The International Monetary Fund: A Great Power on the World Stage

-        Published on 5-6-2018

-        In light of the worrying protests taking place in Jordan, and the experiences that many countries have had with the International Monetary Fund over more than seventy years since its founding, and what is happening now, and what will happen later..... I thought I would summarize for you a brief account of the International Monetary Fund, based on a book I read..and on the disasters and calamities this Fund has left in its programs under what is called the reformist approach according to the principles of neoliberal capitalism advocated by its famous economist Milton Friedman, the Jewish immigrant to America in the early part of the last century..and his disciples from the University of Chicago group.....the Fund invades countries silently and without armies or weapons, and at the request and with the consent of these countries, it carries out financing operations..under agreements that are non-international whose contents are kept secret, and far from public opinion. These agreements, ultimately...are an automatic diminution of the sovereignty of these countries...and economic and social ruin...given the results that these societies face from being treated with the so-called economic shock.

-        The book "The International Monetary Fund.....A Great Power on the World Stage" by Ernest Wolff...who dedicated the book "to humankind in Africa, Asia, and South America who cannot read it because IMF policy has deprived them of attending schools"...

-        In this book, the author explained that the objective of establishing the Fund was not, as some claim, to create a new and strong international monetary system, but rather the aim of its establishment was to strengthen the hegemony of the great power in the world..the United States of America over the new world order..

-        On 27-12-1945, 29 governments ratified the agreement establishing the Fund...and the Fund began its work on 1-3-1947 in Washington, and through its founding charter, the United States acquired the permanent right to scrutinize the financial and economic conditions prevailing in each of the Fund's member countries.

-        The Fund began with capital of $8.8 billion, collected from the quotas of member countries, which consisted of contributions of 25% gold and 75% in the member country's currency. The United States contributed the largest share of $2.9 billion, which was double the share of Britain, which had attempted at the founding to have a special role in the Fund, but the United States thwarted this attempt..and the United States remained first in leading the Fund's helm.

-        Among the Fund's declared objectives: to encourage international cooperation in the field of monetary policy, to facilitate the expansion and growth of foreign trade, to work to stabilize exchange rates and assist in instituting a multilateral payments system, to strengthen confidence among member countries, and to make available to them the opportunity to use its general resources temporarily with adequate guarantees so that they can correct imbalances in their balance of payments..
The first Managing Director of the Fund was from Belgium: Camille Gutt..who had been Minister of Finance in his country, and he cooperated with Britain at that time, as he lent it gold to finance World War II expenditures, and supplied it with minerals of cobalt and copper from the Congo, which was a Belgian colony at the time, and he won the favor of the American administration where he provided it with uranium extracted also from the Congo mines - the colony of Belgium at that time...noting that the United States reserved the nomination of the Fund's Managing Director from outside itself....

-        The Fund went through four stages. The first stage: covering the 1950s and 1960s of the last century, and in this era the Fund focused its efforts on enabling the dollar to be the leading currency in the world at large, paving the way for American banks and companies to invest their funds across the globe. In the 1960s, the Fund seized the wave of liberation movements and sought to impose tutelage over newly independent countries by granting these countries the loans they desperately needed.
In the second stage the Fund cooperated with the government of the Chilean dictator General Pinochet, where it adopted the principles of modern liberalism, making them the beacon by which it shaped its multiple policies, and the mentor of this modern liberalism was Dr. Milton Friedman and a group of economic experts at the University of Chicago - the Chicago group or the Chicago Boys - who were tutored by Friedman, who called for treatment by what is called an "economic shock"..to stimulate and grow the country. However, these growth gains were distributed to a small segment of the country’s population, while the vast majority of the poor became poorer, and the security forces in Pinochet’s regime carried out arrests and killings of the protest marches organized by opponents of the reform programs imposed by the International Monetary Fund, and around 30,000 of the opponents to this program disappeared during that period, most of whom were leftists..and the Fund insisted on its position to proceed with this shock program, and it began to demand that countries abolish more controls and enact wider liberalization, and move forward with privatization of public projects such as hospitals, schools, universities, ports, railways, and airlines...etc.

-        The Fund continued its efforts by ensuring the sponsorship of globalization and encouraging countries of the world to free the financial sector from government direction, through what it drafted as "structural adjustment" programs.
The third stage..the stage of the collapse of the Soviet Union, and the disintegration of the Eastern bloc, and the Fund seized this historical turning point to enable Western capital to access wide markets that had been closed to it, and it contributed to deepening social inequality..

