Tuesday, March 15, 2016

792 Michael Hudson: IMF changes the rules, facilitates Ukraine default on $3b loan from Russia

Michael Hudson: IMF changes the rules, facilitates Ukraine default on
$3b loan from Russia

Newsletter published on 29 December 2015

(1) Swiss Referendum a chance to tackle inequality, debt and financial
(2) Switzerland to hold a Referendum on Money Creation: should it be in
private or public hands?
(3) Chinese Yuan joins IMF's SDR basket
(3) Despite China's inclusion in SDR, US still has a veto at the IMF; is
using IMF against Russia
(5) Michael Hudson: IMF changes the rules, facilitates Ukraine default
on $3b loan from Russia
(6) Petras: criminal behavior of IMF executives. Swindles, tax evasion,
bribery, transfers of public wealth to private accounts

(1) Swiss Referendum a chance to tackle inequality, debt and financial


More and more people are coming together to demand a fair money system.
They understand that we cannot tackle inequality, high levels of debt
and financial instability, while the power to create money lies with
profit-seeking banks.

Our campaign is ambitious. But, by working together, we know we can
reform our money system and create a better society.

Right now, we are seeing some amazing breakthroughs in Europe.

Switzerland will be the first country in the world to hold a referendum
on who should be allowed to create money and how.

In Switzerland the people will decide

The Swiss population will be the first in the world to vote on their
banking and money system, thanks to the tireless efforts of our sister
organisation Modernizing Money (MoMo).

  The campaign, which has involved over 100 activists collecting
signatures, gathered over 105,000 signatures within 18 months. Under
Swiss law, this results in a referendum.

(2) Switzerland to hold a Referendum on Money Creation: should it be in
private or public hands?


Switzerland To Vote On Ending Fractional Reserve Banking

Submitted by Tyler Durden on 12/24/2015 15:43 -0500

One year ago (and just two months before the shocking announcement the
Swiss Franc's peg to the Euro would end, dramatically revaluing the
currency, and leading to massive FX losses around the globe and for the
Swiss National Bank) the Swiss held a referendum whether to demand that
their central bank should convert 20% of its reserves into gold, up from
7% currently. After the early polls showed the Yes vote taking a
surprising lead, the Diebold machines kicked in and the result was a
sweeping victory for the No vote, without a single canton voting for
sound money.

Ironically, this unexpected nonchallance about the Swiss central bank's
balance sheet by one of Europe's more responsible nations took place
just before the same bank announced CHF30 billions in losses on its long
EUR positions following the revaluation of the CHF. It also took place
when not just Germany, but the Netherlands and Austria announced they
would repatriate a major portion of their gold in a move which, all spin
aside, signals rising concerns about the existing monetary system.

We wonder if the Swiss have changed their mind about just how prudent it
is to have their central bank operate as one of the world's largest -
and worst - after its CHF 30 billion loss in Q1 FX traders, and hedge
funds with $94 billion in stock holdings, since then.

We may soon have the answer, because in what is shaping up to be another
historic referendum on the treatment of money, earlier today the Swiss
Federal Government confirmed that it had received enough signatures and
would hold a referendum as part of the so-called "Vollgeld", or Full
Money Initiative, also known as the Campaign for Monetary Reform, which
seeks to ban commercial banks from creating money, and which calls for
the central bank to be given sole power to create the money in the
financial system.

In other words, an initiative to ban fractional reserve banking, and
revert to a 100% reserve.

As Finanzen.ch reports, after 111,763 signatures urging a referendum
were submitted, of which 110,955 valid, the Federal Chancellery
announced on Thursday that the popular vote would take place. Under
Switzerland's direct democracy, a referendum can be held if a motion
gains 100,000 signatures within 18 months of launching.

"Banks won’t be able to create money for themselves any more, they’ll
only be able to lend money that they have from savers or other banks,"
said the campaign group.

Ever since the SNB was established in 1891, it has had exclusive power
to mint coins and issue Swiss banknotes. However, as with every other
fractional reserve banking system, over 90% of the money in circulation
in Switzerland, as in every other country, now exists in the form
"electronic" cash created by private banks, rather than the central bank.

It is this threat of uncontrolled money creation and the risks to
systemic stability that the Vollgeld campaign is seeking to stem.

"Due to the emergence of electronic payment transactions, banks have
regained the opportunity to create their own money," said the Swiss
Sovereign Money campaign. "The decision taken by the people in 1891 has
fallen into oblivion."

So with the referendum now docketed, will this vote too be mysteriously
"lost" in the final minutes of voting? According to the Telegraph,
unlike the gold vote - which was seen as a precursor to re-introducing
the Gold Standard in Switzerland - economists have been more supportive
of the idea of "sovereign money" as a way to stabilize the economy and
prevent excess credit growth.

A date for the Swiss referendum has not been set.

If the vote passes, and if Swiss banks are barred from creating deposits
(by way of loans), it would shake to the core the entire modern
financial system, which these days is exclusively reliant on runaway
fractionalization of sound money, as more and more layers are added to
the top of the Exter's Pyramid, as the only possible "growth" left in a
world that has never seen so much debt, is to find new and creative ways
to borrow from the future, with banks getting all the benefits and
stuffing taxpayers when the inevitable collapse happens.

Below is a pdf provided by the Vollgeld Initiative, responding to
popular criticisms against its "100% reserve" crusade.

== The Swiss Sovereign Money Initiative: Answers to Critisisms

1) Won’t the Sovereign Money Initiative lead to a reduction of the
banking sector in Switzerland?

On the contrary! With sovereign money the Swiss Franc will become the
safest currency in the world. That’s a huge competitive advantage for
Swiss banks, so they’re likely to win lots of new business in the area
of wealth management. The sovereign money reform will encourage a higher
standard of quality controls in the financial industry, as is normal for
industries in the real economy. This will ensure that Swiss banking jobs
are “future-proofed”.  After a sovereign money reform, banks will no
longer be able to trade with money they have created for themselves.
This is likely to lead to a reduction in the number of people employed
in investment banking. This has already been observed over the last few
months, as this business model is becoming less and less viable. Banking
will be profitable and stable with the traditional business model. Jobs
in banking will be safe. This model has already been shown to work as it
is in use by “PostFinance” (the financial service run from Post Offices
in Switzerland) which is operating successfully without being able to
create money. PostFinance doesn’t have a banking licence, so it can’t
create money: instead it has to work with money it has from savers or by
borrowing from other banks. Over the last few years PostFinance has made
an average profit of about CHF 600 million. Other financial firms and
insurance companies are also profitable businesses without being able to
create money.

2) Is it possible for Switzerland to bring in a sovereign money reform

Yes! Fundamentally it’s irrelevant to organisations outside Switzerland
how money is created in Switzerland – whether it’s backed with gold or
not, or whether the minimum banking reserve is 2, 10 or 100%. For them
it’s more important that the Swiss National Bank has a “good” monetary
policy which maintains price stability. International business partners
from outside Switzerland won’t notice anything different when
Switzerland changes over to sovereign money. Foreign exchange trading
will continue as now, and foreign currencies will continue to be able to
be exchanged with Swiss Francs. Switzerland will profit from the
advantages of sovereign money, regardless of whether other countries
bring in a sovereign money reform or not. 3) Does it follow that there
will be upwards pressure on the Swiss Franc? As sovereign money is so
good and secure, there is a danger that funds will flow into Switzerland
putting an upwards pressure on the value of the Swiss Franc. The Swiss
National Bank already has experience of this, and can take appropriate
measures in order to stabilise the exchange rate. In addition to
targeted foreign exchange purchases there are also other proven
interventions such as introducing negative interest rates for foreign
investors, or capital controls. A weak currency is generally much more
of a problem to a country than a strong one.

