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The Fund’s Follies

The obsession over balancing budgets and reducing debt is a foolish global exercise at a time when people need governments to spend more money to create jobs and demand. And one of the great wizards behind the curtain of the foolishness is the International Monetary Fund.

My friends at the Center for Economic and Policy Research had a pretty interesting think on this issue. It’s very wonky — sorry — but all you have to know is this:

There is an overwhelming emphasis on fiscal consolidation, reduction of social expenditures, as well as measures that would weaken the bargaining power and income of labor, and make it more difficult for governments to promote growth and employment or reduce poverty and social exclusion.

This is nothing new. Back in the early ’90s, I wrote a book which had a bit about the IMF and its sidekick, the World Bank:

The Bank and the Fund, as they are affectionately known, are located in Washington, D.C. Traditionally, the Bank is run by a U.S. representative; the Fund by a non-U.S. person. They were both started right after World War II as part of a post-war effort to rebuild the world economy by setting up a system of controls on national economies and their currencies. Although U.S. taxpayers bankroll the Bank and the Fund to the tune of many billions of dollars, much of what they do goes on without much attention; in fact, Fund board meetings are closed, annual reviews of countries are sealed and only an inner circle knows how much money is available for loans.

The world view of the Bank and the Fund is simple. The economies of the underdeveloped world (also known to us as the “Third World”) must be “modernized,” made more efficient, open, hospitable and inviting for global commerce. How is that accomplished? By pouring billions of dollars, for example, into building a dam in India (or financing many other construction projects in dozens of countries) or extending an $18 billion loan to Mexico to stabilize its currency (or lending other countries large sums to spark changes in the overall economy). The two institutions say that these changes will benefit local residents as well as the international business community.

Of course, this money is not given freely. In fact, Bank and Fund money comes with many strings attached. In return for loans, countries must undergo “structural adjustment.” This means government spending must be severely cut (leading to cuts in jobs and higher prices on basic necessities like milk and corn as government price supports decline); imports must be replaced with an export-oriented economy; wages are frozen; and many public enterprises are privatized. Obviously, this hurts hundreds of millions of citizens around the world. These severe austerity measures have caused massive unrest such as the 1987 bread riots in Zambia.

So, basically, the tune is the same: the IMF is imposing very harsh conditions that are hurting regular people.

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