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IMF, World Bank suffer crisis of credibility

The World Bank and IMF grappled with internal upheaval Tuesday, rocked by a scandal that threatens the job of bank president Paul Wolfowitz, as well as Venezuela's surprise decision to withdraw from both powerful financial institutions.

The World Bank and the IMF were founded at the end of World War II as a way to help stabilize world finances, fight poverty. Today, however, critics see them as tools of the United States used to impose free-market ideology. „We are going to withdraw before they go and rob us,” Venezuelan President Hugo Chavez said Monday, announcing his decision. „Why? Because (those institutions) are in crisis. I read in the press somewhere that the IMF does not have enough money to meet its payroll.” Relations between the Fund and Chavez have been especially testy since the IMF offered support to a military regime that toppled Chavez in an April 2002 coup. The regime lasted all of 47 hours before Chavez returned to power. „A few hours after the coup they put out a press release saying that they would support the new government,” said Mark Weisbrot with the Center for Economic and Policy Research, a Washington-based think-tank. „It was unprecedented. The IMF doesn't act that fast even for newly-elected governments,” he said.

Several other Latin American presidents, including Nestor Kirchner of Argentina and Rafael Correa of Ecuador, do not hide their disdain for the institutions. Correa even kicked out the World Bank representative from Ecuador for allegedly refusing to disburse an already approved $100 million loan in 2005, allegedly to punish the country for oil sector reforms. For the IMF, the chill in its relations with Latin nations has financial consequences. It just announced that it has a $165 million income gap for fiscal year 2007, which ended April 30. The irony for an institution that preaches budget orthodoxy is overwhelming, and the situation is not likely to improve because its loss in earnings is expected to reach 400 million dollars by 2010. However, contrary, to what Chavez may say, the Fund is far from bankruptcy - it still has $9 billion in reserves.

The shortfall is due to several countries - including Brazil, Argentina and Uruguay - paying back their loans ahead of schedule, thus depriving the Fund of interest it would have earned. Such interest is its main source of income. „The IMF's loan portfolio is down from $96 billion in 2004 to $20 billion today, half of which is going to Turkey. It is only a matter of time until the rest disappears,” said Weisbrot. Wolfowitz has hired a prominent Washington lawyer to defend himself against allegations he improperly pushed a generous pay deal for his girlfriend, a Bank employee.

Wolfowitz arranged for the girlfriend Libyan-born Shaha Riza to receive guaranteed promotions and a pay deal worth nearly $200,000 when she was reassigned from the bank to work at the US State Department. The scandal has crippled a campaign he launched in June 2005 in developing nations to root out corruption. The setbacks at both institutions have resulted in a loss of authority, said Devesh Kapur at the the University of Pennsylvania, author of a history of the IMF. „It's really a question of authority,” said Kapur. „One is the authority that comes with the money - 'your guys want the money then you have to listen to me.' That monopoly is no longer there with the Bank or the Fund,” said Kapur. „Look at Zimbabwe - the Chinese are there,” Kapur said, noting that the Bank and the Fund had lost their monopoly on international aid. (france24.com)