4) Won’t sovereign money result in a threat to the independence of the
Swiss National Bank, or a concentration of power in the Swiss National Bank?

No, it’s not that the Swiss National Bank will be given a major new
mandate with the introduction of sovereign money, but rather that it
will have more effective instruments with which it can fulfil its
current mandate. The Swiss National Bank will only have responsibility
for the total money supply, not for individual loans. The Swiss National
Bank acts only in accordance with the Swiss Constitution and the law,
and therefore acts independently from the Swiss Federal Council,
politics and industry.

5) How can the Swiss National Bank know how much money is needed?

The Swiss National Bank needs the sovereign money reform to be able to
fully control the amount of money in circulation. The Swiss National
Bank collects the best statistics on the economy, and therefore has the
best overview as to how much money is needed. What’s new is that it
alone can create money. This is a necessary precondition for it to be
able to take on its full responsibility of acting in the interests of
the country. Individual private banks don’t act on economic data for the
country; rather they only act from a limited business perspective with
the aim of maximising shareholder value. The information from finance
and capital markets doesn’t disappear in a sovereign money system: these
markets function as they do today making risk assessments and setting
prices. Finally, if banks are lacking the funds they need to make loans,
they can ask to borrow funds from the Swiss National Bank.

(3) Chinese Yuan joins IMF's SDR basket


China’s slippery SDR sanctification

By Gary Kleiman on November 19, 2015 in

Chinese financial markets continued their comeback as the IMF staff set
the stage for yuan inclusion in the Special Drawing Rights artificial

The inclusion comes with a technical “freely usable” finding for
international currency and trade transactions, despite capital controls
due to last through end-decade under the latest 5-year economic plan.
Managing Director Lagarde endorsed the report, and IMF board acceptance
at end-month will be a formality with US support triggering an entry
timetable for late 2016.

The Treasury Department decision came in the face of its semi-annual
assessment that the RMB was “below appropriate medium-term valuation,”
as it acknowledged incremental flexibility and cross-border opening and
moved to repair strained relations from Congress’ failure to pass IMF
governance reform.

The preliminary SDR weighting should be ahead of the Japanese yen at
around 15%, but foreign central bank reserve and investor capital market
allocation will remain paltry for years without access and trading
breakthroughs as in all other emerging economies that have historically
been outside the synthetic “global currency.”

China’s central bank launched the admission campaign in the wake of the
2008-09 crisis to diversify dollar reliance, but with persistent GDP
slowdown and foreign exchange outflows it is no longer in such a strong
implementation position. The logic has shifted to financial sector
reform impetus for overcoming current trade, investment and debt
squeezes, and laying a foundation for modern banking and securities
markets as in the rest of the region.

According to the SWIFT payments network, the yuan is only used for 2.5%
of international commerce, and the BIS puts it behind the Mexican peso
and other units as fractional components in foreign exchange dealing.
The local stock and bond markets are valued at multiple trillions of
dollars, but foreign investor participation is limited by quotas and
operational and regulatory hurdles.

Index provider MSCI just raised China’s portion with Hong Kong of the
core developing market benchmark to 26% from the previous 23% with the
addition of overseas-listed firms like internet giant Alibaba.  However,
the mainland exchange has experienced widespread suspensions and
official intervention the past three months to further deter
international players. The debt market in contrast has been partially
liberalized for non-resident institutions, but their share is stuck
under 2% as state-owned banks and enterprises dominate both buying and
issuance with minimal secondary trading.

The main near-term post-SDR yuan inflow may come from central banks and
sovereign wealth funds realigning holdings, with estimates in the $100
billion range annually. Yet this amount is negligible against the over
$10 trillion in global reserves and China’s own $3.5 trillion stash.
Managers also consider liquidity, safety and economic policy and
performance factors outside the Fund’s basket formula for placement.

The Japanese yen has an 8% weighting but draws only half that allocation
in the IMF’s regular survey of central bank preference, while the Swiss
Franc is a major choice outside the SDR. Domestic banking system health
is paramount and October figures showed a sharp credit drop as the
understated non-performing loan ratio drifted toward 2%, despite
interest rate and reserve requirement cuts. Under supply and demand
constraints money supply expansion may be only single digits in 2016, as
the GDP growth forecast was already pared to 6.5% in 2016. Debt defaults
at both private and state firms in the energy, steel and cement
industries reflect lingering overcapacity and deflation worries that cap
the manufacturing PMI under 50, as the services sector is pressed to
absorb the slack.

Exchange rate direction can now go both ways and basic stability cannot
be assumed despite the SDR move. The RMB has recovered ground against
the dollar but may slip again with a Fed rate nudge in December, and
onshore and offshore rates continue to diverge. The authorities have
begun to disclose limited reserve data but not interventions reportedly
concentrated on the murky forward market. They are also studying the old
standby of a Tobin tax to discourage “speculative” trading, when the
emphasis should be on new convincing steps toward routine commercial
dealing within established emerging market practice if the Fund’s
conceptual maneuver is to inspire actual mainland makeover.

Gary N. Kleiman is an emerging markets specialist who runs Kleiman
International in Washington, D.C.

(4) Despite China's inclusion in SDR, US still has a veto at the IMF; is
using IMF against Russia


G-20 Summit and Fate of IMF


19.11.2015 | 00:00

At least a dozen major topics were discussed at the annual G-20 meeting
in Antalya, Turkey, both at the forum sessions as well as on the
sidelines, and at bilateral and group meetings.

Here is a list of those topics:
- The war on terror.
- The global economy (the problem of declining economic growth).
- The reform of the International Monetary Fund.
- Measures to combat tax evasion and the erosion of the tax base.
- The migration crisis.
- Global climate change.
- Problems stemming from the creation of the Trans-Pacific and the
Trans-Atlantic Partnerships.
- Problems with the construction of the Turkish Stream pipeline.
- Ukraine’s debt to Russia.
- Russian-Japanese relations (the prospects of those two countries
signing a peace treaty that would formally end their World War II

Some assess the G-20 summits rather critically, pointing to what they
call «empty blather» and «a cliquish mentality». Indeed, what can the
summit attendees actually propose that would help stem the slowdown in
the global economy? Or that would stave off climate change? There was
arguably only one issue on the summit’s main agenda that was very
specific, ready to go, and could be resolved in 24 hours. And that would
be the reform of the International Monetary Fund.

That issue was actually addressed five years ago by the IMF’s board of
directors. Late in 2010 that body decided to reform the IMF (the 14th
General Review of Quotas). It’s the usual routine: every five years, the
fund adjusts each IMF member country’s assigned quota (contribution), a
number which determines that country’s voting power and access to
capital from this international financial organization. There was an
added aspect to the 2010 overhaul: it stipulated that while the quotas
were being realigned, the fund’s capital would also be doubled. This
means that the member countries agreed to make additional contributions,
in quantities tied to their new quota assignments.

Most countries ratified the fund’s 2010 decision long ago, as required
by the IMF’s charter. Most, but not all. The fund’s biggest shareholder
– the United States – has not ratified it.

Washington has always viewed the IMF as a subsidiary of the US Treasury.
And although America’s IMF quota and voting share have been on a
downward trajectory ever since the Bretton Woods Conference, today it
still stands at over 17%. This makes it ease enough for the US to veto
any decision made by the IMF’s board of directors (only a 15% stake is
needed to block a vote). So what is Washington afraid of? Experts claim
that even after the 14th General Review of Quotas the US share will not
fall below 15%. Washington fears that the BRICS countries will also
acquire a blocking stake if the 14th General Review is ratified.
Currently this group has only an 11.5% quota and voting share. This is
disproportionately low, given that the five BRICS nations generate 31%
of global GDP.

