New Funds Approved for IMF Would Worsen Global Economic Downturn

On Friday, the Senate passed a $108 billion blank check for IMF expansion, as part of the military supplemental, in response to a request from the administration in fulfillment of the U.S. commitment to global stimulus pledged at the G-20 meeting in April. Since this appropriation was not included in the House version of the bill, it is possible that the funding might be stripped, as Rep. Obey has stated is his preference, and Republicans have threatened to do. More likely, it provides an opportunity to include various key reforms, without which the funding will likely not achieve its intended impact of global stimulus and may actually do more harm than good.

The Center for Economic and Policy Research reviewed the IMF loans given to countries since the onset of the crisis in September 2008, and found that the IMF has been mandating contractionary economic conditions on recipient countries, including fiscal deficit reductions, monetary tightening, and inflation-targeting measures that are actually exacerbating the recessions in recipient countries. This is shocking news, confirmed by press reports from Latvia (hospital and school closures, wage cuts), Hungary (wage and pension reductions, tax increases, cuts in social spending), Ukraine (tax hikes, pension cuts), Serbia (mandated layoffs, tax increases), and other recipient countries, particularly given that the point of IMF funding is to provide countries with resources to stimulate their economies during the global recession.

In the past, the IMF has made substantial reforms to its policies only when mandated explicitly by Congress to do so, and Congress has not had a similar opportunity in the last decade. Mandating that funds allocated for global stimulus actually stimulate, rather than contract, economies seems like a common sense thing to do – particularly as the crisis is affecting countries that were not the source of the global recession. As well, it will ensure that the recipient countries are in a better fiscal position to repay the loans, and don’t further erode the U.S. trade deficit.

These reforms, including important provisions to improve transparency and democratic accountability of the IMF, are supported by many members of the House who sent a letter Thursday to Reps. Obey and Lowey requesting their inclusion in the final bill. Since the conference report will be finalized over the break, Rep. Waters is still accepting signers. It will be up to the House and Senate conferees to decide if they want the equivalent of an international TARP, or a real global stimulus to help ease the suffering of the poor.

For more information, see the response of health, education, and development groups to the Senate bill.