IMF's plutocracy

George Monbiot
18 April

Loan conditions continue to condemn developing countries to a vicious cycle of misery.

THE DISEASE that afflicts all British Governments is an inability to let go. Unable to accept the end of empire, they cling to past glories.

However much they speak of modernity and democracy, they cannot help managing other people's lives, preserving foreigners — often at gunpoint — from the mistakes they would make if they were allowed to govern themselves.

I was going to call this an imperial delusion, but Britain has been remarkably successful at defending its powers. The United Kingdom Government has retained a permanent seat on the United Nations Security Council. Its membership of the G8 is unchallenged. Most important, it has preserved its unwarranted share of the vote on the boards of the International Monetary Fund and the World Bank. And it has no intention of giving this up.

In advance of the IMF's spring meeting (just concluded in Washington), France and Britain rejected any political reform to the organisation, which is charged with maintaining global financial stability. It is true that the Fund's proposals are feeble. It is true that even after far more ambitious reforms the IMF would remain the wrong body, constitutionally destined to fail. But this is not why the U.K. Government is holding out. It is resisting change because it wants to preserve its imperial rank.

Britain, with one per cent of the world's population, has five per cent of the IMF's votes. Sub-Saharan Africa, with 12 per cent of the population, has 4.6 per cent. Britain's share equals that of China and India put together. It is five times as big as that of Argentina, 19 times Bangladesh's, 35 times Kenya's, 124 times bigger than Malawi's. The G7 nations — Britain, the United States, Japan, Germany, France, Canada, and Italy — together possess 45 per cent of the vote. The other 177 members are left to squabble over the remainder.

Even these numbers tell only half the story. The five countries with the biggest quotas — the U.S., Britain, Japan, Germany, and France — are each allowed to appoint their own executive director to the IMF's board.

The rest must submit their candidates for election. Because poor nations do not know what is good for them, they are assigned to the tutelage of richer ones. The votes of the English-speaking Caribbean countries are given to Canada. Mongolia is represented by Australia, Kazakhstan by Belgium. The reason that Britain and France are resisting even the most timid reforms is that these would tip them below the threshold for automatic election: like the other countries, they would be represented on the board as part of a bloc.

Unfair distribution

Power is distributed like this because the IMF is a plutocracy. A country's vote represents its "quota," which is allocated according to its gross domestic product. In theory, the quota reflects countries' financial contributions to the Fund. But this is no longer the case, as the IMF receives much of its income from loan repayments from poorer nations.

But the old formula has resisted 60 years of complaints. The result is that governments that are never made subject to the IMF's strictures control it, while those whose countries have been reduced to an IMF franchise have no say in the way it is run. The allocation of votes is a perfect inversion of democracy.

A new report by ActionAid gives us a glimpse of how this unfair distribution of power affects the poor. After years of protest by poor countries and their supporters in the rich world, the IMF and the World Bank at last permitted the provision of healthcare and education without charge. The rich nations also promised, in 2000, to ensure that by 2015 every child in the world would have primary education. It looked like a great victory for the global justice movement. But the IMF is ensuring that the promise won't be met. It has, in effect, forbidden the poorest nations to hire sufficient teachers.

No one disputes that public sector wage rises can contribute to inflation. No one denies that governments have to exercise some degree of restraint. But the paternalists who run the IMF — who are fixated on creating safe havens for foreign capital — cannot help micro-managing the economies of the poor nations, without reference to the needs of the people who live there. The limits they have imposed on the bill for public-sector pay ensure that schooling cannot be improved.

ActionAid studied three very poor countries with major education problems: Malawi, Mozambique, and Sierra Leone. After fees were abolished (and when the civil war ended in Sierra Leone), vast numbers of pupils enrolled. But a combination of the rich nations' failure to provide the foreign aid they had promised and the restrictions imposed by the IMF has prevented these countries meeting the new demand. As a result, the pupil to teacher ratio in Sierra Leone is 57:1; in Malawi 72:1, and in Mozambique 74:1. That is the average; in rural areas it can be much higher. Many of the teachers are untrained, and many give up because they cannot survive on their wages. In Malawi, the goods required for the most basic level of subsistence cost $107 a month. A trained teacher receives $55.

So crowds of pupils strain to hear a scarcely literate teacher somewhere in the middle distance seeking to instruct them without books, chalk, paper or pens. We should not be surprised to discover that 40 per cent of children fail to complete primary school in Sierra Leone and Mozambique, and 70 per cent in Malawi. Most of the dropouts are girls.
As a result, these countries are stuck in a vicious circle of misery. Until education improves, GDP remains low. Until GDP rises, there is little money for education. As one of the agencies charged with rescuing countries from poverty, the IMF should be seeking to break this circle.

But the conditions it attaches to its loans keep these countries in their place. In Malawi, the IMF sets the ceiling for public sector wages directly; in Sierra Leone and Mozambique the broader macro-economic rules it imposes have the same effect.

Unnecessary targets

ActionAid argues that these fiscal targets are outdated and unnecessary: all these countries have now achieved sufficient stability to start raising teachers' pay. But in no case did the IMF consult either the public or the state's own Ministry of Education before laying down the law. The amount of money a teacher in rural Malawi is paid is decided by the men in London and Washington. Except for the district commissioners in pith helmets, little has changed since the country was called Nyasaland.

Last year, British Prime Minister Tony Blair acknowledged that the IMF "must become more representative of emerging economic powers and give greater voice to developing countries." But he just cannot let go. The proposed reforms do nothing to democratise the IMF: by linking the quota to purchasing power parity rather than raw GDP, they simply turn it into a more sophisticated plutocracy.

But they could have the effect of very slightly empowering some middle-income countries while taking a few votes away from some of the rich ones. And even that is too much for the Emperor of Africa.

If the British Government wants to help the poor, it must first give up its power to tell them how to live. Until that happens, everything the Prime Minister says about "partnership" and "solidarity" with the world's oppressed is humbug.

- Guardian Newspapers Limited 2007