Tag Archive | "privatization"

Findings & Forecasts 03/13/2013

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Depres­sione: Italy on the Brink

Gov­ern­ment aus­terity has pre­dictable after-effects, namely, a con­trac­tion of eco­nomic activity. Just ask Greece or Italy. It also has the effect of par­a­lyzing the social and polit­ical arena because trust is chal­lenged on every level.

It’s a Cache 22 sit­u­a­tion though. When gov­ern­ments accu­mu­late so much debt that the market starts to ques­tion their ability to pay it all back, then lenders start demanding pay­ment. That’s not totally unrea­son­able, con­sid­ering that a lender has every right to expect pay­ment from the borrower.

When a gov­ern­ment racks up debt faster than the economy grows, the even­tual cur­tail­ment of all reck­less spending is guaranteed.

By November 2011, Italy’s debt crisis had already grid­locked the polit­ical process. Someone was going to get seri­ously hurt no matter which way they turned. If they defaulted on debts, then investors would be burned. If they raised taxes, then cit­i­zens would be burned. If they tried to shrink the size of gov­ern­ment, the economy would con­tract and everyone would get burned.

It’s tempting to say “What a mess they had made of their national affairs” except that America has done exactly the same thing. The U.S. is on the same track, just a few miles behind.

When it became obvious that Italian politi­cians could not move for­ward with any solu­tion, the lenders stepped in and took over gov­ern­ment operation.

This is how and why Tri­lat­eral Com­mis­sioner Mario Monti came to be appointed (not elected) as Prime Min­ister of Italy. He was widely hailed as a tech­no­crat, in the sense of “rule by expert” vs. demo­c­ra­t­i­cally elected gov­ern­ment. According to BBC News at the time,

Mario Monti has been asked to form a new Italian gov­ern­ment to tackle an acute debt crisis which prompted the res­ig­na­tion of Silvio Berlus­coni. Mr Monti, an ex-EU com­mis­sioner, said he was starting urgent talks on his cab­inet, aiming to restore finances.

EU leaders hailed Monti’s appoint­ment as “a fur­ther encour­aging signal… of the Italian author­i­ties’ deter­mi­na­tion to over­come the cur­rent crisis.” They com­pletely mis­read the appoint­ment: The Italian gov­ern­ment did not ask for Monti, but rather the EU lead­er­ship forced him down their col­lec­tive throats!

This was plainly evi­dent by the foot­note that stated “An EU team has begun work in Rome, mon­i­toring how Italy plans to cut its debt burden, 120% of annual eco­nomic output (GDP).” Thus, the lenders essen­tially appointed a bank­ruptcy judge who would pre­side over the affairs of the bank­rupt nation, to pro­tect the inter­ests of the lenders, not the debtors.

Over the next 12 months, Monti made sure that Italy fol­lowed the EU’s ulti­matum to reduce gov­ern­ment debt by imposing aus­terity pro­grams to cur­tail spending.

On March 12, 2013, just 14 months after Monti’s appoint­ment, the New York Times reports that

“Since a gov­ern­ment aus­terity plan took hold last year, the Italian economy has tum­bled into one of the worst reces­sions of any euro zone country… Busi­nesses of all sizes have been going belly up at the rate of 1,000 a day over the last year; espe­cially hard hit among Italy’s esti­mated six mil­lion com­pa­nies are the small and mid­size com­pa­nies that rep­re­sent the back­bone of Italy’s $2 tril­lion economy.

“But Italy’s long­standing prob­lems have grown worse in the last year as tax increases and spending cuts were pressed by Mr. Monti, who took over as prime min­ister in November 2011 after the euro crisis forced out Silvio Berlus­coni. Last year the economy shrank 2.4 per­cent.“

One small Italian busi­nessman Emanuele Tedeschi, stated “In one and a half years, every­thing changed. People started feeling afraid, and they stopped spending money. All the promises Monti made to relaunch the economy and help us enhance pro­duc­tivity never materialized.”

The article closes on a depressing note:

“Econ­o­mists worry that the pace of busi­ness clos­ings may accel­erate as long as the country lacks a func­tioning gov­ern­ment. The departing prime min­ister, Mario Monti, was ousted by austerity-weary voters, but the elec­tion left Par­lia­ment grid­locked.

Ousted, indeed. Voters rightly blame Monti for crashing their economy, but they don’t under­stand that his pri­mary goal was to “pri­va­tize” Italy’s remaining hold­ings in order to pay off debts and enrich the mer­chants of glob­al­iza­tion. Pri­va­ti­za­tion has long been a major strategy of the Tri­lat­eral Com­mis­sion and its “New Inter­na­tional World Order,” designed to con­sol­i­date wealth into the priv­i­leged few who belong to it.

In fact, pri­va­ti­za­tion has plagued Italy since at least 1992, thanks to the same people who have engi­neered modern glob­al­iza­tion. As this OECD report from 1997 shows, pri­va­ti­za­tion was in full swing by 1997 as gov­ern­ments sold off prized pos­ses­sions by the billions.

What assets Italy has left today, if fully sold off, would only pay down about 7 per­cent of its overall debt. And yet, that is what is next for Italy. After all is said and done, Italy will have no public ser­vice assets and will still be mas­sively bank­rupt with a trashed economy. In the end, the cit­i­zens will ulti­mately bear 100 per­cent of the debt. Pre­dictably, they will rebel just as they have in Greece.

Noted econ­o­mist Nouriel Roubini recently called Italy a “tsunami risk”:

“In Italy there’s the begin­ning of a polit­ical storm. The result of the Italian elec­tions signal that the majority of people are against aus­terity and not just in Italy also in Lisbon half a mil­lion people were in the streets and 25 per­cent unem­ploy­ment in Greece and Spain, 50 per­cent amongst young people and there is restlessness.

“Italy is not Greece and it has leverage within the euro zone and can cred­ibly threaten Ger­many by saying that if there is no loos­ening of con­di­tion­ality things could become implo­sive and [it could poten­tially] exit from the euro zone.”

