IMF Pushes Neoliberal Policies in Latin America

Following a prolonged loss of influence in Latin America in the first decade of the 2000’s, the International Monetary Fund (IMF) is back again, flexing its muscle in Argentina and Mexico, pushing the neoliberal Washington Consensus, says Vijay Prashad in this Real News Network interview.

GREG WILPERT: It’s The Real News Network, and I’m Greg Wilpert, coming to you from Baltimore.

Argentina’s legislature approved a drastic austerity budget for fiscal year 2019 on Thursday which will cut social spending by as much as 35 percent and increase debt service payments by 50 percent. The budget is expected to cause a further contraction of Argentina’s economy. The austerity budget is being implemented to a large extent. At the urging of the International Monetary Fund, the IMF, which has given Argentina alone a $56 billion dollars, one of its largest loans ever.

Meanwhile, the president-elect of Mexico, Andres Manuel Lopez Obrador of the leftist party Morena, is facing IMF problems of his own. Last week the IMF released a special country report on Mexico in which it basically let Lopez Obrador know that he shouldn’t engage in any structural changes with regard to Mexico’s economy. Lopez Obrador, or AMLO, as he is often known. Will be inaugurated as president of Mexico in a few weeks, on December 1.

Ever since the early 2000s, when Argentina’s economy tanked and Argentina defaulted on a large part of his foreign debt, and left of center governments took over throughout Latin America, it looked like the IMF had been banished from Latin America. Now it seems, though, the IMF is back with newfound force.

Joining me to discuss the increasing role of the IMF in Latin America is Vijay Prashad. Vijay is the director of Tricontinental Institute for Social Research, and he is author or editor of over a dozen other books. His most recent book is an edited volume called Strongmen: Putin, Erdogan, Duterte, Trump, and Modi. Thanks for joining us today, Vijay.

VIJAY PRASHAD: Pleasure. Thanks.

GREG WILPERT: So, let’s start with Mexico. AMLO is the first leftist to be elected president of Mexico pretty much since the Mexican Revolution of 1910. He has promised to alleviate poverty, to reduce unemployment, to change the war on drugs, and to fight corruption in Mexico. Now, in a recent article published in AlterNet you make the point that AMLO has very little room to actually pursue his policies. Why is that? Give us the argument in a nutshell.

VIJAY PRASHAD: Well, you know, the most important thing I think to pay attention to is that the two small gestures that he has made toward reform of Mexico’s policy direction- the first was cancelling a very expensive new airport for Mexico City where there are, I think, some sniffs of corruption in the deal made with the family of Carlos Slim, the billionaire. That’s the first salvo that AMLO fired across the bow. The second one was his party in the legislature- that is, Morena- tried to restrict bank fees. And each time these gestures were made- they are quite modest gestures in terms of the problems that Mexico faces- each time they tried to move an agenda the stock market tanked, foreign direct investment began to dry up very quickly- that is, you know, agreements were being reneged- and the ratings agency, in particular Fitch, moved the rating from Mexico to negative. The IMF Article 4 Staff Statement which came after the visit by the IMF to do surveillance of the Mexican economy also indicated that analysts should not make any moves to increase the sovereignty of the Mexican economy over its own oil reserve.

These are indications already that before he takes office on December 1- by the IMF, the banks, and others- to narrow the policy space available to him to move his reform agenda.

VIJAY PRASHAD: Can you say some more about this? I mean, Mexico is not actually going to the IMF for a loan or anything, and so it doesn’t have any kind of neoliberal loan conditions in place that we know of, or at least not yet. But yet the IMF seems to play an important role in the sense that that the government seems to be listening to it, or the potential government is listening to it. How is this possible? I mean, exactly how does this work?

VIJAY PRASHAD: Well, it’s a quite simple issue, which is that countries like Mexico, in fact most countries around the world, are linked to a U.S. and Western-dominated banking system for international trade. They use the dollar; 80 percent of Mexico’s exports go to the United States. They’re integrated quite fundamentally into this financial system, into the trading system, where the dollar is really king.

