The world-wide monetarist policy intended to strengthen the value of hard currencies, especially the euro, has resulted in pressures on economies to lower public debt by adopting austerity measures. No country is free of this pressure, because of the inter-dependent nature of money and trade transactions impacting the entire world system. The question is the degree to which the IMF-style monetarist road has impacted poorer nations and the lower and middle classes around the world. Clearly, we have empirical evidence that the wealthy are doing just fine and that capital concentration has risen sharply amid the economic downturn of 2008-present. Hedge funds benefited even from the crisis-ridden countries at the expense of the middle class and workers taking a hit on their wages and benefits.
After a number of southern and eastern European countries underwent formal and informal austerity that resulted in high level of unemployment and a drop in living standards, in 2014 it appears that Latin America maybe next in line to take a big hit from the global trend of monetarism and austerity; policies that result in wealth concentration and transfer of wealth from the poorer countries to the richer where there is safety. Not just Argentina that has been struggling with its own economic troubles ever since it opted to remove the IMF from the picture and try its luck on its own since 2001, but even Brazil, Latin American economic miracle, has been showing signs that it will be facing monetary pressures and possibly resort to fiscal austerity.
Brazil has been critical of IMF-EU austerity policies imposed on the debtor nations in the last three years, but it now finds itself facing pressure from hard currencies countries to lower debt and strengthen their currencies that have been losing value. The result of this road to austerity entails further socioeconomic polarization and transfer of wealth from the lower and middle classes to the hands of the few domestic and international capitalists. Similarly, monetary inflation has touched Venezuela that has relied on oil to keep its economy going, and even Chile that has the most pro-West and most diversified trade policy in Latin America.
Venezuela's efforts under the late Hugo Chavez to create a regional trade bloc that would act as a buffer zone protecting it from the US and EU have not worked. Thirty-three Latin countries signed the “declaration of Caracas” to create the Community of Latin American and Caribbean States as an economic and political bloc that excludes the U.S. and Canada.While in theory the Chavez-inspired bloc looks good on paper, the reality is the dominant global economies, especially US and EU, have the trading and investment power to influence the course of Latin American economic future, just as they influence the economic future of most of the world.
More than anything, Latin Americans fear that they may not be that far away from the fate of Greece that has been the poster child of how austerity can destroy a country's political stability, social fabric and economic prospects. Latin Americans have a long experience with their creditors making borrowing expensive and bankrupting them just as their prospects begin to look promising. The debt cycle in Latin America has been a way of life from the late 19th century until the 1980s. They also know that debt crises are a way for foreign and domestic capitalists to lower asset values, including labor costs, and to transfer wealth from the region to the US and Europe.
Latin Americans who have studied the history of debt crises also know that in the aftermath of global economic contractions, there is retrenchment that takes place, and that means capital transfer from the periphery to the metropolis. This in addition to the fact that monetary inflation in the debtor nations necessarily means that those with liquid assets will transfer them to areas with hard currencies.
The question in 2014 is whether Latin America is about to undergo another massive transfer of capital owing to monetary inflation, followed by austerity, with all of the economic, social and political consequences of what that entails. One sign so far of danger ahead is the weakened currency values, owing partly to weakened GDP growth in Asia and EU hit hard by austerity. The IMF has been advising the Latin republics to reduce public debt and undergo general fiscal restructuring, combined with further privatization programs. The austerity apologists backing IMF monetarism for Latin America argue that Argentina has done a very poor job in managing its economy by refusing the Fund's advice in 2001 and going on its own. Given that extreme poverty in 2001 stood at 11.6% and below poverty line at 35.6%, while in 6.5% in 2012 - caveat: estimates dependent on the source and they do vary.
The world economic outlook for the year is better at the start of 2014than it was six months ago, but only because markets have been rising owed to massive capital concentration. The ILO warned that world unemployment will continue to rise, despite the so-called economic recovery in the US. Economic outlook for Latin America does not look as promising today as it did a year ago, despite the regional growth forecast at 2.8% and probably much lower if austerity measures go into force. The outlook remains unchanged for the larger republics, except for Venezuela and Brazil that will experience contraction.