Unfor­tu­nately, there is no fix for Italy, and it will go from bad to worse as polit­ical forces clash with each other, the finan­cial com­mu­nity and lenders. The pri­mary blockage to any for­ward progress is that trust has evap­o­rated. People don’t trust gov­ern­ment, bankers and glob­al­ists. Polit­ical par­ties don’t trust each other. The gov­ern­ment doesn’t trust the EU gov­er­nance machine. The bankers cer­tainly don’t trust the gov­ern­ment. Basi­cally, it’s reducing to a state of anarchy where society just melts from the top down.

The con­ta­gion of Greece has thor­oughly infected Italy and for all the same rea­sons. Por­tugal, Spain and France are close behind. Ger­many is also showing signs of weak­ness. When suf­fi­cient EU coun­tries are reduced to rubble, their euro cur­rency will dis­solve and Europe’s age-old rival­ries will resur­face to threaten another con­ti­nental war. All because of debt, greed and stupidity.

As I have said before, there is no pos­si­bility that America will be unaf­fected by what hap­pens in Greece, Italy and Europe. This is a global problem of the greatest mag­ni­tude, and in the end we will all sink or swim together.

Mean­while, a recent ABC head­line sums our President’s posi­tion — Pres­i­dent Obama: There Is No Debt Crisis”.

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Global Banking: The International Monetary Fund

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Intro­duc­tion

The Inter­na­tional Mon­e­tary Fund (IMF) is

a public insti­tu­tion, estab­lished with money pro­vided by tax­payers around the world. This is impor­tant to remember because it does not report directly to either the cit­i­zens who finance it or those whose lives it affects. Rather, it reports to the min­istries of finance and the cen­tral banks of the gov­ern­ments of the world.1

This author­i­ta­tive state­ment comes from Joseph Stiglitz, who served for seven years as chairman of Pres­i­dent Clinton’s Council of Eco­nomic Advisers and as chief econ­o­mist for the World Bank. Stiglitz is a main­stream glob­alist, but still honest enough to have become dis­il­lu­sioned with the cor­rupt prac­tices of the IMF and the World Bank. His first-hand wit­ness is very insightful:

Inter­na­tional bureau­crats — the face­less sym­bols of the world eco­nomic order — are under attack every­where. For­merly uneventful meet­ings of obscure tech­nocrats dis­cussing mun­dane sub­jects such as con­ces­sional loans and trade quotas have now become the scene of raging street bat­tles and huge demon­stra­tions… Vir­tu­ally every major meeting of the Inter­na­tional Mon­e­tary Fund, the World Bank, and the World Trade Orga­ni­za­tion is now the scene of con­flict and tur­moil.2

Why is the IMF an orga­ni­za­tion that people love to hate? This report will hope­fully shed some light on the subject.

IMF Begin­nings

According to its own lit­er­a­ture, the Inter­na­tional Mon­e­tary Fund (IMF) was “estab­lished to pro­mote inter­na­tional mon­e­tary coop­er­a­tion, exchange sta­bility, and orderly exchange arrange­ments; to foster eco­nomic growth and high levels of employ­ment; and to pro­vide tem­po­rary finan­cial assis­tance to coun­tries to help ease bal­ance of pay­ments adjustment.”

This innocuous descrip­tion hardly describes the crit­ical func­tions that the IMF pro­vides to the process of glob­al­iza­tion. Indeed, the IMF is one of the leading agents of change in the global economy and global governance.

The IMF was actu­ally cre­ated in December, 1945 when the first 29 member nations signed its Arti­cles of Agree­ment, and began oper­a­tions on March 1, 1947. (Note: there are 184 member coun­tries today.)

The autho­riza­tion for the IMF came a few months ear­lier at the famous Bretton Woods con­fer­ence of July 1944.

On the heels of World War II, the Bretton Woods Agree­ments estab­lished a system of pro­ce­dures and rules, together with insti­tu­tions to enforce them, that called for member coun­tries to adopt a mon­e­tary policy that was fixed in terms of gold. Although the Bretton Woods system utterly col­lapsed in 1971 after Pres­i­dent Nixon sus­pended con­vert­ibility of the dollar into gold, the insti­tu­tions cre­ated in 1944 con­tinued on uninterrupted.

While any country may become a member of the IMF, the road to mem­ber­ship is note­worthy. When appli­ca­tion for mem­ber­ship is sub­mitted to the IMF’s exec­u­tive board, a “Mem­ber­ship Res­o­lu­tion” is made to the Board of Gov­er­nors that covers the member’s quota, sub­scrip­tion and voting rights. If approved by the Board of Gov­er­nors, the appli­cant must amend its own laws in order to permit it to sign the IMF’s Arti­cles of Agree­ment and to oth­er­wise ful­fill the oblig­a­tions required of mem­bers. In other words, the member sub­or­di­nates a cer­tain part of its legal sov­er­eignty to the IMF. This sets the stage for the IMF to take an active role in the affairs of the member country.

The IMF is viewed by some as a global orga­ni­za­tion, but it should be noted that the U.S. has 18.25 per­cent of the vote on the IMF board, or three times more than any other member. In addi­tion, it is based in Wash­ington, DC.

IMF Founders: Harry Dexter White and John May­nard Keynes

The prin­cipal archi­tects of the Bretton Woods system, and hence the IMF, were Harry Dexter White and John May­nard White and Keynes Keynes.

Keynes was an Eng­lish econ­o­mist who has had an enor­mous impact on global eco­nomic thinking despite the fact that many of his eco­nomic the­o­ries have been thor­oughly dis­cred­ited. During WWII, he had called for the dis­so­lu­tion of the Bank for Inter­na­tional Set­tle­ments because of its dom­i­na­tion by Nazi oper­a­tives. After WWII how­ever, when dis­banding the BIS was actu­ally man­dated by Con­gress, he argued against the dis­so­lu­tion pending the cre­ation of the IMF and World Bank. His latter argu­ment was the often and over-used ratio­nale “If we close it down too soon, the world finan­cial system will col­lapse.” Keynes glob­alist instincts led him to call for a world cur­rency, called Bancor, that would be man­aged by a global cen­tral bank. This idea flatly failed.

Harry Dexter White was also con­sid­ered to be a bril­liant econ­o­mist, and was appointed in as 1942 assis­tant to Henry Mor­gen­thau, Sec­re­tary of the Trea­sury. He remained Morgenthau’s most trusted assis­tant throughout his term, and argued ver­bosely against the Bank for Inter­na­tional Set­tle­ments. Like Mor­gen­thau and most all Amer­i­cans, White was strongly anti-Nazi. White, how­ever, was NOT pro-American.3

On October 16, 1950, an FBI memo iden­ti­fied White as a Soviet spy whose code name was Jurist.

Fol­lowing the col­lapse of the Soviet Union in 1991, for­merly secret intel­li­gence doc­u­ments were made public and shined new light on the matter. White was not just a spy among the 50-odd iden­ti­fied Amer­ican spies, he was likely the top spy for the USSR in the U.S.

In 1999, the Hoover Digest wrote:

In their new book Venona: Decoding Soviet Espi­onage in America, Harvey Klehr and John Haynes argue that of some fifty Amer­i­cans known to have spied for Stalin (many more have never been iden­ti­fied), Harry Dexter White was prob­ably the most impor­tant agent.

The Venona inter­cepts revealed that at the 1945 con­fer­ence in San Fran­cisco founding the United Nations, White met with a Soviet KGB officer and informed him of the U.S. nego­ti­ating posi­tion on a number of issues. (White’s KGB code name was at var­ious times “Lawyer,” “Richard,” and “Reed.”) Another KGB mes­sage noted that White was thinking of resigning his high Trea­sury post and entering the pri­vate sector because he needed more income to pay one of his daughter’s col­lege tuition. White was regarded as so impor­tant to the Kremlin that his han­dlers pro­posed to pay the tuition so White could remain at Trea­sury.4

Had White lived beyond 1946, he likely would have been pros­e­cuted for high treason against the U.S., the penalty for which is execution.

Such is the moral fiber and intel­lec­tual cre­den­tials of the cre­ators of the IMF: One was a Eng­lish ide­o­logue econ­o­mist with a markedly global bent, and the other a cor­rupt and high-ranking U.S. gov­ern­ment offi­cial who was a top Soviet spy.

Trying to figure out where these two really stood in the eyes of the core global elite has more twists than a Sher­lock Holmes mys­tery story. It is more easily per­ceived by the end result — the suc­cessful cre­ation of the IMF and the World Bank, both of which were heartily endorsed by the likes of J.P. Morgan and Chase Bank, among other inter­na­tional bankers.

Posi­tioning: IMF vs. the World Bank and the BIS

There is a triad of mon­e­tary powers that rule global money oper­a­tions: the IMF, the World Bank and the Bank for Inter­na­tional Set­tle­ments. Although they work together very closely, it is nec­es­sary to see which part each plays in the glob­al­iza­tion process.

The Inter­na­tional Mon­e­tary Fund (IMF) and the World Bank interact only with gov­ern­ments whereas the BIS inter­acts only with other cen­tral banks. The IMF loans money to national gov­ern­ments, and often these coun­tries are in some kind of fiscal or mon­e­tary crisis. Fur­ther­more, the IMF raises money by receiving “quota” con­tri­bu­tions from its 184 member coun­tries. Even though the member coun­tries may borrow money to make their quota con­tri­bu­tions, it is, in reality, all tax-payer money.5

The World Bank also lends money to gov­ern­ments and has 184 member coun­tries. Within the World Bank are two sep­a­rate enti­ties, the Inter­na­tional Bank for Recon­struc­tion and Devel­op­ment (IBRD) and the Inter­na­tional Devel­op­ment Asso­ci­a­tion (IDA). The IBRD focuses on middle income and credit-worthy poor coun­tries, while the IDA focuses on the poorest of nations. The World Bank is self-sufficient for internal oper­a­tions, bor­rowing money by direct lending from banks and by floating bond issues, and then loaning this money through IBRD and IDA to trou­bled coun­tries.6

The BIS, as cen­tral bank to the other cen­tral banks, facil­i­tates the move­ment of money. They are well-known for issuing “bridge loans” to cen­tral banks in coun­tries where IMF or World Bank money is pledged but has not yet been deliv­ered. These bridge loans are then repaid by the respec­tive gov­ern­ments when they receive the funds that had been promised by the IMF or World Bank.7

The IMF has become known as the “lender of last resort.” When a country starts to crumble because of prob­lems with trade deficits or exces­sive debt bur­dens, the IMF can step in and bail it out. If the country were a patient in a hos­pital, the treat­ment would include a trans­fu­sion and other life sup­port mea­sures to just keep the patient alive — full recovery is not really in view, nor has it ever happened.

One must remember that rescue oper­a­tions would not be nec­es­sary if it were not for the cen­tral banks, inter­na­tional banks, the IMF and the World Bank leading these coun­tries into debts they cannot pos­sibly ever repay in the first place.

The Pur­pose and Struc­ture of the IMF

According to the IMF pam­phlet, A Global Insti­tu­tion: The IMF’s Role at a Glance,

The IMF is the cen­tral insti­tu­tion of the inter­na­tional mon­e­tary system—the system of inter­na­tional pay­ments and exchange rates among national cur­ren­cies that enables busi­ness to take place between countries.

It aims to pre­vent crises in the system by encour­aging coun­tries to adopt sound eco­nomic poli­cies; it is also—as its name sug­gests—a fund that can be tapped by mem­bers needing tem­po­rary financing to address bal­ance of pay­ments problems.

