The Progressive ResponseVolume 4, Number 36
Editor: Tom Barry (IRC)
Table of ContentsI. Updates and OuttakesIMF: REFORM, DOWNSIZE, OR ABOLISH GREENING THE BRETTON WOODS INSTITUTIONS MULTILATERAL DEBT BURDEN
II. Self-Determination Crisis WatchSRI LANKA’S LONG WAR
I. Updates and Outtakes
IMF: REFORM, DOWNSIZE, OR ABOLISH The global financial crisis that erupted in 1997 set the stage for the first genuine debate in several decades over the role of the International Monetary Fund (IMF). Most analysts agree that IMF-promoted policies to liberalize capital and financial markets in East Asia in the early 1990s at the very least aggravated the crisis. After rapid capital flight plunged the Asian countries into an economic tailspin, the IMF prescribed harsh economic measures in some countries that arguably made the impact more severe. Because the U.S. government is generally accepted as the principal influence on IMF policies, much of the reinvigorated debate over the institution’s role has been centered in Washington and in recommendations aimed at the Treasury Department and Congress. The introduction of legislation in 1998--authorizing $18 billion to increase the IMF’s financial resources--provided a focal point for critics of the fund from across the political spectrum. Although the bill eventually passed, the debate has continued to grow in intensity. In March 2000, a congressionally appointed bipartisan commission issued a scathing report on the IMF and World Bank. The following month, tens of thousands of protesters converged on the IMF and World Bank semiannual meetings in Washington, demonstrating that the debate had extended far beyond elite circles. The proposals of IMF critics fall roughly into three general categories. One set advocates the elimination of the IMF. These include conservatives who charge that the IMF is a waste of public funds in an age when private capital flows to the developing world have dramatically increased. This group also criticizes IMF bailouts for eliminating the discipline of risk in private markets. These staunch defenders of free markets are joined by some prominent individuals from the left who argue that the abolition of the IMF would, among other things, create more space for developing countries to pursue alternative economic policies that do not conform with the IMF’s free market prescriptions. A second set of proposals stems from the belief that there remains a need for a strong governmental role in promoting international financial stability and reducing inequalities. This approach attempts to achieve these goals by reshaping or replacing the IMF and the World Bank. Labor unions, a number of environmental groups, and other progressive analysts have called for deep changes in the institutions to curtail their power to impose draconian austerity measures while seeking ways for them to play a positive role in reducing poverty, promoting international labor and environmental standards, and placing controls on global capital flows. A third set of proposals can be found in the recommendations of the International Financial Institutions Advisory Commission. This commission was created as part of the 1998 legislation that increased the IMF’s financial resources. It is typically referred to as the Meltzer Commission, after the group’s Chairman, Allan Meltzer, an expert on monetary policy at Carnegie Mellon University. The commission’s majority report calls for the IMF to be scaled back to serve only as a lender of last resort to solvent member governments facing liquidity crises. It would eliminate the IMF’s power to impose conditions on developing countries in return for long-term assistance. However, it would still require that countries meet a list of rigid, free market-oriented "preconditions" in order to be eligible for short-term crisis assistance. Following the March 2000 release of the commission’s report, Treasury Secretary Lawrence Summers firmly denounced it, arguing that, if implemented, it would "profoundly undermine the capacity of the IMF...and thus weaken the international financial institutions’ capacity to promote central U.S. interests." Hoping to prevent the commission’s report from gathering support in Congress, Summers released his own more modest reform proposal. Nevertheless, several prominent members of Congress have indicated their commitment to enacting at least some of the commission’s recommendations. In addition, Meltzer and other commission members have been meeting with officials of other governments to promote their proposals internationally. The IMF has not yet issued a formal response to the Meltzer Commission, although it has made a concerted effort in the past year to improve its global public image, in particular by announcing that poverty reduction is now the institution’s overarching goal. Treasury Secretary Summers continues to defend the IMF as "among the most effective and cost-efficient means available to advance U.S. priorities worldwide." Commenting on the fund’s response to the 1997-98 global financial crisis, Summers claimed that without the IMF, "the crisis would have been deeper and more protracted, with more devastating impact on the affected economies and potentially much more severe consequences for U.S. farmers, workers, and businesses." Indeed, there have been signs of recovery among some of the countries hardest hit by the financial crisis. However, the economic indicators in many countries suggest that