-        The fourth stage: the stage we are currently living in, which was caused by the American subprime mortgage crisis, and several governments took the necessary measures to rescue the giant banks and financial institutions with taxpayers' money, and the Fund intervened, exerting what it could to reform government budgets by encouraging the concerned governments to adopt a fiscal austerity policy commensurate with the fiscal deficit, and the fiscal austerity policy produced historical social catastrophes, resulting in mass youth unemployment and exposing many citizens to the most brutal forms of poverty, and it led to the undermining of the foundations of social welfare...

-        The Fund's policy violates the sovereignty of this or that state, as it forces it to implement measures rejected by the overwhelming majority of citizens, leaving behind a wide swath of economic and social destruction..
In all these interventions, the Fund did not use weapons or soldiers, but relied on a very simple means and one of the mechanisms of the capitalist system: "financing operations"

-        In all these financing operations its strategy is characterized not only by simplicity but by effectiveness, for the Fund stands ready offering its assistance in the form of loans and in return the Fund requests the implementation of measures that ensure the borrowing country's ability to repay these loans, for the Fund considers itself "the lender of last resort for liquidity", therefore besieged governments in general have no option but to accept the Fund's offer and implement its conditions, which plunges the borrowing country into inescapable indebtedness due to the interest, compound interest, and installments it bears to repay its indebtedness..

-        This Fund policy saddles the working masses and poor employees with the burdens of fiscal austerity programs.
Countries wishing to obtain membership in the Fund are required to disclose their accounts so that it is possible to shed light on their conditions and examine these situations, and these countries must deposit with the Fund, based on their economic capacity, an amount of gold and a sum of money, and in return it became the right of countries to obtain international liquidity up to the amount of their deposits, in the event that one of them faces balance of payments problems..Then the amounts that could be borrowed were adjusted to 140% of the deposits of the borrowing country.

-        The agreements the Fund concludes with borrowing countries are not international agreements, and therefore are not required to be ratified by the parliament of the concerned country. The Fund also deemed that the agreements concluded between it and the indebted countries should remain out of the public eye, and that these agreements should be treated as a secret of secrets that must be kept.

-        Starting in 1958 governments of borrowing countries were required to issue a letter of intent expressing their commitment to achieve specific quantitative targets related to the soundness of the external position, and financial and monetary stability, and sustainable growth, and the loan is disbursed in stages, in order to ensure that the borrowing country "will not stray from obedience"..

-        And the principle of conditionality contributed to expanding the Fund's clauses, and no country is granted loans from the World Bank and international commercial banks unless it carries a "certificate of good conduct" from the International Monetary Fund, that is, a certificate proving that this country has met all the required criteria.

In 1956 Paris witnessed a meeting... Argentina as a debtor state had to meet with the creditor parties and representatives of the International Monetary Fund in order to agree with them on the requirements they wanted to impose on it, and the meeting took place in the office of the French Minister of Finance and was chaired by him. In subsequent years, Paris witnessed a series of meetings that included representatives of the International Monetary Fund, creditor parties and a debtor state... From these meetings arose the idea of holding regular monthly meetings in which the Fund would meet governmental creditors, and what became known as the "Paris Club" was formed, where decisions are agreed upon in the context of informal negotiations beyond parliamentary oversight and away from the eyes of public opinion. The "London Club" was established on the same model.

The number of permanent members reached twenty countries with Israel joining its membership on 24-6-2014.
As for the African countries up to 1969, there were only 3 African countries as members, namely Egypt, Ethiopia and South Africa, and afterwards forty African countries joined from 957-1969, and thus their number in 1969 became 44 African countries, and although they constituted one-third of the number out of 115 total countries in that year, their voting power did not exceed 5% in that year.

In 1971 the American president announced the detachment of the dollar from gold without coordinating with any country.
IMF programs are guided by the foundations of modern liberal ideas and impose on borrowing countries fiscal austerity to the greatest possible extent. From these programs a wide-ranging program was formulated that stipulated a strict and effective reduction in the quantity of money in circulation, the necessity of reducing government spending, the dismissal of as many government employees as possible, the implementation of privatization in the health and education sectors, and it also stressed the necessity of lowering workers’ wages and increasing tax rates levied on employed individuals. At that time it also stipulated the importance of reducing customs duties and taxes levied on companies... This is the “shock therapy” program.

Examples of the IMF's experiences with countries of the world

In Chile, as a result of applying this program inspired by the ideas of modern capitalist liberalism championed, as we mentioned, by Milton Friedman and his disciples from the University of Chicago, all protests opposing these measures were suppressed, and the unemployment level worsened from 3% in 1973 to 18.7% in 1975. Inflation reached 341% in that period. This program produced a worsening of social inequality. In 1980, 10% of Chile’s population controlled 36.5% of the national income, and in 1989 46.8%, while the 50% of the population had their share of national income fall from 20.4% to 16.8% when the Fund lent to Chile and increased it by four or five times.

