IMF tells Japanese government to raise consumption tax despite election defeat

17 July 2010, By John Chan

The International Monetary Fund (IMF) this week told the Japanese government to push ahead with increasing the rate of the consumption tax, despite the ruling Democratic Party of Japan (DPJ) losing its majority in the upper house of the Diet in last Sunday’s elections.

The defeat for the DPJ government headed by new Prime Minister Naoto Kan was a direct result of mounting public opposition to his proposed doubling of the 5 percent tax, and other austerity measures, in order to avoid a Greece-style debt crisis.

We Need Sustainable Development Banks, Say NGOs

MEXICO CITY, Jul 5, 2010 (IPS)

Non-governmental organisations from across the Americas are demanding that the World Bank and the Inter-American Development Bank institute policies that favour sustainable energy and help mitigate climate change.

The IMF's policy advisory role to the G20

June 25th 2010 by Bretton Woods Project

The G20 has turned to the IMF to operate as a research and advisory body on their behalf since those governments’ leaders first met in November 2008. The IMF’s work in this area has mainly fallen in three areas: technical advice, surveillance, and research.

G20 mutual assessment process and the IMF

IMF input into the G20 has largely been considered technical assistance or technical advice. Work of this type is provided for in the IMF Articles of Agreement, on the basis that the IMF is not mandated to perform it and it is also voluntary for the member country concerned. Under the provisions of the IMF’s transparency policy there is no presumption that this technical advisory work will be publicly disclosed.

Standing in the way of development?

A critical survey of the IMF’s crisis response in low income countries - A report by Eurodad & TWN

May 18, 2010

The increased availability of IMF resources for low income countries (LICs) in response to the global crisis has been accompanied by an attempted redesign by the Fund of its ‘lending toolkit’. This redesign claims to make Fund lending more flexible and better tailored to the differentiated needs of LICs. Civil Society Organisations (CSOs) remain, however, greatly concerned about the persistently excessive rigidity of the policy framework imposed on LICs by IMF lending programmes, both in general terms and within the context of the recent twin crises—namely, the food and fuel crisis on the one hand and the financial crisis on the other. Such rigidity is very likely to prevent LICs from undertaking the necessary counter-cyclical policies during the current global crisis as well as the public investment needed to stimulate long-term growth and development.

A new report (Standing in the way of development?) published by Eurodad and the Third World Network assesses the IMF’s claim of granting more macroeconomic policy space in the context of its engagement in 13 low income countries that had continuous programme engagement with the Fund before and during the crisis.

IMF protest in Cambridge, UK

a group of Cambridge students and residents disrupted the inaugural conference of the Institute for New Economic Thinking (INET) conference in King's College, Cambridge. They unfurled a banner from a balcony within the conference hall, reading "IMF is part of the problem, not the solution".

Others attempted to disrupt the conference floor during a speech by Dominique Strauss-Kahn, the Managing Director of the IMF, to show anger at the IMF, which has imposed structural adjustment programmes, putting profit before people. Leaflets were distributed to the public as the protest continued outside the college after protestors were removed from the building by security.

Protestor Adam Reilly said: "The IMF increase inequality, privatise welfare and try to 'open up' markets for the benefit of western bankers and industry. The IMF created the crisis; we don't want their top-down 'solutions'."

When facts change, I change my mind. What will you do, IMF?

In a paper published this week, “Rethinking Macroeconomic Policy”, the International Monetary Fund chief economist Olivier Blanchard recognises that the Fund was wrong in some of the macroeconomic policies advised in the last three decades. Stringent macroeconomic policies – such as very low inflation, neglecting the crucial role of fiscal policy, and financial sector deregulation – often attached as conditions to IMF loans for developing countries, are now listed among the old sins that made a bad crisis worse.

Such public recognition gives even more credit to academics and NGOs who said from an early stage that the IMF’s advice was hampering growth and poverty eradication in developing countries. However, this is just a first step in the right direction. The main challenge ahead for the IMF chief economist is to break the institution free from the straightjacket of their old policy framework, and acknowledge the need for a more nuanced approach to macroeconomic policy so that developing countries can implement alternative policies to ensure stability as much as equitable growth.

