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"IMF practices tend to reflect the agendas of the world’s wealthiest countries, primary among which is to create capitalist countries that allow for unregulated trade and open investment. And it is for such reasons that the IMF has come under sustained criticism from many development and human rights NGOs, as well as national governments throughout the world. Especially in terms of its structural adjustment loans, many see the IMF as imposing policies on poor countries that create great hardships for the majority of the population." La'o Hamutuk: East Timor Institute for Reconstruction Monitoring and Analysis
See also: BD: Financing Reconstruction in East Timor - A collection of recent reports and articles

From: The La'o Hamutuk Bulletin

Volume 2, Nos. 3
June 2001

Issue focus: 
The International Monetary Fund in East Timor

Table of contents: To read this entire issue on the internet, or to download a printable PDF version of all of it, go to:
La'o Hamutuk Bulletin: http://www.etan.org/lh/bulletinv2n3.html


What is the International Monetary Fund?

The International Monetary Fund (IMF), along with the World Bank, was established in 1944 at a conference at Bretton Woods in the United States. The IMF began operations in Washington, D.C. in 1946. Like the World Bank, the IMF is a key component of the post-World War II international economic order, and one of the most significant public institutions affecting economic development in the world.

The IMF sees itself as a cooperative institution of 183 member-countries whose purpose is to promote international cooperation on monetary matters (matters dealing with the amount of money in an economy, interest rates, and exchange rates), to facilitate a stable system for trading different national currencies, to foster economic growth and high levels of employment, and to provide temporary financial assistance to countries to help ease balance of payments adjustment. (An imbalance of payments typically occurs when the value of a country’s imports is greater than the country’s exports. This creates a “balance of payments” problem as the country will not have sufficient “hard currency”—currency that is acceptable to other countries as payment—to pay for its imports.) In addition to providing technical advice to countries, the IMF tries to meet its goals by lending money to countries having difficulties meeting their financial obligations to other member-countries.

Normally, the IMF will only lend money under the condition that the recipient country undertakes reforms to eliminate the problems that led to the balance of payment difficulties in the first place. Thus, there is an implicit assumption that the problems are internal—not external—to the recipient country. That said, the IMF also provides loans (what the Fund calls “compensatory funding”) to help members get through a temporary decline in export earnings caused by factors beyond the members’ control.

Traditionally, there has been a division of labor between the World Bank and the IMF: while the Bank’s job was to provide funds for long-term development projects, the IMF’s was to lend money for immediate financial emergencies. Over the years, however, the line between the Bank and the Fund has become increasingly blurry—especially in the area of structural adjustment loans—another funding mechanism of the IMF.

Structural adjustment loans are provided at a very low interest rate to poor countries to enable them to radically restructure their economies—“to rid themselves of long-standing inefficiencies,” according to the Fund. These “structural adjustment loans” require “close coordination with the World Bank ... in putting in place reforms that will eradicate the source of the payments difficulty and prepare the ground for economic growth.”

Typically, these “reforms” or “adjustments” require countries to cut certain types of social spending, to privatize state-owned enterprises, to lower the wages of civil servants, to eliminate subsidies and price controls, to promote exports and/or to allow for greater levels of foreign investment. Such policy changes typically have an immediate, detrimental, and disproportionate effect on the most vulnerable sectors of the society.

Like its Washington, D.C. neighbor the World Bank, the IMF is not a democratically-run organization, but one dominated by its wealthiest members. Upon joining the IMF, each member-country is required to contribute a certain sum of money. This contribution is called a quota, the amount of which determines how much the member can borrow.  The contribution amount also determines the voting power of the member.

The IMF decides the amount of a country’s quota  on the basis of the country’s wealth and economic performance. Generally, the richer the country, the greater its quota. If a country has a balance of payments problem, it can immediately withdraw 25 percent of its contribution from the IMF. If it needs more, the country can request that the IMF allow it to borrow an amount three times its quota over a period of a number of years. In cases of financial emergencies (such as the Asian Crisis of 1997), the IMF has a special fund (called the “Supplemental Reserve Facility”) to lend large sums of money for a short period of time. While “developing” countries are the ones that generally borrow from the IMF, wealthy countries—such as the United Kingdom—sometimes do as well.

