WHEN Thomas Rumbough, Asia-Pacific adviser for the International Monetary Fund, addressed the press on Thursday, the issue of increasing the government’s revenues came up several times. Besides the obligatory caution against a high inflation trend, Rumbough suggested that energy and power prices should be increased. The lending agency has already recommended that the government should scrap its tax holiday scheme. There were also recommendations to introduce taxes in the transport sector. Put together, this would increase the government’s earnings and ease its balance of payments difficulties, which happen to be the fund’s core area of competence, besides a strengthened and rejuvenated revenue board.
   While the recommendations, as they generally are, were anti-people and devoid of any long-term vision for sustained growth and development, Rumbough might have been more preoccupied with the financial health of his own agency. The IMF is set to post a loss to the amount of more than $100 million in the current fiscal year. The loss is expected to cross $365 million by 2010.
   
   A losing concern but Rumbough stays
   A high-level committee, constituted by the IMF managing director, Rodrigo de Rato, proposed several measures for the agency’s ailment. Fortunately for Rumbough though, he would not have to worry whether he would be given the sack — at least not just yet — as administrative measures were explicitly kept out of the terms of reference of this committee, headed by Andrew Crockett, a former chairman of the Bank for International Settlements. What’s more, Rumbough would presumably keep enjoying the same perquisites and be paid the lavish per diem he gets now.
   The Crockett Report, as it has come to be known as, which was submitted on January 31, said the IMF’s current financing arrangements were inequitable, inflexible, illogical and unpredictable. It also proposed a number of measures to improve the IMF’s income position. Rightly apprehending the IMF’s lack of perception and diabolical handicap to grasp anything comprehensively, the committee specified in its recommendations ‘its proposals be viewed as a package rather than as individual measures to be implemented independently from one another’.
   Although the committee ignored the high costs of running the institution, its report did point out that curtailing its expenditures was of central importance, and that new revenue sources should not lead to the creation of new missions. However, it could not recommend any specific spending cuts but sure would have suggested — not unlike the IMF itself — a wage ceiling, severe reduction of perks and per diem, and drastic reduction of unnecessary staff had the mandate included administrative expenses. The IMF itself, it appears, does not have the stomach to stomach the kind of strict austerity measures it spells out for its clients.
   Suggesting that a robust income model would correct the situation and elaborating upon certain weaknesses that were ‘becoming increasingly apparent’, the report said, ‘It has the curious feature that the Fund’s financial well-being depends on it being unsuccessful in its primary mission, which is to prevent financial crises.’
   
   Financial crises — containing or creating
   The Asian financial crisis of 1997 that severely affected a number of developing countries with boosting economic growth has been largely ascribed to the IMF’s flawed policy recommendations. It characteristically spelled out policies in keeping with its ‘one size fits all’ policy. While the countries implemented the same set of recommendations to variable degrees, there were markedly different outcomes. However, in each case the situation hardly improved although the IMF claimed each to be a success. There is little evidence of any correlation between its prescription and the recovery of those countries that it claimed.
   The financial crisis in those countries, including Thailand, South Korea and Indonesia, eventually turned into an economic and social crisis when they proceeded with the IMF recommended currency devaluation and increased interest rates. It was marked with high business bankruptcy generating large-scale unemployment, which hit South Korea in particular. Indonesia and Thailand experienced a shift of employment from the formal to the informal sector, typically characterised by lower wages, poor job security and inadequate or non-existent welfare benefits and legal protection. Even those who kept their jobs experienced a drop in wages.
   More than 20 million people in the three countries dropped below the poverty line in a space of two years as a result of the financial crisis but more particularly as a result of macroeconomic reforms and adjustments. When the IMF, besides imposing tightened macroeconomic policies, recommended that the cost of financial sector restructuring was transferred from mostly the private sector to the public sector, the social and economic crisis deepened even further. Private debt became public debt. As a result, public debt surged by 10.2 per cent of the GDP in South Korea, 36.2 per cent in Thailand and 70 per cent in Indonesia.
   Indonesia began to consume a quarter of its fiscal budget on servicing this debt which further limited the countries’ capacity to alleviate unemployment. They were forced to both maintain and expand exports in order to earn foreign exchange and at the same time continue with the neo-liberal orthodoxy calling for liberalisation, privatisation and deregulation.
   Due to inequitable distribution and high costs of stabilisation that resulted from its policies, the IMF faced increasing resistance from governments and civil societies in these countries. It would have been expected that the lending agency would learn from its mistakes and mend its ways. Instead it forged ahead with the same sets of recommendations and imposing similar programmes in countries, which were destined to lead to further crisis, and they did in 2001 in Argentina.
   