Fixed Exchange Rate Has Produced World's Worst Recession In Latvia, Says New CEPR Report

Recovery Hampered by Peg to Euro

WASHINGTON, DC - The Latvian economy has suffered the worst two-year decline in output on record and will have trouble recovering with its currency tied to the euro, according to a new report from the Center for Economic and Policy Research.

The report, “Latvia’s Recession: The Cost of Adjustment With An ‘Internal Devaluation’”, argues that maintaining the fixed exchange rate has prevented the government from adopting the necessary macroeconomic policies to exit from the world’s worst recession.

“The European Union and the IMF are going to have to reconsider their economic strategy for Latvia,” said economist Mark Weisbrot, CEPR co-director and lead author of the report. “The social and economic cost has been staggering, and this can’t go on indefinitely.”

Weisbrot added that the Western European banks that made bad loans in Latvia during the bubble years preceding the crash are going to have to accept some of the losses that would come with a devaluation. Western European banks, led by Austria and Sweden, and including Belgium, the Netherlands and France, have hundreds of billions of dollars in loans in Central and Eastern Europe.

A devaluation in Latvia, if followed by other countries, could have implications for their loans throughout the region.

Latvia’s economy has already shrunk more than 25 percent in two years. The IMF projects another 4 percent drop this year and predicts that the total loss of output from peak to bottom will reach 30 percent. This would make Latvia’s loss more than that of the U.S. Great Depression downturn of 1929-1933.

The current IMF program, which the government has signed on to, calls for a fiscal tightening of 6.5 percent of GDP for 2010. This would be accomplished through a combination of spending cuts and tax increases. The IMF acknowledges that this fiscal tightening “will likely cause continued demand weakness through early 2010.”

Expansionary monetary policy also runs counter to the need to maintain the fixed exchange rate. The end result, the authors argue, is that the economy is trapped in a deep recession in which all of the major macroeconomic policy variables – the exchange rate, fiscal policy and monetary policy – are either pro-cyclical or cannot be utilized to help stimulate the economy. This makes it very difficult for Latvia to get out of its recession.

Civil society demands IMF consider financial transaction tax, open study process

Letter to IMF managing director from 60 NGOs

11 November 2009 letter sent to IMF managing director Dominique Strauss-Kahn, urging him open up the process for producing a report on how banks can repay governments for the bailouts and demanding strong consideration of a financial transaction tax in the report.

The IMF Needs Fresh Thinking on Capital Controls

by Dani Rodrick, November  11th, 2009

CAMBRIDGE – Why does the International Monetary Fund make it so hard for people like me to love it?

The IMF has said and done all the right things since the crisis. It has acted as quickly as any international bureaucracy can to establish new lines of credit for battered emerging-market countries. It revamped its loan conditions to fit the times. Under its capable managing director, Dominique Strauss-Kahn, and distinguished chief economist, Olivier Blanchard, it has been a voice for sanity on global fiscal stimulus in the midst of much cacophony. For an institution that seemed on the verge of irrelevance not too long ago, this is quite a transformation.

Climate financing and the World Bank – The IMF and the World Bank to the rescue?

by  Barbara Unmuessig

The World Bank is moving to become one of the major institutions taking on climate change through its Climate Investment Funds, among other policies. However, Heinrich Boell Foundation president Barbara Unmuessig believes that without reforms, the Bank will not be able to effectively or fairly alter the course on global warming.

CEPR Responds to IMF’s Defense of Questionable Policies During World Recession

CEPR Responds to IMF’s Defense of Questionable Policies During World Recession

For Immediate Release: October 22, 2009
Contact: Dan Beeton, 202-239-1460

Washington, D.C. - The Center for Economic and Policy Research (CEPR) released a response today to the International Monetary Fund (IMF) as part of a continuing discussion of CEPR's recent paper: "IMF-Supported Macroeconomic Policies and the World Recession: A Look at Forty-One Borrowing Countries." James Roaf, Deputy Division Chief in the Emerging Markets Unit of Strategy, Policy, and Review Department (SPR) for the IMF, responded to CEPR's paper at an event last week in Washington in his remarks and a power point presentation. The CEPR paper examined IMF agreements with 41 countries during the current global recession and found that 31 of the 41 countries had implemented pro-cyclical policies - for example cutting spending or tightening monetary policy -- that would be expected to exacerbate an economic downturn.