Russia has now begun to actively block IMF decisions, with the help of
other countries, primarily the BRICS nations. On the eve of the G-20
meeting, Aleksei Mozhin, the IMF director for the Russian Federation,
stated that coordination within the BRICS faction is already having an
effect on the IMF’s system of management: «After making some suggestion
or other several years ago, I was approached by a dozen people who
explained why I was wrong. One of those reasons was because the
countries in the Group of Seven actively work to coordinate their
positions. Now we are coordinating our actions as well, so that doesn’t
happen anymore». Coordination between the BRICS countries will take on a
whole new significance once that group exceeds the 15% threshold.

Washington knows perfectly well that if the 14th General Review of
Quotas is allowed to take effect, then today’s world will look a bit
different. And not the way the US wants it to look. For example, in
March 2015 the IMF’s board of directors would probably not have decided
to loan Ukraine $17.5 billion. Nor would we have been treated to the
little drama also known as «the urgent change in the IMF’s rules» (set
in motion by Washington, due to fears of Kiev’s potential default on its
$3 billion loan from Russia), and so on.

...The majority of attendees at the G-20 summit are utterly incensed
about the US position on the issue of IMF reform. And Christine Lagarde,
the fund’s managing director, did not try to hide this. She met with
Russian President Vladimir Putin on the sidelines of the summit. It was
obvious that she was seeking Putin’s backing, in view of the American
pressure on the IMF. Putin offered her his moral support: «We have been
cooperating with the IMF for a long time in different ways, and we wish
to continue this work and hope for the stability of our relationship».
Lagarde admitted to Putin that she shares that impatience and irritation
at the failure to implement the decisions to reform the organization and
its quotas.

Lagarde’s following statement, made during her meeting with Putin, is
noteworthy: «In a range of probabilities, probably the highest
probability of success [for this reform] is in the next two months. If
that does not happen, then it will be about two or three years from
now». That’s a very interesting remark. Why did she specify «the next
two months»? The 14th General Review of Quotas officially expires on
Dec. 31, 2015, although that review still has not taken effect. A new
situation will present itself on Jan. 1, 2016. The IMF will have to give
up on the 14th review and begin to draft the 15th. And that will take
quite a long time.

The situation is further muddled by the fact that by the time work was
to begin on the 15th General Review, the IMF member states were to have
developed and prepared a new formula for calculating quotas. The
previous formula (still used today) is convoluted and clearly reflects
the interests of the wealthy, first-world nations known as the «Golden
Billion» (by incorporating ratings assigned by Western institutions).
The new formula that was negotiated back in 2010 will be based on two
simple and understandable figures – a country’s GDP and gold/foreign
currency reserves. Countries on the periphery of the global economy,
which includes the BRICS nations, will greatly benefit from this new
formula. But the new formula is an additional stumbling block to
reforming the IMF.

Some countries suggest that implementing the 2010 decision is too
onerous for the United States, and thus it should be split into two
parts to make it easier for Uncle Sam to swallow. The first part would
be the adjusted quota. And the second would include the additional
contributions needed in order to double the fund’s capital. But most
countries have not agreed to revisit the 2010 decision and divide it
into two parts, because the fact is that the 2010 decision has already
been ratified by most parliaments. Attempts to «reformat» it would make
a total mess of the IMF reform process. Which is exactly what Uncle Sam
needs. Better an inactive fund than a fund pursuing a policy that
represents the interests of most of the world’s countries instead of
just Washington’s.

I have already written how Washington kicked up a fuss over Ukraine’s $3
billion debt to Russia, which Kiev needs to pay off by the end of the
year. On one hand, Washington is demanding that Kiev not repay the debt;
but on the other, it is demanding that the IMF not declare this failure
to pay a «default,» but to continue to finance Ukraine under the
agreement signed last March. A situation had arisen in which it seemed
everyone would lose: Ukraine, the IMF, England (where the courtroom
showdown between Russia and Ukraine would begin), other European
countries (that had been dragged into this illegitimate «rewrite» of the
IMF’s rules), and the whole world (the normal process of international
lending would be frustrated). Washington had come up with a way to plant
a land mine underneath everyone else, under the name of «Ukrainian debt
to Russia». The situation seemed almost hopeless...

At that time, I wrote that this $3 billion debt could become Moscow’s
trump card. It could be played to Russia’s great benefit. And sure
enough, at the summit in Turkey Putin decided to toss this very card
onto the table of world politics, and it was a real bombshell. On Nov.
16 he stated that he was prepared to take steps to restructure Ukraine’s
debt, «Not only did we agree to a restructuring of Ukraine’s debt, but
we proposed better conditions for this restructuring than those the
International Monetary Fund requested of us. We were asked to defer this
payment of $3 billion to next year. I said that we are ready to accept a
deeper restructuring with no payment this year, a payment of $1 billion
next year, $1 billion in 2017, and $1 billion in 2018». Putin also noted
that in that event, Moscow would be counting on the US, the EU, or
international financial organizations to guarantee Ukraine’s repayment
of its $3 billion debt to Russia. The Russian leader stated, «We have
also requested guarantees, either from the US government, the European
Union, or a trustworthy international financial institution. And we hope
that this issue will be resolved by the beginning of December».

Probably many at the summit breathed a deep sigh of relief upon hearing
those words. I think Christine Lagarde should feel a special sense of
gratitude, as she had been specifically ordered by Washington to alter
the rules that the International Monetary Fund plays by, in order to
accommodate this debt situation. In a sense Putin has become the savior
of the IMF. This was a lovely gift for the fund, in honor of its 70th
birthday in December 2015!

And going back to Lagarde’s claim that IMF reform could happen in two
months or a few years, I would like to comment that I think the second
option is very unlikely. The IMF doesn’t have a few years’ time to stir
things up. The second wave of the global financial crisis is closing in,
and the fund in its current form is in no way prepared to handle that
turmoil. My formula is different: the reform of the International
Monetary Fund will either take place in the next two months or it will
never happen. The second option means that the fund would simply give up
the ghost.

(5) Michael Hudson: IMF changes the rules, blesses Ukraine default on
$3b loan from Russia


The IMF Changes Its Rules to Isolate China and Russia

by Michael Hudson for the Unz Review

December 21, 2015

As Russia and Asia move to circumvent the stranglehold of an aging, U.S.
dominated international financial and legal system with its promise of
endless austerity and privatization by foreign investors, the IMF and
World Bank double-down by making it more difficult for them to transact
business and administer credit.

A nightmare scenario of U.S. geopolitical strategists is coming true:
foreign independence from U.S.-centered financial and diplomatic
control. China and Russia are investing in neighboring economies on
terms that cement Eurasian integration on the basis of financing in
their own currencies and favoring their own exports. They also have
created the Shanghai Cooperation Organization (SCO) as an alternative
military alliance to NATO.[1] And the Asian Infrastructure Investment
Bank (AIIB) threatens to replace the IMF and World Bank tandem in which
the United States holds unique veto power.

More than just a disparity of voting rights in the IMF and World Bank is
at stake. At issue is a philosophy of development. U.S. and other
foreign investment in infrastructure (or buyouts and takeovers on
credit) adds interest rates and other financial charges to the cost
structure, while charging prices as high as the market can bear (think
of Carlos Slim’s telephone monopoly in Mexico, or the high costs of
America’s health care system), and making their profits and monopoly
rents tax-exempt by paying them out as interest.

