Sunday, By Henry Lamb
Bretton Woods, New Hampshire, hardly seems the place to create an institution to control the
world's money flow. It was, however, in July of 1944. Representatives from 44 nations gathered
to try to solve some of the problems that contributed to the great depression, and prevented a
rapid recovery. Chief among those problems were the risks associated with foreign trade and
exchange. During the depression, between 1929 and 1932, the price of goods fell by 48 percent
world wide, and the value of international trade fell by 63 percent. The parties to the IMF set out
to create an institution that would stabilize the value of the currency of participating nations, to
assure participating nations that trade debts could be paid.
Although several international conferences had been held during the 1930s in search of solutions
to the international monetary exchange problem, all ended in failure. In the early 1940s, Harry
Dexter White, in the United States, and John Maynard Keynes of the United Kingdom, published
very similar proposals to create a permanent institution which would encourage the unrestricted
conversion of one currency to another at a clear and unequivocal rate of exchange. Their ideas
were hammered into the IMF at Bretton Woods. When it began operations in 1946, there were
39 member nations. There are now 182 member nations participating in the IMF.
The IMF is controlled by a Board of Governors, consisting of one representative from each
participating country. Each country also appoints one alternate. The U.S. Governor is Lawrence
H. Summers, Secretary of the Treasury, who, prior to joining the Clinton administration was
employed by the World Bank. The alternate is Alan Greenspan, who also serves on the board of
governors of the Bank of International Settlements. This group meets once each year.
The day to day operations are governed by the Executive Board, which consists of 24 Executive
Directors. Presently, China, France, Germany, Japan, Russia, Saudi Arabia, the United
Kingdom, and the United States, each have an Executive Director on the board. The other 16
members of the Executive Board represent groups of smaller nations. This board meets at least
three times each week, under the direction of a Managing Director, appointed by the Executive
Board, and who, by tradition, is a European. (The President of the World Bank is, by tradition,
from the United States). The U.S. Executive Director is Karin Lissakers, a former Columbia
University Lecturer on International Banking.
The IMF is headquartered in Washington, DC, and has about 2600 employees. The average
salary of IMF workers is $94,341 plus living allowances and children's education expenses for
private schools, and the reimbursement of any taxes required by host countries. Offices are also
maintained in Paris, Geneva, Tokyo, and at the United Nations in New York. At any given time,
as many as 70 staff members are assigned to various member countries. Employees of the IMF
are considered to be "international civil servants." Executive Directors are employees of their
respective countries and are not covered by international civil service policies.
When a nation joins the IMF, the "quota subscription" - the amount of money paid into the IMF -
is determined by the Executive Board, based on the country's economic output. The richer the
country, the more money is required for participation. Unlike some international organizations,
however, voting at the IMF is based upon the amount of money contributed. The United States is
the largest contributor, and therefore, casts the largest vote, approximately 18 percent of all votes.
SDR means Special Drawing Right which is a special
asset issued by the IMF based on the average value of five major
currencies. The present value is 1 SDR = $1.32523.
Only sovereign nations can join the IMF. There are no private individuals or private banks in the
IMF family.
The money produced by member nations forms a pool from which members may borrow in times
of financial difficulty. Presently, the balance sheet of the IMF shows about $193 billion in quota
subscriptions on deposit. Since member nations can pay up to 75% of their subscription in
domestic currency, and since most nations that borrow want only the dollar, yen, deutsche mark,
French franc, or pound sterling, only about half of the balance sheet total is available for use.
Any member country can immediately withdraw up to 25 percent of its quota subscription, that
has been paid in gold or in a major currency. Ultimately, a member may borrow up to three
times what it paid in, under a schedule of loan types, each of which carries specific repayment
schedules and certain other restrictions.
Loans from the IMF are not intended for capital investment, or use in development. There are
other international funding sources for these purposes. The IMF money is intended to be used to
stabilize currency and to help meet balance of payment deficiencies.
