IMF Gaining in Power

Given the current economic problems of both Europe and the United States — well, the whole world really — the International Monetary Fund (IMF) is becoming more and more involved and gaining in power almost daily. As Rahm Emmanuel says, never let a crisis go to waste.

It’s time we paid attention to organizations such as the IMF and didn’t just take it for granted that they have our best interest at heart. They do after all control huge sums of the world’s money, most of which is taken from tax payers in various nations for the IMF to redistribute across the globe as they see fit, with no oversight, beyond their own internal “watchdog” group.

Their official line on accountability: The IMF is held accountable by multiple stakeholders, including by its own internal watchdog, member governments, the media, civil society, and academia. But no one with any power to actually make them behave themselves, avoid corruption, or seek redress in case of wrongs. A country may advise or even recall its representative, but has no recourse in case of actual differences. Once money is given to the IMF, the “donor” country has no more control over it.

The IMF is essentially to countries what government social programs are to citizens. If a country finds itself in need of monetary assistance because of stupid fiscal policies the IMF will take money from solvent, or at least rich, countries in order to help the “low to middle income countries.” It’s essentially redistribution of wealth on a global scale.

By now we should understand that when government holds the purse strings it also holds the power, so what does that mean in terms of the IMF? Nearly every country in the world is either beholden to the IMF and dependent on its loans or is in some other way inextricably tied into the IMF redistribution program. The IMF holds the purse strings for the whole world.

The IMF’s fundamental mission is to help ensure stability in the international system. It does so in three ways: keeping track of the global economy and the economies of member countries; lending to countries with balance of payments difficulties; and giving practical help to members.

That sounds all well and good, but in order to ensure the economic stability of the entire world economy, you have to wield massive amounts of power and that power must be usurped from sovereign nations. The IMF also has a track record of aiding and abetting financially dictatorships that routinely violate basic human rights, like Sri Lanka in 2009. When the IMF loan application from Sri Lanka was challenged by a lawsuit in the district court of the District of Columbia based on human rights violations, Timothy Geithner and Meg Lundsager argued that the court had no jurisdiction and the plaintiff had no standing anyway. They’re worried about a technicality when they are being sued over supporting massive human rights violations.

What court would have jurisdiction then? The IMF seems to be beyond the reach of any one government. It did approve the loan to Sri Lanka with the Britain, France and the United States abstaining from voting.

Meg Lundsager is one of a board of 24 directors who oversee the activities of the IMF and, coming from countries all over the world and supposedly representing those countries or groups of countries. She previously worked at the Treasury Department and was appointed in 2007 by President George W. Bush and confirmed by the Senate to represent the United States as a member of the IMF board.

Usually these “spread the wealth” types are also all about human rights, but not in the case of Sri Lanka. They argue that to not approve the loan would mean hardship for the general populace of Sri Lanka; a weak argument since the aid would not be sent to the people of Sri Lanka, but to the government of Sri Lanka. If you want to aid the people of Sri Lanka, you’ll have to resort to voluntarily funded private charities. But the IMF is not interested in aiding people; they are only interested in manipulating markets.

But the IMF doesn’t limit itself to monetary transactions; they also want to control invisible gasses. If you thought the failed Copenhagen Conference on global warming was the end, you thought wrong. The IMF with its already massively funded programs has taken on global warming, setting up “Climate Funds.”

These funds, which currently consist of the Clean Technology Fund and the Strategic Climate Fund were launched at the G8 in July 2008. So far, $6 billion has been committed by the different nations involved.

Not paying attention to powerful organizations like the IMF could very well be fatal to the economy of the whole world, including the “poor and middle class” countries they claim to help.

Saving the Euro

Bending the rules of euro management, European leaders and finance ministers agreed to an unprecedented effort to guarantee the stability of the eurozone with loans adding up to nearly $1 trillion (or €750 billion) this weekend.

In spite of the multibillion euro rescue package previously pledged to Greece, investors continued to worry about the unsound fiscal policies of other eurozone members, including Ireland, Italy, Portugal and Spain. The value of the euro sharply decreased in recent days while protests in the streets of Athens last week shed further doubt upon the country’s chance to recover — and pay back its loans. Read more “Saving the Euro”

Meltdown in Greece

The Greek debt crisis is spinning out of control. The country is in desperate need of credit, but foreign investors are ever more wary of providing loans. Standard and Poor’s downgraded the sovereign debt ratings for not only Greece but Portugal as well on Tuesday, citing weak macroeconomic structures, basically degrading the countries to junk status on par with Third World states. Money is available from the EU and the IMF, but analysts wonder whether those loans can ever be repaid.

Shockwaves from Greece’s predicament have hit as far as East Asia where the Australian and Japanese stock markets plunged into the red over worries about the country’s ability to service its debt. The euro dropped to a one year low against the dollar. Oil prices extended losses, sliding to near $82 a barrel Wednesday amid concerns that European debt crises might imperil the global economic recovery and hurt demand for crude oil.