   Argentina: ‘apple of the eye’ to ‘bad apple’
   Mark Weisbrot, co-director of the Washington DC-based Centre for Economic and Policy Research, wrote on April 13 in the Washington Post quoting the IMF research director as saying in April 2003 that Argentina’s year-old economic recovery was ‘a hiatus at the moment from its long economic fall’. Weisbrot points out that the research director could not have been more wrong. In the past five years Argentina has grown by 47 per cent in real terms, lifting more than nine million people (a fourth of its entire population) above the poverty line.
   Between 1991 and 1998, Argentina was the IMF’s poster boy implementing a number of the typical set of reforms. It went through financial liberalisation, privatisation, including the social security system, opened up the domestic economy to international trade and pegged the currency to the dollar. The economy grew substantially during this period but began to slide in 1998. By the end of 2001, it had become a full-blown crisis when Argentina defaulted on $100 billion of debt. This was inevitably followed by a collapse of the currency with a majority of the people falling below the poverty line. Argentina had till then been one of the strongest economies of the region. There were reports in the press of people hunting down stray animals — cats, dogs, horses — for survival.
   When in 2002, the IMF and other international financial institutions, instead of aiding Argentina, took away $4 billion out of the economy and demanded that the country should pay more to the private creditors, the government refused, giving rise to a long struggle. Weisbrot and David Rosnick point to the lengths that the IMF goes to undermine a ‘disobedient’ client in a report ‘Political Forecasting? The IMF’s Flawed Growth Projections for Agrentina and Venezuela’, launched this month.
   The IMF’s projected growth in this specific case has been erroneous, over-projecting when it behaved and under-projecting when it did not. It projected that the Argentine economy would grow by 1.5 per cent in 2000 but shrank by 0.8 per cent. The trend continued for the following two years with the IMF projecting a growth of 3.7 per cent in 2001 while it shrank by 4.4 per cent, and growth of 2.6 per cent while it shrank by 10.9 per cent in 2002. Since then Argentina’s downward slide reversed and so did the IMF’s projection trend. For the years 2003 to 2006, the IMF projected 1.0, 4.0, 4.0 and 4.2 per cent growth. But the economy grew by 8.8 per cent in 2003, 9.0 per cent 2004, 9.2 in 2005 and 8.5 per cent 2006.
   Since the lending agency’s projections are by and large considered to be robust and thus taken seriously, the figures could have serious effects on an economy. The errors are too consistent with Argentina’s relationship with the lending agency so as to render them mere coincidences. It is either that the IMF is as incompetent in making economic projections as it is in containing financial crises, which some quarters might readily accept, or the mistakes are intentional and thus tantamount to fraud.
   Consequently, debtors of the IMF have gradually not only lost faith, which they probably did not have much of to begin with, but also believe that the sooner they free themselves of its clutches the better for them and their people. A number of significant creditors, and more worryingly for the IMF, who were middle-income countries bearing much of the burden of the IMF expenses, have paid off their debt in advance and indicated they will not be interested in further financing and demand for its services has begun to shrink since 2003 with Thailand parting with it, but even more so when in 2005 Brazil and Argentina, two of its largest debtors, followed suit.
   The rot
   After successfully concluding its programme with the IMF in March 2005, Brazil jolted the lending agency with its announcement in December 2005 that it would pay its remaining $15.5 billion of debts as claimed before the end of that year, although civil society protested against the move saying it should be considered illegitimate debt. Thailand had earlier taken the same path paying its $12-billion debt in August 2003. But Brazil’s move set off a chain reaction. In December 2005, Argentina announced that it would pay the $9.8-billion IMF debts. President Nestor Kirchner’s government, which had a bitter relationship with the IMF, once again reiterated his position that the fund was responsible for the collapse of the country’s economy in 2001.
   Similar steps were taken by Bolivia, under its new president Evo Morales, in March 2006. It was followed by Serbia and Indonesia the same year. Uruguay and the Philippines made similar announcements as well. With the addition of Indonesia to the list, three of its four largest debtors have parted with the IMF. The fourth, Turkey, is reportedly considering taking the same step before the end of 2007.
   With an increasing number of middle-income countries refusing its services and making early payment, the IMF faces a crisis that, quite as the crises in its client countries, it failed to foresee and, as things stands, is clutching at straws for its survival. Matters have worsened with large developing countries refusing to abide by its policy recommendations one after the other and two high-profile reports coming out earlier this year with a number of recommendations for the IMF itself.
   
   A recommendation for IMF
   First, an internal evaluation report of the IMF assessing its aid to Sub-Saharan Africa raised questions about its philosophy and practice over the past 30 years. Put it bluntly, the IMF has been lying to its African client countries as well as the rest of the world about its activities there. Apparently, according to the IMF’s own announcement and similar to the World Bank’s shift from the disastrous structural adjustment plans to the supposedly benevolent poverty reduction strategy papers, it had shifted from its enhanced structural adjustment facility and replaced it with the more interactive poverty reduction and growth facility, which would entail increased consultations with the clients and perhaps allow more flexibility, neither of which actually happened. It had only changed the names but the programmes remained the same. The report finds that the IMF has ‘done little to address poverty reduction and income distributional issues, despite institutional rhetoric to the contrary’.
   Secondly, another committee appointed by the World Bank president, Paul Wolfowitz, and de Rato, headed by a former Brazilian finance minister, Pedro Malan, called for the IMF to stop making loans to low-income countries and suspend its programmes under the new poverty reduction arrangement.
   While many believe that the IMF itself is illegitimate for having overstepped its mandate of ‘assisting in balance of payments crisis’, the IMF has quite evidently lost its way and acceptability. Perhaps, it is time that the IMF put its own house in order before sermonising others.