WHEN the monitor fails to monitor, it certainly leads the system to catastrophe or even to collapse. As readers might agree, there was hardly any projection by the International Monetary Fund, or by any other monetary watchdog, about the ongoing recession. Did they really know anything or did they remain silent despite knowing that a financial tsunami was likely to hit the world economy that started rolling down from the heart of market economy? During April 2009, when the recession had already emerged with its real look, the International Monetary Fund slashed growth forecasts for every major country and urged governments to take forceful action to recover from the recession.
Now let us have a look at the International Monetary Fund’s role here in Bangladesh. The last caretaker government planned to impose safeguard duties aimed towards supporting local industries by restraining import surge. It was halted by International Monetary Fund’s intervention and disapproval which it apparently claimed was against WTO rules. For least developed countries like Bangladesh, safeguard duty has been a recognised instrument, to protect local industries. In July 2007, the monetary fund welcomed Bangladesh Bank’s contractionary monetary policy which was an outcome of repeated IMF pressure. Needless to mention, the International Monetary Fund has always advocated for similar policies for other Least Developed Countries. In a bid to further strengthen its control over policy formulation, in September of the same year, the multilateral agency proposed to introduce joint audit system for income tax and value added tax which was refused by the National Board of Revenue. Back in April this year, the monetary fund recommended devaluating the taka against the dollar which elicited sharp criticism from different quarters. In a statement in May 2009, the IMF’s Bangladesh Resident Mission termed Bangladesh Bank’s decision to administer lending rates as ‘regrettable’ and said that such ‘rates should be determined through market-based policy interest rates influenced by the central bank’. Such observation is contradictory to the IMF’s policy suggestion that governments should take forceful actions to combat global recession. John Lipsky, the IMF’s First Deputy Managing Director, in a speech in Paris on June 26 said that ‘monetary policy should remain accommodative for the time being’ and recommended clear exit strategy ‘for government intervention in both the fiscal and monetary areas’. The IMF has always sought for contractionary monetary policy for countries like Bangladesh. But when it fails, they seem to come up with a common idea of being ‘accommodative’ for all.
Just a few days back the Sri Lankan trade minister GL Peiris accused the monetary fund for politicising financial aid when the latter’s executive board was delaying a $1.9 billion bailout fund. Sri Lanka, in a bid to meet her balance of payments deficit in four years, negotiated the deal with the International Monetary Fund. The agency did not make any comment on Peiris’s claim that the bailout was being delayed on the issue of Colombo’s all out war against the Tamil separatists.
Now let us look back to the mid 1990’s when the soviet communist bloc finally collapsed and the International Monetary Fund took the driver’s seat in priviatising the soviet industrial machine. This was viewed by the IMF and its major shareholders as a success as they only wanted Yeltsin to be re-elected. The election was highly controversial which later awarded the capitalist backed oligarchs to own Russia’s industrial assets. This resulted in the emergence of a mafia syndicate which controlled everything. Corruption scheme nearly cut national output by half causing hunger and despair.
In April 2006, the IMF and the World Bank jointly commissioned an external review committee headed by Pedro Malan, former Brazilian finance minister to evaluate the relationship between the two Bretton Woods institutions. The report stated that the IMF was not well equipped as a development institution and therefore, suggested that the IMF should stop making development loans to low-income countries, leaving that responsibility to the World Bank. The Malan committee report justifies IMF’s reform movement that started through initiation of policy support instrument in late 2005. The IMF initiated the instrument at a time when many low income countries were about to complete their ongoing arrangements and the third world countries had a relatively abundant stock of foreign exchange. Needless to mention, the Poverty Reduction Grant Facility and the Poverty Reduction Strategy served as useful tools for the monetary fund to intervene into the policy making process of low income countries. Bangladesh was also offered to enter into an agreement to initiate the policy support instrument but both the government and the fund apparently backed due to the sharp criticism across the country. Finally in September 2007, the caretaker government announced that it was of the view that there was no such need for policy support for Bangladesh at that time.
In May 2006, the IMF commissioned a committee comprising of eminent persons that included among others Alan Greenspan, former chairman of the US Federal Reserve Board, Guillermo Ortíz, governor of the Bank of Mexico and Jean-Claude Trichet, president of the European Central Bank. This committee was headed by Andrew Crockett, president of JP Morgan Chase International. The objective of this committee was to study ‘sustainable long-term financing’ of the multilateral lending agency i.e. to suggest alternative income sources for the crisis-torn IMF with a projected budget shortfall of $370 million by 2010. It is to be mentioned here that in 2007, the IMF had an operational cost of about $980 million. Large borrowers, for example Brazil, Argentina and Indonesia have cleared their dues indicating no further inclination to renew their arrangements with the agency. The only large borrower is Turkey with two-thirds of IMF’s total lending. The IMF, as the Economist referred to it, has now virtually become ‘The Turkish Monetary Fund’. The Latin American countries are planning to set up a new bank ‘Banco del Sur’ —Bank of the South— under Venezuelan leadership. Thailand and the Philippines have said ‘NO’ to IMF and aim to form Bank of Debtors by excluding the IMF; China and India hardly have any relation with the IMF. Rejecting the IMF and World Bank’s prescriptions, Asian countries like Malaysia, Thailand, South Korea, and the Philippines have been very successful in shaping their economies.
The IMF needs to remain relevant in the changing global financial system and needs to redefine its role as an international financial institution. China has emerged as a major player in the global economy and even making investments in many countries. With an aim to find alternative to the international financial institutions, particularly the International Monetary Fund, fast growing economies of Brazil, Russia, India and China have formed BRIC, aimed at finding alternative instruments or modify the existing ones. BRIC in a recent move announced that they were ready to buy a total of $60 billion worth of IMF bonds that would boost the role of Special Drawing Rights in international finance. There is, therefore, a solid risk that international financial institutions will lose their control over borrowers, particularly the least developed countries.
In September 2006, Nouriel Roubini, a professor of the Stern School of Business at New York University delivered a lecture at the IMF where he warned that the US consumers were about to ‘burn out’. The IMF in an in-house newsletter covered the story under the headline ‘meet Dr Doom’. Again in September 2007, the IMF organised a seminar on ‘The Risk of a US Hard Landing and Implications for the Global Economy and Financial Markets’ which was addressed by Dr Doom among others. However, Roubini has by now become a prophet for the fund and not quite the Dr Doom as he was initially slated to be. Even after being cautioned about a probable recession, the IMF did not make any indication that a financial tsunami was likely to hit the global economy. Particularly the IMF failed to foresee and prevent outbreak of major financial crisis. The self correcting mechanism theory of the IMF which has always avoided the avenue of stronger market regulation has failed. Yet it is too early to say whether the IMF will lose its relevancy. If the IMF wants to remain relevant in the global economy, however, it must reform itself and reform without delay.
মুক্তচিন্তা (muktochinta) 
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