Your house is going up in flames, and you need someone to put out the fire.
Who would that be?
Probably not the guy standing on the corner with the gas can and the Zippo lighter.
To a certain extent, however, this is precisely what’s happening by calling upon the International Monetary Fund to stop the economic meltdown in low- and middle-income countries.
When leaders attending the G20 Summit wrapped up their meeting in early April, they agreed to help nations crippled by the global recession. The institution they charged with dispensing this global bailout – with funding of $850 billion – was the International Monetary Fund. History has shown, however, that the IMF is not the best fireman when it comes to containing economic blazes. Serious reforms of IMF policies must be put in place before we turn the Fund loose. Otherwise, short-term emergencies could easily become long-term disasters.
Many low-income countries, particularly in sub-Saharan Africa, were encouraged to take out huge development loans in the late 1970s. When commodities prices bottomed out in the 1980s, these nations could no longer meet their debt obligations. They turned to the IMF, which imposed “structural adjustment” policies as a condition for restructuring their debt. As part of the program, spending was cut and user fees were charged for health and educational services. Unable to afford such fees, the poor – who make up the majority in most of these nations – were denied access to basic health care. Their children were also denied primary education, contributing to the economic stagnation of these countries for a generation.
Though the IMF claims to have changed its ways, the legacy of structural adjustment lives on in the form of budget ceilings and unreasonable inflation targets that prevent countries from hiring adequate numbers of teachers and health workers.
Simple put, if the IMF were calling the same shots for the United States, there would be no economic stimulus package.
The U.S. Congress is now frittering away what little leverage it has to change IMF policy. As part of its emergency supplemental spending bill for 2009, the Senate Appropriations Committee last week included the U.S. share of funding for the IMF, no strings attached.
As the spending bill moves to the Senate floor and on to House-Senate conference, provisions must be attached to IMF funding to ensure that mistakes of the past (and present) are not repeated.
Those provisions should direct the IMF to:
- Stick to what it does best – resolving balance of payment issues – and stop interfering with nations’ long-term development.
- Stop imposing conditions that do more harm than good, such as budget caps that limit the hiring of teachers and health workers.
- Limit the additional debt burden of poor countries.
- Include more people in the decision-making process as agreements are hammered out.
If we’re going to designate the IMF as the world’s financial fireman, let’s make sure it’s water, not gas, they pour on the fire.
Find out about an action you can take to change IMF policy at: