By Walter Chari
Last week former French Finance Minister, Christine Lagarde was named head of the International Monetary Fund (IMF), beating her sole rival Mexicoâ€™s Central Bank Governor, Augustin Carstens. This followed the much publicised resignation of Dominic Strauss khan, who stepped down after being accused of trying to rape a New York hotel maid.
The new appointment was despite discontent from emerging economies, who expressed displeasure with the 64 year tradition of having a European head the IMF and an American leading its sister institution, the World Bank.Â
In 1944 following the formation of the IMF and the World Bank, an agreement was reached between the United States and Europe whereby Washington would choose the president of the World Bank and European countries would choose the IMF managing director.
This not-so-transparent and outdated process has subsisted for the past half century and lends credence to those who say the Bretton-Woods institutions were created during the Cold War era to justify capitalism over socialism in the south.
Observers have always argued that the World Bank and the IMF have always been used as economic vehicles to pursue Western imperialist political agendas.
According to the IMF forecasts, it is estimated that by 2015 developing countries will account for two fifths of world economic output, with China and other fast growing countries such as Brazil and India emerging as major sources of economic growth. The current model of IMF governance is a remnant of the post World War II geo-political set up, when a few countries appropriated for themselves the right to decide what was right for the rest of the globe.
The IMF has received heavy criticism for its handling of various financial crises in emerging countries such as Mexico (1965), Brazil (1998), Turkey (1998), Russia (1998) and lately in Greece. Recent studies and events show that those countries that have developed most successfully have often been those that have ignored the Fund and pursued their own economic development paths, such as China, Malaysia and India.
The unfortunate remarks by some Western leaders to the effect that the next IMF boss should be a European were retrogressive and scandalous. They showed that developing countries are only used to rubber stamp decisions made by Europeans. Emerging economies are not taken seriously by the IMF and the World Bank. The choice of an IMF leader should be based on merit rather than on origins. As things stand, the leadership does not represent the interests of the people who are most affected by the IMF and World Bankâ€™s policies, the poor.
The undemocratic composition of the IMF and the World Bank is compounded by a lack of transparency in their operations. A lot of its activities are shrouded in secrecy and this has made it difficult for the public and other bodies outside the United States and European Union to know how decisions are reached and what influenced the reasoning behind these decisions.
It is time for a radical change at the IMF and World Bank. They should move with changing economic trends since they are products of the politics and economics of the 1940s with little relevance to todayâ€™s world. Serious reforms are needed to give more say to emerging economies.
During the race for the IMF post, Lagarde toured the â€œworldâ€ to convince emerging economic powers like China and India to support her candidature. She and other â€œcandidatesâ€ did not bother to visit Africa to canvass for votes. What does that say about the way the IMF thinks about Africa? African countries and other small economies are routinely hounded by the World Bank and IMF on the issue of Highly Indebted Poor Countries (HIPC) status and have to jump through hoops to qualify for debt cancellation. But how was this debt acquired? At the advice and prodding of these very same institutions!
In the last 20 years, starting from the last days of the Cold War, developing countries have been railroaded into getting â€œassistanceâ€ from the IMF and World Bank. The net result of this has been greater poverty and indebtedness. We have all seen the horrible effects of structural adjustments programmes. With Chinaâ€™s ever rising profile in poor countries, the world will soon have to make a choice between Bretton Woods and Beijing.
Another reason why there is need for a paradigm shift at the IMF is that although rich countries have about two thirds of the voting power in the Fund, they contribute about a quarter of its income. They also have less than a quarter of the worldâ€™s population and are subject to none of the IMFâ€™s programmes. They own very little of the worldâ€™s natural resources and still continue to call the shots. Interest paid by poor countries on loans sustains these multilateral institutionsâ€™ programmes.Â
Countries such as the US, Japan, Germany, France, UK, China, Saudi Arabia and Russia have over 2,5% each of the votes in the IMF. This means they are able to have their own executive directors. On the other hand, all other nations group together and share an executive director. Francophone Africa shares one executive director while their Anglophone counterparts share another. A further 46 countries share two directors among them. Analysts have argued that these institutional structures were a product of their time and are no longer necessary in this modern world.
The IMF has shown that it is totally incapable of addressing global balance of payments problems: one simply has to look at what is happening in Greece and the shocking fact that America has a US$14 trillion debt but continues to act as if it is richer than Africa.
Professor of Economics Charles Wyplosz of the Institute of International Studies in Geneva, SwitzerlandÂ summed it up all when heÂ said: â€œThere is a growing recognition that the IMF should not be interfering too deeply in sovereign affairs…When firemen come to your house to put out a blaze, you would not expect them to meddle in your marriageâ€.
The Zimbabwean government was last week incensed by a report issued by the United Nations Developing Programme (UNDP) classifying the country as among the worst performing economies in the world. The report placed Zimbabwe at the bottom of the lowest 10 in the world. Zimbabwean government officials were scheduled to meet UNDP representatives to challenge the criteria used to classify the country among the worst performing economies in the world. It is reported that the figures used were from the World Bank without verifying with relevant authorities in the country. This is despite the African Development Bank (AfDB) projectingÂ Zimbabweâ€™s economy to grow by 7,8% this year. (The World Bank says growth will be 5,5%).
The Bretton Woods institutions like to project certain economies in a bad light and seems this is to further their own agendas, which appear to be of a wholly political nature. The entire Bretton Woods imperialist empire exists to serve specific global class interests and therefore the worldâ€™s developing nations should push for reforms at these institutions or otherwise pull out and pursue creation of a new structure that properly reflects the world as it is today and is likely to be for the foreseeable future!
The opinions expressed in this article are the authorâ€™s and do not necessarily represent those of the Zimbabwe Broadcasting Corporation.
This article has also appeared in the Southern Times.