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Failed policies of IMF again fail the poorest
By Howard Stein and Claudia Kedar |
March 18, 2009, Wednesday
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TODAY'S International Monetary Fund (and, to a lesser degree, the World Bank) recall Talleyrand's description of France's Bourbon kings: they have learned nothing and forgotten nothing.
At a time when rich countries like the United States are running deficits of 12 percent of GDP because of the global financial meltdown, the IMF has been telling countries like Latvia and Ukraine, which did not start the crisis but have turned to the Fund to help combat it, that they must balance their budgets if they want aid.
Such hypocrisy would be laughable if global economic conditions weren't so dire that even countries that once swore never again to deal with the IMF have returned to its door, cap in hand.
To be sure, IMF Managing Director Dominique Strauss-Kahn recently called for a global fiscal response to the worsening recession. But will the Fund abandon its long-held emphasis on government cutbacks, monetary contraction, and overall austerity, policies that ?? in the opinion of many development economists - do considerably more harm than good?
Are the IMF and the World Bank actually willing to reconsider their failed policies?
In recent years, lending by both institutions contracted dramatically, even though they have increasingly become the exclusive lenders to the world's poorest countries.
Indeed, the IMF's outstanding general resource account (GRA) credits to middle-income developing countries fell by an unprecedented 91 percent from 2002 to 2007, as richer developing countries gained access to sources of financing that were free of the Fund's conditionality.
But poorer countries, for which international capital markets remain off limits, have no alternative but to rely on the World Bank and IMF. But the world's pain has been these institutions' gain.
Consider the recent arrangement with Latvia, whose conditions include a massive 25 percent cut in public-sector wages, a similar reduction in government expenditures, and a huge tax increase.
In Latvia, the IMF has continued to demand austerity even in the wake of plummeting growth and rising unemployment.
Insistence on such policies at a time when the US and most of the rest of the rich world are following virtually the opposite economic strategy indicates the need for fundamental rethinking of what generates growth and development.
There is a growing body of alternative ideas in this area - including work by the Nobel laureates Joseph Stiglitz and Paul Krugman - which the IMF and the World Bank should consider.
More important, American control has meant that throughout their history these institutions have been used as an adjunct of US foreign policy.
(Howard Stein is a professor in the Center for Afro-American and African Studies at the University of Michigan. Claudia Kedar is a visiting scholar in the Latin American Studies Center at the University of Michigan. The views expressed are their own. Copyright: Project Syndicate, 2009. www.project-syndicate.org.)
At a time when rich countries like the United States are running deficits of 12 percent of GDP because of the global financial meltdown, the IMF has been telling countries like Latvia and Ukraine, which did not start the crisis but have turned to the Fund to help combat it, that they must balance their budgets if they want aid.
Such hypocrisy would be laughable if global economic conditions weren't so dire that even countries that once swore never again to deal with the IMF have returned to its door, cap in hand.
To be sure, IMF Managing Director Dominique Strauss-Kahn recently called for a global fiscal response to the worsening recession. But will the Fund abandon its long-held emphasis on government cutbacks, monetary contraction, and overall austerity, policies that ?? in the opinion of many development economists - do considerably more harm than good?
Are the IMF and the World Bank actually willing to reconsider their failed policies?
In recent years, lending by both institutions contracted dramatically, even though they have increasingly become the exclusive lenders to the world's poorest countries.
Indeed, the IMF's outstanding general resource account (GRA) credits to middle-income developing countries fell by an unprecedented 91 percent from 2002 to 2007, as richer developing countries gained access to sources of financing that were free of the Fund's conditionality.
But poorer countries, for which international capital markets remain off limits, have no alternative but to rely on the World Bank and IMF. But the world's pain has been these institutions' gain.
Consider the recent arrangement with Latvia, whose conditions include a massive 25 percent cut in public-sector wages, a similar reduction in government expenditures, and a huge tax increase.
In Latvia, the IMF has continued to demand austerity even in the wake of plummeting growth and rising unemployment.
Insistence on such policies at a time when the US and most of the rest of the rich world are following virtually the opposite economic strategy indicates the need for fundamental rethinking of what generates growth and development.
There is a growing body of alternative ideas in this area - including work by the Nobel laureates Joseph Stiglitz and Paul Krugman - which the IMF and the World Bank should consider.
More important, American control has meant that throughout their history these institutions have been used as an adjunct of US foreign policy.
(Howard Stein is a professor in the Center for Afro-American and African Studies at the University of Michigan. Claudia Kedar is a visiting scholar in the Latin American Studies Center at the University of Michigan. The views expressed are their own. Copyright: Project Syndicate, 2009. www.project-syndicate.org.)
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