Geneva Méphistophélès :
« Le veau d’or est toujours début :
On encense sa puissance
D’un bout du monde à l’autre bout »
Gounod / Barbier : Faust, Act II Merchants, that long ago used other creeds’ temples, for some time have had one of their own. They ordered it in Bretton Woods (1944) and since 1946 are preaching in Washington. Their religion remains the same: the adoration of Gold; but, as with other religious monotheisms, the text is not interpreted literally any longer: since the Dollar “flotation” in 1971, cult is rendered only to Money, without reference to a real value. We refer, indeed, to the International Monetary Fund -IMF, that recently held a rather polemical assembly in Singapore. The discussion was centred on the proposal - that was approved - about reforming the quota and voting system within the IMF. It increased those of some developing countries, without altering those of developed ones, so the increase was done at the expense of other developing countries. The countries that were given more weight in decision making are: China, Mexico, Turkey and South Korea. The only increase that is above one percentage point is China’s. The others increase was only by fractions. The increased weight of China in the World Economy is very evident. So are the links of the other three with the United States. The original sins The basic problem is the role of price as an expression of value. The Market Economic Theory turns on the price; if the monetary reference of the price is not trustworthy the whole system remains in a Limbo. This issue had surfaced at Bretton Woods, where a big problem was to keep currency exchange rates in a fixed value. Before Bretton Woods, imbalances in the Balance of Payments were rectified by the sale of gold reserves. When gold reserves diminished, the national currency value decreased, so imports became more expensive and exports more competitive. The system balanced itself automatically. In Bretton Woods this system was discarded, in part because the main underground gold deposits were within the territory of the Soviet Union. The IMF was created as a replacement, with the role of intervening when problems of balance of payment or exchange rate disrupted the flow of trade. Trade that, at this remote time, meant mainly North-American exports a) Balance of Payments The negotiations about the IMF were based on two proposals that had very different points of view: those of Harry Dexter White and John Maynard Keynes. The end of the war found the United States unscathed. It was the main creditor and exporter in a devastated world. This advantage was the inspirational source of Mr. White’s main doctrine: a deficit in a Balance of Payments must be solved by corrective measures applied only to the country in deficit. Keynes’ panorama, instead, was that of factories in ruin, social collapse and the Soviet Union at the door. In those conditions, economics must be focused on industrial reconstruction and social development. So Keynes said that a deficit in a Balance of Payments was a shared responsibility, where both, creditor and debtor, should change policies. White prevailed: trade must keep on, regardless of the rest. So the IMF was born with an ideological focus on the World Economy as wealth accumulation, inflation control and market openness; dodging the conceptual issue of economics as a means to improve living standards, achieve development and fight poverty. The result now is that, since the 80’s, the United States is, by far, the most indebted country on Earth; constantly recycling it’s debt by emission of money without funds, which casts legitimate doubts about the Dollar as an objective reference of value. b) The reserve currency Keynes proposed a World Central Bank, which would be responsible for the solvency of an international reserve currency: the Bancor. He was disregarded. White proposed the US Dollar as the reserve currency and value reference for trade; but with the sacred engagement to keep the Dollar convertible to gold, at a value of £38/once. After the end of the war, the European countries had paid, aristocratically, the north-American credits in gold, depleting their reserves. If only for that reason, the United States was the only country that could, credibly, back its currency with gold. The problems started when, in 1971, the US broke unilaterally its convertibility commitment and “floated” the Dollar; that since then is sinking, eroding the savings of the whole world. In 2006, the Dollar has gone under the $600/once bar, the equivalent of a 1756% devaluation. The use of a Dollar without funds is a worldwide financial tribute, paid to maintain the American living standards and clout. The US owes more than no other country, but owes in Dollars; something that it can produce at little expense. The other countries receive them, pay their expenses and return the rest to the US economy as financial investments. It