CEPR's new discussion paper takes issue with the IMF's claims that its policies during the current downturn have been "counter-cyclical, not pro-cyclical" and that countries with IMF agreements "expanded fiscal deficits in 14 of 15" cases. CEPR found that the IMF reached its conclusions in part by ignoring agreements signed in 2008, and by overlooking agreements with overly tight monetary policy.

"We are all using the same data," said Mark Weisbrot, Co-Director of the Center for Economic and Policy Research and author of the new discussion paper. "So the IMF's response, while putting a different spin on their agreements, does not contradict our findings."

CEPR's response states that the "IMF is ignoring its agreements that were signed in 2008, when the world economy was sliding into recession. This is when most of the 31 agreements with pro-cyclical policies were signed. As we acknowledged in our paper, in many cases the pro-cyclical policies, such as reducing the fiscal deficit, were later loosened. However, since there are four to six months, and sometimes longer, before such agreements are reviewed, the decision to tighten fiscal and/or monetary policy during the downturn can still be expected to cause damage."

CEPR also notes that "the IMF's response to CEPR's paper, as well as its papers such as its September 14 'Review of Recent Crisis Programs,' did not deal with monetary policy, but instead was limited to fiscal policy."

"The IMF is correct to point out that its policies during the current downturn are not as bad as those implemented during the Asian economic crisis twelve years ago and other previous crises," said Weisbrot. "However, this is too low a bar. In at least 31 countries, there were serious policy mistakes. This shows that the Fund still has a long term policy bias toward overly restrictive fiscal and monetary policies, for which it has received much criticism - including from its own Independent Evaluation Office - over many years."

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The monster is still untamed

Istanbul meetings legitimized the debate on the "Tobin tax" on international financial transactions or the idea of imposing a "global tax" on banks to bail out poor countries in case of a crisis, just as savings are ensured at the national level. According to DSK, "this is the starting point for a new IMF and you can proudly tell your grandchildren that you were in Istanbul when it all started."

New Report Finds IMF Agreements Have Included Policies That Could Worsen Economic Slowdown in 31 of 41 Countries

Pro-cyclical Fiscal and/or Monetary Conditions Have Been Attached to IMF Agreements During Recession

Washington, D.C. - A new discussion paper from the Center for Economic and Policy Research finds that 31 of 41 countries with current International Monetary Fund (IMF) agreements have been subjected to pro-cyclical macroeconomic policies that, during the current global recession, would be expected to have exacerbated economic slowdowns. The pro-cyclical conditions noted in the report are either pro-cyclical fiscal or monetary policies.

"More than a decade after the Asian Economic Crisis brought world attention to major IMF policy mistakes, the IMF is still making similar mistakes in many countries," CEPR Co-Director and lead author of the paper, economist Mark Weisbrot said. "The IMF supports fiscal stimulus and expansionary policies in the rich countries, but has a much different attitude toward low-and-middle income countries."

The paper, "IMF-Supported Macroeconomic Policies and the World Recession: A Look at Forty-One Borrowing Countries," shows that in some cases, the IMF had relied on overly optimistic growth forecasts – significantly underestimating the impact of the world recession on borrowing countries. The paper also notes that in some cases the Fund later loosened its policy conditions after the economic performance was much worse than anticipated.

"It is time for the Fund to re-examine the criteria, assumptions, and economic analysis that it uses to prescribe macroeconomic policies in developing countries," the paper states.

The paper arises out of discussions with the International Monetary Fund (IMF) over the Fund's recommended macroeconomic policies during the course of the current world recession. In a panel discussion held on June 19, 2009, there was disagreement between the IMF and CEPR over whether or to what extent the IMF has supported pro-cyclical policies in borrowing countries during the current world recession. CEPR agreed to take a comprehensive look at current IMF agreements, as a prelude to further discussions with the Fund on this issue.

The papers' authors do have praise for the IMF's actions in one area: making available for borrowing some $283 billion of Special Drawing Rights (SDR's - IMF reserve assets that can be exchanged for hard currency) to member countries without conditions. The IMF's unconditional lending and injecting liquidity into the world economy with the SDR's, in a time of world recession, represents an unprecedented step forward.

"The next step should be to eliminate harmful conditions attached to other IMF lending facilities," the paper states.