they have not fully recovered. Perhaps even more disturbing than the lingering effects of the financial crisis is the fact that little has been done to prevent such tragedies in the future. The Treasury Department’s IMF reform plan is strikingly vague. It focuses primarily on improving the transparency and surveillance of member countries’ economic indicators, ignoring the fact that the Asian countries had been following prudent economic policies prior to the crisis, and most had both low and falling inflation and budget surpluses. It was rampant speculation or "hot money"--not a lack of information--that set off the Asian crisis, and yet there is not a word in the Treasury’s reform plan on the need to discourage speculative capital flows. In the absence of a clear plan from the Clinton administration, much attention has focused on the more radical recommendations of the Meltzer Commission. Media coverage of the Majority Report of the Commission (signed by 8 of 11 members) has focused on the recommendation to terminate long-term IMF assistance tied to conditions. This was understandably welcomed by many critics of the orthodox structural adjustment conditions, which have caused suffering for so many millions of people around the world. However, while the commission would abolish the IMF’s power to impose conditions on long-term assistance, it would still require that countries meet a list of rigid "preconditions" to be eligible for short-term (120 days maximum) crisis assistance. The "preconditions" would allow the IMF to maintain tremendous influence over member country governments, despite the termination of its long-term policy-based lending. Jerome Levinson, a commission member who dissented from the majority report, argues that the preconditions are so strict that the countries most in need of IMF assistance would probably be cut off. Moreover, the IMF’s announcement that a certain country has failed to prequalify for emergency assistance would likely provoke jitters in the international financial markets that would undermine the IMF’s goal of stability. Perhaps the most positive contribution of the Meltzer Report is a recommendation that the World Bank and IMF cancel all debts to the heavily indebted poorest countries. However, the report conditions debt cancellation upon the World Bank’s approval of each country’s economic development strategy. This would likely perpetuate the same type of pressure to implement structural adjustment programs that has been the target of criticism in the past. Furthermore, as Commissioner Levinson points out, it is simply illogical to place conditions on debts that, according to the commission, are unrepayable. He advocates unconditional cancellation, but with future assistance dependent on whether these countries effectively handle the funds freed up through debt relief. Sarah Anderson <saraha@igc.org> is the director of the Global Economy Project of the Institute for Policy Studies. She also served on the staff of the Meltzer Commission. Sources For More Information50 Years Is Enough Network Center of Concern Center for Economic and Policy Research Economic Policy Institute Globalization Challenge Initiative International Forum on Globalization Jubilee 2000 Association for the Taxation of Financial Transactions for the Aid
of Citizens (ATTAC) Center for Economic and Policy Analysis Financial Markets Center International Financial Institutions Advisory Commission International Monetary Fund U.S. Department of the Treasury
GREENING THE BRETTON WOODS
INSTITUTIONS The Bretton Woods Institutions (BWIs)--the World Bank and the International Monetary Fund (IMF)--have come under increased scrutiny and criticism over the past several years. In April 2000, thousands of demonstrators took to the streets of Washington, DC, to protest against these institutions and demand change. The protests followed a scathing report by a prominent congressionally appointed panel--the Meltzer Commission--that called for drastic reforms of the World Bank and IMF. Combined with the ongoing criticism by advocacy groups from both developing and industrialized countries, these recent events have focused unprecedented attention on the BWIs. This long-overdue scrutiny is most welcomed by the environmental community. Environmental groups have fought since the 1980s to overhaul the World Bank and IMF, urging the institutions to incorporate environmental goals, to become more open, and to change the nature of the investments they support. As the BWIs’ largest shareholder, the U.S. has played a positive role in forcing them to respond to citizens’ concerns. For example, the U.S. Congress conditioned the World Bank’s appropriations on the institution’s adoption of environmental and information disclosure policies. Congressional suasion also led to the creation of the World Bank’s Inspection Panel, an independent accountability mechanism. And in 1994, Congress used the power of its purse to force more information disclosure at the IMF. These efforts have yielded some successes with significant ramifications, including:
Although important, these improvements have occurred at the margin of the BWIs’ operations. The World Bank still provides loans for environmentally and socially harmful projects. IMF and World Bank structural adjustment loans still promote export-led growth, encouraging natural resource exploitation and endangering local communities that depend on these resources for survival. The World Bank’s structural adjustment loans do not even follow the institution’s environmental policies. And staff at the institutions rarely question how the structural adjustment loans they design will affect either the environment or the poor. In spite of these problems, the U.S. Treasury Department has been a staunch advocate of structural adjustment. Although the U.S. has played a positive role in pushing for more transparency and accountability at the BWIs, profound problems remain with how the institutions put principles into practice. The U.S. must ensure that World Bank and IMF loans comply with the institutions’ policies, and remaining policy loopholes must be closed. For example, though the World Bank has established environmental policies, its own studies find that it routinely fails to enforce them. A recent internal review revealed that the bank has failed to comply with its forestry policy, at the expense of both the forests and the poor. "Categorization" of World Bank projects also falls prey to political pressures. This process is supposed to demand detailed environmental assessments of the largest, most environmentally harmful projects, but bank staff often downgrade projects and thus evade fully assessing them. Finally, while the bank has adopted a green rhetoric, its actual portfolio fails to reflect its supposed commitment to environmental protection. Funding for environmentally harmful projects--such as for the mining, power, and road sectors--constituted almost one-fourth of the bank’s total lending in 1998. More than half of all lending from the World Bank’s private sector divisions was for environmentally harmful projects. Meanwhile, the resources that the bank devotes to environmentally beneficial projects are on the decline, amounting to just 1.02% of the institution’s lending in 1998. The bottom line is that most IMF and World Bank operations fail to genuinely incorporate sustainable development principles. As the single largest shareholder of both institutions, the U.S. government should play a leading role to push them to change the direction of their lending and incorporate environmental goals routinely into their approach. Andrea Durbin <ADurbin@foe.org> is director of the international program at Friends of the Earth in Washington, DC. Carol Welch <CWelch@foe.org> is an international policy analyst at Friends of the Earth in Washington, DC, where she specializes in international financial institutions. Sources For More InformationBank Information Center Bretton Woods Project Center for International Environmental Law Friends of the Earth Fifty Years Is Enough Network International Finance Corporation International Monetary Fund World Bank World Wildlife Fund Macroeconomics Program Office
MULTILATERAL DEBT BURDEN A global movement called Jubilee 2000, which calls for external debt cancellation for the poorest and most indebted countries, has gained great momentum. With national campaigns in some fifty countries (about half of them in the South), the movement has put a scare into the IFIs. In response to Jubilee 2000, the G7 countries suggested a somewhat-more-generous version of the IMF/World Bank debt management program at their June 1999 meeting in Cologne, Germany. In a groundbreaking move at the G7’s July 2000 summit, Italy pledged to cancel debts owed it by 62 countries (well beyond the usual HIPC list) without macroeconomic conditions. Italy’s only requirements will be that beneficiary governments respect civil liberties, renounce war, and pledge to direct freed-up resources to health, education, and poverty reduction. A conference of Jubilee 2000 campaigns denounced the failure of all G7 wealthy nations to commit themselves to debt relief, saying that the G7’s inaction on earlier promises on debt relief would "unleash a global reaction of protest that will intensify pressure on the creditors to act." Outright debt cancellation--the only humane solution to the most impoverished countries’ debt crises--would undermine the policy leverage now exercised by the IFIs. The absence of debt burdens would make countries more creditworthy and thus less dependent on the IFIs’ conditioned loans. In the wake of Hurricane Mitch’s devastation in Central America, Treasury Department officials gave "loss of leverage" as their reason for refusing to consider comprehensive debt cancellation for Nicaragua and Honduras. President Clinton’s September 1999 pledge of 100% forgiveness of bilateral debts owed the U.S. by the most impoverished countries was important for breaking that taboo. But it appears that his offer will be made only to countries graduating from HIPC and committed to ongoing structural adjustment. The IFIs should also be forced to accept--through a change in their bylaws, if necessary--the option of writing off debts. Private banks do this routinely with loans they can never expect to be repaid, and many took some losses in resolving the Latin American debt crisis in the early 1980s. Jubilee South, a coalition of Southern nongovernmental organizations involved in debt cancellation campaigns in Latin America, the Caribbean, Asia-Pacific, and Africa, calls for total cancellation of Southern debt without creditor-imposed conditions. They also demand an end to structural adjustment and the closure of institutions imposing neoliberal policies. Moreover, they insist on reparations and restitution for the damage done by debt, structural adjustment, and exploitative economic practices. The overriding imperative, at any rate, is a policy of extensive debt cancellation that avoids shackling debtor economies and compromising the sovereignty of debtor governments. The cancellation of multilateral debt must top the agenda of U.S. policymakers, whose influence within the IFIs is decisive. Soren Ambrose <soren@afgj.org> is a policy analyst with 50 Years Is Enough: U.S. Network for Global Economic Justice and the Alliance for Global Justice. Sources For More Information50 Years Is Enough: European Network on Debt and Development (EURODAD) Friends of the Earth U.S. Jubilee 2000 U.K. Jubilee 2000 USA Christian Aid U.K. International Monetary Fund Jubilee South Kunibert Raffer (personal web page of this expert on insolvency