And so if the international agencies, if the banks, if the ratings agencies want to punish a country for breaking from the neoliberal consensus, it’s quite easy for them to do so. I mean, we’ve seen this happen quite strictly with Venezuela, where the ratings agencies, the banks, the International Monetary Fund, if they start to sniff and make a noise saying that we don’t like what you’re doing, then finance dries up. Then it becomes hard to use the dollar for trade. And you might even run into a sanctions regime, and so on.

Here AMLO wanted, quite simply, to invest some Mexican money to build refining capacity for Pemex, which is the Mexican oil company. And this is what the IMF had said cannot happen. They said, well, let’s improve the finances of Pemex. In other words, cut down on subsidies and so on given to people for energy. First improve that, and then maybe we’ll let you invest in refining capacity. So we’ve got to understand how multilateral agencies narrow the space. They suffocate countries’ sovereignty in terms of, broadly put, economic policy.

GREG WILPERT: So let’s turn to Argentina. In some ways it is the opposite example from Mexico, because Argentina is governed by a conservative neoliberal president, Mauricio Macri. He seemed all too happy to go to the IMF for a loan and to implement their policy recommendations. Now the population is clearly up in arms about the direction the government is taking, and there are nearly continuous protests against Macri and his neoliberal austerity policies. Do you think a different president- that is, a more leftist one- could have done things differently in Argentina? I mean, what are the pressures in this case?

VIJAY PRASHAD: It’s a very good question, Greg. And firstly, I would say that Macri was eager to the IMF, but also the choices before Macri, placed before Macri, by the banks, the ratings agencies, the IMF, the same group of, let’s call them what they are, scoundrels circling the Argentinean government, these agencies basically lay a very strict path for a government. And Argentina faced quite severe challenges for a host of reasons, not the least of which was the global financial crisis, whose impact on countries like Mexico and Argentina has not been lessened.

You know, they haven’t had, for instance, the kind of bank bailouts that you saw in Europe and the United States. These countries continue to suffer from the problems that occurred in these countries fiscally right after the financial crisis. So there were real problems involved there. But these countries, particularly Argentina, were not able to control their currency. I think this is where the issue becomes quite interesting. If Argentina were governed by a left government, and if there were, for instance, some sort of regional ability, if there was a kind of Bolivarian political unity in the continent, then a country like Argentina might have been able to implement something like capital controls, where you begin to control the integrity of your currency; you prevent hot money- that is, capital coming in, investing for a very short amount of time, and pulling itself out. You’d pursue policies such as capital controls to protect the sovereignty of your economy.

You know, this is precisely what countries like China do to protect the integrity of their economy. But this option is not available in South America right now because the political will is just not there. This has been the problem with the decline of Bolivarian power and the rise of the right; they have in fact undermined the sovereignty of the hemisphere.

GREG WILPERT: I think that’s a very interesting point that you make. And actually, there’s been very little coverage of the fact that UNASUR, the Union of South American Nations, was actually designed to create this kind of regional integration, and a bank of the South, and maybe even a regional currency for South America. But it’s now falling apart. As a matter of fact, countries are now- Colombia and Ecuador, for example- are openly talking about leaving UNASUR, which would basically be the downfall and the destruction of UNASUR, which started out as such a promising project.

But I just want to turn to this other question; that is, the broader question that you already started addressing, which is that the IMF was basically more or less out of the picture from Latin America for a long time when leftist governments were in power in the decade between more or less 2002-2012. But all of this has changed now, and the IMF seems to be back.

Now, you mentioned that part of the reason might be because of the change in governments. But how exactly did this happen? I mean, what is the, how is it that the IMF now has come back? Is it just because conservative governments have come into office? Or is it because IMF or other larger economic forces have push them out of office? That is, the leftist governments pushed them out of office, and that has enabled the IMF to return?

VIJAY PRASHAD: Well, you know, right after the financial crisis of 2006-2007, the IMF began to talk about a kind of 2.0 policy framework. They were not using the language of structural adjustment as much. They were talking much more in terms of questions of income inequality, and issues, real issues, that were on the table, also in terms of the decline of health infrastructure, and so on.

