Thursday, November 17, 2016
I am on record saying that one of the biggest scams in the world is the U.S. Federal Reserve bank. Now I am prepared to announce that the biggest hustle in the world is the International Monetary Fund (IMF). From its inception, the IMF has only served as legalized vehicle for extortion. I observed this firsthand the two years I lived in Nigeria from 1992 to 1993. Then the creature of choice was what the IMF called Structural Adjustment Programs. These programs basically gave loans from the IMF (with the World Bank) to nations that were experiencing economic hardship. These programs were supposed to grow the economies of developing nations, by making them more market focused in an effort to increase trade and as a consequence reduce poverty. That was all everyone across Nigeria spoke of, SAP and how it was driving their nation to economic ruin. It was the first time I’d ever heard of the program or really paid attention to the IMF.
In order to qualify for the loans, borrowing nations have to follow a strict guidance provided by the IMF to make sure they will be able to make debt repayments on the older debts owed to international bankers, governments and the IMF/World Bank. The biggest catch is what I refer to as legalized pillaging – the requirement that borrowing countries devalue their currencies against the dollar; lift all regulations and restrictions on imports and exports and establish price control mechanisms. Although these programs have gone by the wayside in name, they still very much exist in practice (See Greece and Egypt).
Established in 1945 as the agency supposed to oversee the Bretton Woods system and encourage economic growth globally, the IMF basically is an international credit union that is supposed to serve the needs of poorer nations around the world. Unfortunately, the vast majority of IMF programs typically increase poverty rates in the country they say they desire to assist. This comes about because most IMF policies end up making less developed and developing third world countries more dependent on wealthier western nations. How is it that this is the case with an organization whose primary mandate is to reduce poverty yet instead makes it worse? Namely through the implementation of policy that transfers control of economic factors to the private sector from the public sector (Neoliberalism). Through neoliberalism, and focusing on pegging currency to the dollar and debt repayment being top priorities of IMF programs, developing countries end up reducing spending on things the need like health, education and infrastructure development.
Let’s us look at the recent example of Egypt. The IMFjust approved a three-year, more than $11 billion euros bailout program for Egypt aimed at trying to get the nations besieged economy back on a steady foot. But in order to get the loan, Egypt had to take out another loan of more than 5 billion euros from a combination of funds from other banks, China, other G7 countries and via bond issues. More troubling was that the government had to let the Egyptian Pound devalue by almost half and was mandated by the IMF to end subsidies for fuel, introducing a value-added tax to raise revenues and writing new legislation to decrease Egypt’s public sector wages. All of this being an incentive for increasing poverty in Egypt with lower wages and higher fuel prices for the average citizen. The hope is the IMF loan will make Egypt more stable, not lead to further unrest (utter hilarity).
We can also look at what happened in Greece in their relationship with the IMF. After the fact we now see the IMF was way out of step with pragmatic economic policy with respect how they handled the economic problems of the nation of Greece as noted in a report conducted by their Independent Evaluation Office (IEO). In Greece, the IMF signed off on a bailout in 2010 itself was not certain it would help to bring country’s debts under control or lead to an economic recovery. Still, the IMF did what it usually did – tried to force through an "internal devaluation" via deflationary wage cuts since the Greek economy was on the Euro. The result however was a disaster. Not only did this action shrink the economic base and grow the national debt, it weighed down the Greek citizenry since the objectives of the bailout were to protect the EU-IMF monetary union rather than the nation. Since the introduction of these excruciating economic measures, the Greek economy has been in a depression ever since.
Honestly, the bailouts for Greece, Portugal and Ireland demonstrated the ineptness of the EU, Christine Lagarde and the IMF to the surface for all to see – that they had either no understanding of the seriousness of the problem or lacked a complete understanding of currency theory.
The problem with the IMF in simple terms is that it has the primary aim of extracting wealth from nations suffering during troubling economic times and despair. Moreover, they have no real policy tools (at least currently) to aid in reducing public debt and controlling inflation in a manner that will also guard the country’s poor against the ramifications of what happens when debt repayment is the top priority. Until this changes, IMF policies will continue to keep on reducing the people of developing countries and poorer nations to lower standards of living.
The extortion of poorer nations and/or taking advantage of a country in a time of economic desolation is criminal. There are really no other choices when such economic adversity occurs. First, for foreign investment to come in, investors typically ask that regulations be removed that were designed to be safe guards for the people. The impact of such are more often than not even more distressing and frequently end up imparting even more misery for the developing nations as well as keeping them dependent on richer developed nations.
The shake down and exaction game of the IMF is tight too. After taking the loot, the target nation has to export more in order to raise enough money to pay off their debts on time (an IMF loan requirement). Next, the exports or natural resources become even cheaper to purchase to benefit the consumers in the developed countries and not the poorer nation. This mean these nations have to increase exports just to keep their currencies stable, meaning they spend less on the needs of the people, and eventually the value of labor decreases, capital flows become more unpredictable (see Asian financial crisis of 1997 & Tequila banking crisis of 1994) and the probable outcome is social unrest, riots and protests.
Funny thing is that the IMF is still doing the same thing (although not called SAP anymore) and as I noted earlier, the most recent example is with Egypt. Sadly, their feckless policy approach has yet to change and we are certain to see similar outcomes of civil unrest and riots if they continue on this path. I will give Egypt less than two years.