Corrupt, Clueless IMF is Crushing Economic Hope in South America
IMF Policy Pushing South America Toward Default
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Instead of bureaucratic manipulations, privileged elites, debt, and high taxes against production, what poor countries need are economic justice and free markets. The IMF offers neither one. Here are portions of a recent International Herald Tribune report on the IMF's hypocrisy and how it is continuing to ruin economies and countless human lives. |
by William Pfaff
U.S. Treasury Secretary Paul O'Neill's declaration last week about why he would make a trip to Brazil, Argentina and Uruguay ranked about as high as you can go in Washington statements combining arrogance with ignorance. The Treasury secretary said he was going to carry out an inspection. He observed of Brazil that it "needs to put in place policies that assure that as assistance money comes ... it doesn't go out of the country to Swiss bank accounts."The White House issued an apologetic correction, and the IMF and O'Neill say loans for Brazil and Uruguay now are possible, but in Brazil's case only if the leading presidential candidates agree in advance to IMF terms - which unfortunately are at the source of the problem. Brazil has faithfully been following the recommendations of the IMF, and its present crisis is largely a result of having done so.
Its immediate problem is capital flight caused by the overspill of international financial distrust provoked by Argentina's economic collapse.
Argentina is the victim of the hard-currency, fixed-exchange-rate ideology imposed not from within, but by international lenders and the IMF, in obedience to U.S Treasury orthodoxy. Argentina has plenty of troubles of its own making, but it would not be locked in its current crisis if it had not spent years doing what it was told to do by the IMF and the editorial pages of The Wall Street Journal. Guaranteeing the convertibility of the peso in 1991, and later pegging it to the dollar, saved Argentina from inflation, but when the floating Brazilian real was effectively devalued in 1999 (after billions of dollars were vainly spent trying to support it), Argentine exports became priced out of the international market.
This led to unemployment, company failures, collapsing incomes and securities markets, bank panic, deposit freezes, tumultuous protests, popular recourse to a barter economy, and a government crisis yet to be resolved. Inflation, also, is back.
The IMF refuses Argentina further aid because the government does not consider itself politically able to make still more cuts in public spending that would create further unemployment, and to use the loaned money to pay off international creditors. The IMF has therefore hung Argentina out to dry, as an example to other countries tempted by insubordination.
Uruguay mainly suffers from Argentine and Brazilian contagion. As Argentina's troubles mounted, Argentine funds moved to Uruguay, and as Uruguay was drawn toward the whirlpool they started moving to the United States or Spain - or possibly even to Swiss banks. But that isn't IMF or international loan money; it's Argentine money.
Uruguay closed banks last week to stop the run on deposits, awaiting international support of the kind that O'Neill disapproves. The foreign institutional lenders usually get their money back. IMF loans always come with provisions giving priority protection to foreign investors and lenders - who, if they are Americans, have also known that they have a friend in need in Washington, ever since the Federal Reserve's bailout of Long Term Capital Management in 1998.
IMF policy facilitates the movement of money out of as well as into countries, including that of currency speculators. Joseph Stiglitz has remarked that IMF policy keeps the speculators in business.
The international financial system is built on the sanctity of sovereign debt. The paradox of U.S. policy is that the IMF, enabling speculation and guided by the wisdom of the U.S. Treasury, has been pushing South America toward the irrevocable - national default.
The international financial system offers nations no equivalent to the limited forms of personal and corporate ("Chapter 11") bankruptcy available to businesses and individuals in the United States and most other major economies.
If governments were given protection from creditors in the extreme situations that Argentina and (for no fault of their own) Brazil and Uruguay now experience, parasitic speculation would be thwarted and the real financial, commercial and social interests of society could be protected.
The anti-freedom, market-manipulating IMF is out of touch and lurching out of control. Do you have an opinion on this issue? Tell us!
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