The IMF Convenes in Washington, Deaf to the Suffering It Causes Across the Planet

Yves here. Note that for at least the past decade, there has been a significant divergence between the IMF’s research arm, which has regularly criticized neoliberal policies, and its program arm, which acts as an enforcer for moneyed interests. During the Greek bailout negotiations, even some members of the program staff were clearly opposed to what was going on via leaking internal documents that contended that the planned round of funding to Greece violated the IMF’s “No more Argentinas” commitment, as in no more lending to borrowers who clearly could not make the payments. Even though the IMF waffled for a bit as if it really were trying to get out of ongoing involvement in the fiscal torture of Greece, it went along just as it was supposed to.

By Vijay Prashad, an Indian historian, editor and journalist. He is a writing fellow and chief correspondent at Globetrotter, a project of the Independent Media Institute. He is the chief editor of LeftWord Books and the director of Tricontinental: Institute for Social Research. He has written more than twenty books, including The Darker Nations: A People’s History of the Third World (The New Press, 2007), The Poorer Nations: A Possible History of the Global South (Verso, 2013), The Death of the Nation and the Future of the Arab Revolution (University of California Press, 2016) and Red Star Over the Third World (LeftWord, 2017). He writes regularly for Frontline, the Hindu, Newsclick, AlterNet and BirGün. Produced by Globetrotter, a project of the Independent Media Institute

Each year, the board of the International Monetary Fund (IMF) gathers at its headquarters in Washington, D.C. This year, the IMF will meet under the leadership of a new chief, Kristalina Georgieva, who crossed the street from the World Bank to take over this post from Christine Lagarde. Lagarde, as it happens, is getting ready to cross the Atlantic Ocean to take over the European Central Bank. There is a game of musical chairs at the top.A handful of bureaucrats seem to waltz in and out of these jobs.

For the past 40 years, the IMF has had the same agenda: to make sure that developing countries adhere to the rules of globalization set by the advanced capitalist states. Sovereignty of these developing countries has become irrelevant, as their governments have to accede to pressure from the IMF on fiscal and monetary policy as well as their trade and development agenda. Any attempt to break the orthodoxy of the IMF is met with a ferocious array of sanctions, including a nod from the IMF toward international creditors not to lend to the country that they determine is a scofflaw. Funds will only flow to distressed countries if they accept the full policy slate developed for them not by their lawmakers, but by the IMF economists in Washington, D.C.

Over these four decades, fires have burned on the streets of the countries that have gone to the IMF and then forced austerity upon their populations. In the 1980s, these uprisings used to be called “IMF riots.” It was clear to everyone that the IMF’s policies had provoked desperate people to take to the streets. The name given to these riots was precise. The emphasis had to be on the IMF and not on the riots themselves. The most famous of these riots took place in Venezuela—the Caracazo of 1989—which opened up a process that brought Hugo Chavez to power and that created the Bolivarian Revolution. It is reasonable to call the Arab Spring of 2011 an IMF riot because it was provoked by IMF austerity policies combined with rising food prices. The current unrest from Pakistan to Ecuador should be filed under IMF riot.

In response to these riots, the IMF has used new language to describe the same old policies. We hear of “social compacts” and of Structural Adjustment 2.0 and then the bizarre “expansionary austerity.” Discussions of gender and environmentalism within the IMF are all to the good, but these are merely words that adorn an entrenched regime of austerity that defines the IMF Article IV Consultations and the IMF Staff Papers. Beneath the smiles lies the skull—a terrible reliance upon policies that are framed by wage cuts and the shrinking of the public sector, by handcuffs on public spending and liberalization for corporations. Sweeter rhetoric does nothing to make the policy framework less harsh.

Ecuador’s people rose up against President Moreno’s deal with the IMF. He had to go back on the cuts on fuel subsidies. Moreno had no choice. The protests would simply have unseated him if he held the line. But now Moreno must return to the IMF. If democratic norms prevailed, then the IMF would have to honor the “referendum” of the Ecuadorian people. But there is no democracy in the IMF. It marches to the drum of its main funder. Currently, the United States with 16.52 percent of the voting shares has the largest bloc of votes on the board. Following far behind are Japan (6.15 percent), China (6.09 percent), Germany (5.32 percent) and then the UK and France, each with 4.03 percent. By “convention,” the IMF head is a European, but the Europeans do not control the IMF. In 1998, the New York Times let slipthat the IMF “acts as the United States Treasury’s lap dog.” The U.S. has an effective veto on IMF policy. When it suits U.S. interests, IMF orthodoxy is suspended (as against Mubarak’s Egypt in 1987 and 1991). When it suits the U.S. to put the screws on a country, that is precisely what the IMF does. Democracy for the people of Ecuador is irrelevant; what is relevant is that they—by hook or by crook—bow before what the IMF, and behind them the United States, says. Moreno withdrew the cuts on subsidies. But it is likely that in the dark he will return these cuts under another name. The IMF will not stand for anything less than that.

