Bread And Butter Crises… The People Say JJ Saffa-Economics Not Working

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JJ Saffa

Many developing nations are in debt and poverty partly due to the policies of IMF and the World Bank. By and large, their programs have for the past fifty years resulted in poverty and debt and increased dependency on the richer nations, despite the IMF and World Bank’s claim that they will reduce poverty.
Following an ideology known as neoliberalism, and spearheaded by these and other institutions known as the Washington Consensus (for being based in Washington D.C.), Structural Adjustment Policies (SAPs) (even though modified in the 21st century) have been imposed to ensure debt repayment and economic restructuring.
But the way it has happened has required poor countries to reduce spending on things like health, education and development, while debt repayment and other economic policies have been made the priority. In effect, the IMF and World Bank have demanded that poor nations lower the standard of living of their people.
A Spiraling Race to the Bottom
The IMF and World Bank provide financial assistance to countries seeking it, but apply a neoliberal economic ideology or agenda as a precondition to receiving the money. For example:
• They prescribe cutbacks, liberalization of the economy and resource extraction/export-oriented open markets as part of their structural adjustment.
• The role of the state is minimized.
• Privatization is encouraged as well as reduced protection of domestic industries.
• Other adjustment policies also include currency devaluation, increased interest rates, flexibility of the labor market, and the elimination of subsidies such as fuel and food subsidies.
• To be attractive to foreign investors, various regulations and standards are reduced or removed.
The impact of these preconditions on poorer countries can be devastating. Factors such as the following, lead to further misery for the developing nations and keep them dependent on developed nations:
• Poor countries must export more in order to raise enough money to pay off their debts in a timely manner.
• Because there are so many nations being asked or forced into the global market place—before they are economically and socially stable and ready—and told to concentrate on similar cash crops and commodities as others, the situation resembles a large-scale price war.
• Then, the resources from the poorer regions become even cheaper, which favors consumers in the West.
• Governments then need to increase exports just to keep their currencies stable (which may not be sustainable, either) and earn foreign exchange with which to help pay off debts.
• Governments therefore must:
o spend less
o reduce consumption
o remove or decrease financial regulations and so on.
Over time then:
o the value of labor decreases
o capital flows become more volatile
o a spiraling race to the bottom then begins, which generates
o social unrest
• These nations are then told to peg their currencies to the dollar. But keeping the exchange rate stable is costly due to measures such as increased interest rates.
• Investors obviously concerned about their assets and interests can then pull out very easily if things get tough
o In the worst cases, capital flight can lead to economic collapse, such as we saw in the Asian/global financial crises of 1997/98/99, or in Mexico, Brazil, and many other places. During and after a crisis, the mainstream media and free trade economists lay the blame on emerging markets and their governments’ restrictive or inefficient policies, crony capitalism, etc., which is a cruel irony.
• When IMF donors keep the exchange rates in their favor, it often means that the poor nations remain poor, or get even poorer. Even the 1997/98/99 global financial crisis can be partly blamed on structural adjustment and early, overly aggressive deregulation for emerging economies.
• Millions of children end up dying each year.
What is the IMF/World Bank Prescription?
As economist Robin Hanhel summarizes:
The IMF has prescribed the same medicine for troubled third world economies:
• Monetary austerity. Tighten up the money supply to increase internal interest rates to whatever heights needed to stabilize the value of the local currency.
• Fiscal austerity. Increase tax collections and reduce government spending dramatically.
• Privatization. Sell off public enterprises to the private sector.
• Financial Liberalization. Remove restrictions on the inflow and outflow of international capital as well as restrictions on what foreign businesses and banks are allowed to buy, own, and operate.
Only when governments sign this structural adjustment agreement does the IMF agree to:
• Lend enough to prevent default on international loans that are about to come due and otherwise would be unpayable.
• Arrange a restructuring of the country’s debt among private international lenders that includes a pledge of new loans.

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