By contrast, government-owned infrastructure provides basic services at
low cost, on a subsidized basis, or freely. That is what has made the
United States, Germany and other industrial lead nations so competitive
over the past few centuries. But this positive role of government is no
longer possible under World Bank/IMF policy. The U.S. promotion of
neoliberalism and austerity is a major reason propelling China, Russia
and other nations out of the U.S. diplomatic and banking orbit.

On December 3, 2015, Prime Minister Putin proposed that Russia “and
other Eurasian Economic Union countries should kick-off consultations
with members of the SCO and the Association of Southeast Asian Nations
(ASEAN) on a possible economic partnership.”[2] Russia also is seeking
to build pipelines to Europe through friendly secular countries instead
of Sunni jihadist U.S.-backed countries locked into America’s
increasingly confrontational orbit.

Russian finance minister Anton Siluanov points out that when Russia’s
2013 loan to Ukraine was made, at the request of Ukraine’s elected
government, Ukraine’s “international reserves were barely enough to
cover three months’ imports, and no other creditor was prepared to lend
on terms acceptable to Kiev. Yet Russia provided $3 billion of
much-needed funding at a 5 per cent interest rate, when Ukraine’s bonds
were yielding nearly 12 per cent.”[3]

What especially annoys U.S. financial strategists is that this loan by
Russia’s National Wealth Fund was protected by IMF lending practice,
which at that time ensured collectability by withholding credit from
countries in default of foreign official debts, or at least not
bargaining in good faith to pay. To cap matters, the bonds are
registered under London’s creditor-oriented rules and courts.

Most worrisome to U.S. strategists is that China and Russia are
denominating their trade and investment in their own currencies instead
of dollars. After U.S. officials threatened to derange Russia’s banking
linkages by cutting it off from the SWIFT interbank clearing system,
China accelerated its creation of the alternative China International
Payments System (CIPS), and its own credit card system to protect
Eurasian economies from the threats made by U.S. unilateralists.

Russia and China are simply doing what the United States has long done:
using trade and credit linkages to cement their diplomacy. This tectonic
geopolitical shift is a Copernican threat to New Cold War ideology:
Instead of the world economy revolving around the United States (the
Ptolemaic idea of America as “the indispensible nation”), it may revolve
around Eurasia. As long as global financial control remains grounded in
Washington at the offices of the IMF and World Bank, such a shift in the
center of gravity will be fought with all the power of an American
Century (and would-be American Millennium) inquisition.

Any inquisition needs a court system and enforcement vehicles. So does
resistance to such a system. That is what today’s global financial,
legal and trade maneuvering is all about. And that is why today’s world
system is in the process of breaking apart. Differences in economic
philosophy call for different institutions.

To U.S. neocons the specter of AIIB government-to-government investment
creates fear of nations minting their own money and holding each other’s
debt in their international reserves instead of borrowing dollars,
paying interest in dollars and subordinating their financial planning to
the U.S. Treasury and IMF. Foreign governments would have less need to
finance their budget deficits by selling off key infrastructure. And
instead of dismantling public spending, a broad Eurasian economic union
would do what the United States itself practices, and seek
self-sufficiency in banking and monetary policy.

Imagine the following scenario five years from now. China will have
spent half a decade building high-speed railroads, ports, power systems
and other construction for Asian and African countries, enabling them to
grow and export more. These exports will be coming online to repay the
infrastructure loans. Also, suppose that Russia has been supplying the
oil and gas energy for these projects on credit.

To avert this prospect, suppose an American diplomat makes the following
proposal to the leaders of countries in debt to China, Russia and the
AIIB: “Now that you’ve got your increased production in place, why
repay? We’ll make you rich if you stiff our adversaries and turn back to
the West. We and our European allies will support your assigning your
nations’ public infrastructure to yourselves and your supporters at
insider prices, and then give these assets market value by selling
shares in New York and London. Then, you can keep the money and spend it
in the West.”

How can China or Russia collect in such a situation? They can sue. But
what court in the West will accept their jurisdiction?

That is the kind of scenario U.S. State Department and Treasury
officials have been discussing for more than a year. Implementing it
became more pressing in light of Ukraine’s $3 billion debt to Russia
falling due by December 20, 2015. Ukraine’s U.S.-backed regime has
announced its intention to default. To support their position, the IMF
has just changed its rules to remove a critical lever on which Russia
and other governments have long relied to ensure payment of their loans.

The IMF’s role as enforcer of inter-government debts

When it comes to enforcing nations to pay inter-government debts, the
IMF is able to withhold not only its own credit but also that of
governments and global bank consortia participating when debtor
countries need “stabilization” loans (the neoliberal euphemism for
imposing austerity and destabilizing debtor economies, as in Greece this
year). Countries that do not privatize their infrastructure and sell it
to Western buyers are threatened with sanctions, backed by
U.S.-sponsored “regime change” and “democracy promotion” Maidan-style.
The Fund’s creditor leverage has been that if a nation is in financial
arrears to any government, it cannot qualify for an IMF loan – and
hence, for packages involving other governments. That is how the
dollarized global financial system has worked for half a century. But
until now, the beneficiaries have U.S. and NATO lenders, not been China
or Russia.

The focus on a mixed public/private economy sets the AIIB at odds with
the Trans-Pacific Partnership’s aim of relinquishing government planning
power to the financial and corporate sector, and the neoliberal aim of
blocking governments from creating their own money and implementing
their own financial, economic and environmental regulation. Chief Nomura
economist Richard Koo, explained the logic of viewing the AIIB as a
threat to the U.S.-controlled IMF: “If the IMF’s rival is heavily under
China’s influence, countries receiving its support will rebuild their
economies under what is effectively Chinese guidance, increasing the
likelihood they will fall directly or indirectly under that country’s

This was the setting on December 8, when Chief IMF Spokesman Gerry Rice
announced: “The IMF’s Executive Board met today and agreed to change the
current policy on non-toleration of arrears to official creditors.”
Russian Finance Minister Anton Siluanov accused the IMF decision of
being “hasty and biased.”[5] But it had been discussed all year long,
calculating a range of scenarios for a sea change in international law.
Anders Aslund, senior fellow at the NATO-oriented Atlantic Council,
points out:

     The IMF staff started contemplating a rule change in the spring of
2013 because nontraditional creditors, such as China, had started
providing developing countries with large loans. One issue was that
these loans were issued on conditions out of line with IMF practice.
China wasn’t a member of the Paris Club, where loan restructuring is
usually discussed, so it was time to update the rules.

     The IMF intended to adopt a new policy in the spring of 2016, but
the dispute over Russia’s $3 billion loan to Ukraine has accelerated an
otherwise slow decision-making process.[6]

The target was not only Russia and its ability to collect on its
sovereign loan to Ukraine, but China even more, in its prospective role
as creditor to African countries and prospective AIIB borrowers,
planning for a New Silk Road to integrate a Eurasian economy independent
of U.S. financial and trade control. The Wall Street Journal concurred
that the main motive for changing the rules was the threat that China
would provide an alternative to IMF lending and its demands for crushing
austerity. “IMF-watchers said the fund was originally thinking of
ensuring China wouldn’t be able to foil IMF lending to member countries
seeking bailouts as Beijing ramped up loans to developing economies
around the world.”[7] So U.S. officials walked into the IMF headquarters
in Washington with the legal equivalent of suicide vests. Their aim was
a last-ditch attempt to block trade and financial agreements organized
outside of U.S. control and that of the IMF and World Bank.

