Vol 0, No 15
4 January 1999
B A L K A N   E N C O U N T E R:
The IMF Deconstructed
A Dialogue between Tom Rodwell and Dr Sam Vaknin
Dr Sam Vaknin
The International Monetary Fund (IMF) is the cornerstone and centerpiece of the financial architecture of the world. Long a sacred cow, it has lately become the eye of a controversy. Its prescriptions to ailing countries as diverse as Zimbabwe and Russia have, at times, proven to be inadequate, some say: ruinous. The IMF is a result of an ideology and its instrument. This is clearly revealed in its intentionally vaguely-phrased documents. Tom and Sam, a philosopher/journalist/composer and a philosopher/physicist turned economist, try to read between the lines (in the best of East European traditions. . .).
The following is a standard IMF document, taken from its own Website. Underlined phrases are related to categories A and/or B (see below). The phrases here are general examples as part of general criticism of the ideological tone and 'aesthetic' of the IMF. This dialogue is a combination of philosophy and economics: does/can the IMF (or any organisation) "facilitate the expansion and balanced growth of international trade"?
The IMF was created to promote international monetary co-operation ; to facilitate the expansion and balanced growth of international trade; to promote exchange stability; to assist in the establishment of a multilateral system of payments; to make its general resources temporarily available to its members experiencing balance of payments difficulties under adequate safeguards; and to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.
Areas of Activity
Surveillance is the process by which the IMF appraises its members' exchange rate policies within the framework of a comprehensive analysis of the general economic situation and the policy strategy of each member. The IMF fulfills its surveillance responsibilities through: annual bilateral Article IV consultations with individual countries; multilateral surveillance twice a year in the context of its World Economic Outlook (WEO) exercise; and precautionary arrangements, enhanced surveillance, and program monitoring, which provide a member with close monitoring from the IMF in the absence of the use of IMF resources. (Precautionary arrangements serve to boost international confidence in a member's policies. Program monitoring may include the setting of benchmarks under a shadow program, but it does not constitute a formal IMF endorsement.)" IMF - IDEOLOGICAL TONE
IMF - IDEOLOGICAL TONE
Tom: The nature of the IMF is inextricably linked with its controlling member state and staff's economic and political viewpoints. The IMF talks about itself, and about economic / political phenomena generally, in precisely the same terms. The kind of economics it discusses is one of authority, monitoring, and, dare I say it, intervention. While the IMF allegedly intends to promote "international monetary co-operation" and to "facilitate the expansion and balanced growth of international trade" (standard free-market shibboleths), it consistently refers to "enhanced surveillance", "close monitoring", and "precautionary arrangements". Orwellian undertones are hardly muffled.
Sam: The IMF has yet to adopt the "client-orientated" approach. It harbors deep (and oft-justified) distrust of the willingness of governments to blindly follow its dictates. It is a paranoid organization, based on authoritarian techniques of "negotiations" and "agreement". Euphemisms rule. Normally, the IMF holds "consultations" with the host governments. These are rather one-sided affairs. The governments are needy and impoverished ones. They lack the cadre of educated people needed in order to truly engage the IMF in constructive discourse. They are intimidated by the bullying tactics of the IMF and of its emissaries. The tone is imperial and impatient.
Tom: The IMF clearly sees itself as the authority on international development ideology. International development becomes an ideological construction, with subsets of subjective terms: free trade, financial contact, economic vision. Many of these terms are defined in such a way that they enframe that which they discuss. The ideological position of the influential members is often significantly different from the developing countries. Sadly, the ideology only becomes reality when it is part of every day life in the developing nations.
Sam: Worse still, the IMF's language is riddled with contradictions in terms and logical fallacies. Let us review a few:
International monetary co-operation in IMF lingo means exchange (rate) stability. But with such stability the expansion and balanced growth of international trade is not achievable. Trade is based on dynamic exchange rate disparities. Moreover, there is nothing inherently wrong in such dynamism. The changing disparities reflect the relative advantages of the countries involved. In a world of fixed exchange rates, trade stagnates. And what is "balanced" growth anyhow? Trade has been growing at 3-5% annually for a few years now. Is this balanced, overdone or insufficient, as some free trade zealots cry out?