is an addictive procedure: the creditor party allows the recycling “ad infinitum” of the debt, so it can keep selling and keep the economies moving. Such are the mechanics of the world markets, where official preaching is Adam Smith, but officiates Keynesian. The Protestants The group that wants changes at the IMF is known as the Group of the 24 (G-24). Participating in it are, among others, Argentina, Brazil, Mexico, Venezuela, India, Iran, Lebanon, South Africa, Egypt, Nigeria and Pakistan. The G-24 says that developing countries should have more influence in IMF decisions, but Argentina, Brazil, Egypt and India specify, additionally, that the formula the IMF uses for measuring the size of economies is “opaque” and “defective”. The “formula” that the IMF uses is a GDP measured in US Dollars, where commercial openness is a component. Leaving aside the open market mantra, the G-24, including Mexico, proposes that GDPs be measured using the purchasing power capacity of local currency. To buy a cow in Japan is going to need many more Dollars than in, say, Argentina. Still it is the very same expression of wealth, the same useful thing: here or there, it is a cow. When only the price in dollars, as absolute reference of value, is considered, inflation is given an economic value. Real wealth is the available goods and services; abundance in money (monetary mass) is worth nothing, if there is nothing to buy. We know - an elementary economic notion - that abundance of money makes prices rise for the same goods. One notorious case of sterile inflation is the fund-less Dollars that invested in stock markets make stocks prices rise, without any link with increased dividends or productive investments. The Pharisaic The way Third World debt was managed by the IMF, made quite evident the doctrinarian crudeness that condemns only the debtor and absolves the creditor of any lucrative risk. The IMF recipe is that there is salvation only in fiscal discipline, open markets and privatisation; any mention of social investment or economic development is suspected heresy. The results of this cure-everything penance are visible: ruin, hunger and emigration. There is little use for Great Walls by Rio Grande or Aero-Naval Operations in Europe. The term Economy comes from home administration; if you live well in your home, you remain there. But then, in Singapore, the IMF Director, Rodrigo Rato, so implacable with others, told the world, in substance, that we all must pay for the bad management of the US economy and … shut up. His actual words were: "One important question ... is how the world will adapt to a less buoyant U.S. economy," and "policymakers need to be ready to adapt to a more difficult environment." I don’t read there suggestions of austerity to the US for improving their Balance of Payments, nor recipes to improve their economic environment. It would be like reading the evangel to the evangelist. In the US crisis, a good part is due to the obsession with short-term profits, stock value and other cultural short-sightedness of American Business Schools, where IMF bureaucrats and American executives take communion. Another grotesque mockery is the fact that the IMF, which has lost important clients and has an accumulated deficit of 3.5 billion, has decreed a salary increase to its own bureaucracy. It is not exactly their own bitter medicine for deficit situations. The new budget for operative expenses (April 2005 /2006) rises to $980.2 million. It is an increase of 5.4% over the previous year and of 22% over three years ago. One third of the increase is for Personnel, with $20,000 more for Mr. Rato, from Spain, who now earns an annual salary of $391,440, plus $70,070 for Representation Expenses. Devils may preach, but do not convert. Conclusion As Oxfam representative, Salina Shelley, says “The re-weighting towards the developing countries is long overdue. Unless the IMF is fundamentally reformed it risks becoming irrelevant to the world economy”. Well, irrelevance may be the solution. The IMF is not going to reform because it is part of a system, together with the World Bank Group, the Regional Development Banks and, now, the World Trade Organization. It is a system managed, by intermediaries, for Big Business & multinational branches, where the clintons, bushes, blairs, browns, foxes or calderons are but faces of local electoral funds investments. The irrelevance of the IMF shows when there is financial cooperation among countries; as when Venezuela bought Argentinean bonds, so Argentina could pay off the IMF. Total irrelevance may happen if important developing countries reach an agreement on something like the Keynesian World Central Bank. One that, besides the classical reserves, would administer some novelty that enhances the value of their assets, such as credits on strategic products (oil, gas, chrome) and then, finally, emit a real reserve currency: a Bancor.