Brazil is too big and its trade and investment policy too diversified for the US to intervene as it used to via the CIA destabilizing the regime and installing one of its own choosing. The best that can be done is to exert influence through IMF, World Bank, other inter-American organizations and through banks and multinational corporations. Because Brazil's economy is so large and diversified, it is not in the interest or ability of the US to impose austerity and destabilize the country merely because it wishes greater role in the country's economy. Venezuela, Ecuador, Bolivia, and Nicaragua are all governed by anti-US regimes and would fight all IMF-style monetarist and austerity policies that would create havoc socially, economically and politically.
Inflation has hit Venezuela hard, but not as bad the rest of Latin America. The IMF-EU-US pressure to adopt monetarism/austerity would ease inflation, but it would entail the following: 1. much slower economic growth; 2. even greater external borrowing to service existing debt; 3. capital flight; 4. lower living standards as prices for everything from food to utilities will rise; 5. sharp cuts in health and education; 6. weakened labor movement and middle class. This is not to say that life has been easy for the people of Argentina in the past dozen years trying to make it outside the confines of IMF austerity. It is true that inflation, shortages of many products, uncertainty owing to the isolation the country feels because its creditors refuse to accept a haircut of the debt, and domestic and foreign investors that refuse to put money in the country because they demand IMF-style austerity under a low inflation regime that favors capital.
Modest inflation actually redistributes income downward toward the lower classes, while austerity and monetarism entail income concentration toward the wealthy social groups. If Latin American governments resist the pressures to adopt formal or informal austerity, 2015 will probably be a much year year for the region, while if they opt for IMF-style currency devaluation and fiscal reform they can expect a two-to-four year period of contraction. The lessons learned from southern Europe, if not from their own past experience with the IMF must be to resist the monumental pressures from banks, multinationals and the US and EU to go the route of Greece, Portugal and Spain. Continuing along the path of regional economic cooperation and national capitalism to the degree possible is far more beneficial for the vast majority of the people than austerity and monetarism.
Finally, the people of Latin America who have a long history with IMF-style austerity measures resulting in increased poverty and military dictatorships must ask themselves if the people of Argentina, at least the majority of the people, are better off today than they would have been if the government had permitted the IMF to inject its doses of monetarism, fiscal austerity, downward pressure on wages and salaries, weaker labor laws and a weaken national economy aimed at exporting instead of serving the domestic market. Without trying to minimize the suffering of the people in Argentina, the question is whether they would have been better off under IMF. In case they are unsure, let note that Greece has 60% youth unemployment and 28% overall official unemployment, with some economists advising the ministry of finance that it may not be a bad idea for young people entering the workforce to accept either whatever wage the employer offers or no wage at all for year! Such are the results of IMF-style austerity!
After a number of southern and eastern European countries underwent formal and informal austerity that resulted in high level of unemployment and a drop in living standards, in 2014 it appears that Latin America maybe next in line to take a big hit from the global trend of monetarism and austerity; policies that result in wealth concentration and transfer of wealth from the poorer countries to the richer where there is safety. Not just Argentina that has been struggling with its own economic troubles ever since it opted to remove the IMF from the picture and try its luck on its own since 2001, but even Brazil, Latin American economic miracle, has been showing signs that it will be facing monetary pressures and possibly resort to fiscal austerity.
Brazil has been critical of IMF-EU austerity policies imposed on the debtor nations in the last three years, but it now finds itself facing pressure from hard currencies countries to lower debt and strengthen their currencies that have been losing value. The result of this road to austerity entails further socioeconomic polarization and transfer of wealth from the lower and middle classes to the hands of the few domestic and international capitalists. Similarly, monetary inflation has touched Venezuela that has relied on oil to keep its economy going, and even Chile that has the most pro-West and most diversified trade policy in Latin America.
Venezuela's efforts under the late Hugo Chavez to create a regional trade bloc that would act as a buffer zone protecting it from the US and EU have not worked. Thirty-three Latin countries signed the “declaration of Caracas” to create the Community of Latin American and Caribbean States as an economic and political bloc that excludes the U.S. and Canada.While in theory the Chavez-inspired bloc looks good on paper, the reality is the dominant global economies, especially US and EU, have the trading and investment power to influence the course of Latin American economic future, just as they influence the economic future of most of the world.
More than anything, Latin Americans fear that they may not be that far away from the fate of Greece that has been the poster child of how austerity can destroy a country's political stability, social fabric and economic prospects. Latin Americans have a long experience with their creditors making borrowing expensive and bankrupting them just as their prospects begin to look promising. The debt cycle in Latin America has been a way of life from the late 19th century until the 1980s. They also know that debt crises are a way for foreign and domestic capitalists to lower asset values, including labor costs, and to transfer wealth from the region to the US and Europe.
