Introduction: The International Monetary Fund and Its Policies
The International Monetary Fund, or the IMF, governs the use and exchange of money around the world and between countries. Each country has its own currency and the international monetary system governs the rules for valuing and exchanging these currencies. There are policies that the IMF advocates to help fund struggling developing nations that include promoting international monetary cooperation through a permanent institution, the facilitation of expansion and balanced growth of international trade, exchange stability, assistance in the establishment of a multilateral system of payments through the elimination of foreign exchange restrictions which hamper the growth of world trade, making the general resources of the Fund temporarily available to countries under adequate safeguards, and to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members (Carpenter & Dunung, 2017).
In short, they advocate for deregulation, privatization, and cutbacks. These things could manifest as lower tariffs and barriers to international capital flows, privatization of state owned firms, balanced budgets, the elimination of social subsidiaries, tax cuts for the rich, and foreign direct investment and exports (Calton, 2016). These policies also propose no minimum wage, free trade by corporations, privatization of post offices, education, and retirement pensions, among others. Many of these policies are not yet implemented in developing countries and it can be a massive adjustment for them from their current economical and governmental model.
In her book, The Shock Doctrine, Naomi Klein argues that these policies are deliberately implemented after a time of massive change, or a shocking event. Sometimes this “shock” is orchestrated by the governments, or agencies and global corporations, to manipulate developing countries and their governments into acting the way they want, for the benefit of the foreign agencies and corporations (Klein, 2007). It has been viewed as electroshock therapy on a country, which is implemented in order to create a form of social amnesia that inevitably enables the introduction of a new way of thinking. The Shock Doctrine follows the evolution of these ideas through history, and illustrates how well-known events of the recent past have been deliberately orchestrated in order to exert a high level of shock on a country, and bring about the introduction of a new economic government. According to Klein, the IMF has even supported dictatorships and military coups. Examples of this include Indonesia’s coup in 1965 and Pinochet’s coup in Chile in 1973.
Tom Friedman, in his book The Lexus and the Olive Tree, praised these same policies as a “golden straight jacket” because they help to bring about positive change and economic growth for countries, if they decide to “wear the jacket.” The idea is that the jacket is tight, therefore there is not room for corruption or rule breaking, and there are standards and rules that a country must adhere to in order to wear the jacket, so it can be uncomfortable (Calton, 2016). However, it is golden because, if a country chooses to wear the jacket correctly and abide by the standards demanded by investors, they will be rewarded in gold and economic riches to be showered on them by global corporations and the electronic herd.
Friedman argues that the policies advocated by the IMF increase transparency and standards, decrease corruption, promote freedom of the press, introduce stock and bond markets, and push forward democratization. These things will all be brought about out of necessity to demonstrate a country’s soundness and stability to the electric herd. The electric herd is essentially a global collection of long-term and short-term investors, bringing capital to a country through direct investment and the stocks and bonds market (Friedman, 2000). They are given the fitting titles of “long-horn” and “short-horn cattle.” Because of a country’s self-interest to do well economically, the herd can help with that by providing investment funds. But the herd will only invest in a country that is stable, transparent, and demonstrates a move toward democratization and higher standards. If the herd is spooked by dishonesty and an exaggeration of the facts, as it happened in 1997 in South Korea when the country claimed to have currency reserves of $30 billion but was later revealed to only have $10 billion, then the herd will take off and take their investment funds with them (Friedman, 2000).
Since countries wish to encourage investment, then they will naturally seek to maintain transparency. The same goes for living and working standards. A great example of this are factory workers in Sri Lanka producing garments for Victoria’s Secret being given clean work spaces, better wages, air-conditioning, and state of the art computerized systems to track their work with pregnant women being required to produce less. Because consumers in America are concerned with the treatment of the people producing their garments, the factory has had to raise the bar on its standards. Friedman purports that other benefits follow in a similar fashion, thus increasing the overall wealth and economic sanctity of the countries wearing the “golden straight jacket.”
The IMF can have a negative world impact when analyzing the implications of its policies from the standpoint taken by Klein. Shadow maneuvers like coups and support of dictatorships, as was seen in Chile, are certainly detrimental to a nation’s people, identity, and development. As with Chile, many people stand to lose their lives when IMF-fueled governmental overthrows threaten to overturn a country. It is possible to see how more developed nations and the IMF are taking advantage of developing countries, considering they do not have the resources, education, or where-with-all to outmaneuver a superpower like a global monetary fund or the United States. However, the IMF and the development of up-and-coming nations can be positive for the citizens of those nations and their economies.
If we look at Friedman’s discourse, one can see how countries would want to make use of the IMF and the possibilities it holds. Democracy and functioning capitalism must follow a process of development, and for-whatever-reason there has been blood shed over their implementation and introduction in new areas. It is reasonable to agree with Friedman that there are self-serving reasons for a country to find it convenient to slap on a golden straight jacket and feel compelled to follow and seek attainment of certain standards and transparencies, however it is also reasonable that a moderate amount of government regulation needs to be in place, in all countries and on an international level. This needs to occur so that things like military regimes are not encouraged simply because it will benefit a larger more economically lucrative end for more developed nations and their corporations.
As with the Tragedy of the Commons in England, people when given freedom to use an economically important asset without regulation will take advantage of said asset until no one is able to use it any longer, because it has been depleted. This can be seen as demonstrated through Klein’s arguments and examples of various overthrows and coups by the US and its agencies over the course of contemporary history, where outside influences, like other governments or corporations, misuse a resource or country since there are no known regulations. However, the IMF has its advantages and an ability to encourage better standards of work and life in developing nations. Therefore, to reap the benefits of aiding developing nations to become more economically sound, there should be a middle ground. International laws governing the IMF and limiting its ability to meddle in a country’s internal affairs should be enacted and other modes of encouraging countries to adopt a more capitalistic and democratic form of government should be brought about, even if they take longer to enact. A country and its identity and people are important and should be treated as thus, regardless of systemic and economic differences, and great care needs to be taken when bringing such countries into the global marketplace.
Rather than forcing democracy and capitalism on a nation through shock treatment, first make requirements of the country to be carried out in good faith by said country, before being allowed to join the global marketplace, and layout a plan of action that the government can seek to enact in its own way and with help from the IMF.
Calton, J. 2016. Class Lectures: Management 333 Course. UH Hilo, Hawaii.
Carpenter M. & Dunung S. 2017. International Business: Opportunities and Challenges in a Flattening World. Flat World Inc.
Freidman, T. 2000. The Olive and the Lexus. Anchor Books.
Klein, N. 2007. The Shock Doctrine. Knopf Canada.