According to the IMF, it functions “most efficiently and decisions [are] made most responsibly by relating members’ voting power directly to the amount of money they contribute to the institution through their quotas.” As a result of this system, a small number of wealthy capitalist countries are in a position to determine the IMF’s practices. The United States, for example, has about 18 percent of the votes. Along with the U.S., Germany, Japan, the United Kingdom and France control about 40 percent of the votes. (In contrast, the five Central American countries combined have ½ of one percent of a vote.) And similar to the presidency of the World Bank—a position traditionally held by an American—the president of the IMF has traditionally been a Western European.

It is thus not surprising that IMF practices tend to reflect the agendas of the world’s wealthiest countries, primary among which is to create capitalist countries that allow for unregulated trade and open investment. And it is for such reasons that the IMF has come under sustained criticism from many development and human rights NGOs, as well as national governments throughout the world. Especially in terms of its structural adjustment loans, many see the IMF as imposing policies on poor countries that create great hardships for the majority of the population.

In its defense, the IMF contends that all agreements between itself and a member country are the result of negotiations and that it is not in a position to impose anything. But as Joseph Stiglitz—from 1997 to 2000, the chief economist and vice president of the World Bank— recently wrote, “In theory, the [IMF] supports democratic institutions in the nations it assists. In practice, it undermines the democratic process by imposing policies. Officially, of course, the IMF doesn’t ‘impose’ anything. It ‘negotiates’ the conditions for receiving aid.  But all the power in the negotiations is on one side—the IMF’s—and the Fund rarely allows sufficient time for broad consensus-building or even widespread consultations with either parliaments or civil society.”

Indeed, if a country does not have the stamp of approval from the IMF, it is very unlikely that it will receive assistance from the World Bank or private banks. A country cannot be a member of the World Bank without first joining the IMF. Thus, the IMF has a good deal of power to ensure that the “negotiations” go its way. This is especially true for relatively poor and weak countries. Bigger, more powerful countries—such as Russia, Mexico, and Indonesia—are in a much better position to negotiate favorable agreements with the Fund. In this regard, the IMF has sometimes been willing to ignore profound economic, political, and environmental problems in these countries, and to provide significant funding to them because of the political agendas of the Fund’s most powerful members. In recent years, for example, both Indonesia and Russia have received a great deal of money from the IMF despite the pervasive corruption and institutionalized theft of public monies that characterize their governments.


Communities working together

People are joining together to insist on greater control over the decisions that affect their lives and living spaces. A transnational coalition of development, human rights, and environmental organizations holds counter-meetings called the Non-Governmental Organization (NGO) Forum at the annual meetings of the World Bank and the IMF. The coalition maintains that citizens must press these public institutions to direct the billions of dollars of public resources each is entrusted with into democratic, socially just and environmentally sustainable development. At their meetings and at other times this coalition has proposed alternative policies and helped organize transnational campaigns to change the policies of these global institutions. In one example, the coalition helped generate pressure that led the World Bank to modify its policies which had been encouraging the destruction of the Brazilian rainforest and to create an environmental department charged, among other responsibilities, with being responsive to the concerns of the environmentalist community. In another example, the coalition helped to organize recent protests in Prague and Seattle over the World Trade Organization (WTO)’s unjust policies.