The IMF works for global pros­perity by promoting

  • the bal­anced expan­sion of world trade,
  • sta­bility of exchange rates,
  • avoid­ance of com­pet­i­tive deval­u­a­tions, and
  • orderly cor­rec­tion of bal­ance of pay­ments problems

The IMF’s statu­tory pur­poses include pro­moting the bal­anced expan­sion of world trade, the sta­bility of exchange rates, the avoid­ance of com­pet­i­tive cur­rency deval­u­a­tions, and the orderly cor­rec­tion of a country’s bal­ance of pay­ments prob­lems.8 [Note: Emphasis is theirs]

Although the IMF has changed in sig­nif­i­cant ways over the years, their cur­rent lit­er­a­ture makes it quite clear that the statu­tory pur­poses of the IMF today are the same as when they were for­mu­lated in 1944:

i. To pro­mote inter­na­tional mon­e­tary coop­er­a­tion through a per­ma­nent insti­tu­tion which pro­vides the machinery for con­sul­ta­tion and col­lab­o­ra­tion on inter­na­tional mon­e­tary problems.

ii. To facil­i­tate the expan­sion and bal­anced growth of inter­na­tional trade, and to con­tribute thereby to the pro­mo­tion and main­te­nance of high levels of employ­ment and real income and to the devel­op­ment of the pro­duc­tive resources of all mem­bers as pri­mary objec­tives of eco­nomic policy.

iii. To pro­mote exchange sta­bility, to main­tain orderly exchange arrange­ments among mem­bers, and to avoid com­pet­i­tive exchange depreciation.

iv. To assist in the estab­lish­ment of a mul­ti­lat­eral system of pay­ments in respect of cur­rent trans­ac­tions between mem­bers and in the elim­i­na­tion of for­eign exchange restric­tions which hamper the growth of world trade.

v. To give con­fi­dence to mem­bers by making the gen­eral resources of the Fund tem­porarily avail­able to them under ade­quate safe­guards, thus pro­viding them with oppor­tu­nity to cor­rect mal­ad­just­ments in their bal­ance of pay­ments without resorting to mea­sures destruc­tive of national or inter­na­tional prosperity.

vi. In accor­dance with the above, to shorten the dura­tion and lessen the degree of dis­e­qui­lib­rium in the inter­na­tional bal­ances of pay­ments of mem­bers.8

As lofty as this might sound, one can inter­pret mean­ings by matching up its actions. For instance, “con­sul­ta­tion and col­lab­o­ra­tion” often means “we will enforce our poli­cies on your country” and “ade­quate safe­guards” mean the “col­lat­eral and con­ces­sions we demand in return for bor­rowing our money.”

The IMF has been likened to an inter­na­tional credit union, where mem­bers who con­tribute reserves have the oppor­tu­nity to borrow as the need may arise. The IMF is fur­ther able to raise funds by bor­rowing from member coun­tries or from pri­vate mar­kets. The IMF claims to have not raised funds from pri­vate mar­kets as of yet.

This report will examine four aspects of IMF oper­a­tions: Cur­rency and mon­e­tary roles, moral hazard, bailout oper­a­tions during cur­rency crisis and conditionalities.

Cur­rency, Mon­e­tary Roles and Gold

Two years prior to the col­lapse of the Bretton Woods system, the IMF cre­ated a reserve mech­a­nism called the Spe­cial Drawing Right, or SDR.

The SDR is not a cur­rency, nor is it a lia­bility of the IMF, rather it is pri­marily a poten­tial claim on freely usable cur­ren­cies. Freely usable cur­ren­cies, as deter­mined by the IMF, are the U.S. dollar, euro, Japanese yen, and pound ster­ling.9

Since the value of the com­po­nent cur­ren­cies change rel­a­tive to each other, the value of the SDR changes rel­a­tive to each com­po­nent. As of December 29, 2005, one SDR was valued at $1.4291. The SDR interest rate was pegged at 3.03 percent.

There should be no mis­take in the readers mind that the IMF cor­rectly views itself as the “cur­rency con­troller” for all coun­tries who have hitched a ride on the glob­al­iza­tion express. According to an offi­cial publication,

The IMF is there­fore con­cerned not only with the prob­lems of indi­vidual coun­tries but also with the working of the inter­na­tional mon­e­tary system as a whole. Its activ­i­ties are aimed at pro­moting poli­cies and strate­gies through which its mem­bers can work together to ensure a stable world finan­cial system and sus­tain­able eco­nomic growth. The IMF pro­vides a forum for inter­na­tional mon­e­tary coop­er­a­tion, and thus for an orderly evo­lu­tion of the system, and it sub­jects a wide area of inter­na­tional mon­e­tary affairs to the covenants of law, moral sua­sion, and under­stand­ings.10

The IMF works closely with the Bank for Inter­na­tional Set­tle­ments in pro­moting smooth cur­rency mar­kets, exchange rates, mon­e­tary policy, etc. The BIS, as cen­tral bank for cen­tral banks, more likely tells the IMF what to do rather than vice versa. This notion is bol­stered by the fact that on March 10, 2003, the BIS adopted the SDR as its offi­cial reserve asset, aban­doning the 1930 gold Swiss franc altogether.

This action removed all restraint from the cre­ation of paper money in the world. In other words, gold backs no national cur­rency, leaving the cen­tral banks a wide-open field to create money as they alone see fit. Remember, that almost all the cen­tral banks in the world are pri­vately– or jointly-held enti­ties, with an exclu­sive fran­chise to arrange loans for their respec­tive host countries.

This is not to say that gold has no cur­rent or future role in inter­na­tional money. Under Bretton Woods, gold was the cen­tral reserve asset, and orig­inal sub­scribers con­tributed large amounts of gold bul­lion. Gold was aban­doned com­pletely in 1971, but the IMF con­tinues to own and hold gold into the present: 103.4 mil­lion ounces (3,217 metric tons) with a cur­rent market value of about $45 bil­lion. This is no small amount of gold!

The U.S. Trea­sury claims to have 261.5 mil­lion ounces of gold, but there has never been an offi­cial, phys­ical audit of Fort Knox and other repos­i­to­ries to back up this claim. By com­par­ison, Great Britain claims to own 228 mil­lion ounces of gold.

The BIS, IMF and major cen­tral banks (notably the New York Fed­eral Reserve Bank and the Bank of Eng­land) have col­lec­tively and method­i­cally sold por­tions of their gold stocks while claiming that “gold is dead”. This manip­u­la­tion has tended to sup­press the price of gold since the early 1970’s. Antony Sutton’s 1979 book, The War on Gold, dealt defin­i­tively on this matter. More recently, the group Gold Anti-Trust Action Com­mittee (GATA) was founded in 1999 with essen­tially the same argu­ment: gold has been unfairly manipulated.

