh, John, Sarah Anderson, and Jill Pike. “World Bank and IMF Structural Adjustment and the Aid Juggernaut in Haiti,” Development Policies Hurt Workers at Home and Abroad,” Institute for Policy GAP, January 1997. Studies, 1994. Severino, Jean Michel. “Is Asia Rising? An Update. Report Prepared Colchester, Marcus. “Social Exclusion and Development Domination,” for a Presentation to the World Bank Board of Executive Directors,” Forest People’s Programme, 1998. July 13, 1999. “Conditioning Debt Relief on Adjustment: Creating the Conditions for UN, United Nations Trade and Development Report, various years. More Indebtedness,” Development GAP, April 1999. UNDP. Human Development Report, various years. Cruz, W., Repetto, R., “The Environmental Effects of Stabilization and Structural Adjustment Programs: The Philippine Case,” World Verolme, Hans J.H., Moussa, Juliette. Addressing the Underlying Resources Institute, September 1992. Causes of Deforestation and Forest Degradation- Case Studies, Analysis and Policy Recommendations. Washington DC: Biodiversity Action Daly, H., Townsend, K., eds. Valuing the Earth: Economics, Ecology and Network, April 1999. Ethics. Cambridge: MIT, 1993. Watkins, Kevin. “Cost Recovery and Equity in the Health Sector: Issues Driscoll, David. What is the International Monetary Fund? Washington, for Developing Countries,” Oxfam UK & Ireland, February 1997. DC: IMF, 1996. Welch, Carol. “IMF and Good Governance,” Foreign Policy in Focus, Garritsen De Vries, M., The IMF in a Changing World 1945-85. vol:3:33, October 1998. Washington, DC: IMF, 1986. Welch, Carol and Angela Wood. “Policing the Policeman: the Case for Green, Duncan. “Capital Punishment: Making International Finance an Independent Evaluation Mechanism for the IMF.” Bretton Woods Work for the World’s Poor- Lessons from the Asian Crisis,” CAFOD, Project and Friends of the Earth, April 1998. 1999. World Bank. World Debt Tables: External Finance for Developing Griesgraber, Jo Marie and Bernhard Gunter. The World’s Monetary Countries/Global Development Finance, various years. System: Toward Stability and Sustainability in the Twenty-first Century. London: Pluto Press, 1996. World Wide Fund for Nature-International. Structural Adjustment and the Environment, David Reed, ed. Boulder: Westview Press, 1992. Grunberg, Isabelle. “Double Jeopardy: Globalization, Liberalization, and the Fiscal Squeeze,” World Development, vol. 26:4, 1998. World Wide Fund for Nature-International. Structural Adjustment, the Environment and Sustainable Development. David Reed, ed., London: Harvey, Pharis. “Trade and Labor,” Foreign Policy In Focus, vol. 2:15, Earth Scan, 1996. January 1997. Hogg, Dominic. “The SAP in the Forest,” Friends of the Earth England, 1993. International Monetary Fund. Articles of Agreement. Washington, DC: IMF, April 1993. International Monetary Fund. The ESAF at Ten Years: Economic Adjustment and Reform in Low Income Countries. Occasional Paper 156, December 1997. International Monetary Fund. External Evaluation of the ESAF: Report by a Group of Independent Experts, 1998. International Monetary Fund. Factsheets, various. Friends of the Earth 35 Glossary balance of payments (international) – an accounting of all the for dividends, interest, and the hope that share prices will increase. values of goods, gifts, foreign aid, loans, gold, and foreign currency Portfolio investment is more speculative then direct investment. which crosses the national border of a particular country. A country has a balance of payments deficit when its income (from exports, cash gold standard – a system of monetary organization under which the inflows, etc.) is less than its payments (imports, cash outflows, debt value of a country’s currency is legally defined as a fixed quantity of payments), and