The plan is simple enough. Trade follows finance, and the creditor
usually calls the tune. That is how the United States has used the
Dollar Standard to steer Third World trade and investment since World
War II along lines benefiting the U.S. economy. The cement of trade
credit and bank lending is the ability of creditors to collect on the
international debts being negotiated. That is why the United States and
other creditor nations have used the IMF as an intermediary to act as
“honest broker” for loan consortia. (“Honest broker” means being subject
to U.S. veto power.) To enforce its financial leverage, the IMF has long
followed the rule that it will not sponsor any loan agreement or
refinancing for governments that are in default of debts owed to other
governments. However, as the afore-mentioned Aslund explains, the IMF
could easily

     change its practice of not lending into [countries in official]
arrears … because it is not incorporated into the IMF Articles of
Agreement, that is, the IMF statutes. The IMF Executive Board can decide
to change this policy with a simple board majority. The IMF has lent to
Afghanistan, Georgia, and Iraq in the midst of war, and Russia has no
veto right, holding only 2.39 percent of the votes in the IMF. When the
IMF has lent to Georgia and Ukraine, the other members of its Executive
Board have overruled Russia.[8]

After the rules change, Aslund later noted, “the IMF can continue to
give Ukraine loans regardless of what Ukraine does about its credit from
Russia, which falls due on December 20.[9]

The IMF rule that no country can borrow if it is in default to a foreign
government was created in the post-1945 world. Since then, the U.S.
Government, Treasury and/or U.S. bank consortia have been party to
nearly every major loan agreement. But inasmuch as Ukraine’s official
debt to Russia’s National Wealth Fund was not to the U.S. Government,
the IMF announced its rules change simply as a “clarification.” What its
rule really meant was that it would not provide credit to countries in
arrears to the U.S. government, not that of Russia or China.

It remains up to the IMF board – and in the end, its managing director –
whether or not to deem a country creditworthy. The U.S. representative
can block any foreign leaders not beholden to the United States. Mikhail
Delyagin, Director of the Institute of Globalization Problems, explained
the double standard at work: “The Fund will give Kiev a new loan tranche
on one condition: that Ukraine should not pay Russia a dollar under its
$3 billion debt. … they will oblige Ukraine to pay only to western
creditors for political reasons.”[10]

The post-2010 loan packages to Greece are a case in point. The IMF staff
saw that Greece could not possibly pay the sums needed to bail out
French, German and other foreign banks and bondholders. Many Board
members agreed, and have gone public with their whistle blowing. Their
protests didn’t matter. President Barack Obama and Treasury Secretary
Tim Geithner pointed out that U.S. banks had written credit default
swaps betting that Greece could pay, and would lose money if there were
a debt writedown). Dominique Strauss-Kahn backed the hard line US-
European Central Bank position. So did Christine Lagarde in 2015,
overriding staff protests.[11]

Regarding Ukraine, IMF executive board member Otaviano Canuto,
representing Brazil, noted that the logic that “conditions on IMF
lending to a country that fell behind on payments [was to] make sure it
kept negotiating in good faith to reach agreement with creditors.”[12]
Dropping this condition, he said, would open the door for other
countries to insist on a similar waiver and avoid making serious and
sincere efforts to reach payment agreement with creditor governments.

A more binding IMF rule is Article I of its 1944-45 founding charter,
prohibiting the Fund from lending to a member state engaged in civil war
or at war with another member state, or for military purposes in
general. But when IMF head Lagarde made the last loan to Ukraine, in
spring 2015, she merely expressed a vapid token hope there might be
peace. Withholding IMF credit could have been a lever to force peace and
adherence to the Minsk agreements, but U.S. diplomatic pressure led that
opportunity to be rejected. President Porochenko immediately announced
that he would step up the civil war with the Russian-speaking population
in the eastern Donbass region.

The most important IMF condition being violated is that continued
warfare with the East prevents a realistic prospect of Ukraine paying
back new loans. The Donbass is where most Ukrainian exports were made,
mainly to Russia. That market is being lost by the junta’s belligerence
toward Russia. This should have blocked Ukraine from receiving IMF aid.
Aslund himself points to the internal contradiction at work: Ukraine has
achieved budget balance because the inflation and steep currency
depreciation has drastically eroded its pension costs. But the resulting
decline in the purchasing power of pension benefits has led to growing
opposition to Ukraine’s post-Maidan junta. So how can the IMF’s
austerity budget be followed without a political backlash? “Leading
representatives from President Petro Poroshenko’s Bloc are insisting on
massive tax cuts, but no more expenditure cuts; that would cause a vast
budget deficit that the IMF assesses at 9-10 percent of GDP, that could
not possibly be financed.”[13]

By welcoming and financing Ukraine instead of treating as an outcast,
the IMF thus is breaking four of its rules: (1) Not to lend to a country
that has no visible means to pay back the loan. This breaks the “No More
Argentinas” rule, adopted after the IMF’s disastrous 2001 loan. (2) Not
to lend to a country that repudiates its debt to official creditors.
This goes against the IMF’s role as enforcer for the global creditor
cartel. (3) Not to lend to a borrower at war – and indeed, to one that
is destroying its export capacity and hence its balance-of-payments
ability to pay back the loan. Finally, (4) not to lend to a country that
is not likely to carry out the IMF’s austerity “conditionalities,” at
least without crushing democratic opposition in a totalitarian manner.

The upshot – and new basic guideline for IMF lending – is to split the
world into pro-U.S. economies going neoliberal, and economies
maintaining public investment in infrastructure and what used to be
viewed as progressive capitalism. Russia and China may lend as much as
they want to other governments, but there is no global vehicle to help
secure their ability to be paid back under international law. Having
refused to roll back its own (and ECB) claims on Greece, the IMF is
willing to see countries not on the list approved by U.S. neocons
repudiate their official debts to Russia or China. Changing its rules to
clear the path for making loans to Ukraine is rightly seen as an
escalation of America’s New Cold War against Russia and China.

Timing is everything in such ploys. Georgetown University Law professor
and Treasury consultant Anna Gelpern warned that before the “IMF staff
and executive board [had] enough time to change the policy on arrears to
official creditors,” Russia might use “its notorious debt/GDP clause to
accelerate the bonds at any time before December, or simply gum up the
process of reforming the IMF’s arrears policy.”[14] According to this
clause, if Ukraine’s foreign debt rose above 60 percent of GDP, Russia’s
government would have the right to demand immediate payment. But
President Putin, no doubt anticipating the bitter fight to come over its
attempts to collect on its loan, refrained from exercising this option.
He is playing the long game, bending over backward to behave in a way
that cannot be criticized as “odious.”

A more immediate reason deterring the United States from pressing
earlier to change IMF rules was the need to use the old set of rules
against Greece before changing them for Ukraine. A waiver for Ukraine
would have provided a precedent for Greece to ask for a similar waiver
on paying the “troika” – the European Central Bank (ECB), EU commission
and the IMF itself – for the post-2010 loans that have pushed it into a
worse depression than the 1930s. Only after Greece capitulated to
eurozone austerity was the path clear for U.S. officials to change the
IMF rules to isolate Russia. But their victory has come at the cost of
changing the IMF’s rules and those of the global financial system
irreversibly. Other countries henceforth may reject conditionalities, as
Ukraine has done, as well as asking for write-downs on foreign official

That was the great fear of neoliberal U.S. and Eurozone strategists last
summer, after all. The reason for smashing Greece’s economy was to deter
Podemos in Spain and similar movements in Italy and Portugal from
pursuing national prosperity instead of eurozone austerity. “Imagine the
Greek government had insisted that EU institutions accept the same
haircut as the country’s private creditors,” Russian finance minister
Anton Siluanov asked. “The reaction in European capitals would have been
frosty. Yet this is the position now taken by Kiev with respect to
Ukraine’s $3 billion eurobond held by Russia.”[15]

The consequences of America’s tactics to make a financial hit on Russia
while its balance of payments is down (as a result of collapsing oil and
gas prices) go far beyond just the IMF. These tactics are driving other
countries to defend their own economies in the legal and political
spheres, in ways that are breaking apart the post-1945 global order.