The consequences of IMF orthodoxy are often deadly, with the Malawi case as one very painful episode. In 1996, the IMF staff pushed the government of Malawi to privatize its agricultural development and marketing corporation. This body held Malawi’s grain stock, and it regulated the price for the sale of grain in the country. Privatization of the corporation in 1999 left Malawi’s government without a means to protect its population in case of an emergency. Between October 2001 and March 2002, the price of maize shot up by 400 percent. Flooding in 2000-2001 and a year of drought set the food production in the country into distress. People began to die of starvation—as many as 3,000. The IMF did not relent. Malawi had to continue to service its debt. In 2002, it spent $70 million on its debt service payments, which was 20 percent of its national budget (more than Malawi spent on health, education, and agriculture combined). There was no lifeline through to Malawi, whose food crisis continues till today. Malawi’s president at that time—Bakili Muluzi—said, “The IMF is to blame for the biting food crisis.” What happened to Malawi in 2002 is precisely what happened to so many countries that went under the knife of the IMF.

No one within the IMF meeting will raise the question of democracy, both in terms of the IMF’s own functioning and in terms of the IMF’s relationship with sovereign countries around the world. Ecuador’s streets rejected the IMF deal. Argentina’s electorate will do the same in a few weeks. Will there be room to start a conversation now about the divergence between IMF policy and democracy? The main lesson of these uprisings is not only that the people want fuel subsidies or a stable currency; what they want more than anything is democratic control over their own economy.

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  1. Isotope_C14

    Funny how the IMF is the source of the majority of problems of this world.

    I just discovered the Ashes Ashes podcast and they speak of the IMF within the (Start Here: Apocalypse Now) podcast.

  2. Oregoncharles

    The latest IMF riot was in Quito, Ecuador, essentially an Indian uprising. It was successful: Moreno had to flee to Guayaquil and gave in on this fuel price rise, possibly the rest of the IMF program. Ecuador is an oil state, so it will be quite, um, interesting to see how this plays out.

  3. Hold on to your hat, financial wreckage is coming to EU

    For a great overview of the damage IMF has done, have a look at the:

    “Series: 1944-2019, 75 years of interference from the World Bank and the IMF”

    That is some horrible reading. Knowing that Lagarde coming to ECB we have to brace for the worse

  4. Sound of the Suburbs

    It wouldn’t be so bad, but Richard Koo actually explained the problem with austerity to the IMF after Greece, but they are still doing it.

    The IMF predicted Greek GDP would have recovered by 2015 with austerity.
    By 2015 Greek GDP was down 27% and still falling.

    The money supply ≈ public debt + private debt

    The “private debt” component was going down with deleveraging from a debt fuelled boom. The Troika then wrecked the Greek economy by cutting the “public debt” component and pushed the economy into debt deflation (a shrinking money supply).

    They caused a Great Depression type event in Greece (debt deflation / shrinking money supply).

    MMT says Government surpluses often accompany financial crises.

    The data for Japan is in the video, and bingo, a Government surplus accompanied the financial crisis in Japan.

    Richard Koo shows the graph central bankers use and it’s the flow of funds within the economy, which sums to zero (32-34 mins.).

    Richard Koo’s graph of the flow of funds shows the Japanese Government ran a surplus as the Japanese economy blew up.

    The terms sum to zero so, as one is going positive, another is going negative.

    The Government was going positive as the corporate sector was going negative.

    A government surplus is sucking money out of the economy.
    A government deficit is pushing money into the economy.

    The flow of funds chart central bankers use is effectively the same as the one Stephanie Kelton uses here.

    It is presenting the same information, in a slightly different way.

    This is the US (46.30 mins.)

    The private sector going negative is the problem as you can see in the chart. This is when the financial crises occur.

    As the Government goes positive, into Bill Clinton’s surplus, the private sector is going negative causing a financial crisis.

    I am not sure if the MMT people know, their graph is a standard chart used by central bankers (in a slightly different form).

