Committee for the Abolition of Illegitimate Debt

 An undemocratic leadership

Its organization is similar to that of the World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

: each country appoints a governor, usually its Finance Minister or the governor of its Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx . Together they form the Board of Governors, the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org ’s sovereign instance; meetings take place once a year in October. The Board of Governors makes major decisions (such as including other countries or preparing budgets).

For the daily run of the IMF’s missions, it delegates its power to an Executive Board, which consists of 24 members. The following eight countries – the same as for the World Bank – are entitled to one board member each: the United States, Japan, Germany, France, the United Kingdom, Saudi Arabia, China and Russia. The other 16 board members are appointed by groups of countries that may differ slightly from those at the World Bank.

The third managing body is the International Monetary and Financial Committee (IMFC), which includes the 24 governors of the countries sitting on the Executive Board. It meets twice a year (in spring and autumn) and advises the IMF on the functioning of the international monetary system.

The Executive Board elects a Managing Director for a five year mandate. The counterpart of the unspoken rule in force at the World Bank is that this post should be held by a European. The Frenchman Michel Camdessus held this position from 1987 to 2000, before resigning as a consequence of the economic crisis in South-East Asia. The IMF had helped creditors who had carried out risky investments and imposed economic measures that resulted in more than 20 million people losing their jobs, leading to strong popular protests and the destabilization of several governments. The Spaniard Rodrigo Rato took over in 2004 before resigning in 2007 to join the international department of the Lazard Bank in London. [1] In 2017, Rato was sentenced to four years imprisonment by a Spanish court for embezzlement at the Bankia Bank. Frenchman Dominique Strauss-Kahn, former socialist Finance Minister, became Managing Director in 2007, before having to resign in 2011 after being charged with sexual assault by a chambermaid at a Sofitel hotel. [2] In July 2011, Christine Lagarde, who had up till then been the French Finance Minister, stepped in. Christine Lagarde was sued in the “Crédit Lyonnais” case, which cost French taxpayers a great deal of money. She left her position in 2019 to become President of the European Central Bank ECB
European Central Bank The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.

https://www.ecb.europa.eu/ecb/html/index.en.html , and there would a great deal to say about the IMF under her leadership. After Lagarde’s departure, the Europeans and Washington again agreed on a European at the head of the institution. She is Kristalina Georgieva, a Bulgarian economist and former number two at the World Bank.

In 2019, the IMF’s staff consisted of 2,765 senior executives from 148 countries, most of them based in Washington D.C. The IMF “number two” is always a representative of the US, whose influence within the institution is significant. During the Asian crisis in 1997-1998, Stanley Fischer double-crossed Michel Camdessus on several occasions. Anne Krueger played a very active part in the Argentine crisis of 2001-2002. From 2006 to 2011, John Lipsky, former chief economist at JP Morgan, one of the main US business banks, played a leading role. As early as March 2010 he had warned that “developed countries with big budget deficits must start now to prepare public opinion for the belt-tightening that will be needed, starting next year”. [3] Ten years later, we can only note that the neoliberal agenda has been enforced everywhere, with Greece, Ireland and Portugal having been monitored by the IMF since 2010. The IMF has also developed its damaging influence in many countries of the South. In 2018, it granted the biggest loan in its history to Macri’s neoliberal regime in Argentina, a docile ally of the US. This resulted in a huge fiasco. Fortunately the measures imposed by the IMF on countries such as Ecuador or Haiti led to huge popular mobilizations in 2019 (in the case of Ecuador, those measures had to be abandoned under the pressure of those mass uprisings).

 Functioning on the model of private enterprise

Since 1969, the IMF has had its own unit of account that governs its financial activities with member countries, known as Special Drawing Rights (SDR). This was devised at a time when the system established at Bretton Woods, based on fixed exchange rates, was faltering. Its aim was to remedy shortfall in reserve assets at the time, especially in gold and the US dollar. It was not able to prevent Bretton Woods from collapsing in the wake of President Nixon’s decision to terminate the free convertibility of the US dollar to gold in 1971. With a system of floating exchange rates, the SDR has mainly become just another reserve asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). . According to the IMF: “The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies”. [4] Originally valued at 1 US dollar, it is now revalued daily [5] from a basket of hard currencies (the US dollar, the yen, the euro, the pound sterling, and since 2016 the renminbi).

Quite unlike any democratic institution, the IMF functions almost exactly like a business. Any country that becomes a member must pay an entry fee known as a "quota share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. ” and thus becomes a shareholder as it has contributed to its capital. The quota share is calculated according to the country’s economic and geo-political importance. 25% of it must normally be paid in SDR or one of its component currencies (or in gold, until 1978) and the rest in the country’s local currency. Thus the IMF is one of the largest holders of gold reserves, third in line after the United States and Germany, as countries used the precious metal to pay their subscription to the IMF. Furthermore, in 1970-1971, South Africa that the IMF saw no reason to rebuff despite its notorious violations of human rights under the Apartheid regime, sold it huge quantities of gold.