surplus when income exceeds payments. gold. balance of trade (international) – the difference between a coun- gross national (or domestic) product – total value of all goods try’s exports and imports of goods and services. and services taking into account depreciation (the decline in the value of goods due to wear and tear). Bretton Woods Institutions (BWIs) – the institutions founded at the international conference in Bretton Woods, New Hampshire, US, in Group of Seven (G-7) – The G-7 is comprised of the seven richest, 1944. The BWIs are the World Bank and International Monetary Fund. industrialized, countries (Canada, France, Italy, Germany, Japan, United Kingdom, and United States). Since 1976, G-7 heads of govern- capital account – the part of the balance of payments that covers ment have met annually to discuss and coordinate economic policy. In international purchases and sales of assets, including foreign direct the past decade, G-7 summits have taken on more political issues, and investment, portfolio investment, bank loans and deposits, securities, much of the informal economic policymaking is done by G-7 finance and foreign currency holdings. ministers. central bank – the official bank of the government that carries out inflation rate – the percentage increase in the prices of goods and financial transactions of the governments, controls and regulates the services that results from a loss of purchasing power of a nation’s cur- money supply, maintains order in the financial markets, promotes rency. favorable economic conditions, and/or acts as a lender of last resort for other financial institutions. interest rate – the price of borrowing money, expressed in percent- age terms. High interest rates promote savings, low interest rates current account – the part of the balance of payments that includes promote investments. trade in goods and services, net income from foreign investments, and labor remittances. A current account surplus implies that a country is monetary policy – economic policies which relate to managing the a net lender to the world, a deficit implies that a country is a net bor- money supply (i.e. raising or lowing interest rates) rower. Paris Club – ad hoc meetings (in Paris) of creditor governments since depreciation (currency) – when the value of one currency goes 1956 to arrange renegotation of debt owed or guaranteed by officials down in relation to another. “Appreciation” is when the value of one debtors to official creditors (country to country, or bilateral debt). currency goes up in relation to another. speculative investment – speculative investment refers to bets on devaluation – government action take to reduce the exchange value changes in the value of a financial asset, such as a currency (exchange of a currency by lowering its gold or hard-currency equivalency. rate speculation), stock market prices, bond prices. Speculative Countries sometimes “prop up,” or over-value their currency by using investment is short-term and volatile. US dollars (or other “hard currency”) to buy up their own currency. This makes the value of their currency artificially high. surveillance – activity and duty given to the IMF to monitor and eval- uate countries’ macroeconomic performance and policies. IMF exchange rate – the price of one currency in terms of another members are obligated to provide the IMF with the information neces- nation’s currency. sary to carry out its surveillance tasks. fiscal policy – economic policies which relate to managing govern- ment revenues and expenditures. foreign direct investment (FDI) – FDI is investment for the pur- pose of gaining an element of managerial control. Direct investments involve the acquisition or establishment of a firm, company, or enter- prise. foreign investment – foreign or international investment is the movement of money across national borders to acquire assets: an investor in one country buys or establishes an investment in another country. foreign portfolio investment – Foreign portfolio investment is overseas investment in financial assets, such as the purchase of stocks or bonds. Portfolio investors do not own enough shares to control or manage the companies they invest in, but provide capital in exchange 36 Arming NGOs With Knowledge: A Guide to the International Monetary Fund NGOs and Useful Contacts Belgium Indonesia Friends of the Earth International World Development Movement EURODAD International NGO Forum on PO Box 19199 25 Beehive Place Rue Dejoncker 46 Indonesia Development (INFID) 1000 GD Amsterdam London SW9 7QR B-1060 Brussels Jalan Mampang Prapatan IV/39 Tel: 31 20 622 1369 Tel: 44 171 737 6215 Tel 32/2 543 9060 Jakarta 12790 Fax: 31 20 639 2181 Fax: 44 171 274 8232 Fax 32/2 544 0559 Tel: 62 21 910 7050 email@example.com firstname.lastname@example.org http://www.wdm.org.uk email@example.com Fax: 62 21 798 5347 Switzerland http://www.oneworld.org/eurodad firstname.lastname@example.org Swiss Coalition United States Brazil WALHI Bruno Gurtner Center of Concern Rede Brasil Jalan Mampang Prapatan IV Monbijoustrasse 31, Postfach Rethinking Bretton Woods Project SCS-QD 08, Bloco B-50, Sala 433 Jalan K No. 37 CH-3001 Bern 1225 Otis Street, NE Supercenter Venancio Jakarta 12790 Tel: 41 31 381 1715 Washington, DC 20017 Brasilia DF, 70333-970 Tel: 62 21 794 1672 Fax: 41 31 381 1718 Tel: 202 635 2757 Tel: 55 061 226 8093 Fax: 62 21 794 1673 Bgurtner@swisscoalition.ch Fax: 202 832 9494 Fax: 55 061 226 8042 email@example.com firstname.lastname@example.org Berne Declaration http://www.coc.org/coc/ email@example.com Ireland Peter Bosshard http://www.brnet.com.br/pages/rb Quellenstrasse 25, Postfach Development GAP rasil Debt and Development Coalition All Hallows, Grace Park Road CH-8031 Zurich 927 15th St. NW, 4th Floor Canada Dublin 9 Tel: 41 1 271 6434 Washington, DC 20005 Tel/Fax: 353 1 857 1828 Fax: 41 1 272 6060 Tel: 202 898 1566 Halifax Initiative Finance@evb.ch Fax: 202 898 1612 #200-1 Nicholas Street firstname.lastname@example.org http://www.access.ch/evb email@example.com Ottawa, Ontario Italy http://www.developmentgap.org K1N 7B7 Thailand Tel: 613 789 4447 Reform the World Bank Campaign Friends of the Earth Francesco Martone Focus on the Global South Fax: 613 241 2292 CUSRI, Wisit Prachuabmoh 1025 Vermont Ave. NW firstname.lastname@example.org Centro Internazionale Crocevia Suite 300 Via Ferraironi 88/G Building http://www.sierraclub.org/nation- Chulalongkorn University Washington, DC 20005 al/halifax Roma 00172 Tel: 202 783 7400 Tel: 39 06 2440 4212 Phyathai Road Bangkok 10330 Fax: 202 783 0444 Finland Fax: 39 06 2424177 email@example.com firstname.lastname@example.org Tel: 66 2 218 7363 KEPA Fax: 66 2 255 9976 http://www.foe.org Max von Bonsdorff Malaysia email@example.com Sörnäisten Rantatie 25, 3 krs Oxfam International Third World Network http://www.focusweb.org 733 15th Street NW, Suite 340 00500 Helsinki Tel: 358 9 584 23 242 228 Macalister Road United Kingdom Washington, DC 20005 Fax: 358 9 584 23 200 Penang 10400 Fax: 202-783-5547 Tel: 604 226 6159 Bretton Woods Project firstname.lastname@example.org Angela Wood http://www.oxfaminternational.org http://www.kepa.fi/ Fax: 604 226 4505 email@example.com PO Box 100 Preamble Center for Public Policy Germany www.twns.ide.org.sg London SE1 7RT 1737 21st Street NW Tel: 44 171 523 2117 Washington, DC 20009 WEED Mexico Fax: 44 171 620 0719 Bertha-von-Suttner-Platz 13 Tel: 202 265 3263 Equipo Pueblo firstname.lastname@example.org Fax: 202 265 3647 D-53111 Bonn Tel: 49 228 766130 Francisco Fidel Jurado 51 CAFOD email@example.com Fax: 49 228 