Today is the eighth class in our current October class set. Our material today is about the IMF. I have included a transcript. Please listen to as much as you can. We will continue our writing exercise. I have updated the google doc.
SYLVIE DOUGLIS, BYLINE: NPR.
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ADRIAN MA, HOST:
This is THE INDICATOR FROM PLANET MONEY. I'm Adrian Ma.
PADDY HIRSCH, HOST:
And I'm Paddy Hirsch. When the United Kingdom went into meltdown recently, with the pound falling to historic lows against the dollar and the yield on government bonds soaring into the stratosphere, there was the usual media noise and the customary political hand-wringing and then something that shocked the business world.
MA: An international organization released a highly critical statement about the U.K. government. It said Britain's most recent budget would likely increase inequality and that it was, quote, "engaged with U.K. authorities."
HIRSCH: Uh-oh.
MA: Yeah, it's the kind of gloomy thing this organization usually says about economically vulnerable countries, not, like, really wealthy ones like the U.K.
HIRSCH: And the name of this organization, well, let me leave it to its most famous member to make the introduction.
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TOM CRUISE: (As Ethan Hunt) I work for an agency. It's called IMF.
MICHELLE MONAGHAN: (As Julia) What does that stand for?
CRUISE: (As Ethan Hunt) Impossible Mission Force.
MONAGHAN: (As Julia, laughing) Shut up.
CRUISE: (As Ethan Hunt) I'm not kidding.
HIRSCH: Actually, we are kidding. That is, of course, Tom Cruise as superspy Ethan Hunt in the movie "Mission: Impossible III." But we're also kind of not kidding. In the real world, IMF stands for International Monetary Fund, but the IMF does have a tough task - to achieve sustainable growth and prosperity for all of its 190 member countries, according to its website.
MA: That does sound like a very difficult mission.
HIRSCH: Well-nigh impossible, I'd say.
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MA: But it's a mission they've chosen to accept. The IMF is actually meeting this week in D.C., and it is making ominous warnings about a potential global economic slowdown, one that could be made worse by a strengthening U.S. dollar. So today on the show, what the IMF is and how it came to be.
HIRSCH: The International Monetary Fund is a bit like one of those old pieces of furniture that you've had in your family for ages. You know, it was in your grandma's house, and then, it was in your mom's house, and now it's in your house. And it's a great piece, but you don't really know that much about it or where it came from. It's just kind of there.
MA: The IMF has been part of the furniture since 1944.
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UNIDENTIFIED PERSON: At Bretton Woods, N.H., delegates from...
MA: That's when more than 40 Allied nations got together to plan for what the global financial system was going to look like after the Second World War.
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UNIDENTIFIED PERSON: Invited by President Roosevelt...
HIRSCH: The Bretton Woods Conference created two organizations that would come under the umbrella of the United Nations.
REX GHOSH: There would be a world bank that would do reconstruction finance and development finance.
MA: This is Rex Ghosh. He's the official historian of the IMF.
GHOSH: And the IMF would be for monetary stabilization - in other words, stabilizing the balance of payments, exchange rates, low inflation after the interwar monetary chaos. Originally, it was a kind of regulatory sort of body that would police the system to make sure everyone played by the rules of the game.
MA: The game, of course, was the international financial system, and the IMF was basically given three tasks to sort of police this system. First, it had to monitor the health of member countries. Second, it had to provide training and technical assistance. And finally, it was supposed to lend money to countries when they needed it.
HIRSCH: And Rex says the IMF's probably best known for the loans that it makes to troubled nations. But the most important role envisioned by the IMF's founders was the monitoring function. Every year, the IMF visits every one of its member nations. Daniel Bradlow is a professor in the Centre for Human Rights at the University of Pretoria in South Africa. He says these so-called Article IV visits are a bit like an annual physical.
DANIEL BRADLOW: The idea is for the IMF to come and look and to discuss with the country what's happening with the economy in the country, give it advice, and what the IMF sees as the risks with the country. If you think of it in terms of health, that's, hey, maybe you need to change your diet, start exercising more, and that's - improves your health. And that's sort of what the IMF likes to think it's doing.
MA: And to maybe stretch the metaphor a little more, the money that the IMF gives out is kind of like medicine, the good medicine, that is. But it's contingent on countries following doctor's orders.