Countering Russia’s ability to collect in Britain’s law courts

Over the past year the U.S. Treasury and State Departments have
discussed ploys to block Russia from collecting by suing in the London
Court of International Arbitration, under whose rules Russia’s bonds
issued to Ukraine are registered. Reviewing the excuses Ukraine might
use to avoid paying Russia, Prof. Gelpern noted that it might declare
the debt “odious,” made under duress or corruptly. In a paper for the
Peterson Institute of International Economics (the banking lobby in
Washington) she suggested that Britain should deny Russia the use of its
courts as a means of reinforcing the financial, energy and trade
sanctions passed after Crimea voted to join Russia as protection against
the ethnic cleansing from the Right Sector, Azov Battalion and other
paramilitary groups descending on the region.[16]

A kindred ploy might be for Ukraine to countersue Russia for reparations
for “invading” it and taking Crimea. Such a claim would seem to have
little chance of success (without showing the court to be an arm of NATO
politics), but it might delay Russia’ ability to collect by tying the
loan up in a long nuisance lawsuit. But the British court would lose
credibility if it permits frivolous legal claims (called barratry in
English) such as President Poroshenko and Prime Minister Yatsenyuk have

To claim that Ukraine’s debt to Russia was “odious” or otherwise
illegitimate, “President Petro Poroshenko said the money was intended to
ensure Yanukovych’s loyalty to Moscow, and called the payment a
‘bribe,’according to an interview with Bloomberg in June this year.”[17]
The legal and moral problem with such arguments is that they would apply
equally to IMF and U.S. loans. They would open the floodgates for other
countries to repudiate debts taken on by dictatorships supported by IMF
and U.S. lenders.

As Foreign Minister Sergei Lavrov noted, the IMF’s change of rules,
“designed to suit Ukraine only, could plant a time bomb under all other
IMF programs.” The new rules showed the extent to which the IMF is
subordinate to U.S. aggressive New Cold Warriors: “since Ukraine is
politically important – and it is only important because it is opposed
to Russia – the IMF is ready to do for Ukraine everything it has not
done for anyone else.”[18]

In a similar vein, Andrei Klimov, deputy chairman of the Committee for
International Affairs at the Federation Council (the upper house of
Russia’s parliament) accused the United States of playing “the role of
the main violin in the IMF while the role of the second violin is played
by the European Union, [the] two basic sponsors of the Maidan – the …
coup d’état in Ukraine in 2014.”[19]

Putin’s counter-strategy and the blowback on U.S.-European relations

Having anticipated that Ukraine would seek excuses to not pay Russia,
President Putin refrained from exercising Russia’s right to demand
immediate payment when Ukraine’s foreign debt rose above 60 percent of
GDP. In November he even offered to defer any payment at all this year,
stretching payments out to “$1 billion next year, $1 billion in 2017,
and $1 billion in 2018,” if “the United States government, the European
Union, or one of the big international financial institutions”
guaranteed payment.[20] Based on their assurances “that Ukraine’s
solvency will grow,” he added, they should be willing to put their money
where their mouth was. If they did not provide guarantees, Putin pointed
out, “this means that they do not believe in the Ukrainian economy’s

Implicit was that if the West continued encouraging Ukraine to fight
against the East, its government would not be in a position to pay. The
Minsk agreement was expiring and Ukraine was receiving new arms support
from the United States, Canada and other NATO members to intensify
hostilities against Donbass and Crimea.

But the IMF, European Union and United States refused to back up the
Fund’s optimistic forecast of Ukraine’s ability to pay in the face of
its continued civil war against the East. Foreign Minister Lavrov
concluded that, “By having refused to guarantee Ukraine’s debt as part
of Russia’s proposal to restructure it, the United States effectively
admitted the absence of prospects of restoring its solvency.”[21]

In an exasperated tone, Prime Minister Dmitry Medvedev said on Russian
television: “I have a feeling that they won’t give us the money back
because they are crooks … and our Western partners not only refuse to
help, but they also make it difficult for us.” Accusing that “the
international financial system is unjustly structured,” he nonetheless
promised to “go to court. We’ll push for default on the loan and we’ll
push for default on all Ukrainian debts,” based on the fact that the loan

     was a request from the Ukrainian Government to the Russian
Government. If two governments reach an agreement this is obviously a
sovereign loan…. Surprisingly, however, international financial
organisations started saying that this is not exactly a sovereign loan.
This is utter bull. Evidently, it’s just an absolutely brazen, cynical
lie. … This seriously erodes trust in IMF decisions. I believe that now
there will be a lot of pleas from different borrower states to the IMF
to grant them the same terms as Ukraine. How will the IMF possibly
refuse them?[22]

And there the matter stands. On December 16, 2015, the IMF’s Executive
Board ruled that “the bond should be treated as official debt, rather
than a commercial bond.”[23] Forbes quipped: “Russia apparently is not
always blowing smoke. Sometimes they’re actually telling it like it is.”[24]

Reflecting the degree of hatred fanned by U.S. diplomacy, U.S.-backed
Ukrainian Finance Minister Natalie A. Jaresko expressed an arrogant
confidence that the IMF would back the Ukrainian cabinet’s announcement
on Friday, December 18, of its intention to default on the debt to
Russia falling due two days later. “If we were to repay this bond in
full, it would mean we failed to meet the terms of the I.M.F. and the
obligations we made under our restructuring.”[25]

Adding his own bluster, Prime Minister Arseny Yatsenyuk announced his
intention to tie up Russia’s claim for payment by filing a
multibillion-dollar counter claim “over Russia’s occupation of Crimea
and intervention in east Ukraine.” To cap matters, he added that
“several hundred million dollars of debt owed by two state enterprises
to Russian banks would also not be paid.”[26] This makes trade between
Ukraine and Russia impossible to continue. Evidently Ukraine’s
authorities had received assurance from IMF and U.S. officials that no
real “good faith” bargaining would be required to gain ongoing support.
Ukraine’s Parliament did not even find it necessary to enact the new tax
code and budget conditionalities that the IMF loan had demanded.

The world is now at war financially, and all that seems to matter is
whether, as U.S. Defense Secretary Donald Rumsfeld had put matters, “you
are for us or against us.” As President Putin remarked at the 70th
session of the UN General Assembly regarding America’s support of Al
Qaeda, Al Nusra and other allegedly “moderate” ISIS allies in Syria: “I
cannot help asking those who have caused this situation: Do you realize
now what you have done? … I am afraid the question will hang in the air,
because policies based on self-confidence and belief in one’s
exceptionality and impunity have never been abandoned.”[27]

The blowback

America’s unilateralist geopolitics are tearing up the world’s economic
linkages that were put in place in the heady days after World War II,
when Europe and other countries were so disillusioned that they believed
the United States was acting out of idealism rather than national
self-interest. Today the question is how long Western Europe will be
willing to forego its trade and investment interests by accepting
U.S.-sponsored sanctions against Russia, Iran and other economies.
Germany, Italy and France already are feeling the strains.