The paper examines IMF agreements with the countries Afghanistan, Armenia, Belarus, Bosnia and Herzegovina, Burkina Faso, Burundi, The Central African Republic, Republic of the Congo, Costa Rica, Côte d'Ivoire, Djibouti, El Salvador, Gabon, The Gambia, Georgia, Ghana, Grenada, Guatemala, Haiti, Hungary, Iceland, Kyrgyz Republic, Latvia, Liberia, Malawi, Mali, Mozambique, Mongolia, Niger, Pakistan, Romania, São Tomé and Príncipe, Senegal, Republic of Serbia, Seychelles, Sierra Leone, Tajikistan, Tanzania, Togo, Ukraine, and Zambia.

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NGO letter to IMF EDs on gold sales

July 21 2009

A letter from eight NGOs regarding proposals on the sale of the IMF gold and efforts mobilize resources from this sale and other IMF income for use by low-income countries.

Economic woes prompt Argentina rethink on IMF

August 21 (UPI)

Argentina's deepening economic woes have prompted a rethink by President Cristina Fernandez de Kirchner of a policy that saw the country almost pull out of the International Monetary Fund three years ago.

However, government consensus on what to do with the IMF remains elusive. Former President Nestor Kirchner, an influential figure behind his wife the president, rules out resumption of Argentine ties with the IMF, but Economy Minister Amado Boudou indicated a rethink and is most likely to hold further meetings with senior IMF officials.

Argentina suspended contacts with the IMF, blaming the Fund for its economic crisis before the recovery began in 2005-06.

As THE economy shrinks with lower growth in the second quarter of 2009, partly in response to the global recession, government cash seems in short supply, stifling development projects as well as urgently needed spending on military and civil infrastructures. Argentine analysts see a rekindled IMF membership and re-entry into the capital markets as a possible way out of increasing difficulties in the months ahead.

The economic troubles have already cost Fernandez Parliament seats in the June election, and farm strikes before the polls have eroded her popularity among rural communities. Kirchner resigned as head of the dominant Peronist Party, further weakening the couple's hold on power.

Boudou, quoted in La Nacion newspaper, said Argentina could be approaching a meeting point with the IMF but ruled out any discussion on the government's economic policies as a sequel to enhanced contacts.

IMF officials in Washington welcomed comments from the Argentine capital and hoped it would open channels for a full review of the country's economy, not done since 2006.

An IMF spokesman told United Press International, "Argentina has always been a full member of the IMF and relations are normal. The Argentine government even has its own representative seating at the IMF's Executive Board."

Boudou told reporters Argentina held frequent "technical discussions" with the IMF but had not asked for financial assistance. Analysts said this seemed likely to change as Argentine officials arranged talks with senior Fund officials.

Earlier in February, IMF spokesman David Hawley told a news briefing the IMF is interested in resuming dialogue with Argentina.

"In the context of the global crisis we are working closely with all our members and are interested in deepening our dialogue with Argentina," he said.

Hawley said the Fund would also conduct an assessment of Argentina's economy under Article IV of the IMF agreement but did not specify a timetable.

An Article IV consultation and fact-finding missions for annual reviews of economic performance in member countries are routine IMF activities, but none has been conducted in Argentina for the past few years of the strained relationship.

Opposition to the IMF lingers in high places in Argentina, because of its perceived role in the economic crisis from 2000 onward. Nestor Kirchner told a political rally in February Argentina would not return to the IMF for funds even if it was handed the money free.

He repeated calls for IMF reform, implying a lesser IMF role in economic policymaking by the member states, and said Argentina would reconsider its participation if there was change.

"But in the current circumstances, they can keep the money, because they've already done too much damage to Argentina," he told his followers.

Kirchner was president when, in an escalating row over alleged IMF intervention in policymaking, Argentina dipped into its central bank reserves to pay off the Fund on loans that were not fully due for repayment.

IMF financial package for low-income countries: Much ado about nothing?

August 7, 2009.
This briefing was a co-production of ActionAid, the Bretton Woods Project, Eurodad, and Third World Network. A fully-formatted PDF version is also available.

