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 transnational corporations.

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 benefitted rich elites and companies in the export sector, while increasing poverty and accelerating environmental degradation.

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 the IMF and Corporate Welfare

HAITI
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 rice. 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.1

GUYANA
Forestry 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 benefitted 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).2 Mining 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.3 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 mines.4

ENDNOTES

1. Lisa McGowan, "Democracy Undermined, Economic Justice Denied: Structural Adjustment and the Aid Juggernaut in Haiti," Development GAP, January 1997, pp.24 & 25.

2. Dominic Hogg, "The SAP in the Forest," Friends of the Earth England, Wales and Northern Ireland, September 1993.

3. Hogg, p.151.

4. Mineral Policy Center, Press Release, August 31, 1995.

Written by Carol Welch, Friends of the Earth, US. Friends of the Earth, US is a founding member of the 50 Years Is Enough Network.

More Information

Globalization for Whom? - www.preamble.org/Globalization.html