The oil and pipeline war designed to bypass Russian energy exports is
flooding Europe with refugees, as well as spreading terrorism. Although
the leading issue in America’s Republican presidential debate on
December 15, 2015, was safety from Islamic jihadists no candidate
thought to explain the source of this terrorism in America’s alliance
with Wahabist Saudi Arabia and Qatar, and hence with Al Qaeda and
ISIS/Daish as a means of destabilizing secular regimes in Libya, Iraq,
Syria, and earlier in Afghanistan. Going back to the original sin of CIA
hubris – overthrowing the secular Iranian Prime Minister leader Mohammad
Mosaddegh in 1953 – U.S. foreign policy has been based on the assumption
that secular regimes tend to be nationalist and resist privatization and
neoliberal austerity.

Based on this assumption, U.S. Cold Warriors have aligned themselves
against democratic regimes seeking to promote their own prosperity and
resist neoliberalism in favor of maintaining their own traditional mixed
public/private economies. That is the back-story of the U.S. fight to
control the rest of the world. Tearing apart the IMF’s rules is only the
most recent chapter. Arena by arena, the core values of what used to be
American and European social democratic ideology are being uprooted by
the tactics being used to hurt Russia, China and their prospective
Eurasian allies.

The Enlightenment’s ideals of secular democracy and the rule of
international law applied equally to all nations, classical free market
theory (of markets free from unearned income and rent extraction by
special interests), and public investment in infrastructure to hold down
the cost of living and doing business, are all to be sacrificed to a
militant U.S. unilateralism. Putting their “indispensible nation” above
the rule of law and parity of national interests (the 1648 Westphalia
treaty, not to mention the Geneva Convention and Nuremburg laws), U.S.
neocons proclaim that America’s destiny is to prevent foreign secular
democracy from acting in ways other than submission to U.S. diplomacy,
and behind it, the special U.S. financial and corporate interests that
control American foreign policy.

This is not how the Enlightenment was supposed to turn out. Industrial
capitalism a century ago was expected to evolve into an economy of
abundance worldwide. Instead, we have American Pentagon capitalism,
financial bubbles deteriorating into a polarized rentier economy, and a
resurgence of old-fashioned imperialism. If and when a break comes, it
will not be marginal but a seismic geopolitical shift.

The Dollar Bloc’s Financial Curtain

By treating Ukraine’s repudiation of its official debt to Russia’s
National Wealth Fund as the new norm, the IMF has blessed its default.
President Putin and foreign minister Lavrov have said that they will sue
in British courts. The open question is whether any court exisst in the
West not under the thumb of U.S. veto?

America’s New Cold War maneuvering has shown that the two Bretton Woods
institutions are unreformable. It is easier to create new institutions
such as the AIIB an Shanghai Cooperation Organization than to retrofit
the IMF and World Bank, NATO and behind it, the dollar standard, all
burdened with the legacy of their vested interests.

U.S. geostrategists evidently thought that excluding Russia, China and
other Eurasian countries from the U.S.-based financial and trade system
would isolate them in a similar economic box to Cuba, Iran and other
sanctioned adversaries. The idea was to force countries to choose
between being impoverished by such exclusion, or acquiescing in U.S.
neoliberal drives to financialize their economies under U.S. control.

What is lacking here is the idea of critical mass. The United States may
arm-twist Europe to impose trade and financial sanctions on Russia, and
may use the IMF and World Bank to exclude countries not under U.S.
hegemony from participating in dollarized global trade and finance. But
this diplomatic action is producing an equal and opposite reaction. That
is the Newtonian law of geopolitics. It is propelling other countries to
survive by avoiding demands to impose austerity on their government
budgets and labor, by creating their own international financial
organization as an alternative to the IMF, and by juxtaposing their own
“aid” lending to that of the U.S.-centered World Bank.

This blowback requires an international court to handle disputes free
from the U.S. arm-twisting. The Eurasian Economic Union accordingly has
created its own court to adjudicate disputes. This may provide an
alternative to Judge Griesa’s New York federal kangaroo court ruling in
favor of vulture funds derailing Argentina’s debt settlements and
excluding that country from world financial markets.

The more nakedly self-serving U.S. policy is – from backing radical
fundamentalist outgrowths of Al Qaeda throughout the Near East to
right-wing nationalists in Ukraine and the Baltics – the greater the
pressure will grow for the Shanghai Cooperation Organization, AIIB and
related institutions to break free of the post-1945 Bretton Woods system
run by the U.S. State, Defense and Treasury Departments and their NATO
superstructure of coercive military bases. As Paul Craig Roberts
recently summarized the dynamic, we are back with George Orwell’s 1984
global fracture between Oceanea (the United States, Britain and its
northern European NATO allies as the sea and air power) vs. Eurasia as
the consolidated land power.

Michael Hudson is author of Killing the Host, Professor of Economics at
Peking University and also Distinguished Research Professor of Economics
at the University of Missouri, Kansas City. References

  [1] The SCO was created in 2001 in Shanghai by the leaders of China,
Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. India and
Pakistan are scheduled to join, along with Iran, Afghanistan and Belarus
as observers, and other east and Central Asian countries as “dialogue

  [2] “Putin Seeks Alliance to Rival TPP,” RT.com (December 04 2015),

https://www.rt.com/business/324747-putin-tpp-bloc-russia/. The Eurasian
Economic Union was created in 2014 by Russia, Belarus and Kazakhstan,
soon joined by Kyrgyzstan and Armenia. ASEAN was formed in 1967,
originally by Indonesia, Malaysia the Philippines, Singapore and
Thailand. It subsequently has been expanded. China and the AIIB are
reaching out to replace World Bank. The U.S. refused to join the AIIB,
opposing it from the outset.

  [3] Anton Siluanov, “Russia wants fair rules on sovereign debt,”
Financial Times, December 10, 2015.

  [4] Richard Koo, “EU refuses to acknowledge mistakes made in Greek
bailout,” Nomura, July 14, 2015.

  [5] Ian Talley, “IMF Tweaks Lending Rules in Boost for Ukraine,” Wall
Street Journal, December 9, 2015.

  [6] Anders Aslund, “The IMF Outfoxes Putin: Policy Change Means
Ukraine Can Receive More Loans,” Atlantic Council, December 8, 2015. On
Johnson’s Russia List, December 9, 2015, #13. Aslund was a major
defender of neoliberal shock treatment and austerity in Russia, and has
held up Latvian austerity as a success story rather than a disaster.

  [7] Ian Talley, op. cit.

  [8] Anders Åslund, “Ukraine Must Not Pay Russia Back,” Atlantic
Council, November 2, 2015 (from Johnson’s Russia List, November 3, 2015,

  [9] Anders Aslund, “The IMF Outfoxes Putin,” op. cit.

  [10] Quoted in Tamara Zamyantina, “IMF’s dilemma: to help or not to
help Ukraine, if Kiev defaults,” TASS, translated on Johnson’s Russia
List, December 9, 2015, #9.

  [11] I provide a narrative of the Greek disaster in Killing the Host

  [12] Reuters, “IMF rule change keeps Ukraine support; Russia
complains,” December 8, 2015.

  [13] Anders Aslund, “The IMF Outfoxes Putin,” op. cit.

  [14] Anna Gelpern, “Russia’s Bond: It’s Official! (… and Private … and
Anything Else It Wants to Be …),” Credit Slips, April 17, 2015.

  [15] Anton Siluanov, “Russia wants fair rules on sovereign debt,”
Financial Times, December 10, 2015. He added: “Russia’s financing was
not made for commercial gain. Just as America and Britain regularly do,
it provided assistance to a country whose policies it supported. The US
is now supporting the current Ukrainian government through its USAID
guarantee programme.”

  [16] John Helmer, “IMF Makes Ukraine War-Fighting Loan, Allows US to
Fund Military Operations Against Russia, May Repay Gazprom Bill,” Naked
Capitalism, March 16, 2015 (from his site Dances with Bears).