Suf­fice it to say that if so many orga­ni­za­tions have con­spired to keep “gold as money” out of the public mind, then gold is not dead but just tem­porarily on the shelf. When fiat cur­ren­cies have been drained dry by the global cartel, gold will likely be brought back by the same people who told us it was for­ever a dead issue.

Moral Hazard

This is a tech­nical legal term with a pre­cise meaning, but it easily under­stood. Moral hazard is the term given to the increased risk of immoral behavior resulting in a neg­a­tive out­come (the “hazard”), because the per­sons who increased the risk poten­tial in the first place either suffer no con­se­quences, or ben­efit from it.

While the IMF is rid­dled with spe­cific instances of moral hazard, its very exis­tence is a moral hazard.

The emi­nent econ­o­mist Hans F. Sennholz (Grove City Col­lege) sums up the IMF oper­a­tions this way:

The IMF actu­ally encour­ages bankers and investors to take impru­dent risk by pro­viding tax­payer funds to bail them out. It encour­ages cor­rupt gov­ern­ments to engage in boom and bust poli­cies by coming to their rescue when­ever they run out of dollar reserves.11

The money shuffle goes like this: The World Bank and the BIS develop mar­kets for credit by enticing gov­ern­ments to borrow money. They (and the pri­vate banks along side of them) are encour­aged to make risky loans because they know that IMF stands ready to rescue coun­tries with defaulting loans — the moral hazard. As the usury interest builds up and finally threatens the entire finan­cial sta­bility of the affected country, the IMF steps in with a “bail out” oper­a­tion. Defaulted loans are replaced or restruc­tured with (tax­payer pro­vided) IMF loans. Addi­tional money is loaned to repay back interest and allow for fur­ther expan­sion of the economy. In the end, the des­perate country is even fur­ther in debt and is now sad­dled with all kinds of addi­tional restric­tions and con­di­tions. Plus, under the phony aegis of “poverty reduc­tion”, cit­i­zens are invari­ably left worse off than in the beginning.

Con­di­tion­al­i­ties

This is also a tech­nical term that has a spe­cific meaning: A con­di­tion­ality is a con­di­tion attached to a loan or a debt relief granted by the IMF or the World Bank. Con­di­tion­al­i­ties are typ­i­cally non-financial in nature, such as requiring a country to pri­va­tize or dereg­u­late key public services.

Con­di­tion­al­i­ties are most sig­nif­i­cant within so-called Struc­tural Adjust­ment Pro­grams (SAP) cre­ated by the IMF. Nations are required to imple­ment or promise to imple­ment the attached con­di­tion­al­i­ties prior to approval of the loan.

The fallout of con­di­tion­al­i­ties is notable. The glob­alist think-tank For­eign Policy in Focus pub­lished IMF Bailouts and Global Finan­cial Flows by Dr. David Felix in 1998. The report’s intro­duc­tion makes these key points:

  • The IMF has been trans­formed into an instru­ment for prying open third world mar­kets to for­eign cap­ital and for col­lecting for­eign debts.
  • This trans­for­ma­tion vio­lates the IMF charter in spirit and sub­stance, and has increased the costs to coun­tries requesting IMF finan­cial aid.
  • The IMF’s oper­a­tional crisis stems from growing debtor resis­tance to its policy demands, soaring fiscal costs, and accu­mu­lating evi­dence of IMF policy failure.12

The gen­eral public has not seen such “internal crit­i­cism” of the IMF. If an out­sider were to make the very same crit­i­cism, he would be ostra­cized for being part of the rad­ical fringe.

So, con­di­tion­al­i­ties are instru­ments of forcing open mar­kets in third-world coun­tries, and of col­lecting defaulted debts owed by public and pri­vate orga­ni­za­tions. The accu­mu­lating result of con­di­tion­al­i­ties is increasing resis­tance to such demands, bor­dering on hatred in many coun­tries. The coun­tries who can least afford it are sad­dled with soaring costs, addi­tional debt and reduced national sovereignty.

Per­haps the most author­i­ta­tive report on this topic was pro­duced in 2002 by Axel Dreher of the Ham­burg Insti­tute of Inter­na­tional Eco­nomics enti­tled The Devel­op­ment and Imple­men­ta­tion of IMF and World Bank Conditionality.

Dreher notes that there was no con­sid­er­a­tion of con­di­tion­al­i­ties at the founding of the IMF, but rather they were grad­u­ally added in increasing num­bers as the years passed and mostly by U.S. banking inter­ests.13 Con­di­tion­al­i­ties are arbi­trary, unreg­u­lated, and imposed in varying degrees on dif­ferent coun­tries according to the whims of the nego­tia­tors. The recip­ient coun­tries have little, if any, bar­gaining power.

The August Review has observed sev­eral times that 1973, with the cre­ation of the Tri­lat­eral Com­mis­sion, was a piv­otal year in the stam­pede to glob­al­iza­tion. It is no sur­prise then that con­di­tion­al­i­ties became a stan­dard busi­ness prac­tice in 1974 with the intro­duc­tion of the Extended Fund Facility (EFF).14 EFF cre­ated lines of credit, or “credit tranches”, that could be drawn on as needed by a trou­bled country, thus cre­ating addi­tional moral haz­ards as well.

Dreher also points out the tight coor­di­na­tion with the World Bank:

The reforms under IMF pro­grams have mainly been designed by World Bank econ­o­mists. Fund con­di­tion­ality often was sup­portive of mea­sures con­tained in Bank sup­ported public enter­prise reform oper­a­tions. The selec­tion of public enter­prises to be reformed as well as the modal­i­ties and time table was devel­oped by the Bank as well.15

So, we see that the IMF does not act alone in the appli­ca­tion of con­di­tion­al­i­ties and in some cases, it is point­edly driven by the World Bank.

