The latest meeting of the ministers
of finance and central bank governors of the G20 countries took place
April 10-11, 2014 in Washington. A key issue was the reform of the
International Monetary Fund (IMF).
The International Monetary Fund: A Long and Difficult Life
2014 marks 70 years since the
Bretton-Woods Conference, at which the main parameters of the post-war
world currency and financial system were defined and the decision to
create the International Monetary Fund was made. The most important
elements of this system were fixed exchange rates for the currencies of
participant countries, the pegging of all currencies to gold (gold
parity), and the free convertibility of dollars to gold by the U.S.
Treasury for the monetary authorities of other countries. The Fund’s
main function was defined as extending credit to member countries if
they have a deficit balance of payments and there is a danger that the
currency’s exchange rate could deviate from the established fixed rate
and from gold parity.
The IMF survived a serious crisis in the
1970s when the Bretton-Woods system collapsed. It all began August 15,
1971, when U.S. President R. Nixon announced that the U.S. Treasury was
terminating the convertibility of dollars to gold. The final dismantling
of the system occurred at the Jamaica Conference in 1976, when
amendments were made to the IMF Charter. From that time on, floating
exchange rates were enacted and the pegging of the dollar and other
currencies to gold was terminated.
Of course, it wasn’t clear what the IMF
was going to do in these new circumstances. After all, now it was no
longer necessary to support payment balances using credit from the Fund.
There were even proposals to close the Fund. However, in the 1980s the
IMF found its niche. It became the main tool for implementing the
so-called Washington Consensus – a set of principles for financial
globalization and economic liberalization. The Fund began to extend
credit in exchange for political and social concessions from the
countries obtaining loans (privatization of state property,
liberalization of capital movement, state nonintervention in the
economy, etc.). Currently the IMF includes 188 countries, and 2500
people from 133 countries work there.
The Need to Reform the Fund
Over the course of many decades, the
United States has had a «controlling interest» in the IMF. The number of
votes each participant country has is determined by its share in the
capital. 15% of the votes are needed to block any decision at Fund
meetings. The number of votes held by the U.S. has always been
substantially higher than this threshold figure. And in order to push
through the decisions it needed, the U.S. had no particular trouble in
recruiting Great Britain and France, which after the war held the second
and third largest shares in the Fund’s capital, to its side.
Periodically the shares of countries in the capital and their votes were
adjusted in accordance with changes in the countries’ positions in the
world economy. Sometimes the decision was made to increase the Fund’s
capital, but such adjustments did not hinder the United States from
maintaining a «controlling interest» and using the Fund as a tool of its
global policy.
The test of the Fund’s ability to
resolve complex problems connected with maintaining the stability of the
international currency system was the world financial crisis of
2007-2009. The Fund was not equal to the challenge, to put it mildly.
First, the crisis revealed the insufficiency of the Fund’s equity
capital. Second, it was the countries of the periphery of world
capitalism that were deprived of their fair share during the crisis;
this was to a great degree because such countries did not have enough
votes for the adoption of the decisions they needed. Since then, the
largest of the countries which considered themselves «deprived» have
begun to actively use the mechanism of G20 meetings in order to spur the
process of IMF reform. The main movers of this process are the BRICS
countries.
The G20 meeting in Seoul in 2010 played a
special role. There an agreement was reached on the fourteenth and
latest review of countries’ quotas in the Fund’s capital. But besides
this, two strategic decisions were made: to develop a new, fairer
formula for determining quotas; and to double the Fund’s capital from
238.4 billion SDRs to 476.8 SDRs (Special Drawing Rights, a non-cash
monetary unit issued by the IMF). It was expected that in 2012 the new
quotas based on the 14th review would be put into effect, and by January
2014 the new formula would be developed. A 15th review of quotas based
on the new formula was planned for January 2014.
As a result of the 14th quota review,
over 6% of quotas were to be redistributed from developed countries to
developing ones. If the 14th review is put into effect, China’s quota
will become the third largest among IMF member states, and Brazil,
India, China and Russia will be among the fund’s 10 largest
stockholders.
The U.S. Blocks Reform of the Fund
Four years have passed since the
adoption of the decision in Seoul, but the decisions remain purely on
paper. The process is being blocked by the main «stockholder» in the
IMF, the U.S. With a quota of 17.69% of SDRs and 16.75% of votes, which
gives it veto power with regard to key decisions of the fund requiring
an 85% majority of the votes, the U.S. has not yet ratified the quota
review. Washington is worried that the IMF might get out from under its
control in the near future. After all, the 15th quota review is just
around the corner, and it is supposed to be based on a new formula which
will most likely take the interests of the countries of the periphery
of world capitalism into account more fully. The U.S., on the other
hand, will have to contribute about 60 billion dollars to replenish the
IMF’s capital if it is ratified.
The previous meeting of G20 finance
ministers and bank governors took place in Sydney in February 2014. By
then it had become clear to everyone that the IMF has no money. Russian
finance minister A. Siluanov said so publicly. At that time the
following appeared on the site of the Russian Ministry of Finance:
«…Currently the IMF has practically exhausted its own resources, and the
fund’s existing programs are essentially financed through General
Arrangements to Borrow». This means that the Fund extends credit not on
the basis of its own capital, but on the basis of re-lending resources
it receives from individual member countries. But such resources may be
offered to the Fund on very specific conditions (say, to give loans to a
specific country for specific purposes). And re-lending means that the
interest on the loans for the end recipients will be substantially
higher than that which the IMF charges when lending from its own
capital. In Sydney the question of what kind of assistance the IMF can
give to Ukraine was discussed. In the opinion of the majority of meeting
participants – none. The most recent negotiations on the possibility of
the International Monetary Fund offering a multibillion dollar loan to
the current regime in Kiev were simply a charade. Both parties in the
negotiations are nearly bankrupt.
