The G20 summit will be held in London next week, focusing on the global economic crisis. Leaders from rich countries and emerging economies will be looking for ways to deal with the recession. Those plans may include giving more money to the IMF, the International Monetary Fund.
However, one economist says the summit will fall short of expectations unless members agree to reform the IMF. Mark Weisbrot, co-director of the Center for Economic Policy and Research in Washington, spoke to VOA about why he believes IMF reforms are needed.
"There was a huge change that took place over the last decade that wasn't given a lot of attention. And that was that the IMF, which used to have an enormous power over developing countries, lost most of that power, at least in the middle income countries, and their loans went way down. They dropped from $120 billion to less than $10 billion in just a few years. And it was because they had a terrible track record and no one wanted to borrow from them because of the conditions that had attached," he says.
Weisbrot says that the IMF and the US Treasury are closely linked. "Here in Washington, the IMF was always a very important institution because of the power that they had because of this kind of creditors' cartel…this arrangement where if you didn't meet IMF conditions, you didn't get money from a lot of other institutions and governments…. So Washington has always favored the IMF because it's been the main avenue of influence for the US Treasury Department over the governments of the world," he says.
Weisbrot says that the Obama administration is proposing $750 billion dollars total for the IMF, some $500 billion more than it currently receives. "They've gotten some support from Japan – a hundred billion – and a similar amount from the European Union. But certainly none of the developing countries are giving them anything. China has $2 trillion in reserves and they've said, straight out, no," he says.
Instead, he says that China is giving a lot of aid through "currency swap arrangements" whereby countries can avoid going through the IMF and its conditions.
He says that one example of poor IMF performance is the Asia economic meltdown about 10 years ago, which he compares to today's economic crisis. "They pushed exactly the kind of deregulation that caused the crisis in Asia. They encouraged countries to lift their controls on international investment flows and that led to a huge inflow of hot money, which reversed itself in 1996/97. So that caused the crisis and then they prescribed a number of policies, which at the time became quite infamous for making the crisis worse," he says.
In fact, he says, the IMF called for actions that are the opposite of what are being proposed or enacted now for a recession, such as "cut spending, raise interest rates – the kinds of things that just make recessions worse. The problem is that there just isn't any accountability. There's no electorate to hold them accountable."One of the IMF reforms Weisbrot would like to see is enactment of an UN-based proposal "where you create a global economic council that's not subject to the veto power of a couple of rich countries. In terms of development lending, any kind of crisis balance of payments lending, that should go through some body that is reflective of the member countries."