‘FAILED: What the “Experts” Got Wrong on the Global Economy’ – Mark Weisbrot (2/3)
CEPR economist Mark Weisbrot says the collapse of the IMF’s power over low and middle-income countries is one of the most significant changes in the international financial system
SHARMINI PERIES, EXECUTIVE PRODUCER, TRNN: Welcome back. I’m Sharmini Peries, coming to you from Baltimore, and we’re speaking with Mark Weisbrot about his latest book, “Failed: What the Experts Got Wrong About the Global Economy.
In segment one we talked about Europe, and in segment two we’re going to talk about the IMF, one component of the Troika. And Mark, it’s good to have you back.
MARK WEISBROT: Great to be here.
PERIES: So Mark, in your book you dedicate a lot of time to the IMF. And the IMF, of course, has in the past been a leader of the neoliberal mission across the world, in the third world and recently we’ve seen their role in the Troika in Europe in facilitating some of the so-called debt crisis that Europe is dealing with, particularly Greece they had a prominent role.
But you also indicate in your book that this role is changing. So I want to hear about how it is changing.
WEISBROT: Well, I’d like to report that they decided to abandon their failed policies. And, you know, you do see changes in the research department. For example, in last month there was an article in their quarterly magazine by two IMF economists–or maybe it was three, but they were IMF economists. It was called “Neoliberalism Oversold?” with a question mark. And that was an interesting article where they were actually criticizing it.
Now, unfortunately that just represents the views of those economists, but you are seeing some changes in the research department, but it hasn’t really changed their policy. The big change that took place in the 21st century with the IMF, which was almost completely ignored in the major media, was that it lost of its power in developing countries, in low and middle income countries. And that was really big. It’s big for the United States, too, because this was the main avenue of influence, the biggest one for the United States on the economic policy of other countries.
PERIES: Give us some examples.
WEISBROT: Of the IMF influence?
PERIES: Yes, and how it has been dissipating.
WEISBROT: Sure. Well, here’s an example. When Lula da Silva was running for president of Brazil in 2002 he sat down with his opponents and with the IMF, and the IMF told them what their economic policy was going to be no matter who was elected. Their most important economic policies, for example their fiscal policy and how big their primary budget surplus was going to be for the next couple years, and they did that in return for a loan.
And so that was just one example. I mean, you can go back a few more years–Actually, just that period, from 1998 to 2002 Argentina suffered a great depression while it was under IMF agreements that told them to do similar things that were really, you know, the kind of austerity that we saw in Europe that really worsened their economy and kept them in depression.
And so, there are countless examples of this. And what happened was–whole, well, I won’t go there–
PERIES: –Well, there’s a huge political change, I mean, with President Chávez coming to power in Venezuela, President Evo Morales coming to power in Bolivia–
WEISBROT: –That’s a very good example–
PERIES: –In Ecuador, Correa. I mean, these are people who were a bit more economically and knew what the World Bank and the IMF and the WTO had been doing to ordinary people, so with the swing in Latin America in terms of the leftward swing in the consciousness of the people leading it, they decided to reject the IMF and you write about that in the book.
WEISBROT: That was a big part of it, just the election of left governments that started in 1998. You know, at that time you didn’t have any left governments, and, you know, by the middle of the last decade it was the majority of the region that was governed by left governments. And so yeah, they kicked out the IMF, pretty much.
I mean, in Argentina they had to do it in order to recover. In fact, they even defaulted temporarily to the IMF in 2003 in September, and that was under Nestor Kirchner and that was amazing, because they didn’t know what was going to happen. The IMF could have totally destroyed them, could have blocked them from getting even trade credits for day-to-day business and they didn’t. They backed down, actually, but that was the end of the IMF in Argentina, and then Brazil paid them off to get rid of them a couple years later, and then pretty soon the whole, almost the whole region didn’t really borrow from the IMF.
