Building a new financial "architecture" at the expense of the poor

In an office building in downtown Washington, the guardians of the world's money are putting together a new "architecture" for the international economic system.

And as it has happened so often in the past, the goals of the new architecture – stronger financial structures and expanded trade and business – are going to be reached at the expense of working people and the poor.

The IMF, that first disciple of profit, is gathering strength despite its stinging from the criticism of how it handled the crisis in Southeast Asia. It bailed out a few big international banks with billions of dollars while thousands of people lost their jobs.

Now the IMF is moving aggressively to augment its position and its capacity to act on behalf of the rich and powerful. It is erecting a framework that, paradoxically, will provide new guidelines for the expansion of undisciplined self–interest.

Not all aspects of what the IMF is pursuing are inappropriate. The encouragement of solid systems of regulation and transparency in banking operations in its member countries, and in government spending and revenue, make sense.

There is even, for the first time, talk of trying to "bail in" private creditors when things go wrong. The way it is now, the public sector picks up the tab.

In the cozy world of international finance, just thinking about leaving private profit to fend for itself is a new concept.

Bankers are squealing, of course. Pony up if they are faced with a loss? Forget about it. They want their supposedly high risk loan adventures protected, and are appalled that some governments are balking at the use of public funds to bail them out.

The IMF is complying, with a new set of lines of credit that are designed not for countries in crisis but for those that might be in trouble down the road. In other words, when major banks get into risky ventures looking for a quick profit in an emerging economy, the IMF provides the insurance, with public funds, that the banks get the money back.

The United States government, being especially sympathetic to the IMF and the banking community, is blocking efforts by some governments to set up rules limiting the use of public funds to bail out private banks.

Another aspect of the new architecture is explicit IMF control of poorer countries. The IMF is building up its clout by requiring compliance with its economic restructuring programs as a prerequisite for easing back on demanding debt payments. Yet its reform package itself has been under attack, most recently by an independent review commissioned by the IMF itself (its first ever).

Now, reform of the IMF's macroeconomic program for poor countries, the Enhanced Structural Adjustment Facility, is foundering.

After years of criticism, the IMF consented to an independent review which called for a new effort to include improving the lives of the poor, and for local participation and ownership of economic restructuring programs. The review panel's recommendations are less than a year old, but they have already been left out to dry and fade.

In the half–hearted case studies now underway, the IMF is not evaluating income distribution along with economic growth. It is not even examining whether its programs are benefiting, or hurting, most of the people.

IMF policies promote the expansion and strengthening of the global market system, but they do not bring better living conditions for more than a few. They aim at macroeconomic stability and growth, not at social progress.

The IMF's actions may be "at the cost of increased poverty, interrupted education or declining life expectancies", as Joseph Stiglitz, Chief Economist of the World Bank, has said.

Declining life expectancies means, of course, that more people die. Yet the IMF refuses to undertake needed reform of its programs to ensure that, at the least, they do not add to human suffering.

It is stubbornly pushing its oppressive prescription of economic restructuring regardless of the human cost, even in the context of the greatest social crisis of our time.

The debt problem in the Third World, in which more money is taken out of poor countries than is spent on basic health, nutrition and education while their children are dying, is not viewed as an emergency, but as an opportunity for the IMF to extend its authority.

The IMF is using this situation, with its cruel consequences for millions of impoverished people, in order to force economic policy changes on behalf of power and privilege. It refuses to cancel any debts, for one basic reason.

"Once you cancel debt, you no longer have any leverage left", as the IMF Assistant Director in Europe, Michael Hadjimichael, said a few weeks ago.

His boss, IMF Director Michel Camdessus repeated the point shortly after, saying that "debt alleviation can be a powerful incentive to economic reform".

What will be the incentive for reform of the IMF? It is apparent that "the master's tools will never destroy the master's house", as Audre Lorde once said.

Placing human welfare over demand for profit will be a start. Putting human values over the monetary. Then we can look at what we need in a new international "architecture".

– Derek MacCuish