Yesterday, IMF released its latest review on Greece. It was called “Greece: Fifth Review Under the Stand-By Arrangement, Rephasing and Request for Waivers of Nonobservance of Performance Criteria; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Greece”. It is quite a mouthful title, isn't it?! To me, the title of the review says “We are bullies, we got it wrong, we need to twist the screws even tighter”. Why the negativity? I tell you why.
The latest IMF medium-term forecasts for Greece reveal a staggering failure by that institution to understand causality and the impacts that their austerity programs have on real economies. Since the first review on Greece was released in September 14, 2010, IMF continue to get their forecast wrong, every time! The sad thing is that they will not admit to it and continue to preach fiscal tightening (fiscal austerity). And the Greeks economy continue to go from bad to worse. The Greek economy has already declined by 15 per cent and the projected cutbacks in the government net spending will be of the order of 25 per cent. An economy cannot grow in those circumstances especially when its trading partners are also in decline (for the same reason).
IMF track record had not been very impressive after all this year especially to low income countries. For over 40 years, IMF had been subjecting low income countries to so called IMF Structural Adjustment Packages (SAPs) and the result had been disastrous, to say at least. The SAPs entered the scene in the late 1970s with the debt crisis that engulfed the world. This was constructed as a crisis for the developing nations but it was really a crisis for the first-world banks. The IMF made sure the poorest nations continued to transfer resources to the richest under these SAPs.
The overwhelming evidence is that these programs increase poverty and hardship rather than the other way around. The following graph comes from the World Development Indicators, provided by the World Bank. It shows Gross National Income per capita, which, in material terms is an indicator of increasing welfare.
There are many mechanisms through which the SAPs have increased poverty.
1. Fiscal austerity is almost always targeted at cutting welfare services to the poor – which often means health and education (the IMF claims that educational and health cuts no longer happen). But moreover, the cuts prevent sovereign governments from building public infrastructure and directly creating public employment.
2. Public assets are typically privatised. Foreign investors often benefit signicantly by taking ownership of the valuable resources.
3. Contractionary monetary policy forces interest rates up which often discriminate against women who survive running small businesses.
4. Export-led growth strategies transform rural sectors which traditionally provided enough food for subsistance consumption. Smaller land holdings are concentrated into larger cash crop plantations or farms aimed at penetrating foreign markets. When international markets are over-supplied, the IMF then steps in with further loans. But the original fabric of the land use is lost and food poverty increases.
5. User pays regimes are typically imposed which increases costs of health care, education, power, and in some notable cases, reticulated clean water. Many of the poorest cohorts are prevented from using resources once user pays is introduced.
6. Trade liberalisation involves reductions in tariffs and capital controls. Often the elimination of protection reduces employment levels in exporting industries. Further, in some parts of the world child labour becomes exploited so as to remain “competitive”.
In essence, IMF is an organization that do much harm than good. My only wish is that people will realize this soon rather than later.