The British experience: in 1975, following the onset of recession, the pound sterling underwent a broad and violent process; the British government was groaning under increasing pressures and turned to the Fund in 1976 to obtain its assistance. The United States seized the opportunity in an extremely harsh manner to test the extent of its dominance over the Fund, and allied with the strong Germans once again. The United States succeeded in forcing the Labour government headed by Harold Wilson to reduce government spending, to severely cut the welfare program, and to compel it to implement a very restrictive tax policy and to abandon all restrictions on imports. After this episode with Britain, none of the industrial countries in the Western world requested any loans from the Fund.

Afterwards the Fund assumed a new role to encourage groups of developing countries to implement reforms guided by modern liberalism and aligned with the perceptions of American financial capitalism, and the Fund used terms in this encouragement such as “financial support,” “youthful assistance,” and “surveillance.” Through these, the Fund acquired the right to strong participation in decisive matters concerning the expansion of the capacities of the government apparatus and in decisions related to the structure of the central bank of borrowing countries.

Through the term surveillance, the United States of America acquired the right to monitor the extent of compliance with the requirements of sound administration - governance - and the extent of implementation of reforms in the judicial and financial sectors. In another sense: intervention in the sovereignty of the Fund’s debtor countries.

Among the Fund’s requirements for borrowing countries were the following:

Reaching a balanced state in the budget of the borrowing state through adopting fiscal austerity and cancelling expenditure allocated to certain sectors.

Devaluing the national currency in order to enhance competitiveness in markets.

Raising interest rates in order to curb domestic credit.

Removing restrictions on commodity imports and on foreign currency transactions.

Removing restrictions on foreign investments.

Privatizing government projects and state-owned properties.

Accelerating legal regulations that guarantee the rights of private enterprises.

Thus, imposing such conditions on borrowing and indebted countries to the Fund leads to deepening and adapting the concerned country to international financial developments... within what is called “structural adjustment.”
With all this intervention in the sovereignty of states, three quarters of the countries of Latin America and two-thirds of African countries have become members of the International Monetary Fund.

What is noticeable in the IMF’s talks with debtor countries is the extent to which public opinion is excluded from seeing what goes on in these meetings; it is also noticeable that there are no lists of participant names, nor a protocol that summarizes and records what was discussed in the meetings...
In general, it can be said that more than 36 countries were subject between 1976 and 1992 to a series of disturbances and revolutions that repeated about 150 times, in protest against the austerity policies implemented by the governments of those countries in response to the Fund’s conditions, and tens of thousands of citizens who met their deaths in protest operations.

The former Soviet Union’s experience: the Soviet Union during Gorbachev’s days, and in the days of his successor Yeltsin, underwent a bitter experience with the Fund and its conditions, and the Soviet economy appeared to be collapsing after the Eastern Bloc states began to disintegrate. What affected the Russian economy directly and indirectly was oil prices and production quantities. Saudi Arabia announced, half a year after Gorbachev assumed power, the end of the political era of stabilizing oil prices and during six months increased its oil production to four times its previous production quantity, which led to a major collapse in oil prices due to the rise in Saudi production and consequently to a decline in revenues by $20 billion annually for the Soviet Union.

What is happening in Jordan currently in terms of widespread protests and in other countries scorched by the fire of loans from the IMF is the result of the large accumulated indebtedness in these countries, which began decades ago to borrow in order to cover deficits in their public budgets, which put these countries in the predicament of the IMF’s conditions that undermine sovereignty and aim to subjugate these countries to comply with the programs of that Fund mentioned above—raising taxes, cutting government spending, devaluing the country’s currency at a stage of austerity policy imposed by the team of experts from that Fund, reducing employment, full privatization, removing government intervention to the furthest extent, market liberalization, ... etc., matters whose effects touch the majority of the peoples of the borrowing countries and provoke protest marches... from opponents of these policies imposed originally by the Fund, not by the governments on which they fall either to repay the debt and all its consequences which these countries cannot, or to submit to the Fund’s harsh austerity and reform program for the countries’ economies according to the Fund’s program.... Thus governments have only two options left: either submit to the Fund and therefore face popular protests, suppress them, disturb the country’s stability and starve it, or manage their affairs and repay the debts... and the Fund knows that these countries are drowning in debt and cannot move... and thus imposes on these countries what it wants... even to force debtor countries to vote and align politically with the state that dominates the Fund... namely the United States of America...!