In 1995, the IMF loaned nearly $18 billion to Mexico and more than $6.2 billion to Russia. In
1998, Indonesia, Thailand and Korea received more than $35 billion in loans from the IMF, and
Russia got another $20.4 billion. This money is provided as loans, not grants. They are to be
repaid according to a prearranged schedule, and they are not made unless the staff of the IMF is
confident that domestic economic policies have been modified sufficiently to eliminate the
reason the loan became necessary in the first place, and that the economy will respond adequately
to provide for repayment.
There is no guarantee that staff appraisals are correct or that any given country will repay any
loan. The IMF has no enforcement authority, other than the authority to withhold future loans.
Considerable controversy arose about how Russia had used its IMF loans, and allegations were
made that corrupt officials had pocketed much of the money. The IMF staff reviewed the
situation and authorized more loans.
To meet the growing demand for loans, the IMF approved what's called "General Arrangements
to Borrow," which is a line of credit with the Bank of International Settlements worth about $24
billion. These "Arrangements" have been strengthened, and now the line of credit is worth $45
billion.
IMF loans are not interest-free. Borrowing nations pay a service fee of about 1/4 percent and
interest charges that average 4.5 percent. The member nation from whose quota subscription the
loan is made, earns the interest on the loan. Certain "extended" loans can be made, at the
discretion of the Executive Board, at rates as low as .05 percent.
There is currently a widespread movement among many non-government organizations and U.N.
agencies, calling for the cancellation of the debts of poor nations. This effort is expressed in item
11 of the Charter for Global Democracy.
Currently, one appointee, Karin Lissakers, the U.S. Executive Director, is responsible for
deciding how the United States' $49.4 billion dollars deposited in the IMF will be used. While
the U.S. is entitled to nearly 18% of the vote in the IMF, decisions are reached by consensus, and
there is no record of any votes. Were votes taken and recorded, they would not be available for
public inspection, nor private inspection by members of Congress.
The IMF is an independent international organization accountable to no one, no government, not
even to the United Nations. There is presently a motion pending before the Supreme Court (98-1-02031)which challenges the Constitutionality of the U.S. participation in the IMF. Several
bills have been introduced calling for IMF reform, specifically, to require some kind of external,
independent review of IMF operations and transactions. None have passed, nor are they likely to
be enacted since the U.S. has no authority over the IMF. The only thing the Congress can do is
withhold additional appropriations.
The IMF and the World Bank (to be discussed in future reports) work closely with the United
Nations, but are not subject to its direct administrative control. One of the major
recommendations of the Commission on Global Governance calls for the creation of an new
Economic Security Council to oversee the operations of a new administrative department of the
United Nations where all international financial mechanisms would be housed. Maurice Strong,
now the Executive Coordinator for U.N. reform, said in his first
report , that all 130 U.N. related
agencies and organizations were being consolidated into five administrative departments, one of
which would include the IMF, the World Bank and all its subsidiaries, the Global Environment
Facility, and the U.N. Development Program.
The international financial machinery is in a state of transition, and the global debt load is
growing. Throughout the international community, pressure is mounting for rich nations to
provide more and more funding through all the global financial mechanisms, and at the same
time, for the financial institutions to cancel the debt of the borrowers. While Congress is
frustrated by its inability to impose reforms on the IMF, or to even gain access to operations or to
audit its activities, the United Nations machinery is working to draw the financial mechanisms
under its control. All of this activity is occurring on a daily basis in private negotiating sessions
among people who are appointed to their offices, totally ignored by the news media and
consequently, not even appearing on the radar screens of the average American taxpayer.
The common denominator for virtually all international relations is the exchange of money.
Whoever controls the exchange point has the potential of not only controlling those international
relations, but also the real possibility of taking a share of the cash flow as a tax. Both the IMF
and the Bank for International Settlements, especially in light of the U.N. reforms, provide an
excellent opportunity for the U.N. to gain the control it needs over
the world's money flow.
Copyright (C) 2000 Freedom.org, All rights reserved
January 28,
2001
Global financial mechanisms - part III
International Monetary Fund (IMF)