696470 Col. Independencia Romero Close http://www.preamble.org Mexico DF 03630 firstname.lastname@example.org Tel: 525 539 0015 Stockwell Road Uruguay http://www.weedbonn.org London SW9 9TY Third World Network Fax: 525 672 7453 Tel: 44 171 733 7900 Ghana email@example.com Fax: 44 171 274 9630 Roberto Bissio Third World Network Jackson 1136 Netherlands http://www.cafod.org.uk Montevideo CP 11200 PO Box 8604 Accra-North BothENDS Christian Aid Tel: 598 2 496 192 Tel: 233 21 301064 Theo Ruyter PO Box 100 Fax: 598 2 419 222 Fax: 233 21 231687 Damrak 28-30 London SE1 7RT firstname.lastname@example.org email@example.com 1012 LJ Tel: 44 171 620 4444 Amsterdam Fax: 44 171 620 0719 Tel: 31 20 623 0823 http://www.oneworld.org/chris- Fax: 31 20 620 8049 tian_aid/ firstname.lastname@example.org Friends of the Earth 37 Footnotes 1 9 The members of the Group of 7 are: Canada, France, Germany, Italy, Jean Michel Severino, “Is Asia Rising? An Update, Report Prepared Japan, the United Kingdom and the United States. for a Presentation to the World Bank Board of Executive Directors,” July 13, 1999 2 Many prominent economists, including Jeffrey Sachs, Paul Krugman, and Joseph Stiglitz, chief economist for the IMF’s sister institution, the 10 Pharis Harvey, “Trade and Labor,” Foreign Policy in Focus, vol. 2:15, World Bank, have criticized the IMF’s approach to the Asian financial Jan. 1997. crisis. 11 The All-Too Visible Hand: a Five Country Look at the Long and 3 The International Development Association (IDA) is the World Bank’s Destructive Reach of the IMF, published by Development GAP and zero interest, long-term lending program for the poorest countries. IDA Friends of the Earth, available at www.developmentgap.org and countries must have a per-capita income of less than $895 a year. As www.foe.org of July 1999, 78 countries qualified for IDA. 12 Vicernji Ilst June 5, 1999 4 At press time, there are reports that the Policy Framework Paper will 13 be replaced by a “poverty reduction strategy paper” that is supposed to Kevin Watkins, “Cost Recovery and Equity in the Health Sector: be more poverty focused, more government-led, and will feature gover- Issues for Developing Countries,” Oxfam UK & Ireland, February 1997. nance issues more prominently. Available at http://www.oxfam.org.uk/policy/research/helsinki.htm 14 5 International Monetary Fund. The ESAF at Ten Years: Economic Based on data from the United Nations Food and Agriculture Adjustment and Reform in Low Income Countries. Occasional Paper Organization, State of the World’s Forests 1999. 156, December 1997. 15 Overseas Development Council, ODC Viewpoint, April 1998. 6 Lisa McGowan, “Democracy Undermined, Economic Justice Denied: 16 Structural Adjustment and the Aid Juggernaut in Haiti,” Development For more information about the ombuds office, contact Professor GAP, January 1997, p. 26. Danny Bradlow at the Washington College of Law, American University. His e-mail is email@example.com. 7 Haiti Recent Economic Developments, IMF Staff Country Report No. 17 98/101, 1998, p. 42. The IMF has borrowing arrangements established with richer mem- bers that it draws upon to make ESAF loans to developing countries. 8 John Cavanagh, Sarah Anderson, and Jill Pike, “World Bank and IMF Of the SDR 4.5 billion currently drawn by the IMF, 88 percent is from Policies Hurt Workers At Home and Abroad,” Institute for Policy G-7 countries (Canada, France, Germany, Italy, Japan). This 4.5 billion Studies, 1994. is what creditors unreasonably demand has full coverage. For more information, contact: Friends of the Earth 1025 Vermont Ave. NW • Suite 300 Washington DC 20005 Phone: 202-783-7400 Fax: 202-783-0444 This report is available on the web at: www.foe.org Printed on recycled content paper using soy inks with no heavy metals.