The IMF: "Disciplining" developing countries

The International Monetary Fund (IMF) was created in 1944, at the same time as the World Bank. Like its sibling, the IMF is run on a one-dollar-one vote basis. And, like the World Bank, the IMF is controlled by the G8. The G8 control about 46% of the IMF voting shares, with the U.S.A. controlling 17.16% by itself. Any amendment of the IMF mandate or structure requires an 85% majority, giving the Americans an effective veto.

The primary mandate of the IMF was to use its depositor’s capital to monitor and stabilize international exchange rates. The original Bretton Woods agreement (which established both the IMF and the World Bank) set up a system where all currencies were based upon the American dollar and a gold standard.

In 1971, however, the U.S. unilaterally abandoned the gold standard and made fixed rates of exchange impossible to maintain. The IMF then focused on its secondary mandate – which was to use its substantial reserves of capital to provide short-term loans to member states to deal with temporary balance of payments problems and to support their exchange rates.

Like the World Bank, the activities of the IMF changed markedly because of the debt crisis in the developing world in the 1980’s. As debtor nations were forced to borrow more and more money, the IMF began to exert more and more control over domestic policies and programs.

The IMF Structural Adjustment Programs were, and continue to be very similar to those promoted by the World Bank. Typically, such programs centered on reduction of governmental debt through reductions in government spending.

Canadians should be familiar with these kinds of programs because the Mulroney government was following IMF advice when it privatized Air Canada, CN rail and other crown corporations. In fact, the economic policies of the Mulroney government and of the Chrétien government pretty much follow IMF guidelines. Tax breaks to the wealthy and to the corporate sector, reductions in public spending, privatization and/or reduction of public services, and trade liberalization are all typical IMF prescriptions for economic reform.

The IMF is also notorious for undermining core labour standards. Their recommendations typically include wage reductions, reduced protections for workers, and more "flexible" labour markets.

Unfortunately, these programs have all served to shrink economic growth Canada and to decrease the overall standard of living and social benefits for working people - while safeguarding corporate profits. And, they have had even more disastrous effects in developing nations than they had here in Canada.