We've already seen that the IMF are good at wrecking economies - now it emerges that they have no quality control, either.
Laugh? I nearly bankrupted a small country.
Showing posts with label IMF. Show all posts
Showing posts with label IMF. Show all posts
22 April 2009
incompetent AND economically illiterate - a deadly combination
Apparently the IMF made a mistake when it claimed the UK faced a £200bn bill for bailing out the banks in its 'Global Stability Report' (a phrase to rival Orwell's 'Ministry of Truth', surely. The true figure is closer to £60bn - still a huge number but a long way short of £200bn.
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:
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.)
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.)
21 January 2009
If we really are broke, avoid the IMF at all costs (literally!)
As promised, I'm picking up on one of the points which Paul Mason raised yesterday: that Ireland may be on the verge of calling in the IMF for emergency loan funding because the economic situation there has got so bad. The exact quote is from a Forbes article - the crucial paragraph reads:
In the interests of balance, I should point out that most of the rest of the Forbes article is devoted to making the case that the Irish situation isn't that bad - yet. But the main point is: does the IMF really think that mass dismissals of public sector employees (or alternatively huge wage cuts) is the way forward for economic policy in a slump? That would depress economic activity still further, increasing the risk of a vicious deflationary spiral, with mass unemployment.
Keynesian economic theory suggests precisely the opposite course of action: increase public sector hiring and net wages, funded by borrowing. Ireland can cut back when growth has been restored. To do so now would be economic suicide.
Joe Stiglitz has already done the best possible expose of the right-wing lunatics who run the IMF so I will refer you to his book Globalization and its Discontents if you haven't read it already. Suffice to say that these guys are still living in a 1980s Thatcherite fantasy, which has been responsible for a huge amount of economic hardship for the poorest and most vulnerable people in the world for several decades now.
In the wake of the appalling losses announced by RBS on Monday and the continuing fall in the share prices of the three major UK-based banks, commentators' thoughts are turning increasingly to the thought that the UK may be pushed into a situation where it can't borrow at reasonable rates on the international credit markets any more, and the IMF has to be called in. Ambrose Evans-Pritchard in the Telegraph offers probably the most factual and least hysterical analysis of the current situation that I've seen so far.
What should policymakers do if the UK really is insolvent - if the banking losses are so large, and/or the recession so severe in its impact on the public finances, that the UK's credit risk gets downgraded to the point where it becomes another Iceland - no longer able to raise sufficient borrowings to meet its liabilities? Two obvious options present themselves. One, calling in the IMF for emergency assistance. I think this would be a terrible course to take. The IMF do not understand basic economic theory and would decimate living standards and destroy social cohesion in their bid to 'balance the books'. It would make the 1976 IMF package look like a tea-party. This has to be avoided AT ALL COSTS.
A second option would be to "do an Iceland" - default on the UK banks' debts. This could trigger the collapse of the entire global banking system. Even the most patriotic commentators out there don't recommend that, fortunately.
Which leaves only one course - using 'quantitative easing' ("printing money") as a substitute for borrowing. Essentially the UK government would fund expenditure by expanding the money supply. This is a very, very dangerous course of action - in normal circumstances (i.e. not an economic depression) it would run the risk of triggering runaway inflation (look at Zimbabwe for an extreme case). When the economy is suffering a deep depression that's not necessarily the case because (a) the price level may actually be falling, and (b) there are huge reserves of unemployed people and physical capital which can be brought into play by expanding government spending - without increasing inflation. But this is damn risky business and should only be tried as an absolute last resort. However, despite the risks, it's still LESS risky than getting the IMF idiots in to run things.
As I say, hopefully the situation is not that bad, and we will look back on this talk of defaults and IMF emergencies with some amusement in - say - 12 months' time. But it's beginning to look worryingly real - as the lead singer in Spinal Tap might say, "a bit too much f***in' perspective".
Prime Minister Brian Cowen, while at an investment conference in Tokyo on Wednesday, was reported to have endorsed the view of an Irish union leader that the parlous state of Ireland's public finances could lead to the IMF ordering mass dismissals of public sector workers. Dan Murphy, the general secretary of the Public Service Executive Union, had previously told his branch members that the Fund could intervene if public spending was not curtailed, according to the Irish Times.
In the interests of balance, I should point out that most of the rest of the Forbes article is devoted to making the case that the Irish situation isn't that bad - yet. But the main point is: does the IMF really think that mass dismissals of public sector employees (or alternatively huge wage cuts) is the way forward for economic policy in a slump? That would depress economic activity still further, increasing the risk of a vicious deflationary spiral, with mass unemployment.
Keynesian economic theory suggests precisely the opposite course of action: increase public sector hiring and net wages, funded by borrowing. Ireland can cut back when growth has been restored. To do so now would be economic suicide.
Joe Stiglitz has already done the best possible expose of the right-wing lunatics who run the IMF so I will refer you to his book Globalization and its Discontents if you haven't read it already. Suffice to say that these guys are still living in a 1980s Thatcherite fantasy, which has been responsible for a huge amount of economic hardship for the poorest and most vulnerable people in the world for several decades now.
In the wake of the appalling losses announced by RBS on Monday and the continuing fall in the share prices of the three major UK-based banks, commentators' thoughts are turning increasingly to the thought that the UK may be pushed into a situation where it can't borrow at reasonable rates on the international credit markets any more, and the IMF has to be called in. Ambrose Evans-Pritchard in the Telegraph offers probably the most factual and least hysterical analysis of the current situation that I've seen so far.
What should policymakers do if the UK really is insolvent - if the banking losses are so large, and/or the recession so severe in its impact on the public finances, that the UK's credit risk gets downgraded to the point where it becomes another Iceland - no longer able to raise sufficient borrowings to meet its liabilities? Two obvious options present themselves. One, calling in the IMF for emergency assistance. I think this would be a terrible course to take. The IMF do not understand basic economic theory and would decimate living standards and destroy social cohesion in their bid to 'balance the books'. It would make the 1976 IMF package look like a tea-party. This has to be avoided AT ALL COSTS.
A second option would be to "do an Iceland" - default on the UK banks' debts. This could trigger the collapse of the entire global banking system. Even the most patriotic commentators out there don't recommend that, fortunately.
Which leaves only one course - using 'quantitative easing' ("printing money") as a substitute for borrowing. Essentially the UK government would fund expenditure by expanding the money supply. This is a very, very dangerous course of action - in normal circumstances (i.e. not an economic depression) it would run the risk of triggering runaway inflation (look at Zimbabwe for an extreme case). When the economy is suffering a deep depression that's not necessarily the case because (a) the price level may actually be falling, and (b) there are huge reserves of unemployed people and physical capital which can be brought into play by expanding government spending - without increasing inflation. But this is damn risky business and should only be tried as an absolute last resort. However, despite the risks, it's still LESS risky than getting the IMF idiots in to run things.
As I say, hopefully the situation is not that bad, and we will look back on this talk of defaults and IMF emergencies with some amusement in - say - 12 months' time. But it's beginning to look worryingly real - as the lead singer in Spinal Tap might say, "a bit too much f***in' perspective".
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