    We need to let the central bankers know how to spot financial crises looking at this data, it seems obvious to me, but they haven’t worked it out.

  5. The Rev Kev

    Not exactly happy times for the IMF here either. Christine Lagarde jumped shipped and left her successor, Kristalina Georgieva, with a full in-box. The world economy appears to be slowing down to stall-speed and Trump’s policies are not making things either. A major problem is that the IMF is in a default mode where it creates a self-licking ice cream cone. They move in on economies in trouble, blackmail them into adopting practices such as privatizing all government held business, wait till these measures get those economies into deeper trouble, and then they put the screws on so that that country sells off it’s resources to bodies that the IMF approve of which means that they need more help from the IMF. If this organization had never existed over the past few decade, we would have had a more stable world. Here are two recent pages talking about the IMF’s troubles by a think tank-

    Seems that Trump is picking a fight with the IMF now so there is some good news.

    1. skippy

      “Seems that Trump is picking a fight with the IMF now so there is some good news.”

      During his 2016 campaign, President Donald Trump promised to roll back the Dodd-Frank Wall Street Reform and Consumer Protection Act, which stiffened the regulations placed on banks in the aftermath of the financial crisis. Trump managed to get movement on that portion of his platform in 2018, signing into law a bill that loosened or got rid of some key regulations.

      However, the deregulation of banks might raise red flags for many Americans, particularly those who remember the meltdown of financial markets that prompted the Dodd-Frank Act in the first place. Perhaps more importantly, plenty of Americans might be wondering what bank deregulation means for them and the U.S. economy, a decade after the Great Recession.

      The Dodd-Frank Act of 2010 Regulated Banks

      The Obama administration enacted the Dodd-Frank Act in 2010 to help avoid future meltdowns in financial markets — and the massive government bailouts that follow. Essentially, the law recognized that many banks are so important to the economy that they must be rescued from complete collapse in times of trouble.

      Dodd-Frank identified certain banks as being systemically important financial institutions (SIFIs) that need to operate by certain rules to protect their assets. These rules prevent banks that take customer deposits from making risky bets on the financial markets, mandate the size of banks’ capital reserves — or how much cash they have on hand — and require banks to perform routine “stress tests” that simulate a crisis to see if they can remain solvent.

      Dodd-Frank Was an Unpopular Law

      There’s an old saying that a good compromise leaves everyone unhappy. By that standard, the Dodd-Frank Act might have been a master stroke. The law has been roundly criticized by the banking industry and many conservatives for over-restricting banks and making it harder to stimulate economic growth with more lending. At the same time, it has also been the target of ire from liberals who feel that Dodd-Frank didn’t go nearly far enough in limiting banks from risky behavior. – snip

      Several administration priorities are endangering financial markets by reducing corporate accountability and transparency.

      Nearly two years into the Trump presidency, extensive deregulation is raising risks for investors. Several of the administration’s priorities are endangering financial markets by reducing corporate accountability and transparency. SEC enforcement actions under the Administration continue to lag previous years. The Trump administration has also instructed the SEC to study reducing companies’ reporting obligations to investors, including by abandoning a hallmark of corporate disclosure: the quarterly earnings report. Meanwhile, President Trump and Congress have passed new legislation loosening regulations on the same banks that played a central role in the Great Recession. It is important for institutional investors to stay abreast of these emerging developments as they contemplate the risk of their investments amid stark changes in the regulatory landscape. – snip

      Sorry Kev, but add on all the rolling back of labour and environmental laws and I can’t find anything to really cheer on about wrt Trump, not even good lip service.

  6. RabidGandhi

    Prashad’s prediction that

    Moreno withdrew the cuts on subsidies. But it is likely that in the dark he will return these cuts under another name.

    did not delay in coming to fruition. With the ink barely dry on its truce with the indigenous umbrella group, CONAIE, the Ecuadorian government tweeted that it will be repackaging the IMF posion pill with a new yummy sugar coating:

    In the coming hours I will repeal Decree 883. We have opted for peace. A new decree will be issued that will ensure that the resources reach those who need them.

    The CONAIE reaction was immediate. In this video from inside the talks, the indigenous leader claims the government betrayed them. “This new decree is not what we agreed on…”.

    Meanwhile, the government’s strategy is pretty clear. They are trying to separate the CONAIE from the followers of former president Rafael Correa, on whom, Moreno blamed the protests jointly with Nicolás Maduro (the old playbook never changes: not widespread anger; “outside agitators”). Thus the second prong of Moreno’s attack has been to shut down left leaning media such as Telesur, and to judicially persecute Correa allies: two Correa-era mayors, Alexandra Arce and Paola Pinchón have been arrested and congresswoman Gabriela Rivadaneira was forced to seek assylum at the Mexican embassy. This strategy may pay off, as CONAIE had broken with Correa over development of indigenous lands.

    So in sum, expect Moreno to continue to try to ram the package down with his success depending on how unified and mobilised opposition to the IMF package remains.

  7. Synoia

    The IMF predicted Greek GDP would have recovered by 2015 with austerity.
    By 2015 Greek GDP was down 27% and still falling.

    The IMF: The Neoliberal Enforcer, the Muscles behind the smiling faces.

  8. Chauncey Gardiner

    This post would benefit from more depth. For example, which arms of the of the U.S. government, including the central bank, are responsible for funding the IMF? Who are the external constituencies they in turn take their marching orders from and why? In other words, who truly charts or meaningfully influences IMF policies, why, and what are their motivating factors?

    1. xkeyscored

      Who influences the IMF and why?
      Army Special Operations Forces Unconventional Warfare of 2008 has a section on Financial Instrument of U.S. National Power and Unconventional Warfare, page 24. The IMF and World Bank are specifically mentioned.
      2-47. If properly authorized and coordinated, ARSOF [Army Special Operations Forces] can use—or coordinate for other agencies to use— measured and focused financial incentives or disincentives to persuade adversaries, allies, and surrogates to modify their behavior at the theater strategic, operational, and tactical levels. Such application of financial power must be part of a circumspect, integrated, and consistent UW [unconventional warfare] plan.

    2. Yves Smith Post author

      This isn’t hard to find out. The US Treasury is the party that votes the US IMF votes. Accordingly, Greece got an audience with Treasury during the 2015 bailout negotiations and for a short while, Treasury prodded the IMF to not be so mean. But that didn’t last long.

      It’s a budgetary commitment, meaning approved by Congress and scored by the CBO.

  9. Paul Handover

    It’s a dreadful situation. One made even worse when one thinks of the pressing need for a world response to a far bigger problem; that of global warming.

    1. Chauncey Gardiner

      Think the former Finance Minister of Greece during the period of severe austerity imposed by the troika agrees with you, Paul.

      “Never before has so much idle cash accumulated as in the past decade – and never before has circulating capital failed so miserably to invest in human health and habitat. We are long overdue for a Green New Deal.” —Yanis Varoufakis

      His site also links to a podcast on the IMF he did with Kenneth Rogoff in late August.

    2. Thomas P

      I was thinking about global warming too when I read the praise of fossil fuel subsidies. Phasing out those seems like a good idea, as long as you make sure those worst hit are compensated.

  10. Susan the other`

    Early on the “medium” of exchange was given a value far beyond its usefulness. But still, after millennia, usefulness is the only thing that is valuable in a currency. Usefulness. Even the laws governing the Jubilee year in the near east stipulated that if anyone defaulted on their debt during the Jubilee then that person could be refused further loans. There is a serious, almost sadistic, disconnect here that feeds on desperation. We might consider desperation-funds which do not entail loans or their repayment, simply giving each other credit with no exchange of coins, paper or digits. And then as time went on everyone would have the epiphany that money is the child of need and the most important thing we can do is satisfy need before it becomes pathological.

  11. Tim

    Bob hope famously said, “Banks exist to give money to people who can prove they don’t need it.”

    As I always say: “The IMF exists to help rich people get their money back.”

    1. notabanktoadie

      It’s worse than that since bank deposits are MERE liabilities for fiat, not fiat itself as deposits at the Central Bank are.

      We are truly hostages to a usury cartel.

  12. Procopius

    I’m glad to see someone mention the divergence between the research and the executive parts of the IMF. It’s been something I’ve noticed for many years, but nobody has ever said it out loud. One of the reasons Thaksin Shinnawatra’s party was elected with an absolute majority in the Parliament, to make him Prime Minister, was because he got Thailand out of the IMF agreement. People were contributing whatever they could to help the government pay them off. To this day Thailand maintains a large reserve of dollars and has become very good at managing their exchange rate.

  13. FKorning

    If the narrative from “Confessions of an Economic Hitman” is credible, we’re not talking about indifference. Whether from the top executives, or through middling managers, or even field agents, somewhere along the road the process is captive and is complicit, if not directly responsible, for onerous debt and plunder.

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