The IMF and Corporate Welfare:
Disempowering Governments and Strengthening the
Hand of Multinationals
The International Monetary Fund (IMF) is an international
financial institution in charge of promoting free trade and exchange
and overseeing the global economy, with the goal of mitigating
macroeconomic problems such as large trade and budget deficits.
The IMF is a secretive institution that has been especially successful
in avoiding accountability for its failed policies and programs,
including its policies which benefit large foreign investors and
How exactly does the IMF provide corporate welfare?
Enhanced Structural Adjustment Facility (ESAF) For developing
countries with macroeconomic problems such as rampant inflation,
poor trade performance, and high indebtedness, the IMF offers
ESAF loans, which are low interest, medium term (5-10 years) loans.
According to the IMF, these concessional loans provide financing
to help a country meet its obligations in the short run, while
in the long run, the economic policy measures attached to ESAF
loans will restructure a developing country's economy and pave
the way for long term economic growth.
These economic policy measures are conditions of the loan,
and are largely imposed on the developing country by the IMF (and
World Bank). Failure to fulfill the conditions results in delays
or cancellation of the loan program. The reality of ESAF is that
cash-strapped developing countries desperate for money are forced
to adhere to strict austerity programs. Instead of paving the
way for long term growth, ESAF has benefited rich elites and companies
in the export sector, while increasing poverty and accelerating
IMF and ESAF conditions typically involve rapidly removing
trade barriers, increasing exports to earn hard currency for debt
service, and promoting foreign investment through privatization
and deregulation of labor and environmental laws. As a result
of IMF conditionality, multinationals can then enter developing
country markets, displacing nascent small and medium sized businesses.
Their entry is facilitated by export promotion policies such as
tax breaks and subsidies, by bargain basement privatization sales,
and by the lowering of wages through labor market deregulation.
Governments are effectively forced to adopt these policies to
meet the IMF's strict economic performance requirements.
IMF policies and conditions are largely formulated by the
G-7 countries, which make up a large portion of voting and influence
at the IMF. Voting power at the IMF is determined by the size
of a member's economy, and the G-7 dominates the institution.
IMF policies therefore foster the interests of the world's richest
countries while under-representing the world's poorest. G-7 corporations
benefit from the influence they hold with their governments and
consequently with the IMF.
New Arrangements to Borrow (NAB) The New Arrangements to Borrow
(NAB) and the General Arrangements to Borrow (GAB) are a set of
emergency credit lines provided to the IMF by the world's richest
countries (primarily the G-7) in the event of a global financial
crisis. NAB and GAB can be used when a country faces a serious
liquidity crisis and is unable to meet its obligations, such as
paying holders of government bonds, as in the Mexican crisis.
NAB and GAB in effect support Wall Street investment bankers and
speculators by loaning governments money to prop up interest rates
and pay these investors and speculators who freely buy up foreign
government notes and bonds.
The IMF encourages this type of uncertain speculation by Wall
Street through its anti-inflation policies that contract the money
supply and drive up interest rates, and through its trade promotion
policies that remove investment, exchange, and trade barriers
for all investors. While the IMF supports Wall Street, it expects
taxpayers from rich countries to finance this speculation when
it goes awry. Through this credit line, the IMF bears no accountability
for its failed and secretive lending programs.
CASES OF IMF AND CORPORATE WELFARE
The US government is a strong supporter of the IMF's involvement
in Haiti. The government, and the corporations it represents,
have an interest in helping the IMF impose conditions on Haiti:
Haiti is the largest market for US rice in the Caribbean. The
IMF program forced Haiti to open up its economy to subsidized
rice imports from the US and abolished tariff protections on domestic
Erly Rice, a US corporation, and its Haitian subsidiary have
been the main beneficiaries of these policies. Erly, which imports
40-50% of the rice consumed in Haiti, holds a virtual monopoly
on rice imports in Haiti. Because of subsidies to US producers
and exporters, and because IMF policies prevent the Haitian government
from protecting domestic producers, Erly was able to capture market
share in Haiti, displacing local growers. Erly is one or the largest
US based processors and marketers of brand rice products.'
Guyana was actively encouraged by the IMF to exploit its forestry
resources and encourage investment in this sector. Companies were
offered incentives such as tax holidays, export allowances, and
accelerated depreciation. Large foreign investors almost exclusively
benefited from these concessions.
The sale of Demerara Woods, an area of forests in Guyana,
provides a case of IMF corporate welfare. The IMF cited Demerara
Woods as a priority item for the state to sell despite the fact
the bilateral donors and the World Bank had poured millions into
the development of Demerara. A British investor (Lord Beaverbrook,
former Treasurer to the Conservative Party in the UK) led a consortium
that purchased the woods for twice the size of the original concession
yet for half the cost of all the money that had been spent previously
to develop the woods for the state.
Furthermore, Demerara Woods' debt was underwritten by the
government as part of the sale agreement. The citizens of Guyana
subsidized the bargain-basement sale of a timber asset to entice
foreign investment into the country (and because the IMF ordered
the country to increase foreign investment and sell Demerara Woods).
Mining is another sector in Guyana of IMF-promoted corporate
welfare. The sector was targeted by the IMF for its export potential,
and the government was told by the IMF to facilitate foreign investment
in the mining sector. Consequently, mining of gold and diamonds
became subject to a special regime under the income tax regulations
allowing mining companies generous exemptions on income taxes.
Six foreign companies had rushed in by the end of 1991, including
Canada's Cambior and the US' Golden Star. Cambior and Golden Star
achieved further notoriety when four billion liters of cyanide
laced water spilled into local rivers from a leak at one of their
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Years Is Enough