Additionally, a regime of stable exchange rates won't go far towards facilitating the second result: to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members. If a country runs a gigantic balance of payments deficit but is not permitted by the IMF to devalue its currency, in the name of exchange rate stability, its balance of payments is only likely to worsen. Take Macedonia: with a 14% of GDP deficit in its BOP, it MUST devalue and URGENTLY. Its currency is HEAVILY overvalued and the whole economy is deflating. Yet, the IMF is about to repeat there the same grave error it committed in Russia: to protect the currency, the whole system is drained of liquidity (demonitized), interest rates are kept insanely high and the balance of payments deficit skyrockets, until the inevitable collapse. If the IMF is interested in self perpetuating crisis situations in order to preserve its clout, it is doing a fine job indeed.
The IMF was never authorized to rate the creditworthiness of its shareholders (i.e. countries). It is acting ultra vires in providing clean or soiled bills of financial health. Its ability to strangle a country financially if it does not comply with its programs, no matter what the social or economic costs are, is very worrying. LANGUAGE
Tom: The language in the IMF document can be roughly divided into two sections.
A Phrases concerning the
-nature of the IMF
B Phrases concerning -subjective economic and political concepts
Here's my summary of the kind of language used:
1. Quasi-intellectual terms ('big words for a dismal science'), e.g. disequilibrium, comprehensive analysis, policy strategy.
Spin-doctoring euphemisms, e.g. promote, facilitate, balance, co-operation, safeguards, monitoring, responsibilities, precautionary arrangements, endorsement, benchmarks. This also includes intimidating terms such as 'surveillance'.
Distancing terms, e.g. members, general economic situation, policy strategy.
This is simply pretension. The average "comprehensive analysis" undertaken by the IMF is often curiously selective and self-serving.
Sam: Not to mention cursory "kangaroo-court" economic judgements replete with clear contempt and disregard for the "natives". The latter are held to be cheats who are merely trying to extort as much money as they can and probably stash it in Swiss bank accounts (private ones, needless to say).
2. is the most obnoxious section. These phrases mislead. They paint a picture of the stability and democracy that supposedly is Western capitalism. They paint an image of the IMF as a fair, unbiased, caring, and democratic organisation. These phrases also confuse in that they connect 'nice terms' (like balance, co-operation and safeguards) with complicated and subjective economic terms. Thus the language often functions as a 'pacifier', or perhaps as a 'chaser', softening the blow of the 'hard stuff'.
3. indicates the insular attitude of the IMF. Their 'grand scheme' is apparently removed from localised activities and concerns.
Sam: There is one place, which absolutely complies with the IMF utopia. There is no inflation there. People do not particularly care if the exchange rate never changes or what is the outlandish level of interest rates needed to ensure this eerie stability. It is the cemetery.
The IMF's deadly sin, yet to yield its grapes of wrath, is not to understand that economics is a branch of psychology and should be at the service of humans and society. When setting economic goals one must always act with pragmatism and compassion. In the realm of humans, to be compassionate IS to be pragmatic. Otherwise, reality is bound to frustrate the most rigorous planning. If social costs are not accounted for, unemployment will bring about crime and a black market, which will render the official market and its statistics meaningless, for instance. If exchange rate stability supported by inanely high interest rates prevails over the goals of industrial reconstruction and export-enhancement, the result is erosion of the very fabric of society. Lack of liquidity translates into a lack of trust in fellow citizens and in institutions. If public expenditures are harnessed too strenuously, corruption will flourish. The IMF's propensity to provide a "catchall" one-measure-fits-all panacea is nothing short of shortsighted and disastrous. It cannot be that the same financial recipe will apply to Pakistan, Macedonia, Estonia and Russia. Yet, a close scrutiny of the four IMF programs imposed upon these countries (Estonia wriggled out), demonstrates striking similarities. It is a fact that there are conflicting CAPITALIST economic models. Not because human nature is so diverse, and it is, but because different people have different preferences. Americans prefer profits and self-reliance to social justice. Not so the French. Paradoxically, this is exactly why markets exist: to trade in disparate preferences. The IMF is a central planning agency but as opposed to previous models it believes that it is omniscient ? and knows that it is omnipotent.