Tetum: (the most common East Timorese language)
La’o Hamutuk, Instituto Timor Lorosa’e ba Analiza no Monitoring Reconstrucao  Updated May 18
Saida mak La’o Hamutuk? La’o Hamutuk organizasaun klibur Ema Timor Lorosa’e no Ema Internacional ne’ebe buka atu tau matan, halo analize ho halo relatorio kona ba hahalok (actividade) instuisaun internacional ne’ebe oras ne’e haknaar iha Timor Lorosa’e, liu-liu hahalok sira ne’ebe iha relasaun ho rekonstrusaun fizika no social Timor Lorosa’e nian. La’o Hamutuk fiar katak Povo Timor Lorosa’e mak tenke hakotu iha procesu rekonstrusaun ne’e nia laran no procesu rekonstrusaun ne’e tenke demokratiku no transparante duni.
Staf Timor oan: Inès Martins, Fernando da Silva, Thomas Freitas; Staf Internasional: Pamela Sexton, Mark Salzer; Kuadru Ejekutivu: Sr. Maria Dias, Joseph Nevins, Fr. Jovito Rego de Jesus Araùjo, Aderito Soares
Local Contact:  P.O. Box 340, Dili, East Timor (via Darwin, Australia)  Mobile fone: +61(408)811373;  Telefone Uma: +670(390)325-013
International contact: +1-510-643-4507 Email: laohamutuk@easttimor.minihub.org  Homepage: http://www.etan.org/lh
Boletim La’o Hamutuk: [Tetum PDF format]
Vol. 1, No. 4, 31 Dejembru 2000 Banku Mundial iha Timor Loro Sa’e: http://www.etan.org/lh/PDFs/lhbul4tm.pdf
Vol. 1, No. 3, 17 Novembro 2000 Hari Sistema Saude Nasional iha Timor Lorosa’e:  http://www.etan.org/lh/PDFs/LHbul3tm.pdf
Vol. 1, No. 2, 17 Julho 2000 Protesaun ba meio ambiente iha TL: http://www.etan.org/lh/PDFs/bulletin02tetum.pdf
Vol. 1, No. 1, 21 Juñu 2000 Rekonciliasaun: http://www.etan.org/lh/PDFs/bulletin01tetum.pdf

English:
La'o Hamutuk: East Timor Institute for Reconstruction Monitoring and Analysis  Updated May 16
La'o Hamutuk (Tetum for Walking Together) is a joint East Timorese-international organization that seeks to monitor, to analyze, and to report on the reconstruction activities of the principal international institutions. It believes that the people of East Timor must be the ultimate decisionmakers in the reconstruction process and that the process should be as democratic and transparent as possible ...
East Timorese staff: Inès Martins, Fernando da Silva, Thomas Freitas; International staff: Pamela Sexton, Mark Salzer Executive board: Sr. Maria Dias, Joseph Nevins, Fr. Jovito Rego de Jesus Araùjo, Aderito Soares
International contact: +1-510-643-4507  Email: laohamutuk@easttimor.minihub.org  Homepage: http://www.etan.org/lh
La’o Hamutuk Bulletin: http://www.etan.org/lh/bulletin.html
Mar 23 2001 LH: Job announcement for La'o Hamutuk in East Timor: http://www.pcug.org.au/~wildwood/01marjob.htm
Activity Report: Mar 16 2001 LH: http://www.pcug.org.au/~wildwood/01marlhreport.html


See also:

BD: Financing Reconstruction in East Timor - A collection of recent reports and articles

Tetum:
Dej 31 2000 BLH: Demokrasia ho Banku Mundial iha Timor Loro Sa’e Editorial added May 18
"Eksperiensia hatudu katak presaun públika bele influensia oin sa Banku hala’o nia seruisu iha nasaun partikular ruma. Maski susar, Timor Loro Sa’e sorte ona hodi iha sektor ONG nebe iha korajen, elite politik nebe relativamente responsivu ba kuantidadi ka ema sira nebe hili iha baje (grassroot constituency), no movimentu solidaridadi internasional ida nebe forte. Hola hamutuk ba, faktor sira ne’e bele halo diferensa atu bele garante katak Banku Mundial serve necesidadi Timor oan sira nian, du ke nia kontráriu." La’o Hamutuk, Instituto Timor Lorosa’e ba Analiza no Monitoring Reconstrucao

Dec 31 2000 LHB: Democracy and the World Bank in East Timor  Editorial & link to Analysis updated Feb 26
"Experience shows that concerted public pressure can influence how the [World] Bank works. East Timor has a vibrant NGO sector, a political elite that is relatively responsive to grassroots constituencies, and a strong international solidarity movement. Working together, they can help ensure that the World Bank serves the East Timorese people’s needs, rather than vice-versa." The La'o Hamutuk Bulletin


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