88
Howard Stein Claudia Kedar
professor in the Center for afro-american Visiting Scholar in the latin american
and african Studies at the University of Michigan Studies Center at the University of Michigan
The bourbons
of global finance
Today’s International Monetary Fund (and,
international capital markets remain off limits, have no alternative
to a lesser degree, the World Bank) recall
but to rely on the World Bank and iMF.
in September 2007, a year before warning signs gave
Talleyrand’s description of France’s Bourbon
way to a full-blown financial meltdown, Strauss-Kahn himself
kings: it has learned nothing and forgotten
suggested that the iMF was in a “crisis of identity.” indeed, the
nothing. At a time when rich countries like
unprecedented decline in Gra lending, the iMF’s main source of
the United States are running deficits of
income, forced the Fund to announce a $100 million cost-cutting
plan in april 2008. Similar financial pressures affected the World
12% of GDP because of the global financial Bank, with its main source of income, iBrD lending, down 40% in
meltdown, the IMF has been telling countries
2007 from its late-1990’s levels.
like Latvia and Ukraine, which did not start
But the world’s pain has been these institutions’ gain. Since
the crisis went global last autumn, the iMF has had countries
the crisis but have turned to the Fund to
parading to its door. Between November 5, 2008 and January 12,
help combat it, that they must balance their 2009, the Fund committed nearly $50 billion to seven countries
budgets if they want aid.
(Hungary, Ukraine, iceland, pakistan, latvia, Serbia, and
Belarus). The World Bank, too, has recently been resurrected in
UCH hypocrisy would be laughable if global economic
places like Ecuador, Bolivia, and peru, with loans to that region
conditions weren’t so dire that even countries that
of latin america up four-fold year on year since last September,
once swore never again to deal with the iMF have
reaching nearly $3 billion.
returned to its door, cap in hand. Some leading
Unfortunately, for both institutions, such countries’ growing
economists in argentina justify this reversal by arguing that the
demand for financing merely means business as usual. Consider
world now has an “Obama iMF,” one presumably friendlier and
the recent standby arrangement with latvia, whose conditions
more attuned to local problems than the “Bush Fund.” But, as the
include a massive 25% cut in public-sector wages, a similar
iMF programs for latvia and Ukraine suggest, the main difference
reduction in government expenditures, and a huge tax increase.
may only be a smile.
Ukraine’s government, moreover, was told to balance
To be sure, iMF Managing Director Dominique Strauss-Kahn
its budget by massively slashing state pensions. Only when
recently called for a global fiscal response to the worsening
recession. But will the Fund now 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. in 2005,
argentina and Brazil were the first of the countries that previously
denounced the iMF’s neo-liberal agenda to begin repaying their
loans. repayments followed from other large debtors, including
indonesia, the philippines, Serbia, and Turkey.
indeed, the iMF’s outstanding general resource account
(Gra) credits to middle-income developing countries fell by an
unprecedented 91% 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
april 2009
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