But in a sense this so-called IMF 2.0 was an illusion, because at the same time the macroeconomic policy suggestions are quite the same. You know, you must target inflation, they suggested, rather than deal with joblessness. It was more important to maintain a lower debt-to-GDP ratio, keep your deficits down. The same macroeconomic agenda was on the table even during this period when they used the language of, for instance, income inequality. The reason they had to use the language of income inequality and of, you know, health, and even environment and these questions, was because the people’s movement had put that on the table.

I mean, one reason why there was left strength in that period wasn’t simply because the left had the love of the people and was in power, but also these countries were in the middle of a commodities boom, and therefore they didn’t suffer the kind of balance of payments problem that have now come and wracked these countries. Because they were selling- whether it’s soy, or oil, or whatever they were selling- at very high prices, they were able to cover their own fiscal situation much more clearly than they are now. So they were not so weak fiscally. The economic situation wasn’t so bad for these countries. At the same time, they were politically strong because they had a kind of agenda, as you see in South America. The Bolivarian project pushed for UNASUR; the [inaudible], the bank of the South, and so on. They had a kind of political strength.

The combination of these two things- that is, the decline of commodity prices, the inability to diversify the economy; again, the balance of payments problem- linked to the political weakness, with the right is back, has given the IMF basically a new opportunity to come back with the same macroeconomic recipe, attacking inflation rather than joblessness and hunger. And I think we’re going to see this quite sharply, Greg, with the new government in Brazil, where the finance minister or the minister of the economy is going to push a quite ruthless inflation targeting policy and not care about questions of hunger and poverty.

GREG WILPERT: Actually, what you’re saying also reminds me of a book title I read recently, which was The Strange Non-Death of Neoliberalism, by Colin Crouch, which basically points out how neoliberalism should have died with the great financial crisis of 2007-2008, but actually now it’s coming back with a vengeance precisely because the economic institutions that neoliberalism had created are actually stronger now than they were before.

That actually reminds me of another point, which is that the World Bank and IMF seem to be not insisting on structural adjustment programs, as you’re saying, but somebody, another economist that I interviewed a couple of weeks ago, pointed out the reason for that is simply because they’ve achieved everything they’ve already wanted to achieve with neoliberalism, so now they don’t need to invest so much on structural adjustment. What do you think of that?

VIJAY PRASHAD: I mean, I think that’s quite right. Particularly this last point, that the agenda of structural adjustment is not really that important to them. I think what they have been pushing for now with things like targeted provision of welfare reforms and so on, is the pushing for a kind of cultural shift. And I want to make this point as clearly as possible.

You see, the issue with targeted social welfare is that you provide social welfare to individuals and to families, not to communities. You know, the difference between, say, the Venezuelan model, the model of having these missions, or the Cuban model, was that you provide social welfare to a community in order to create community feeling, to build community strength. This form of social welfare that is individualized produces an individual consciousness, which is exactly what neoliberalism wants to produce. And I think now we’ve entered, rather than structural reform of state institutions, we’ve entered a phase where these institutional actors trying to influence the culture for the long term; in other words, destroy community power and build a sense of individuality in society.

The sense of individuality leaves people vulnerable to monopoly capitalist firms, for instance, which don’t have the disadvantage of being atomized. They are very strong and very united. Whereas the people at the end of this cultural process will be even more atomised than they are now.

GREG WILPERT: OK. Well, this is a very interesting conversation. I hope we’re going to continue it again, but we have to leave it there for now. I was speaking to Vijay Prashad, the executive director of Tricontinental Institute for Social Research. Thanks again, Vijay, for having joined us today.

VIJAY PRASHAD: Thanks a lot.

GREG WILPERT: And thank you for joining The Real News Network.

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  1. Sound of the Suburbs

    We thought small state, unregulated capitalism was something it wasn’t, by forgetting what it was like when it existed before.

    Neoclassical economics was the basis for the neoliberal ideology.

    Neoliberalism was a logical step from neoclassical economics.
    Neoclassical economics wasn’t a logical step from classical economics.