Latin Americans who have studied the history of debt crises also know that in the aftermath of global economic contractions, there is retrenchment that takes place, and that means capital transfer from the periphery to the metropolis. This in addition to the fact that monetary inflation in the debtor nations necessarily means that those with liquid assets will transfer them to areas with hard currencies.
The question in 2014 is whether Latin America is about to undergo another massive transfer of capital owing to monetary inflation, followed by austerity, with all of the economic, social and political consequences of what that entails. One sign so far of danger ahead is the weakened currency values, owing partly to weakened GDP growth in Asia and EU hit hard by austerity. The IMF has been advising the Latin republics to reduce public debt and undergo general fiscal restructuring, combined with further privatization programs. The austerity apologists backing IMF monetarism for Latin America argue that Argentina has done a very poor job in managing its economy by refusing the Fund's advice in 2001 and going on its own. Given that extreme poverty in 2001 stood at 11.6% and below poverty line at 35.6%, while in 6.5% in 2012 - caveat: estimates dependent on the source and they do vary.
The world economic outlook for the year is better at the start of 2014than it was six months ago, but only because markets have been rising owed to massive capital concentration. The ILO warned that world unemployment will continue to rise, despite the so-called economic recovery in the US. Economic outlook for Latin America does not look as promising today as it did a year ago, despite the regional growth forecast at 2.8% and probably much lower if austerity measures go into force. The outlook remains unchanged for the larger republics, except for Venezuela and Brazil that will experience contraction.
Brazil is too big and its trade and investment policy too diversified for the US to intervene as it used to via the CIA destabilizing the regime and installing one of its own choosing. The best that can be done is to exert influence through IMF, World Bank, other inter-American organizations and through banks and multinational corporations. Because Brazil's economy is so large and diversified, it is not in the interest or ability of the US to impose austerity and destabilize the country merely because it wishes greater role in the country's economy. Venezuela, Ecuador, Bolivia, and Nicaragua are all governed by anti-US regimes and would fight all IMF-style monetarist and austerity policies that would create havoc socially, economically and politically.
Inflation has hit Venezuela hard, but not as bad the rest of Latin America. The IMF-EU-US pressure to adopt monetarism/austerity would ease inflation, but it would entail the following: 1. much slower economic growth; 2. even greater external borrowing to service existing debt; 3. capital flight; 4. lower living standards as prices for everything from food to utilities will rise; 5. sharp cuts in health and education; 6. weakened labor movement and middle class. This is not to say that life has been easy for the people of Argentina in the past dozen years trying to make it outside the confines of IMF austerity. It is true that inflation, shortages of many products, uncertainty owing to the isolation the country feels because its creditors refuse to accept a haircut of the debt, and domestic and foreign investors that refuse to put money in the country because they demand IMF-style austerity under a low inflation regime that favors capital.
Modest inflation actually redistributes income downward toward the lower classes, while austerity and monetarism entail income concentration toward the wealthy social groups. If Latin American governments resist the pressures to adopt formal or informal austerity, 2015 will probably be a much year year for the region, while if they opt for IMF-style currency devaluation and fiscal reform they can expect a two-to-four year period of contraction. The lessons learned from southern Europe, if not from their own past experience with the IMF must be to resist the monumental pressures from banks, multinationals and the US and EU to go the route of Greece, Portugal and Spain. Continuing along the path of regional economic cooperation and national capitalism to the degree possible is far more beneficial for the vast majority of the people than austerity and monetarism.
Finally, the people of Latin America who have a long history with IMF-style austerity measures resulting in increased poverty and military dictatorships must ask themselves if the people of Argentina, at least the majority of the people, are better off today than they would have been if the government had permitted the IMF to inject its doses of monetarism, fiscal austerity, downward pressure on wages and salaries, weaker labor laws and a weaken national economy aimed at exporting instead of serving the domestic market. Without trying to minimize the suffering of the people in Argentina, the question is whether they would have been better off under IMF. In case they are unsure, let note that Greece has 60% youth unemployment and 28% overall official unemployment, with some economists advising the ministry of finance that it may not be a bad idea for young people entering the workforce to accept either whatever wage the employer offers or no wage at all for year! Such are the results of IMF-style austerity!
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