This briefing analyzes announcements made at the end of July by the IMF regarding the level of their financial commitments to low-income countries (LICs) through 2014, the decision to allocate $250 billion worth of Special Drawing Rights (SDRs), and a reform of the facilities through which the IMF will lend to LICs.  We are awaiting further information from the IMF in order to bolster these analyses – namely the policy paper on the new loan facilities, which may not be available for several weeks.  We will update this briefing as information becomes available.

The potential development implications of enhancing the IMF's resources

August 4, 2009

A fully-formatted PDF version of this briefing is available.

In April 2009, the G20 group of leaders committed $1.1 trillion to combat the financial crisis, with the bulk of this being channelled through the International Monetary Fund (IMF). However, this substantial amount of resources may never be provided, and if it is, may not have the intended positive effect on developing countries. Experience so far demonstrates that the IMF is still imposing damaging pro-cyclical conditions on some borrowers, and that the finance provided to low-income countries will be too small.

Where did the "trillion" go?

Of the $1.1 trillion, $750 billion is to be delivered through the IMF. Of this, $500 billion was for new lending, while $250 billion was to be provided by an issuance of special drawing rights (SDRs), the IMF’s reserve asset.

Of the $500 billion, by the beginning of July only the $100 billion committed by Japan in February has actually been formally signed off, with the rest being only intentions or commitments. While the IMF is reporting on its level of contributions, there is no systematic follow-up mechanism to ensure commitments are met. As the G20 communiqué did not provide a breakdown of the $500 billion, it is not possible to track who has not fulfilled their commitments. Table 1 provides a breakdown based on publicly available information.

Special Drawing Rights (SDRs) and the Global Reserve System

The International Monetary Fund will vote in August on a proposal to tap a resource that hasn't been used in 30 years in order to bolster the reserves of its 186 member countries by the unconditional allocation of $250 billion worth of IMF special drawing rights (SDRs), an international reserve asset and the fund's internal unit of account. An SDR allocation is good for developing countries, but it is worth to consider that in a general allocation, SDRs are distributed on the basis of countries' quotas in the IMF, which means the rich get most of them, so it would be better for developed countries. This paper presents some specific recommendations made by Action Aid on that hot issue. (pdf format)

The IMF: Resurgent but unchanged

By Third World Network

At a time when a devastating financial and economic crisis is calling into question the governance and policies of all the major institutions that constitute the existing international financial order, the International Monetary Fund (IMF) appears to have escaped any such major reevaluation. While a meeting of developing countries held on the eve of the April spring meeting of the Fund has highlighted the need for reforms, the IMF, now financially reinvigorated with a fresh infusion of funds, is still pursuing some of its discredited policies. None more so, as Bhumika Muchhala shows in the analysis below, than the policy conditions it imposes on countries seeking its loans.

THE spring meetings of the International Monetary Fund (IMF) and World Bank were held in Washington, DC on 25-26 April. For the most part, the communiques resulting from the meetings addressed and reaffirmed the same issues and statements as in the communique adopted by the Group of 20 (G20) summit in London earlier that month.

It may be recalled that the IMF was the main beneficiary of that summit of developed and leading emerging economies, which agreed to boost the Fund's lending resources by $500 billion to $750 billion.

On the eve of the IMF-World Bank meetings, ministers of the Intergovernmental Group of Twenty-Four (G24) also met in Washington. The G24 was established in 1971 by developing and emerging market countries to articulate developing-country positions on financial and monetary issues.

While the G24 ministers supported the G20's proposal to treble IMF funds, they also highlighted the need for further reforms in lending instruments, conditionality and policies, toward more even-handed and broad-based implementation which better meets the needs of its developing-country members.

On IMF conditionality, the G24 ministers called for additional reforms to 'focus and streamline conditionality, including the greater recourse to ex ante and review-based conditionality'. However, the pro-cyclical fiscal and monetary conditionalities in the IMF's crisis response loans, characterised by reductions in public spending and increases in interest rates (see below), were not addressed by the ministers in their communique.

The G24 ministers also called for an 'urgent and comprehensive reform of the IMF's financing framework for low-income countries so as to be able to respond more flexibly to their diverse needs'.

The IMF's surveillance function has long been highlighted as a critical area of Fund activity that needs to be approached with greater even-handedness, in that developed countries' economies should be assessed as rigorously and objectively as developing countries are.

The G24 communique said that 'systemically important advanced countries, international capital flows, and financial markets' all require more effective surveillance by the IMF. The G24 ministers also supported 'an early review of the role of the IMF in the international monetary system in light of the lessons of the crisis, including with respect to the major reserve currencies'.

The democratic deficits in both the IMF and the World Bank, as well as the selection of institutional chiefs, were emphasised by the G24 ministers as priority areas that require change.

The G24 called for enacting the April 2008 agreements on quota and voice reform in the IMF. The G24 communique stated that a substantial increase and realignment of quotas in the IMF need to be completed no later than January 2011, following a comprehensive reform of the quota formula to address existing bias against developing countries.

Further balance in the representational structure of the Executive Boards and Ministerial Committees of the IMF and World Bank was called for while an additional chair for sub-Saharan Africa in the IMF was supported.

The merit-based and competitive selection process for the heads of the IMF and World Bank was agreed to, while greater staff diversity from underrepresented regions, including at the managerial level, was emphasised.

No change in IMF loan conditions

The injection of funds agreed by the G20 represented a change of fortune for the IMF, which had suffered a sharp decline in its lending business in recent years (because developing countries had lost confidence in the quality of its policy advice and conditionality, which they deemed harmful) until the present global financial crisis led to a resurgence in lending.

Although the IMF leadership tries to project that the organisation has changed in its lending policy conditionality, an analysis carried out by the Third World Network (TWN) on the Fund's recent loans shows that the fiscal and monetary policy conditions are, as previously, contractionary and pro-cyclical.

Starting in September 2008, the IMF has negotiated Stand-by Arrangement (SBA) loans with at least nine countries: Georgia, Ukraine, Hungary, Iceland, Latvia, Pakistan, Serbia, Belarus and El Salvador. Other countries that may be negotiating loans in the near future are Turkey and Romania, while Sri Lanka has requested a loan amount of $1.9 billion.

An analysis of the IMF's policy advice and conditionalities in the areas of fiscal policy, monetary and exchange rate policies and financial sector policies directly from the official IMF loan documents with these nine countries was done by TWN.

It reveals that the Fund's fiscal and monetary policies remain as tight and restrictive now as they have been in previous years. The IMF continues to design its loan programmes on a framework of tightening fiscal and monetary policies, and establishing rigorous inflation targeting, in all nine countries.

The IMF's fiscal policy aims to reduce fiscal deficits by restraining public expenditure, in which the burden falls on public sector employees, the poor and the unemployed. Country examples of fiscal tightening are as follows:

* In Pakistan, the Fund advises a reduction in the fiscal deficit from 7.4% of gross domestic product (GDP) to 4.2% through lowering public expenditure, gradually eliminating energy subsidies, raising electricity tariffs by 18% and eliminating tax exemptions.

* In Hungary, the IMF has targeted fiscal deficit reductions from 3.4% of GDP to 2.5% through a fiscal consolidation plan which involves freezing public sector wages, placing a cap on pension payments and postponing social benefits.

* Ukraine's fiscal deficit is targeted at a zero overall balance as a binding conditionality in its loan agreement. Public savings are to be generated through freezing public wages, pensions and other social transfers, postponing for a minimum of two years any increase in the minimum wage and cancelling tax cuts that were previously scheduled for the 2009 fiscal year.

While IMF Managing Director Dominique Strauss-Kahn and other senior IMF officials have been urging countries that have fiscal and monetary space to implement fiscal stimulus programmes in order to bolster aggregate demand and boost consumption, the advice stated in the IMF's loan conditions is a sharp contrast to their statements.

For example, the IMF's SBA loan of $532 million to Serbia states that '...there is no scope now for counter-cyclical fiscal loosening. Anything less than a tight fiscal stance could also jeopardise the credibility of the programme in the eyes of foreign investors and the Serbian public. Fiscal policy will in addition need to put a tight constraint on nominal wage growth in government sectors and public enterprises.'

IMF chief economist Olivier Blanchard said in a December 2008 interview: 'What is needed is not only a fiscal stimulus now but a commitment by governments that they will follow whatever policies it takes to avoid a repeat of a Great Depression scenario.'

Furthermore, in February, Strauss-Kahn made a statement at the 44th South-East Asian Central Banks Conference in Malaysia that there is now 'a broad consensus on fiscal stimulus to restore growth'.

However, all nine country recipients of loans are being directed to implement the exact opposite policies of public expenditure reductions, fiscal consolidation plans, public sector wage cuts, and the phased elimination of subsidies.

While the objectives of these IMF-supported loan policies are to boost foreign exchange reserves and address public debt burdens, there is no clear mention or analysis of the economic and social impacts that these contractionary policies will have in economies that are already contracting in recession.

While spending on social safety nets and social assistance schemes is being supported by the IMF in several loan recipient countries, it is important to note that in countries such as Pakistan, the cumulative increase in social spending is 0.3% of GDP, whereas the reduction in public spending amounts to 3.2% of GDP.

So, while the IMF can accurately say that social safety spending is being doubled in Pakistan, from 0.3% to 0.6% of GDP, it is overshadowed by the fiscal deficit reduction required by the IMF, from 7.4% to 4.2% of GDP.

This fiscal deficit reduction is to be achieved by a 'fiscal consolidation plan', as termed by the IMF, which involves reducing public spending through: (a) an 18% rise in electricity tariffs; (b) the phasing out of subsidies; (c) spending cuts in the government budget; (d) the elimination of tax exemptions in the General Sales Tax and the introduction of a new Value Added Tax law in the parliament, among other aspects.

While positive impacts from social spending increases may benefit the national economy, these may well be undermined by the negative impacts from contractionary fiscal policy in a time of economic recession.

The IMF's monetary policy is focused on reducing inflation through inflation targeting and monetary tightening. According to the IMF, lower inflation levels are to be achieved primarily through increasing the official interest rate.

Country examples of monetary tightening are as follows:

* In Latvia, the IMF has advised raising the official interest rate by 600 basis points in 2008. According to the IMF, a reduction in domestic demand is the mechanism through which wage and price inflation are to be lowered.

* In Iceland, the interest rate was increased by 600 basis points to 18% in October 2008. The IMF stated that a tightened monetary policy in Iceland would help stabilise the domestic currency, the krona.

* The IMF called for an increase in Pakistan's interest rate by 200 basis points, to 15%, with the provision that any additional increases that may be necessary will also be implemented. The IMF also advised Pakistan to establish an 'interest rate corridor' which could protect international reserves and enable domestic financing of the government to be achieved through market placements of government securities.

In recent months, pressures and exhortations have come from many developed countries, as well as from the IMF's Managing Director, to increase the IMF's lending to crisis-affected countries and boost its resources. This would be the major mistake of the current crisis.

The documentation of the IMF's current loan conditionalities and policy advice demonstrates that the traditionally contractionary nature of the IMF's fiscal and monetary policy framework has not changed. Additional resources to the IMF would give it the means by which to discipline crisis-hit countries the wrong way, worsening the crisis for them.

In the current context of global recession and credit market turmoil, where the developed countries are implementing counter-cyclical macroeconomic policies, the IMF should not be advising developing and emerging market country borrowers to tighten their fiscal and monetary policies in a pro-cyclical manner.

In particular, given that the financial crisis today was in part caused directly by pro-cyclical macroeconomic policies, the Fund should not be prescribing them as a solution now, just as it should not have prescribed contractionary policies during the Asian financial crisis of 1997-98.

The IMF should also not be the primary and dominant vehicle to disburse financial assistance for crisis-affected countries, especially since the required reforms to the Fund have not yet been carried out.

Bhumika Muchhala is a researcher with the Third World Network. The TWN study referred to above can be found at http://www.twnside.org.sg/title2/par/IMF.Crisis.Loans-Overview. TWN.March.2009.doc and http://www.twnside.org.sg/title2/par/IMF.Crisis.Loans Chart. TWN.March.2009.doc.

Bea Edwards: Corruption and fraud at IMF, the World Bank

With the world waiting for economic relief, the G-20 struck an agreement in April identifying actors who will ride to the rescue: Nearly $1 trillion will be given to the International Monetary Fund and the Multilateral Development Banks so that they can help "the vulnerable in the poorest countries." But these very institutions are culpable of accelerating the spread of poverty as the developing world confronts the crisis. In a frenzy of deregulation and poorly planned privatization, the IMF and the World Bank (the largest MDB) cut away both oversight of the private sector and social safety nets for the poor beginning in the 1980s.