Dreher’s metic­u­lous research uncov­ered another inter­esting sta­tistic: The most fre­quent con­di­tion included is bank pri­va­ti­za­tion — included in 35 per­cent of the pro­grams ana­lyzed!16 Inter­na­tional bankers have always had dis­dain for banking oper­a­tions run by gov­ern­ments instead of by pri­vate or cor­po­rate own­er­ship. Thus, they have used the IMF and World Bank to force pri­va­ti­za­tion of what remains in gov­ern­ment hands in the third-world.

If all of this was not dis­turbing enough, Dreher informs us that there are direct con­nec­tions between con­di­tion­al­i­ties imposed and var­ious pri­vate banks who work in con­cert with the IMF and World Bank:

Since pri­vate cred­i­tors were willing to lend fur­ther only if IMF pro­grams were in effect, the Fund’s leverage was enhanced… since for crisis res­o­lu­tion some­times more money is needed than can be pro­vided by the IFIs, IMF and World Bank depend on these pri­vate cred­i­tors who should there­fore be able to press for con­di­tions which lie in their interest.17

With the IMF, World Bank and other inter­na­tional banks forcing gov­ern­ments to run their coun­tries in ways not of their choosing, and with the United States viewed as the pri­mary driver of these orga­ni­za­tions, it is no wonder that the third-world musters such intense hatred for the U.S. and for the self-interested glob­al­iza­tion it exports wher­ever pos­sible. The glob­al­iza­tion process is most often anti-democratic and com­pletely inef­fec­tive at accom­plishing it’s lofty stated goal of poverty reduction.

It should be plainly evi­dent by now that the “can opener” for glob­al­iza­tion to take place is the power of money. Bor­rowed money enslaves the bor­rower, and puts him at the mercy of the lender. When Pres­i­dent Bill Clinton finally acknowl­edged the error of his ways during his affair with Monica Lewinski, he stated that it was for the absolutely worst of rea­sons: “Because I could.” Why do these global finan­cial orga­ni­za­tions take such advan­tage of those whom they sys­tem­at­i­cally put in jeop­ardy? Because they can!

IMF Bailout of Brazil

The 1998 the Brazil cur­rency crisis was caused by that country’s inability to pay inor­di­nate accu­mu­lated interest on loans made over a pro­tracted period of time. These loans were extended by banks like Cit­i­group, J.P. Morgan Chase and Fleet­Boston, and they stood to lose a huge amount of money.

The IMF, along with the World Bank and the U.S., bailed out Brazil with a $41.5 bil­lion package that saved Brazil, its cur­rency and, not inci­den­tally, cer­tain pri­vate banks.

Con­gressman Bernard Sanders (I-VT), ranking member of the Inter­na­tional Mon­e­tary Policy and Trade Sub­com­mittee, blew the whistle on this money laun­dering oper­a­tion. Sander’s entire con­gres­sional press release is worth reading:

IMF Bailout for Brazil is Wind­fall to Banks, Dis­aster for US Tax­payers Says Sanders

BURLINGTON, VERMONT — August 15 — Con­gressman Bernard Sanders (I-VT), the Ranking Member of the Inter­na­tional Mon­e­tary Policy and Trade Sub­com­mittee, today called for an imme­diate Con­gres­sional inves­ti­ga­tion of the recent $30 bil­lion Inter­na­tional Mon­e­tary Fund (IMF) bailout of Brazil.

Sanders, who is strongly opposed to the bailout and con­siders it cor­po­rate wel­fare, wants Con­gress to find out why U.S. tax­payers are being asked to pro­vide bil­lions of dol­lars to Brazil and how much of this money will be fun­neled to U.S. banks such as Cit­i­group, Fleet­Boston and J.P. Morgan Chase. These banks have about $25.6 bil­lion in out­standing loans to Brazilian bor­rowers. U.S. tax­payers cur­rently fund the IMF through a $37 bil­lion line of credit.

Sanders said, “At a time when we have a $6 tril­lion national debt, a growing fed­eral deficit, and an increasing number of unmet social needs for our vet­erans, seniors, and chil­dren, it is unac­cept­able that bil­lions of U.S. tax­payer dol­lars are being sent to the IMF to bailout Brazil.”

“This money is not going to sig­nif­i­cantly help the poor people of that country. The real win­ners in this sit­u­a­tion are the large, prof­itable U.S. banks such as Cit­i­group that have made bil­lions of dol­lars in risky invest­ments in Brazil and now want to make sure their invest­ments are repaid. This bailout rep­re­sents an egre­gious form of cor­po­rate wel­fare that must be put to an end. Inter­est­ingly, these banks have made sub­stan­tial cam­paign con­tri­bu­tions to both polit­ical par­ties,” the Con­gressman added.

Sanders noted that the neo-liberal poli­cies of the IMF devel­oped in the 1980’s pushing coun­tries towards unfet­tered free trade, pri­va­ti­za­tion, and slashing social safety nets has been a dis­aster for Latin America and has con­tributed to increased global poverty throughout the world. At the same time that Latin America coun­tries such as Brazil and Argentina fol­lowed these neo-liberal dic­tates imposed by the IMF, from 1980 – 2000, per capita income in Latin America grew at only one-tenth the rate of the pre­vious two decades.

