05 April 2009

Catching up after the G20 - how the IMF kills vulnerable economies (at least so far...)

Right then... after a week off on holiday in sunny Wales (and it was sunny, surprisingly), I find I've missed all the excitement of the G20 conference. As usual the media seemed preoccupied with wardrobe's (Michelle Obama's in this case) and failing to report any incidences of police heavy-handedness - like this one (thanks, Kevvy K, for the link).

So, we know the negative side - vacuous reporting and an entrenchment of the police state. But did anything good come of the talking? It's hard to get too enthusiastic. There has been extra bail-out money pledged to the IMF for economies that are on the verge of collapse - but bear in mind that when the IMF lends to countries it tends to impose conditions that collapse their economies still further (e.g. huge wage cuts, which depress demand) as it is an ideological slave to a Thatcherite/Reaganite economic agenda which has now been totally discredited. Having said that, it is possible that the IMF could change its policy stance somewhere down the line, although it's hard to see exactly how that would happen. The increase in Special Drawing Rights (essentially a low cost lender-of-last resort facility where the IMF plays the role of central banker) is useful to an extent, as it will hopefully come with less strings attached than a normal IMF bailout.

For a clear idea of what the IMF is doing to economies it's bailed out in Eastern Europe, it's worth looking at Paul Mason's wittingly titled "Euro-Crash" series on the Newsnight website. Latvia and Ukraine are absolutely buggered, Slovakia is doing somewhat better. What the f*** was the IMF thinking in Latvia? Who the hell thinks that wage cuts of 35% are the way to fight recession? You'd have to be an economic ignoramus to think that. It's almost as if a crisis was being deliberately engineered - perhaps the IMF is a Trotskyist front (ha ha). Meanwhile, in Ukraine, huge swathes of the banking system are bust and people can't get their money out. The government can't meet the conditions attached to the $16.5bn IMF loan which would at least sure the situation up. The conditions were ludicrous: cutting public expenditure and wages, which would deepen the slump even further (if that were possible). So, rather than changing the IMF's goddamn conditions so that the government can survive, the IMF is withholding the loan - which means that government collapse and revolution in Ukraine is looking a real possibility.

Paul Mason's reports are brilliant - but the only missing link is an interview with some of these IMF wankers, touring them round the streets of Ukraine to show the impact that their economic illiteracy is having on the country. Bearing in mind that many of the people who support the IMF's economic views are precisely the same people who were encouraging the reckless deregulation and expansion of credit - which is the main thing that got Ukraine and Latvia in trouble in the first place. We really do need to ensure that the IMF becomes a support system for the global economy rather than a wrecking crew. And that is what the G20 singularly failed to discuss - even if a bit of progress was made on important issues (such as tax havens).

(In the interests of balance I should point out that the latest column from Ambrose Evans-Pritchard, probably the best economics correspondent on the Telegraph, has a much more upbeat assessment of the IMF than me. He says:

Euphoria swept emerging markets yesterday as the first reports of the IMF boost circulated. Investors now know that countries like Mexico can arrange a credit facility able to cope with major shocks – and do so on supportive terms, rather than the hair-shirt deflation policies of the old IMF. Fear is receding again

Which puts a very different spin on things - but I will need to dig more into what is going on in Mexico before commenting further on whether this new "supportive" IMF is for real or whether it's just the old neo-liberal IMF with a new haircut. More on that later in the week.)


Van Patten said...

I've got to register at least partial agreement with the views expounded here. Even back in the days of the Camdessus era, the IMF's policy prescriptions, which might be appropriate to countries such as Japan, with highly developed stock markets and reasonable adherence to a 'rule of law' (however flawed) seemed wildly inept for third World kleptocracies, and merely led to large amounts of money being siphoned off by Private businessmen through Direct monopolies or Corrupt government functionaries, through indirect Controls.

With some knowledge of the former Sovet Union, even an adherent to Free market nostra like myself and an opponent of the growing trend towards the shameless aping of the Pyongyang regime which the Anti-G20 activists' proposals (and yours) amount to can find no logic in a 35% wage cut demanded of the Riga government. I think you are right that some of these multinational bodies need to see firsthand what these policies would do, rather than sitting in Switzerland crunching numbers. However, it should be borne in mind that a large number of these states have deep suspicion of significant government involvement in the economy (Latvia gained independence from arguably the worst tyranny ever known less than 2 decades ago) so I think it will be a long road to persuade them that the scale of intervention your posts seem to advocate is politically manageable whilst retaining a democratic governmental system.

giroscoper said...

Great - you took the tablets.