In the early XXth Century, when all its major clients had paid what they owed in advance or ceased to call on its resources, the IMF went through a delicate financial period and in April 2008, its Executive Board approved the sale of 403 tonnes of gold at a price of 11 billion US dollars, to replenish its coffers. Although those reserves are not used for IMF loans, they nevertheless give it the stability and stature it needs to retain the consideration of international financial actors.

In April 2009, the G20 G20 The Group of Twenty (G20 or G-20) is a group made up of nineteen countries and the European Union whose ministers, central-bank directors and heads of state meet regularly. It was created in 1999 after the series of financial crises in the 1990s. Its aim is to encourage international consultation on the principle of broadening dialogue in keeping with the growing economic importance of a certain number of countries. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, USA, UK and the European Union (represented by the presidents of the Council and of the European Central Bank). summit decided to triple the IMF’s lending capacity from 250 à 750 billion US dollars. After a clear fall in outstanding credits from the IMF to member-states, the international crisis which erupted 2007-2008 provided the ideal pretext for resuming the attack, multiplying loans, especially to European countries, using them as a justification for imposing draconian antisocial measures and harsh austerity on populations.

The following table shows just how much weight the IMF lost between 2006 - 07. The slow down started in 2004 and made a come back as from 2008 after the 2007 U.S. crisis. IMF lending became very important during the European crisis in 2011 when massive loans were granted to Greece, Portugal and Ireland.

Unlike the World Bank, the IMF uses States’ subscriptions to constitute its reserves for lending to countries with a temporary deficit. These loans are conditioned by the signature of an agreement dictating the measures the country must enforce. The money is released in tranches, after verification that the measures demanded have effectively been applied.

As a general rule, a country in difficulty can borrow up to 100 % of its quota share from the IMF annually and up to 300% in all, barring emergency procedures. It is a short-term loan and the country is expected to repay the IMF as soon as its financial situation is back to normal.

As with the World Bank, the quota share of a country determines the number of voting rights it has within the IMF, which corresponds to 250 votes plus one vote per tranche of 100 000 SDR of quota share. This is how the Executive Board of the IMF confers upon the United States its predominant position (with over 16.5% of voting rights). By way of comparison, in January 2020, Mauritania chaired a group of 23 African countries representing 339 million individuals (i.e. 8 million more than the United States) yet had only 1.62% voting rights, or less than a tenth of the number held by the USA. In 2016, under pressure from emerging countries, a reform of the transfer of voting rights came into force, but it was in fact a mascarade.

Source: IMF

It is clear that within such a system, countries of the North easily manage to muster a majority and effectively run the IMF.

Source: IMF

Their actual power is disproportionate compared with that of countries of the South, whose voting rights are ludicrously low with regard to the number of inhabitants.

As in the World Bank, an 85% majority is required for all major decisions affecting the future of the IMF, and the United States is the only country with more than 15 per cent of the voting power, giving it a de facto veto.

 The IMF, a public danger

The IMF’s mission as defined by its statutes is to “promote global economic growth and financial stability, encourage international trade, tend towards a high level of employment and economic stability and to reduce poverty”. [7]

In fact, the policies of the IMF are in contradiction with its statutes. The institution does not favour high levels of employment and income. Under US influence, backed up by the other industrialized countries, it has become a major player in defining the economic and financial policies of its member countries, in flagrant disregard of its limitations.

The IMF has favoured the current complete freedom of capital movements throughout the World, one of the major causes of the financial crises that have so cruelly hit the countries of the South. Lifting all controls on capital movements favours speculation and is in contradiction with Section 3, Article 6 of the IMF statutes which states, “the member states may take the necessary measures to regulate international capital movements”.

Surveillance, financial aid and technical assistance are the three fields of IMF intervention. However, annual monitoring of member countries and its experts’ recommendations has not permitted the IMF to foresee and avoid the major crises that have occurred since 1994. The policies dictated by the IMF have in fact aggravated them.

Over recent years the IMF efforts to put an end to public subventions of staple products, energy sources and public services, and to impose anti-social measures on social services, have provoked popular insurrections, for example in Nicaragua (April 2018), Sudan (December 2018), Haiti (summer 2018 and in 2019) and Ecuador (October 2019). Clearly, the nefarious policies of the IMF have not changed.

Maud Bailly, Nathan Legrand, Milan Rivié and Éric Toussaint took part in producing this article.

Translated by Kate Armstrong, Vicki Briault Manus, Mike Krolikowski and Christine Pagnoulle (CADTM).