Saturday, 28 January 2012


That the International Monetary Fund (IMF) has recently cut its outlook for global economic growth for 2012 and 2013 is not as surprising as the fact that the IMF-EU austerity policies - both formal as in the cases of Greece, Ireland and Portugal, and informal in the rest of Europe - are the root causes of the anticipated  contraction at the regional and global levels. In fact, the IMF cited the European debt crisis as 'the perilous new phase' of this crisis, but it failed to mention that the Fund together with Germany have imposed austerity policies on the rest of Europe that are responsible for the contraction.

Whereas global growth was at 5.2% in 2011, it has been revised down to 3.3% in 2012, with the advanced economies accounting for merely 1.2% growth, emerging economies 5.4% and China and India at 8.2% and 7% respectively. I am sure that those who have studied the history of IMF austerity policies will not be surprised to learn that they lead to sharp decline in economic activity, including a sharp downward trend in socioeconomic mobility. This is largely because neo-liberal style austerity entails sharp curbing of consumption power for the middle class and workers.

At the macroeconomic level, world trade volume will drop from 12.7% in 2011 to 3.8% in 2012, a trend made much worse because IMF is helping in the process of capital concentration. The current figures about world trade and economic growth may actually be very optimistic, because they take into account steady energy prices, when in reality energy costs may rise sharply in case of the lingering US-Iran confrontation, instability in Nigeria, unanticipated problems in post-Chavez Venezuela, and sharp rise in demand across Asia. Some oil experts maintain that the price of crude oil may hover between $100 and $180 in the next two years, and that is without a major crisis. A deep recession with high unemployment and low consumption would be about the only moderating factor in energy prices over the next couple of years.

Not surprisingly, the IMF is blaming 'the sovereign debt crisis', which speculators and the banks have caused and from which they benefit. As a solution to the global economic contraction in the next two to three years, the IMF has recommended policies that continue to create very high unemployment across Europe, low consumption on the part of the middle class and workers, and higher tax burden on the same classes. Even its own economists warn that overly-aggressive austerity measures could backfire and kill any prospects for economic growth, something that is a reality for many European countries.

That the IMF readily admits its own policies contribute to retarding economic growth is an indication that the policies it follows would not be pursued unless they served to strengthen finance capital in the core countries. Indeed, a closer look at the IMF austerity policies in Eastern and Southern Europe in the last two years point to resounding failures, not by any independent standard, but the ones that the IMF established.

For example, in May 2010, the IMF insisted that if Greece followed austerity policies the result would be:
1. In one year Greece would be able to return to the private sector for its borrowing needs. Two years later, the IMF admits that Greece may not be able to borrow from the markets for at least ten years, and that assumes no messy 'un-managed or unstructured default'.
2. In May 2010, the IMF insisted that austerity and neo-liberal policies were essential for sustainable economic growth. Today, the IMF admits that Greece would suffer negative GDP growth for at least the next two years, unemployment would probably hit 22-25%, and living standards would in fact decline and must in fact do so to  levels that are closer to the rest of the Balkans. This means that living standards would revert to 1960s levels.
3. The IMF had promised solvency within a couple of years, and aggregate debt dropping from 135% of GDP to under 100%. Today, the IMF admits that Greece would be very lucky to have 120% total public debt to GDP by 2020. Moreover, the entire country would be reduced into a low-wage economy, forcing a massive wave of people to emigrate.

The IMF record is just as dismal in Portugal and Ireland, just as dismal in Spain and Italy, just as dismal across all of Eastern Europe. Besides destroying the lives of millions of people with austerity policies that benefit very few wealthy individuals, IMF austerity policies also serve as a tool of neo-imperialism. For example, Germany has imposed a team of its own technocrats to oversee the entire Greek economy that is a virtual German satellite, and it has proposed a German overseer in fiscal policy. Relinquishing control of the national budget is in fact surrendering sovereignty. But then again, has Greece really ever enjoyed national sovereignty to the degree that the US or Germany did?

In short, with the help of the IMF, Germany has laid the groundwork for financial, trade, investment, and overall economic control that extends into the domain of labor policy in Greece. If this integration model is imposed in Greece, the rest of Southern and Eastern Europe are next. From the 1950s in Latin America to Russia in 1999, IMF policies has been a catalyst to destroying democracy and promoting authoritarian political conditions as a result of helping to concentrate wealth and create a wide gap between rich and poor.

To blame the IMF without taking into account that it serves the core capitalist countries and within those finance capital is to ignore the purpose of the institution since its founding. Billionaire George Soros recently noted that Germany has been playing the traditional role of the IMF in Europe as financial policeman and endangering the health of the European economies. Although the core countries and finance capital are behind the IMF, the image that the Fund projects is one of 'objective economic policy', as though it serves God instead of mortal masters.

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