BRADLOW: It would say, yes, we will give you financing to deal with the crisis in your macroeconomy and your balance of payments and meeting your debt payments. And in return, there's various conditions which are attached to the financing.
HIRSCH: The IMF has a war chest of about $452 billion that it can lend out. The money comes from subscription quotas paid every year by each of the fund's 190 members - kind of like an insurance premium. And just like an insurance policy - where the bigger your house is, then the more you have to pay to insure it - so each country pays a different amount depending on its position in the global economy.
MA: And when you add it all together, 452 billion is actually not a lot. I mean, the U.S.'s annual budget is more than 5 trillion. And, of course, it's unlikely that the U.S. would need to get a loan from the IMF. But still...
HIRSCH: And fingers crossed. And if the IMF's war chest does run dry, it has a number of backstop lending agreements with its members to supplement its funds. And these are all loans, by the way. The IMF doesn't just give the money to its members; it lends it. And it charges interest. But once the country has the money, it can do pretty much whatever it wants with it. And Daniel says this is a key distinction between the IMF and its sister organization in the United Nations family, the World Bank.
BRADLOW: The World Bank funds development projects. It's building roads, building harbors, soft infrastructure whereas the IMF is not a project lender. When the IMF gives money to a country, it goes just into the budget of the government, and it can be used for almost any purpose. There are a few, limited - like, can't be used to buy arms, for example, but very limited restrictions.
HIRSCH: Money with no strings attached. Of course, just like a needy student who gets a big birthday check from an overbearing aunt, if a country wants to come back to the well for more IMF money down the line, it would be well-advised to follow the IMF's policies. The IMF historian, Rex Ghosh, says those policies usually involve some measure of fiscal or economic discipline.
GHOSH: Countries only come to the fund when they have an external deficit or debt problem. And so almost by definition, they're going to have to do, if you like, austerity policies.
MA: Ooh, austerity - right? - the financial boogeyman. Basically, we're talking about slashing budgets, yanking subsidies, cutting spending. This philosophy of deploying austerity as a response to economic crises has given the IMF kind of a bad name in the past.
HIRSCH: Yeah, like in 2008, in Greece, which exploded in riots after the government clamped down on its economy, it was appealing to the IMF and other lenders for a bailout at the time. And Daniel Bradlow says austerity can have devastating ripple effects through an economy in ways that organizations like the IMF might not anticipate.
BRADLOW: So, for example, in Zambia, it might be that if you're cutting agricultural subsidies - in the case like Zambia, the majority of farmworkers are actually women. And so that by introducing these austerity policies, you're actually having a disproportionately negative effect on women compared to men. And that might have spillovers into the education of children to access to health care.
HIRSCH: Austerity isn't the only reason the IMF is a somewhat controversial organization. It's been accused of bias, of a lack of transparency, of undermining democracy, and of charging interest rates that only exacerbate the troubles of borrower countries. But Daniel says the organization is changing.
BRADLOW: It's recognized that its policies from the 1980s and 1990s has had very devastating and negative effects in many countries, particularly in Africa.
MA: Since the early 2000s, the IMF has moderated the conditions it attaches to the loans it makes. And Daniel acknowledges that the IMF today is making a greater effort to take into account factors its economists might not have considered or really prioritized in the past.
BRADLOW: The IMF, in the last couple of months, has introduced a policy on gender and is saying it's going to pay much more attention to gender issues. It also is paying much more attention to climate issues.
HIRSCH: The IMF historian Rex Ghosh says this more holistic approach to the global economy makes hard economic sense as the IMF continues to adapt to factor in all of the risks facing the global financial system today.
GHOSH: Climate change is going to potentially lead to big shifts in the locus of production and consumption and migration flows and so on. And so it's inevitably going to have effects on the balance of payments and on budgets and so on.
MA: The IMF was designed to keep the global financial system spinning on its axis. But you can kind of see why this is kind of a mission impossible. The organization has to make controversial decisions about which of almost 200 member countries it's going to lend to and how much money they're going to get and under what conditions.
HIRSCH: And it's really, really hard to keep everyone satisfied. But it's been 78 years now. The global financial system is still spinning, and the IMF is still part of the furniture. So I guess it must be doing something right.
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MA: This episode was produced by Nicky Ouellet and engineered by Maggie Luthar. Dylan Sloan checked the facts. Viet Le is our senior producer. Kate Concannon edits the show, and THE INDICATOR is a production of NPR.