and governmental debt) U.S. Treasury Department World Bank
II. Self-Determination Crisis Watch
SRI LANKA’S LONG WAR Given the intensification of the war on the battlefield and the often conflicting statements issuing from the government and the LTTE, most Sri Lanka observers see little hope on the horizon for an early resolution to the conflict. However, there are a number of ways in which the U.S. can and should play a constructive role in long-term efforts to bring about a resolution. Washington can effectively use its influence to increase pressure on Colombo regarding issues of governance and human rights. Human rights and democracy activists have enumerated several problems: a steady erosion of democratic norms and practices over the course of the war, increasing levels of violence in society, a lack of prosecutions for serious human rights abuses, crackdowns on freedom of expression, and fraudulent election practices. U.S. criticism of the draconian security measures during Pickering’s recent visit surely had a role in the subsequent easing of censorship on foreign media and the lifting of a ban on public gatherings. The U.S. could also financially support local and international election monitoring in the upcoming parliamentary elections. While recognizing some improvements in the human rights record of the Sri Lankan government, the U.S. must continue to raise the issues of impunity, torture, freedom of expression, and provision of food and medical care to the displaced Tamils. It can, for example, encourage the Sri Lankan government to host a visit from UN High Commissioner for Human Rights Mary Robinson as well as the UN special rapporteur on freedom of expression. Unless consistent pressure is brought to bear on both the LTTE and the government, they are unlikely to make serious efforts to change. Although the parties cannot be forced to the negotiating table, points of leverage need to be considered. One point of leverage is aid, an option donor countries have been unwilling to use in the past but which bears another look, given that the Sri Lankan government is now channeling a much higher proportion of its resources into the war. At the same time, it would be helpful for the U.S. to find a way to open a channel of communication with the LTTE, as it has done with other guerrilla groups in the past. The willingness of many countries to concur with the Sri Lankan government’s demonization of the LTTE will not lead to an environment conducive to negotiations, and Washington should avoid such a one-sided approach. For the success of any negotiation, both the process and the degree of preparedness of the negotiators are important factors. Do the parties have the necessary negotiation skills in order for talks to have a chance of success? Neither the government nor the LTTE have exhibited such skills in the past, and there is no indication that either of them has paid much attention to preparation for talks. The U.S. and other governments should not lose sight of this in a sudden effort to hasten negotiations. The international community needs to urge both parties to prepare carefully by getting training in negotiation skills and by pursuing a step-by-step approach to the talks. Civil society organizations in Sri Lanka opposed to a military solution are working both to create a momentum for peace and to find ways to counter the increasing level of violence within society as a result of the war. Surveys of the population indicate that a significant percentage of the Sinhalese people do not believe the war can be won on the battlefield. Increasingly they are in favor of resolving the conflict through peaceful negotiations, and there have been several impressive demonstrations for peace that have brought together thousands of Sri Lankans from all ethnic groups. However, the space for such groups to work has narrowed, and their voices are increasingly being drowned out by extreme elements of Sinhalese society. The U.S. needs to encourage these civil society groups and assist them in being heard. U.S. military assistance has no place in a war that requires a political, not a military, solution. Sri Lanka’s troubles will only be solved through a political settlement guaranteeing the fundamental freedom and human dignity of all Sri Lanka’s citizens, regardless of their ethnic or religious identity. The U.S. needs to make stronger efforts to encourage the government in that direction, while discouraging the military option. Miriam Young <miriam@apcjp.org> is the executive director of the Asia Pacific Center for Justice and Peace and the coordinator of the U.S. NGO Forum on Sri Lanka.
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