  [17] “Ukraine Rebuffs Putin’s Offer to Restructure Russian Debt,”
Moscow Times, November 20, 2015, from Johnson’s Russia List, November
20, 2015, #32.

  [18] “Lavrov: U.S. admits lack of prospects of restoring Ukrainian
solvency,” Interfax, November 7, 2015, translated on Johnson’s Russia
List, December 7, 2015, #38.

  [19] Quoted by Tamara Zamyantina, “IMF’s dilemma,” op. cit. [fn 8].

  [20] Vladimir Putin, “Responses to journalists’ questions following
the G20 summit,” Kremlin.ru, November 16, 2015. From Johnson’s Russia
List, November 17, 2015, #7.

  [21] “Lavrov: U.S. admits lack of prospects of restoring Ukrainian
solvency,” November 7, 2015, translated on Johnson’s Russia List,
December 7, 2015, #38.

  [22] “In Conversation with Dmitry Medvedev: Interview with five
television channels,” Government.ru, December 9, 2015, from Johnson’s
Russia List, December 10, 2015, #2

  [23] Andrew Mayeda, “IMF Says Ukraine Bond Owned by Russia Is Official
Sovereign Debt,” Bloomberg, December 17, 2015.

  [24] Kenneth Rapoza, “IMF Says Russia Right About Ukraine $3 Billion
Loan,” Forbes.com, December 16, 2015. The article added: “the Russian
government confirmed to Euroclear, at the request of the Ukrainian
authorities at the time, that the Eurobond was fully owned by the
Russian government.”

  [25] Andrew E. Kramer, “ Ukraine Halts Repayments on $3.5 Billion It
Owes Russia,” The New York Times, December 19, 2015.

  [26] Roman Olearchyk, “Ukraine tensions with Russia mount after debt
moratorium,” Financial Times, December 19, 2015.

  [27] “Violence instead of democracy: Putin slams ‘policies of
exceptionalism and impunity’ in UN speech,” www.rt.com, September 29,
2015. From Johnson’s Russia List, September 29, 2015, #2.

(6) Petras: criminal behavior of IMF executives. Swindles, tax evasion,
bribery, transfers of public wealth to private accounts

From: Paul de Burgh-Day <pdeburgh@lorinna.net>
Date: Tue, 29 Dec 2015 17:02:27 +1100
Subject: Prof. James Petras: The “Dirty Work” of
   the International Monetary Fund, Lays the Gr
  oundwork for Worldwide Financial Conquest

The “Dirty Work” of the International Monetary Fund, Lays the Groundwork
for Worldwide Financial Conquest

The criminal behavior of IMF executives

By Prof. James Petras

Global Research, December 28, 2015


The IMF is the leading international monetary agency whose public
purpose is to maintain the stability of the global financial system
through loans linked to proposals designed to enhance economic recovery
and growth.

In fact, the IMF has been under the control of the US and Western
European states and its policies have been designed to further the
expansion, domination and profits of their leading multi-national
corporations and financial institutions.

The US and European states practice a division of powers:  The executive
directors of the IMF are Europeans; their counterparts in the World Bank
(WB) are from the US.

The executive directors of the IMF and WB operate in close consultation
with their governments and especially the Treasury Departments in
deciding priorities, deciding what countries will receive loans, under
what terms and how much.

The loans and terms set by the IMF are closely coordinated with the
private banking system.  Once the IMF signs an agreement with a debtor
country, it is a signal for the big private banks to lend, invest and
proceed with a multiplicity of favorable financial transactions.  >From
the above it can be deduced that the IMF plays the role of general
command for the global financial system.

The IMF lays the groundwork for the major banks’ conquest of the
financial systems of the world’s vulnerable states.

The IMF assumes the burden of doing all the dirty work through its
intervention.  This includes the usurpation of sovereignty, the demand
for privatization and reduction of social expenditures, salaries, wages
and pensions, as well as ensuring the priority of debt payments.  The
IMF acts as the ‘blind’ for the big banks by deflecting political
critics and social unrest.

Executive Directors as Hatchet Persons

What kind of persons do the banks support as executive directors of the
IMF? Whom do they entrust with the task of violating the sovereign
rights of a country, impoverishing its people and eroding its democratic

They have included a convicted financial swindler; the current director
is facing prosecution on charges of mishandling public funds as a
Finance minister; a rapist; an advocate of gunboat diplomacy and the
promotor of the biggest financial collapse in a country’s history.

IMF Executive Directors on Trial

The current executive director of the IMF (July 2011-2015) Christine
Lagarde is on trial in France for misappropriation of a
$400-million-dollar payoff to tycoon Bernard Tapie while she was Finance
Minister in the government of President Sarkozy.

The previous executive director (November 2007-May 2011), Dominique
Strauss-Kahn, was forced to resign after he was charged with raping a
chambermaid in a New York hotel and was later arrested and tried for
pimping in the city of Lille, France.

His predecessor, Rodrigo Rato (June 2004-October 2007), was a Spanish
banker who was arrested and charged with tax evasion, concealing ?27
million euros in seventy overseas banks and swindling thousands of small
investors who he convinced to put their money in a Spanish bank, Bankia,
that went bankrupt.

His predecessor a German, Horst Kohler, resigned after he stated an
unlikely verity – namely that overseas military intervention was
necessary to defend German economic interests, such as free trade
routes.  It’s one thing for the IMF to act as a tool for imperial
interests; it is another for an IMF executive to speak about it publically!

Michel Camdessus (January 1987-February 2000) was the author of the
“Washington Consensus” the doctrine that underwrote the global
neo-liberal counter-revolution. His term of office witnessed his embrace
and financing of some of the worst dictators of the time, including his
own photo-ops with Indonesian strongman and mass murderer, General Suharto.

Under Camdessus, the IMF collaborated with Argentine President Carlos
Menem in liberalizing the economy, deregulating financial markets and
privatizing over a thousand enterprises.  The crises, which ensued, led
to the worst depression in Argentine history, with over 20,000
bankruptcies, 25% unemployment and poverty rates exceeding 50% in
working class districts . . . Camdessus later regretted his “policy
mistakes” with regard to the Argentine’s collapse.  He was never
arrested or charged with crimes against humanity.


The criminal behavior of the IMF executives is not an anomaly or
hindrance to their selection.  On the contrary, they were selected
because they reflect the values, interests and behavior of the global
financial elite:  Swindles, tax evasion, bribery, large-scale transfers
of public wealth to private accounts are the norm for the financial
establishment.  These qualities fit the needs of bankers who have
confidence in dealing with their ‘mirror-image’ counterparts in the IMF.

The international financial elite needs IMF executives who have no
qualms in using double standards and who overlook gross violations of
its standard procedures.  For example, the current executive director,
Christine Lagarde, lends $30 billion to the puppet regime in the
Ukraine, even though the financial press describes in great detail how
corrupt oligarchs have stolen billions with the complicity of the
political class (Financial Times, 12/21/15, pg. 7).  The same Lagarde
changes the rules on debt repayment allowing the Ukraine to default on
its payment of its sovereign debt to Russia.  The same Lagarde insists
that the center-right Greek government further reduce pensions in Greece
below the poverty level, provoking the otherwise accommodating regime of
Alexis Tsipras to call for the IMF to stay out of the bailout (Financial
Times, 12/21/15, pg.1).

Clearly the savage cut in living standards, which the IMF executives
decree everywhere is not unrelated to their felonious personal history.
   Rapists, swindlers, militarists, are just the right people to direct
an institution as it impoverishes the 99% and enriches the 1% of the

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