22 Dec 2008

Bad dose of the IMF

From my Morning Star column today...trying to think ahead about the worst!

(Sunday 21 December 2008)

DEREK WALL wonders whether Britain be next up in receiving the dodgy medicine of the International Monetary Fund.

As early as November 2007, it was clear that an economic crisis was on its way, fuelled by a property bubble and an economic system driven by debt and the gambling of finance capitalism.

Now we need to have a serious think about what happens next.

The worst case scenario for Britain is an economic catastrophe that sees us swapping our already far from democratic system for direct rule by the International Monetary Fund (IMF).

Perhaps socialists, greens and supporters of liberal NGOs will have to launch a new Jubilee 2000 - I suppose it could be called Jubilee 2010 - to liberate Britain and other north European nations from the slavery of the hardline IMF free-market medicine.

The IMF was developed from the post-war Bretton Woods framework, along with the World Trade Organisation, the World Bank and a dollar-based global currency system.

In theory, the Bretton Woods institutions were put together to prevent the global economic instability that plunged the world into poverty in the 1930s.

In practice, they acted to cement US economic and political hegemony in the post-war years, but they originated with quasi-Keynesian ideas.

Keynesianism used greater government intervention and the creation of a bit of social welfare to inoculate the system against socialist revolution.

The Bretton Woods institutions eventually moved in a Friedmanite direction, rejecting Keynesianism for a hard-right diet of privatisation, spending cuts, tight monetary policy and unlimited free trade.

The IMF acts as the financial hardman, moving into countries that can no longer balance their books either in terms of national debt or the balance of payments. It will reschedule debt but not remove it.

In return, the countries taking the IMF medicine have to sign up to austerity and cuts.

Hundreds of countries in the developing world had to go to the IMF during the international debt crisis of the 1980s and '90s.

Typically, the IMF would insist that interest rates be raised, essential services such as water and power be privatised and that deep cuts in health and education be made.

The last decade has seen a sustained intellectual fight against the IMF and the wider neoliberal Washington consensus from thinkers such as Joseph Stiglitz, George Soros and Susan George.

Stiglitz noted in The Independent on Sunday that "a common characteristic is: 'We know best and the developing countries should do what we tell them to.'

"They really see themselves as a harsh doctor, giving them the cod liver oil they need, even if they don't want it.

"Quite often, the medicine kills the patient."

The number of countries that have successfully used the neoliberal Washington consensus policies to gain prosperity is a nice round zero.

The heirs of Keynes have used the appalling practical record of the IMF to devastating effect.

The real fight, though, has been on the streets. In Venezuela, the austerity delivered by the IMF led to the Carcazo, a sustained period of rioting and bloodshed that paved the way for Hugo Chavez's election victory.

Wherever the IMF has gone, the rioters have followed.

Although the economic analysis of the IMF has failed, along with the wider economics of neoliberalism, it is stubbornly dishing out the same treatment.

The Icelandic economy has failed because of Washington consensus prescriptions.

The charismatic Thatcherite leader of the Icelandic Independence Party David Oddsson introduced Milton Friedman and Von Hayek to the island.

During two decades of hyper-right-wing policies, Oddsson privatised everything that he could lay his hands on, cut corporation and income tax and the Icelandic people were urged to go heavily into the housing market and shared ownership.

Iceland's economy acted as a free-market experiment of such intensity as to make Thatcher and Blair look like social democrats.

The IMF has now agreed to rescue one of its favourite countries, but with some conditions that will accelerate the move from a Nordic social model to enhanced hyper-Thatcherism.

Of course, free markets always end in failure, accelerating speculation, dependency on unreliable pseudo-assets and destruction of social solidarity.

The IMF has now agreed to rescue one of its favourite countries, but with some conditions that will accelerate the move from a Nordic social model to enhanced hyper-Thatcherism.

To stop the currency crash, it has insisted that interest rates rise to 18 per cent, that more assets are privatised and that spending cuts are introduced.

The IMF has also been active recently in Hungary, another country that has been following the neoliberal path to economic crisis.

A massive $16 billion rescue package has been agreed, but the country has to scrap bonuses for public-sector workers, freeze pay, which is tough in a country with 8 per cent inflation, and cut all areas of public spending.

In Pakistan, the IMF has also introduced deep cuts and the usual austerity.

My prediction is that it could happen here.

Britain followed neoliberal economics to the letter. For example, an astonishing 81 per cent of jobs are in the service sector. Because we have lost nearly all our manufacturing after decades of government-led assaults on industry since Thatcher's election victory in 1979, it will be difficult to move out of recession easily.

Our economy, like Iceland's, is far too dependent on a banking sector that has gone from being worth billions to bankruptcy.

Like Iceland, our overinflated property bubble has burst.

Global markets know this and, because Thatcher's first economic act was to remove capital controls, we are at their mercy.

The money is flowing out of Britain as I write, like blood from a wounded beast.

In 1976, prime minister Harold Wilson was forced to go to the IMF. The consequent spending cuts and Wilson's divorce from our trade unions led to a catastrophe that paved the way for Thatcher's victory.

If Britain cannot sustain its finances, it will have to go to the IMF again, but it will be much, much worse.

Some critics argue that our total external debt, ie the cash owed not just by government but by the business sector and private citizens to those outside Britain, could be 400 per cent of our national GDP.

The slide in the pound makes it more and more expensive to pay off foreign debt as our the pound buys less and less.

Our balance of payments has been rocky for a long period, kept in check only by huge sums of speculative capital which is now fleeing Britain.

All these factors and more could lead to the disaster called an IMF conditionality package.

Imagine a rise in interest rates in Britain to 18 per cent, a standard IMF measure to resist a currency slide. Imagine the privatisation of the NHS and the destruction of the state pension to pay for the failure of neoliberalism.

Just think what it would be like if we had used Britain's oil wealth to build a green and socialist economy, to retain manufacturing and restored capital controls.

All of us on the left need to prepare for some big fights, both intellectual and material. Don't say that you haven't been warned.

No comments: