[DEBATE] : Don't be fooled by this reform: the IMF is still the rich world's viceroy

[Riaz K Tayob]

Don't be fooled by this reform: the IMF is still the rich world's viceroy

What will be passed off as a democratisation is in fact a way of 
ensuring the poor global majority continue to have no say

George Monbiot
Tuesday September 5, 2006
The Guardian

The glacier has begun to creak. In the world's most powerful 
dictatorship we detect the merest hint of a thaw. I am not talking about 
China or Uzbekistan, Burma or North Korea. This state runs no torture 
chambers or labour camps. No one is executed, though plenty starve to 
death as a result of its policies. The unhurried perestroika is taking 
place in Washington, in the offices of the International Monetary Fund.

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Like most concessions made by dictatorial regimes, the reforms seem 
designed not to catalyse further change, but to prevent it. By slightly 
increasing the shares (and therefore the voting powers) of China, South 
Korea, Mexico and Turkey, the regime hopes to buy off the most powerful 
rebel warlords, while keeping the mob at bay. It has even thrown a few 
coppers from the balcony, for the great unwashed to scuffle over. But no 
one - except the leaders of the rich nations and the leader writers of 
just about every newspaper in the rich world - could regard this as an 
adequate response to its problems.

The fund is a body with 184 members. It is run by seven of them - the 
US, Japan, Germany, the UK, France, Canada and Italy. These happen to be 
the seven countries that (with Russia) promised to save the world at the 
G8 meeting in 2005. The junta sustains its control by insisting that 
each dollar buys a vote. The bigger a country's financial quota, the 
more say it has over the running of the IMF. This means that it is run 
by the countries that are least affected by its policies.

A major decision requires 85% of the vote, which ensures that the US, 
with 17%, has a veto over the fund's substantial business. The UK, 
Germany, France and Japan have 22% between them, and each has a 
permanent seat on the board. By a weird arrangement permitting rich 
nations to speak on behalf of the poor, Canada and Italy have effective 
control over a further 8%. The other European countries are also 
remarkably powerful: Belgium, for example, has a direct entitlement to 
2.1% of the vote and indirect control over 5.1% - more than twice the 
allocation of India or Brazil. Europe, Japan, Canada and the US wield a 
total of 63%. The 80 poorest countries, by contrast, have 10% between them.

These quotas no longer even reflect real financial contributions to the 
running of the IMF: it now obtains much of its capital from loan 
repayments by its vassal states. But the G7 nations still behave as if 
it belongs to them. They decide who runs it (the managing director is 
always a European and his deputy always an American) and how the money 
is spent. You begin to wonder why the developing countries bother to 
turn up.

In principle, this power is supposed to be balanced by something called 
the "basic vote" - 250 shares (entitling them to $25m worth of votes) 
are allocated to every member. But while the value of the rich 
countries' quotas has risen since the IMF was founded in 1944, the value 
of the basic votes has not. It has fallen from 11.3% of the total 
allocation to 2.1%. The leaked paper passed to me by an excellent 
organisation called the Bretton Woods Project (everything we know about 
the IMF has to be leaked) shows that the fund intends to democratise 
itself by "at least doubling" the basic vote. That sorts it all out, 
then - the 80 poorest countries will be able to claim, between them, 
another 0.9%. Even this pathetic concession was granted only after the 
African members took a political risk by publicly opposing the fund's 
proposals. Doubtless the US government is currently reviewing their 
trading status.

All this is compounded by an internal political process that looks as if 
it was contrived in North Korea, not Washington. There are no formal 
votes, just a "consensus process" controlled by the Dear Leaders of the 
G7. The decisions taken by each member state cannot be revealed to the 
public. Nor can the transcripts of the board's meetings and the "working 
papers" on which it bases its internal reforms. Even reports by the 
IMF's ombudsman - the "independent evaluation office" - are censored by 
the management, and their conclusions are changed to shift the blame for 
the fund's failures to its client states. Needless to say, the IMF 
insists that the states it lends to must commit themselves to "good 
governance" and "transparency" if they are to receive its money.

None of this would matter so much if it had stuck to its original 
mandate of stabilising the international monetary system. But after the 
collapse of the Bretton Woods agreement in 1971 the IMF more or less 
lost its mission to maintain exchange rates, and began to look for a new 
role. As a paper by the law professor Daniel Bradlow shows, when it 
amended its articles of asso-ciation in 1978 they were so loosely 
drafted as to grant the IMF permission to interfere in almost any aspect 
of a country's governance. It lost its influence over the economic 
policies of the G7 and became instead the rich world's viceroy, 
controlling the poorer nations at its behest. It began to micro-manage 
their economies without reference to the people or even their 
governments. Since then, no rich country has required its services, and 
few poor countries have been able to shake it off.

This casts an interesting light on the decision - to be endorsed at the 
IMF's meeting in Singapore next week - to enhance the quota for the four 
middle-income countries. After the fund "helped" the struggling 
economies of east and south-east Asia in 1997, by laying waste to them 
on behalf of US hedge funds and investment companies, the nations of 
that region decided that they would never allow themselves to fall prey 
to it again.

They began indemnifying themselves against the fund's tender loving care 
by building up their own reserves of capital. Now, just as China and 
South Korea have ensured that they will never again require the IMF's 
services, they have been granted more power to decide how it operates. 
In other words, they are deemed fit to govern when - like the G7 - they 
can exercise power without reaping the consequences. The smaller your 
stake in the outcome, the greater your vote.

None of this seems to cause any difficulties to the gatekeepers of 
mainstream opinion. On Saturday a leading article in the Washington Post 
observed that "to be legitimate, multilateral institutions must reflect 
the global distribution of power as it is now, not as it was when these 
institutions were set up more than half a century ago". What a 
fascinating definition that is, and how wrong we must have been to 
imagine that legitimacy requires democracy. Hurrah for corporatism - it 
didn't die with Mussolini after all.

I am among those who believe that the IMF is, and always will be, the 
wrong body - inherently flawed and constitutionally unjust. But if its 
leaders and supporters are to persuade us that it might, one day, have a 
legitimate role in running the world's financial systems, they will have 
to do a hell of a lot better than this.

· George Monbiot's book Heat: How to Stop the Planet Burning is 
published this month Monbiot.com
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