    Economics, the time line:

    Classical economics – observations and deductions from the world of small state, unregulated capitalism around them

    Neoclassical economics – Where did that come from?

    Keynesian economics – observations, deductions and fixes for the problems of neoclassical economics

    Neoclassical economics – Why is it back?

    We went back to the 1920s in economics, losing what they had learned in the 1930s.

    The time line shows where it all went wrong.

    Real sciences are evolutionary for a reason.

    They build up from a solid base and nothing gets lost along the way. You just update the bits that need updating as new and better theories come along.

    We have even forgotten what real wealth is.

    That fictitious financial wealth has a nasty habit of evaporating.

    What is real wealth?

    In the 1930s, they pondered over where all that wealth had gone to in 1929 and realised inflating asset prices doesn’t create real wealth, they came up with the GDP measure to track real wealth creation in the economy.

    The transfer of existing assets, like stocks and real estate, doesn’t create real wealth and therefore does not add to GDP.

    The real wealth in the economy is measured by GDP.

    Inflated asset prices aren’t real wealth, and this can disappear almost over-night, as it did in 1929 and 2008.

    Neoclassical economics has the same problem it always had and makes people think inflating asset prices, like real estate, is creating real wealth, but it isn’t.

  2. el_tel

    Thank you. The “Latin American” angle was uppermost in my mind over the last fortnight and I have a example of tangential relevance. HSBC (UK) closed lots of business accounts with little/no warning recently. The Guardian picked up on it when a number of business owners complained that “multiple letters informing you of the possibility of this, blah blah blah” had most certainly NOT been received. My father’s company was targeted. He used what was clearly a hastily constructed complaints process and got it reversed.

    Then my company was targeted. I paid a lot of attention to the questions in the online questionnaire to “challenge and where possible reverse” HSBC’s decision. I found it very interesting that it mostly reproduced the questionnaire I answered when setting up the business 3 years ago. With one very obvious change – pages asking whether I had done any business with a number of countries, mainly Latin American or Middle Eastern. Venezuela was top of the list….somehow I was totally unsurprised. I’m not going to throw mud around but those interested can easily google/make informed guesses about top people’s thinking here and what is really behind the process. I got my closure reversed too.

  3. JTMcPhee

    The Few are killing the rest of us. “A certain amount of killing has always been an arm of business,” it’s said. From the Ford Pinto to any number of medications and chemicals and pollution, to “austerity,” to Hellfires and depleted-uranium cannon shells and on and on, it’s “just business,” no?

    Here in FL we have a “stand your ground” law, that provides what’s written out here in Wiki: Defending self and others against threats and harms? Suprirising that there are not more invocations of that notion…

    Of course, corporations, as “persons,” with lots of lawyers and Chinamen (Chicago definition), might argue that people not going along with the neoliberal torture and homicide and ecocide are threatening their corporate personhoods, and so subject to the obverse argument…

  4. Chauncey Gardiner

    Thank you for this post, which raised further questions in my mind that resulted in some reading for background. The “Washington Consensus”?… What consensus?…

    As economist Michael Hudson has discussed here on NC recently, I also think Argentina would be well served to look at the role of their own domestic elite in precipitating the IMF’s most recent dollar-denominated bailout and to whom those IMF dollars have been distributed; as well as consider development model alternatives to neocolonial dependence theory and neoliberal austerity. Ditto Mexico. But maybe everyone who needs to know these things already knows.

    With the IMF’s $56 billion peso currency stabilization loan now in the rearview mirror, Argentina is likely to again be required to dance to the IMF’s austerity drum. After all, it worked out so well last time. Btw, who funds the IMF and World Bank, and what outcomes is the provider(s) of those funds seeking and on behalf of what constituencies?

    1. Steve

      The funders of the IMF and World Bank seek outcomes which benefit global capital centers by financing low level equilibriums of poverty alongside processes of externally driven capital accumulation, rent seeking and wealth extraction; and impose political, social and economic costs on local elites in nations which pursue “alternative” economic agendas.

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