The downgrades came after Greece announced last week that it would be forced to tap into the €45 billion aid fund sponsored by the European Union and the International Monetary Fund. European leaders reached compromise on this arrangement last month after Germany objected to an outright bailout. France and Italy led the effort for an exclusively European rescue operation, fearing that interference from the IMF would diminish the union’s economic stability. Italian prime minister Silvio Berlusconi even warned that if Europe failed to deliver, it had no right to exist at all.

There is further discord over the future of the Stability and Growth Pact. Berlin wants tougher sanctions for members that violate European budget rules, including the ability to expel them from the eurozone. Brussels would rather be more involved in countries’ budgeting from the start in order to prevent, not punish, excesses. Some are already interpreting this as the beginning of the end for all of the European Union — an exaggeration of course, though it painfully demonstrates a lack of credibility on the part of the EU when it comes to containing its economic troubles.

Chancellor Angela Merkel has demanded that Greece come up with tougher austerity measures before the EU and the IMF plough in billions of euros. Investors fear that the Greek government will be unable to deliver with trade unions already taking to the streets to protest against any shortening on entitlement programs.

Worries about the scope of public debt in Europe first surfaced in February when The New York Times revealed that Wall Street firms had helped keep countries’ mounting debts, Greece’s included, off the books for many years. British economic historian Niall Ferguson warned at the time that the contagion would spread to Ireland, Portugal, Spain and possibly Belgium and Italy. He predicted that markets would wake up, realizing that these eurozone members’ plunging into the red in the wake of the financial crisis “were not credible fiscal policies.” Today, that’s what the markets did.

Ferguson also noted that “in terms of the size of its debt,” the United States were not all too far behind Greece. It would have great trouble, he said, to get back “into any kind of balance” in the foreseeable future.

Even some economists on the left appear to realize finally that deficit spending is not a game that can be played indefinitely. Simon Johnson for instance, who is convinced that banks are to blame for the crisis and ought to be broken up, understands that fiscal irresponsibility lies at the heart of Greece’s woes. Nonetheless, he seems to believe that it is up to the rest of Europe to “restructure government debt in an orderly manner,” however that may come about.

Johnson is not the first to suggest that the eurozone as such is to blame. Greek prime minister George Papandreou chastised his colleagues in February for supposedly turning his country into “a laboratory animal in the battle between Europe and the markets.” That remark did not inspire a particular willingness on the northern euro countries to come to Greek’s rescue.

Economist Paul Krugman similarly blamed the “arrogance” of the European political establishment which allegedly “pushed Europe into adopting a single currency well before the continent was ready for such an experiment.” Deficit spending didn’t matter much, he argued; the inflexibility of the euro was to blame. In April he reconsidered, recognizing that fiscal irresponsibility was part of the problem before finding the real fault with deflation or “excessively low inflation.” Evidently, Krugman still won’t dare admit that spending more and more isn’t always a smart thing to do.

European and IMF officials are currently hard at work convincing the German cabinet to agree to the multibillion euro relief effort. European Commission President José Barroso reassured bond markets in Tokyo that help is underway. “The commission expects this work to be finalized in the coming days,” he said. “In my mind, there’s no doubt Greece’s needs will be met in time.” The German finance minister Wolfgang Schäuble meanwhile tried to prevent the panic from engulfing all of Southern Europe, declaring that Greece’s budget problems “are not at all comparable” with the market pressures on Portugal and Spain.

Compromise on the Greek Question

The compromise which European leaders reached last week on aiding Greece may struck many foreign observers as evidence of the EU’s ineffectiveness at settling its internal discord, but it was in fact a minor victory for “President” Herman Van Rompuy and his campaign for greater economic governance from Brussels.

Van Rompuy, former prime minister of Belgium, became the first permanent president of the European Council last year, which is the regular conference of EU government leaders. The election of a relative unknown from one of Europe’s smallest of member states wasn’t particularly hailed as a great step forward for the union. Van Rompuy, critics dreaded, would allow himself and the EU presidency to be overshadowed by more powerful figures, including France’s Nicolas Sarkozy and Germany’s Angela Merkel.

Newsweek‘s Anita Kirpalani was quick to point out that the cautious choice for Van Rompuy was also a wise one, for he had actually a chance at fostering consensus. “What looks like timidity might just lead to a stronger Europe after all,” she predicted last November.

The Belgian’s ability to balance French and German interests was revealed in recent weeks. France, along with Italy, vehemently resisted the notion that withering Greece should seek support with the International Monetary Fund, believing that such a move post an embarressment to Europe’s economic integration. Germany on the other hand had no desire to bail out a member state that had repeatedly violated European budget rules and argued for tougher sanctions instead to punish eurozone members that made a mess of their finances. Chancellor Merkel even suggested that violators should eventually be denied the common currency.

Both parties compromised on Friday, agreeing that a Greek rescue plan should include the IMF. That Sarkozy was forced to give in is something of a personal victory for the Fund’s managing director, Dominique Strauss-Kahn, writes The Wall Street Journal. He might be running for the French presidency in 2012.

The IMF isn’t likely to act immediately. Both Europe and the Fund prefer to wait to see whether the aid announcement on itself will suffice to reduce Greece’s borrowing costs.