A wrecking ball in disguise
It often comes as a surprise that the World Bank and the International Monitory Fund (IMF) still rule, given all the scandals they've brought upeon themselves. The IMF came to hold virtual neo-colonial control over developing countries as a result of the Third World ‘debt crisis’ of the 1980s. That crisis came about in much the same way as today’s debt crisis: too much money (petro dollars in those days) saw banks offer large loans to developing countries, in Africa for example.
Africa – victim of the IMF
As interest rates went up, and money got tight, many countries began to default on their loans – to commercial banks and to the World Bank. The IMF was kind of the World Bank’s enforcers, Wolfensohn’s wolves. No matter what the situation, whether it was Niger or Zimbabwe, they prescribed the same harsh medicine: Structural Adjustment programs, known as SAPs or ‘golden handcuffs’. Loan extensions were offered on the condition that countries cut their public sector programs – education, healthcare infrastructure and agriculture.
The results were predictable: Ordinary people suffered and many starved. Education or health services, already inadequate, became more so. The economies of these countries suffered terminal damage. This was what turned Mugabe against the west – Zimbabwe was a prosperous country before being stitched up by an IMF SAP. Same with Kenya, Tanzania etc. The new South Africa was offered IMF money in 1994 but was smart enough to refuse.
The Asian Tigers – felled by the IMF’s sword
With the strong encouragement of the IMF and the World Bank, many Asian countries liberalised their financial sectors, maintained high domestic interest rates in order to suck in portfolio investment and bank capital, and pegged their national currencies to the greenback to reassure foreign investors against currency risk. As a result, foreign capital flowed in but it was mostly short-term, highly speculative money flowing into high-yield, fast-turn-around sectors such as the stock market, consumer finance and real estate.
Early in 1997, the Thai government decided it had enough and floated the baht, cutting its peg to the U.S. dollar. The baht crashed, with roll-on effects on other countries in the region, and foreign investors got the jitters and took their money and ran. The IMF moved in and immediately made its usual demands of austerity, which resulted in the virtual collapse of several economies.
Indonesia was one of the worst affected. It's economy was healthy but the currency crashed, and food and fuel prices rose dramatically. There were riots in the streets.
Joseph Stiglitz – lone crusader
Nobel laureate Joseph Stiglitz had recently become chief economist at the World Bank, and promptly took the IMF to task for what he saw as its indiscriminate insistence on the wrong measures. ‘’These are crises in confidence,' he said as economies collapsed across Asia early in 1998. 'You don't want to push these countries into severe recession. One ought to focus ... on things that cause the crisis, not on things that make it more difficult to deal with.'
Stiglitz defended the Asian governments' fiscal performance in the face of IMF demands for immediate interest-rate hikes and budget cuts. His attacks on the IMF, the World Bank and the US Treasury for pushing economic liberalization and global market integration won praise from many outsiders but caused tension with Wolfensohn, IMF boss Michel Camdessus and other senior IMF officials. Stiglitz accused them of protecting investors and protecting firms that gambled' on currency markets. 'Who is paying the price?’ he asked. ‘Workers who are going to be put out of jobs.’
The GFC – the socialisation of sovereign debt
Sound familiar? Sure does. After the GFC, workers paid the price while the guys who did the damage got off scot-free with the loot. That's what socialisation of sovereign debt means. No one went to jail except for Bernard Madoff who ran a simple Ponzi scheme.
Stiglitz wasn’t alone by any means. As Harvard economist Jeffrey Sachs pointed out, ‘whatever the problems of the Asian economies, it is clear that the problem was not profligate governments - yet the IMF imposed its standard budget-cutting demands nonetheless. In countries whose currencies were under speculative attack, IMF-ordered removal of price controls led to sudden rises of food and fuel prices, exacerbating economic hardship and causing avoidable malnutrition and suffering ...
IMF admits its mistakes – and is rewarded with more power
I’ll end with a couple of quotes form outspoken sources: ‘In early 1998, the IMF admitted in internal documents that it had made the financial crisis worse. But this did not lead the IMF to scale back its operations. To the contrary, it sought to use the crisis to expand its power. Then-IMF Managing Director Michel Camdessus repeatedly referred to the crisis "as a blessing in disguise", as it would enable the Fund to impose conditions on Asian countries, and force them to reduce the role of government intervention in the economy.’ http://findarticles.com/p/articles/mi_m2465/is_6_30/ai_65653646/
‘When the International Monetary Fund (IMF) and the World Bank announced at their 1999 annual meeting that poverty reduction would henceforth be their overarching goal, this sudden "conversion" provoked justifiable skepticism. The history of the IMF shows that it has consistently elevated the need for financial and monetary "stability" above any other concern. Through its notorious structural adjustment programs (SAPs), it has imposed harsh economic reforms in over 100 countries in the developing and former communist worlds, throwing hundreds of millions of people deeper into poverty.’
'Don't follow leaders, wtach your parking meters.' Bob Dylan, Subterranean homesick blues
Must Read: Globalization and Its Discontents, Joseph Stiglitz