In Sydney the G20 finance ministers
spent a lot of time trying to convince the U.S. to resolve the issue of
ratifying the 2010 decisions. The communiqué from the meeting stated:
«Our highest priority remains ratifying the 2010 reforms, and we urge
the US to do so before our next meeting in April». Alas, these urgings
were not heeded by Washington.
The IMF Is Doomed. What Now?
Through their inaction on the issue of
reforming the IMF, the United States first and foremost is discrediting
itself. And second, the Fund. Third, the G20. The Fund’s reputation is
plummeting especially fast considering that in recent years China has
been giving «third world» countries loans similar in size to those
offered by the IMF and the IBRD. But Beijing, unlike the IMF, does not
set political conditions in the spirit of the Washington Consensus.
According to the Rand Corporation, in
2001 the total volume of aid promised by China to foreign partners
equaled 1.7 billion dollars. A decade later this figure had reached 190
billion dollars. The total volume of aid promised over 10 years was
around 800 billion dollars, and the aid given was over 70 billion. The
difference is explained by the fact that preparations for the projects
in which the Chinese participate take an average of six years. Among
recipient regions, Latin America occupies first place, followed by
Africa, the Middle East, South Asia and Eastern Europe. The largest aid
recipient is Pakistan (89 billion dollars). Among the purposes for which
money is allocated, extraction and processing of natural resources
predominate (42 percent), followed by infrastructure projects (40
percent) and humanitarian aid (18 percent). All assistance is divided
into concessional loans, interest-free loans and direct non-refundable
grants. The first category is provided by state banks, while the other
two go directly through the budget of the PRC. The overwhelming majority
of recipients of Chinese assistance are unable to obtain loans on the
open market. However, the average interest rate on concessional loans is
only 2.3% per annum, which is significantly lower than on the IMF’s
stabilization loans.
If the decisions of the G20 and the IMF
have not been being implemented for four years, that is a serious blow
to the reputation of these international organizations. Incidentally,
this is not the first time that the U.S. has blocked the reform of the
Fund. A glaring example is the decision on the 13th quota review, made
by the Fund in 2001. The U.S. dragged out its ratification until 2009;
only at the very height of the financial crisis did Congress confirm it.
The majority of Western European countries, although they ratified the
2010 review, were secretly pleased by Washington’s inaction, as the
enactment of the 14th review would have resulted in a decrease in their
share of votes.
Many American congressmen believe that
they have more important matters than returning to the issue of
reforming the IMF. If one is to believe their statements, the next time
this issue will be heard in Congress will only be in November 2014.
However, many IMF member countries are running out of patience.
Especially China, which has provided its own funds many times to the
Fund on the basis of General Arrangements to Borrow. There are not that
many options for getting out of the dead end.
Some believe that a kind of revolution
could soon occur in the IMF: a decision on reforming the fund will have
to be made without U.S. participation… But formally the Fund’s charter
in the form it has had since the Jamaica Conference in 1976 will not
permit this. Such a revolution will in fact mean not a reformation of
the IMF, but the creation of a new organization with a new charter on
its foundation – and without the U.S.
There is one more possible option. It is
already fairly well worked out and has every chance of success. This is
the Currency Pool (Currency Reserves Pool) and the Development Bank of
the BRICS countries. The main decision to create these organizations was
made at the meeting of BRICS countries on the eve of the G20 summit in
St. Petersburg in September 2013. The BRICS Currency Pool and
Development Bank will have capitalization of 100 billion dollars each.
Operation is planned to start in 2015. Currently such questions as the
schedule of capital formation, the shares (quotas) of individual
countries, and the location of the headquarters of both organizations
are being decided. These international organizations of the BRICS
countries could become crystallization points which attract other
countries to themselves. Who knows: maybe in time they could become
financial organization which could replace the International Monetary
Fund and the World Bank.
As we can see, in both options for
getting out of the current dead end, the International Monetary Fund has
no place in the new world financial order.
Financial G20 Members Decisive
Part of the communiqué published after
the meeting of the G20 finance ministers in Washington April 10-11, 2014
was devoted to reform of the IMF. «We are deeply disappointed with the
continued delay in progressing the IMF quota and governance reforms
agreed to in 2010», states the document. «We reaffirm the importance of
the IMF as a quota based institution. The implementation of the 2010
reforms remains our highest priority and we urge the US to ratify these
reforms at the earliest opportunity», the statement reads. «If the 2010
reforms are not ratified by year-end, we will call on the IMF to build
on its existing work and develop options for next steps and we will work
with the IMFC (the International Monetary and Financial Committee, a
structure within the International Monetary Fund – V. K.) to schedule a
discussion of these options», the G20 document emphasizes.
Behind the scenes, Russian Minister of
Finance A. Siluanov commented on the decisions of the financial summit
in Washington as follows: «It was decided that if this year amendments
in the IMF Charter are not ratified, then at the end of this year other
alternative mechanisms will be proposed which would take into account
the increased share of emerging markets in the world economy». He
recalled that today the IMF operates on the principles of using borrowed
funds, where the opinions of countries which have increased their share
in the world economy are not fully taken into account.
«Other measures
for taking countries’ interests into account in questions of the fund’s
policy will be proposed», he concluded. By all appearances, the reform
of the IMF could be a «quiet revolution».
Doom and Gloom for the War Mongering Criminally Insane Mass Murderers'.
ReplyDeleteHow long has "G20" used this FRAUD to be the most criminally insane of the world earth? IMF has never been other than the cult of criminally insane mass murderers using criminal fraud to commit extinction of species Homo Sapiens', and now the CHANGE is going to be 'real'?