Tom: The IMF's desire to paint a kind of stasis on the world economy is, as you have said, a kind of religious-ideological defence mechanism. The language employed by the IMF is an attempt to give form to the haphazard and contradictory nature of international trade and development. This language functions in a similar way to their policies, in that both seek to describe and promote a uniform concept / practice of international economics.
The reference to economics as a branch of psychology is spot-on. It is ignorant, unethical and unworkable to attempt to impose or promote any kind of exclusive and conformist concept of 'the economy'. Indeed, the IMF's bizarre language and policies reveal a mistaken view (commonly held) that there is such a single practice or entity called "The Economy", or "International Trade". Absolutist and limiting concepts of economy (communism, now capitalism) are increasingly being shown to be unworkable. The language used by the IMF is evidence of the impractical, restrictive and unethical nature of an elitist concept / practice of economics.
Tom: The IMF is a part of the industry of 'trade', 'development', and 'economics' in general. This criticism of the language found in their promotional documents is, in some ways, a criticism of the aforementioned 'economics industry' in general. When I first read the IMF's comments / reports, I was struck by the combination of arrogance and defensiveness (in a tone of barely muted desperation). I now believe that these documents were written with the first whiff of fear in the NYC air-conditioned office ambience. No doubt that those miners, steel workers, farmers, and manufacturers whose own industries were flattened by free trade hysteria will feel a tiny degree of satisfaction, if we really are seeing the decline of the 'economics industry'.
The IMF is unethical because it espouses an abstract concept -free trade- that influences the complex process of 'development' (too often defined with insufficient complexity) while being unconcerned with specific and local realities and interactions. It is simply too abstract: international development is not assisted on a truly local level by investment in the military, state, or heavy industry. It is ridiculous for a third world country to build massive steel-plants, or allow foreign companies to extract vast amounts of timber or oil, when local people are concerned with finding clean drinking water. This abstraction criticism stands for the entire 'economics industry', and will continue to do so while it has an insufficiently perceptive and complex understanding of localized realities.
The language of economics is murky, and our criticism of it will remain justified as long as the IMF (et al) produce officious and misleading documents. The practice of economics is also murky, and our criticism of it too will remain justified as long as policies that are illogical, impractical and unethical are produced and enforced.
Sam: The IMF is an essential institution. There must exist a multilateral organization geared towards the maintenance of the marketplace itself. But the IMF should get rid of its Multiple Personality Disorder. It must first decide WHAT is it: a lender of last resort? A creditworthiness rating agency, sort of an ominous Moody's? A missionary organization, preaching a particular brand of the religion known as capitalism? A commercially-orientated, return-on-investment based financial organization? Dumping grounds for aging politicians and third rate bankers doing the USA's bidding? Whatever the definition, it is bound to be far superior to the current muddled state of affairs.
Second, the IMF must maintain transparency. It controls vast resources. It is prone to be inefficient (not to say corrupt). Transparency humbles, ensures the injection of fresh intellectual blood, improves performance, gives taxpayers a good feeling. The IMF needs to be humbled. Its actions have been politicized lately. It intervenes in the internal affairs of dozens of sovereign, reasonably managed countries, and its intervention is not confined to matters economic. It develops an internal "Organizational cult" (we know best and always). It is one of the most rigid and intellectually handicapped organization in the world, yet it considers itself a bastion of economic ingenuity and righteousness. Delusions of grandeur are dangerous on such a scale.
Third, the revamped, no-longer-haughty, IMF must be able to fine tune to different social and cultural constraints in different spots of the world. It must strive at least to BE SEEN to be trying to minimize the social costs of its often-botched plans. It must not behave as a colonial power, which it often does. It must establish trust rather than impose discipline. Otherwise, it stands no chance to laugh last. Actually, it stands no chance even to survive.
Dr Sam Vaknin, 4 January 1999
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