May 17, 2009

IMF's Anti-Stimulus Rules

Mark Weisbrot writes in the Guardian of how the IMF is hurting poor countries by imposing tough rules on government deficits and interest rates at the face of a severe economic downturn. He refers to the anti-stimulative and deflationary conditions that are associated with IMF loans as "punishment". This seems to be quite justified at the face of the fact that even a 40 % budget cut in Latvia is not enough for the IMF.

Mr. Weisbrot points to the severe additional tension that IMF's diktats might potentially cause in already volatile Pakistan: "Slowing Pakistan's economy at a time when the global economic crisis is already doing that may not be the best policy from the point of view of political stability."

Getting away from government deficits is without doubt necessary in the long run, but the severity of the measures are and should be up for debate. Application of such measures should be postponed until the end of the economic downturn. They should also be associated with at least some concessions from creditors.

It also seems that American and European economists are not quite so ready to apply their "scientific" doctrines at home. This creates the inevitable appearance of high hypocrisy. Forcing some nations to tighter their belts 'till they pass out, while others freely splurge on trillion-dollar government deficits is very ugly to look at.

Western economists are quite easily throwing about the notion that these measures are for the good of the target nations, and that they must "swallow the bitter pill". What is easily forgotten is that some people's lives will be permanently ruined by such measures. When your children are about to die for the lack of medical services, the "long run" can be surprisingly short.

How the IMF works can only be described with the term "predatory lending". The whole point seems to be the creation of a permanent debt relationship, with all of the resources of a nation directed at paying the interest on the debt.

IMF strongly opposes progressive taxation as a way of escaping government debt. The regressive cuts to the most productive parts of the target governments' budgets, like education and health care, keep the debtor nations at the status of quasi-colonized sources of free labour and raw materials.

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