Sanders con­tinued, “The poli­cies of the IMF over the past 20 years advo­cating unfet­tered free trade, pri­va­tizing industry, dereg­u­la­tion and slashing gov­ern­ment invest­ments in health, edu­ca­tion, and pen­sions has been a com­plete failure for low income and middle class fam­i­lies in the devel­oping world and in the United States . Clearly, these poli­cies have only helped cor­po­ra­tions in their con­stant search for the cheapest labor and weakest envi­ron­mental reg­u­la­tions. Con­gress must work on a new global policy that pro­tects workers, increases living stan­dards and improves the envi­ron­ment.” [Emphasis added]

IMF Bailout of Asia

The Asian cur­rency crisis came to a head in 1998, and the IMF was on the spot for a mas­sive bailout. Vocal critics of the IMF at that time included George P. Schultz (member of the Tri­lat­eral Com­mis­sion), William E. Simon (Sec­re­tary of the Trea­sury under Nixon and Ford) and Walter B. Wriston (former chairman of Citigroup/Citibank and member of the Council on For­eign Rela­tions). They jointly wrote Abolish the IMF? for the Hoover Insti­tu­tion, where Shultz is also a dis­tin­guished fellow. The article states:

The $118 bil­lion Asian bailout, which may rise to as much as $160 bil­lion, is by far the largest ever under­taken by the IMF. A dis­tant second was the 1995 Mex­ican bailout, which involved some $30 bil­lion in loans, mostly from the IMF and the U.S. Trea­sury. The IMF’s defenders often tout the Mex­ican bailout as a suc­cess because the Mex­ican gov­ern­ment repaid the loans on schedule. But the Mex­ican people suf­fered a mas­sive decline in their stan­dard of living as a result of that crisis. As is typ­ical when the IMF inter­venes, the gov­ern­ments and the lenders were res­cued but not the people.18 [Emphasis added]

Their scathing attack con­tinues throughout the article, and con­cludes with

The IMF is inef­fec­tive, unnec­es­sary, and obso­lete. We do not need another IMF, as Mr. (George) Soros rec­om­mends. Once the Asian crisis is over, we should abolish the one we have.18

It’s inter­esting that these core mem­bers of the global elite are throwing stones at their own insti­tu­tion. What is out­ra­geous is that they are com­pletely side-stepping their own per­sonal cul­pa­bility for having used it to drive glob­al­iza­tion with all of its ill side-effects. The fact that they suc­cinctly describe the damage done by the IMF clearly dis­penses their typ­ical claim of “igno­rance.” Are they set­ting the stage to dis­band the IMF in favor of another, more pow­erful mon­e­tary authority? Time will tell.

Argentina: A Case Study of Privatization

In 2001, the IMF handed a bailout package to Argentina, valued at $8 bil­lion. The major ben­e­fi­cia­ries were the Euro­pean mega­banks, which held about 75 per­cent of the country’s for­eign debt. The money river flowed like this: IMF gives $8 bil­lion (about $1.6 bil­lion of which was tax money col­lected from hard working Amer­i­cans) to Argentina; Argentina buys U.S. Trea­sury bills (U.S. gets the dol­lars back after being “mon­e­tized”); Argentina delivers Trea­sury Bills to cred­itor banks who gra­ciously agree to retire their worth­less Argen­tinian bonds.

Less than a decade ear­lier, the IMF and the World Bank backed Argentina in the largest water pri­va­ti­za­tion project in the world. In 1993, Aquas Argentinas was formed between Argentina’s water authority and a con­sor­tium that included the Suez group from France (largest pri­vate water com­pany in the world) and Aquas de Barcelona of Spain. The new com­pany cov­ered a region pop­u­lated by over 10 mil­lion inhabitants.

Now, after 10 years of higher water rates, decreased quality of water and sewage treat­ment, and neglected infra­struc­ture improve­ments, the con­sor­tium is breaking its 30-year con­tract and pulling out. Bit­ter­ness between Aqua and gov­ern­ment offi­cials runs deep because of broken promises and polit­ical backlash.

The after­math of Aqua Argentina is recorded in the November 21, 2005 online edi­tion of the Guardian:

More than 1 mil­lion res­i­dents in the rural Argen­tinian province of Santa Fe are facing an anx­ious wait to dis­cover if their taps will still flow or their toi­lets flush over the next few weeks.

Since 1995, the province has had its water supply and sewage ser­vices pro­vided by a con­sor­tium led by the French multi­na­tional Suez; now the giant utility wants out, and plans to leave within the month.

The deci­sion, which fol­lows the high-profile col­lapse of other water pri­vati­sa­tion schemes in coun­tries including Tan­zania, Puerto Rico, the Philip­pines and Bolivia, has again raised ques­tions about the via­bility of pri­vatising util­i­ties in the devel­oping world.

Suez is also preparing an early depar­ture from its for­merly lucra­tive con­ces­sion in the Argen­tine cap­ital, Buenos Aires. The deal, struck in 1993, marked the largest water pri­vati­sa­tion project in the world.

In both cases, the French utility is ter­mi­nating its 30-year con­tract a third of the way through. Suez cannot get the con­ces­sions to turn a profit — at least not under the terms of its cur­rent agreements.

The French utility giant snapped up both ser­vice agree­ments in the mid-1990s when Argentina was under­going a mas­sive reform of its public sector, largely at the behest of the World Bank and other lending agen­cies.19

Aqua Argentina milked the market as long as it could, and then simply bailed out. And, why not? The profit dried up and it’s not their country!

Global sta­tis­tics show that some 460 mil­lion people around the world must rely on pri­vate water cor­po­ra­tions like Aqua Argentina, com­pared to only 51 mil­lion in 1990. The IMF (and World Bank) lev­ered the extra 400 mil­lion people into pri­va­tized con­tracts with water mega-companies from Europe and the U.S. Now that the cream has been skimmed off the top of the milk, these same com­pa­nies are excusing them­selves from the party — leaving a sham­bles, angry cus­tomers and inca­pable gov­ern­ments still sad­dled with the bil­lions of dol­lars of debt incurred (at their insis­tence) to start pri­va­ti­za­tion in the first place.

[Note: In Feb­ruary 2003, CBC News in Canada pro­duced an in depth report Water for Profit: how multi­na­tionals are taking con­trol of a public resource that included fea­tures and seg­ments that were deliv­ered across five days of broad­casting.]20

Con­clu­sion

This report does not pre­tend to be an exhaus­tive analysis of the IMF. There are many facets, exam­ples and case studies that could be explored. In fact, many crit­ical analysis books have been written about the IMF. The object of this report was to show gen­er­ally how the IMF fits into glob­al­iza­tion as a crit­ical member in the triad of global mon­e­tary powers: The IMF, the BIS and the World Bank.

Despite even estab­lish­ment calls for the dis­so­lu­tion of the IMF, it con­tinues to operate unhin­dered and with vir­tu­ally no account­ability. This is rem­i­nis­cent of the BIS con­tin­uing to operate even after its dis­so­lu­tion was offi­cially man­dated after WWII.

For the pur­pose of this report, it is suf­fi­cient to con­clude that…

  • of the two founders of the IMF, one was an out­right traitor to the U.S. and the other was a British cit­izen totally ded­i­cated to globalism
  • the IMF, in coor­di­na­tion with the BIS, tightly con­trols cur­ren­cies and for­eign exchange rates in the global economy
  • the IMF is a channel for tax­payer money to be used to bail out pri­vate banks who made ques­tion­able loans to coun­tries already sad­dled with too much debt
  • the IMF uses con­di­tion­al­i­ties is a lever to force pri­va­ti­za­tion of key and basic indus­tries, such as banking, water, sewer and utilities
  • con­di­tion­al­i­ties are often struc­tured with help from the pri­vate banks who loan along­side of the IMF
  • the poli­cies of pri­va­ti­za­tion accom­plish just the oppo­site of what was promised
  • the global elite are nei­ther igno­rant nor repen­tant of the dis­tress the IMF has caused so many nations in the third-world
  • when the public heat gets too hot, the global elite simply join the critics (thereby shun­ning all blame) while qui­etly cre­ating new ini­tia­tives that allow them to get on with busi­ness — that is, their busi­ness!

Foot­notes

  1. Stiglitz, Glob­al­iza­tion and its Dis­con­tents (Norton, 2002), p.12
  2. ibid, p. 3
  3. Ladd, FBI Office Mem­o­randum, October 16, 1950
  4. Beichman, Guilty as Charged, Hoover Digest 1999 No. 2
  5. IMF web site, http://www.imf.org
  6. World Bank web site. http://www.WorldBank.org
  7. Baker, The Bank for Inter­na­tional Set­tle­ments: Evo­lu­tion and Eval­u­a­tion, (Quorum, 2002), p. 141 – 142
  8. IMF, What is the Inter­na­tional Mon­e­tary Fund?, 2004
  9. IMF, Overview of the IMF as a Finan­cial Insti­tu­tion, p.11
  10. ibid, p. 3
  11. Sennholz, IMF Bailouts Make Mat­ters Worse
  12. Felix, IMF Bailouts and Global Finan­cial Flows, Vol. 3, No. 3, April 1998
  13. Dreher, The Devel­op­ment and Imple­men­ta­tion of IMF and World Bank Con­di­tion­ality, Ham­burg Insti­tute of Inter­na­tional Economics
  14. ibid, p. 9
  15. ibid, p. 17
  16. ibid, p. 18
  17. ibid, p. 21
  18. Shultz, et. al, Who Needs the IMF?, Hoover Insti­tu­tion Public Policy Inquiry on the IMF
  19. The trickle-away effect, The Guardian, November 21, 2005
  20. CBC News, Water for Profit: how multi­na­tionals are taking con­trol of a public resource
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What is Globalization?

It is the col­lective effect of pur­poseful and amoral manip­u­la­tion that seeks to cen­tralize eco­nomic, polit­ical, tech­no­log­ical and soci­etal forces in order to accrue max­imum profit and polit­ical power to global banks, global cor­po­ra­tions and the elit­ists who run them. It is rapidly moving toward an full and final imple­men­ta­tion of Technocracy.

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What is the Tri­lat­eral Commission?

Founded in 1973 by David Rock­e­feller and Zbig­niew Brzezinski, the Com­mis­sion set out to create a “New Inter­na­tional Eco­nomic Order”, namely, Tech­noc­racy. The orig­inal mem­ber­ship con­sisted of elit­ists (bankers, politi­cians, aca­d­e­mics, indus­tri­al­ists) from Japan, North America and Europe. Col­lec­tively, they have dom­i­nated and con­trolled trade and eco­nomic policy in their respec­tive coun­tries since at least 1974.

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What is Technocracy?

Tech­noc­racy is a move­ment started in the 1930’s by engi­neers, sci­en­tists and tech­ni­cians that pro­posed the replace­ment of cap­i­talism with an energy-based economy. Orig­i­nally envi­sioned for North America only, it is now being applied on a global basis. Authors Aldous Huxley and George Orwell believed that Tech­noc­racy would result in a Sci­en­tific Dic­ta­tor­ship, as reflected in their books, “Brave New World” and “1984″.

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What is Smart Grid?

Smart Grid is the national and global imple­men­ta­tion of dig­ital and Wi-fi enabled power meters that enable com­mu­ni­ca­tion between the appli­ances in your home or busi­ness, with the power provider. This pro­vides con­trol over your appli­ances and your usage of elec­tricity, gas and water.

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Who is M. King Hubbert?

Hub­bert was a geo-physicist who co-founded Tech­noc­racy, Inc. in 1932 and authored its Tech­noc­racy Study Course. In 1954, he became the cre­ator of the “Peak Oil Theory”, or “Hubbert’s Peak” which the­o­rized that the world was rapidly run­ning out of carbon-based fuels. Hub­bert is widely con­sid­ered as a “founding father” of the global warming and green movements.

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Who is R. Buck­min­ster Fuller?

A pio­neer in global eco­log­ical theory, Fuller (1895 – 1984) was the first to sug­gest the devel­op­ment of a Global Energy Grid that is today known as the Global Smart Grid. Fuller is widely con­sid­ered to be a “founding father” of the global green move­ment, including global warming, Sus­tain­able Devel­op­ment, Agenda 21, etc.

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Is the Venus Project like Technocracy?

The Venus Project, founded by Jacque Fresco, is a utopian, modern-day iter­a­tion of Tech­noc­racy. Like Tech­noc­racy, it scraps cap­i­talism and pro­poses that “a resource-based economy all of the world’s resources are held as the common her­itage of all of Earth’s people, thus even­tu­ally out­growing the need for the arti­fi­cial bound­aries that sep­a­rate people.” The appli­ca­tion of tech­nology is the answer to all of the world’s prob­lems, including war, famine and poverty.

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