Thursday, March 21, 2013

Foreign Aid 15: Shrink the IMF

I forwarded my article in interaksyon, Why the IMF is irrelevant in thePhilippines, to Dr. Josef “Jop” Yap, the President of the Philippine Institute for Development Studies (PIDS) because it was the PIDS that sponsored the forum where the IMF regional officer, Dr. Anoop Singh, spoke. Jop replied that he shared my article with the PIDS staff, thanks Jop.

He added that the IMF need not be dismantled, that it only has to refocus and should have been done in the past, but the Fund has no clout over the major country credits including the US.

I replied to Jop saying that when the IMF is into solving inequality and ensuring inclusive growth, it is simply feeling hollow and shallow and tries to step into WB and ADB forte just to make itself feel relevant in countries that do not need it. IMF should make its presence be felt strongly in Europe and North America where current account and BOP problems are annual if not daily realities.

When an economy is bleeding in its current account and overall BOP, its monetary and fiscal authorities panic and engage in heavy currency, interest rates, and capital account manipulations, plus tinkering with their taxpayers' level of patience or anger.

So I think the IMF is abolishable, or at least shrinkable. Say, dismantle their country offices even temporarily, in countries like the Philippines and many Asian economies where they are not needed now and in the short term. 

Europe and even North America are staring them in the face point blank. The bank run in tiny Cyprus and public anger over the bailout conditions, a high tax on bank deposits, is challenging the IMF to address problems on huge BOP imbalances. Uncertainty in that tiny European economy (1 million people and now needing $10 B bailout money from ECB and IMF) even has negative repercussions in the PH stockmarket. 

It is simply lousy for the IMF to announce its migration of function to solving inequality and "non-inclusive" growth, when many European economies are wobbly precisely because of their very expensive welfare system to solve inequality and non-inclusive growth there.

In the said interaksyon article, some comments were posted. I am reposting the more substantial comments and my reply to them.

We should give back to the IMF as we were aided when we were hard-up decades past. Let's not be stingy to those who helped us!
March 16 at 1:53pm

Nonoy: Hi Banno, one problem with foreign aid bodies like the IMF is they create moral hazards problem to many corrupt governments. The latter can over-borrow then waste if not steal, plunder the country's resources. Anyway, there's the IMF to bail the country out when it experiences debt crisis or other balance of payment problems, even when the plunderers are already out of government.
March 16 at 7:36pm

Leamse Oapmaamid ·  Top Commenter
Ano to kwento ng isang mahirap na tao na tinulungan ng iba para umunlad pagkatapos nung umunlad eh wala ng pakialam sa taong tumulong sa kanya kundi naging matayog ang lipad na tila baga di nanggaling sa lupa. Magandang teleserye ito. Wag nyong sabihin na kapag ang mahirap na bansa ay umunlad magiging mayabang na ito. Wag naman po oh, Dios ko. Di pa nga tayo ganun kayaman na bansa actually napakaraming bilang ng mahihirap sa atin tapos to the highest level na agad ang yabang...Ayos...
March 16 at 4:25pm

Nonoy: Hi Leamse, I think it is unfair and even wrong to give too much credit to the IMF for the Philippines' economic growth. An economy grows mainly because of the hard work of the private enterprises and citizens, not because of dependency from borrowings with the foreign aid like the IMF. Singapore started poor when it became independent of Malaysia in 1959, the same with Taiwan when it broke off from China mainland after the communist victory in 1949. They developed not because of foreign aid borrowings and IMF dependence, but because of strong entrepreneurship.
March 16 at 7:24pm

Leamse Oapmaamid ·  Top Commenter
Please educate me what are those too much that you are mentioning about? You have also talked about the Singapore and Taiwan about their experiences of becoming tigers of Asia in terms of economy. I don't think there is no help coming from outside that these countries they did not accept from World Bank, Asian Development Bank, IMF or other bank or country that can give them loans. For instance, Taiwan was supported by the US in terms of their economy and military establishments before and maybe a sort of it until now. Singapore is really a good example of change because the leaders of that country were committed and united to the prosperity and progress of their country and its people as a whole but I don't think this country did not avail loans from outside sources. Now, where is the Philippines? We are becoming full of ourselves just because for a moment of having exclusive economic progress which did not actually give benefit for the many but for only few rich and famous. Where the gap between the rich and poor is very far from to be expected. How can we boast such thing to the world? If that will be the case, our country will become like a common Filipino after having acquire some richness has changed his thinking and feelings towards others. It means such person became full of himself and now saying a better than you are statement. How hopeless and helpless it is to think about it?
15 hours ago

Nonoy : " tinulungan ng iba para umunlad pagkatapos nung umunlad eh wala ng pakialam sa taong tumulong sa kanya" -- that's what I was referring to as giving too much credit to the IMF. Previous administrations like Marcos bungled the economy, a self-inflicted injury, IMF came to help the country pay its big current account and BOP deficit. If dictators and irresponsible governments did not expand, the economy should be capable of correcting its own imbalances, no need for the IMF.

In February 7, 2001, Dr. Ron Paul, the retired Tea Party Congressman, delivered a speech at the US House of Representatives assessing the condition of the US Republic. In that speech, he mentioned about the real role of international corporations like the IMF. He said that the economic consequences of distributing foreign aid under the campaign of helping the poor of developing countries are almost invisible. In reality, foreign aid does not help the poor of developing countries. It only serves the interests of powerful foreign leaders. Add to it the fact that providing foreign aid is actually a process “of taking money from poor Americans and giving it to rich foreign leaders, with kickbacks to international corporations” like the WB, the IMF, the WTO, and the ICC (Pillars of Prosperity, 2008, p.30). This is an invisible attack on the economic liberty of American taxpayers for such decision does not come from them, but always from global elites.
March 16 at 8:36pm

Nonoy: Right Ruel. Foreign aid is government to government transfer of money. Unlike international trade, investments and tourism where transfer of money and other resources is people to people, or business to business, foreign aid like IMF bail out has propped up or at least bailed out many irresponsible and despotic governments.
March 17 at 12:26am

See also:
Foreign Aid 6: IMF is Engineerable and Abolishable, September 05, 2006
Foreign Aid 8: Abolish the IMF, August 08, 2007
IMF socialism, January 04, 2009
IMF dinosaur, let it fade away, June 16, 2009

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