Abandoning emerging economies to the assistance of the International Monetary Fund is like assigning a child to a tutor who is not only failing, but bullying other children and selling drugs on the side. However, leaders at home and abroad have failed to realize the disservice they are committing and have promised the IMF 1.1 trillion dollars.
On June 10, 2009, the House Subcommittee on Terrorism, Nonproliferation, and Trade convened to examine issues relating to the current global, economic situation. The hearing, “Foreign Policy Implications of US Efforts to Address the International Financial Crisis: TARP, TALF, and the G-20 Plan,” devoted a significant amount of time to the domestic impact of trade agreements like the Troubled Asset Relief Program (TARP) and the Term Asset-Backed Securities Loan Facility (TALF), yet subcommittee Chairman Brad Sherman (D-CA) opened the hearing with a statement that questioned the policies and practices of the International Monetary Fund (IMF).
Chairman Sherman accused the financial institution of enacting policies that were “utterly blind to the anti-genocide, anti-proliferation and anti-terrorist policies of the United States.” Such policies will allow for the likely 250 billion-dollar expansion to drawing rights to finance governments like Iran, Sudan, Syria, Burma and Zimbabwe. While, according to witness Dr. Nancy Birdsall, “efforts” are being made to reform IMF governance (such as expanding China’s voting share from 3.7% to 5.6% – currently, Belgium and the Netherlands combined hold a greater share than China), nothing is being done in regards to which nations are granted loans.
Further, and equally important, emerging nations in need of economic assistance have experienced economic mismanagement by the IMF. The IMF’s common prescription for economic growth, full liberalization of the markets, most often results in cuts to social services, high interest rates, and in the case of Malawi, the removal of all agricultural subsidies. Eight years after enacting such “recommendations,” the price of a bag of fertilizer doubled and Malawi farmers found themselves unable to purchase even one bag.
Dr. Nancy Birdsall, President of the Center for Global Development, however, supported the G-20 plan at Wednesday’s hearing, stating that “the IMF today is not the IMF of old.” She claims that the IMF now recognizes and supports the practice of deficit spending during economic crises, especially in the arenas of health and education.
Birdsall’s position is contrary to studies that show that countries engaged in IMF programs suffer. Harvard and New York University studies report that once a nation enters an IMF program, growth does not just slow, it retards. One study found that countries under IMF programs grew at a rate of 2.04% while those not involved in IMF programs grew at a rate of 4.39%. Another study found that IMF participation had a direct negative impact on growth by producing a stigma which discourages private investors. In these times of frugality, why would the government throw needed taxpayer dollars away on a failing business?
The G-20’s plan to fund the IMF is a plan to keep the markets of developing nations open to U.S. exports. The United States’ economy, in 2008, was almost completely dependent upon exports, one-third of which went to emerging markets. In the race to save developing nations’ economies, the world powers are racing to save themselves.
While the ideal of aiding developing nations should not be opposed or criticized, it is the manner in which the major governments seek to do so with which one finds offense and fault. We should be investing in these countries through government grants and a new, modernized Foreign Assistance Act which could provide the necessary capital and assistance to transform the economic environment by developing infrastructure, education, and better health programs, but we should be doing so in a fair, effective and humanitarian manner. In 2007, the U.S. spent only 21.8 billion dollars on foreign aid, approximately 1/50 of what the G-20 leaders have promised the International Monetary Fund. The effort to remove the proposed 109 billion-dollars from the war funding bill should not be an exercise in penny-pinching; it should be an effort to find a better way.
Photo Credit: Africa Renewal http://www.un.org/ecosocdev/geninfo/afrec/vol22no3/malawi2.jpg