Evo Morales was elected. They were under IMF agreements for 19 years straight and when Evo was elected, and then he said no more, and at that time their income per person was less than it had been 28 years earlier. That’s how much the IMF supervision really failed. And then of course they all did much better in the 21st century. In the last couple of years they’ve, you know, there’s been a recession in the region, but for a whole more than a decade they did very well.
PERIES: Can I ask you something about Ecuador in particular? Now, of course, we have a president in Ecuador that is an economist and perhaps at studied what the impact of the World Bank and IMF policies have been in Latin America, so he could come a bit more sure-footed in terms of rejecting the IMF. And was that helpful in terms of Ecuador?
WEISBROT: Oh, yeah. I think they did the best in terms of instituting really important reforms. The first thing they did was they took over the central bank. So one of these neoliberal principals is that the central bank is supposed to be independent of the rest of the government, and almost all economists actually believe that, the vast majority.
And the government of Ecuador said no, we need to have the central bank be part of our economic planning and our economic cabinet, and so they did that and then they put a requirement on all banks that they had to bring their foreign assets back into the country, a big percentage of them, and they enforced that and they needed those dollars, for example, during the Great Recession. And they implemented a whole set of financial reforms, some of which we could use here, actually, to protect them from the kind of financial collapses that you saw elsewhere.
And so, they really, they had some of the best economic policies, a lot of public investment. And yeah, I think they did very well. Bolivia did very well. Each of these countries you can look at. When you look at the whole region, for example, the regional statistics from, you know, 2003 to 2013, poverty fell from 44 percent of the region to 28 percent. And the prior 20 years it had been increasing. So you had 20 years of no progress on poverty, and then you had a lot. And this was, a lot of this was due to economic policy changes by these left governments that they never would have been able to do if they still were under the IMF.
The Bolivian government nationalized its, renationalized its hydrocarbons, [inaud.] mostly natural gas. This is something the IMF wouldn’t let them do under those agreements. So they had a huge increase in government revenue and they used it, you know, for public investment, to lower the retirement age, to stimulate the economy. All of these things would not have been possible. So that was a big change.
And the collapse of the IMF’s power over low and middle-income countries during this period is one of the biggest changes in the entire international financial system, and as I’ve said it’s gotten very, very little attention.
PERIES: Has that been the case when it comes to Greece, where IMF has played a very critical and important role as a part of the Troika, and even trying to, in the last set of negotiations, trying to pressure Europe and Germany and others to give Greece what they call a haircut, a reduction in what is owed to them.
WEISBROT: That’s right. They want debt relief, so they’re fighting with the rest of the European authorities on that. Well, it’s, you know, I think the thing you have to remember about the IMF is, it has a board of governors, an executive board. And so, the IMF is mostly run by the United States Treasury Department in most places in the world, and of course in the poorest countries where it still has that creditor’s cartel where they can really force governments to do things, like in Jamaica, for example, where they have the same power that they used to have in Latin America.
But when you go to Europe, then it’s the European Directors that are telling the IMF what to do, so the IMF is the junior partner in Europe. And this fight you’ve been seeing the last six months or so between the IMF and the rest of them, the rest of the European authorities, on whether Greece has to have some debt reduction in order to go forward, that’s mostly a fight between the US government and the European authorities. If the US was in agreement with the European authorities then the IMF would just shut up and they wouldn’t say anything about their differences with the other authorities, so that’s mostly what you’re seeing there.
It is significant, though, because it basically reflects the US kind of imperial and geopolitical interests. They don’t want to see Greece forced out of the Euro for their own reasons, you know? They supported all kinds of terrible dictatorship and atrocities to keep Greece within the Western fold, and–
PERIES: –Because it’s an important economic–
WEISBROT: –They consider it important, whereas the Germans, you know, and the European authorities, they’re looking at it more in terms of this neoliberal project that they have for all of Europe, and forcing Greece and everybody else, you know, like Wolfgang Shäuble said to Yanis Varoufakis, it’s about discipline. You know, we have to, give Greece something then Spain is going to want to do something more sensible.
And you know, you’ve got to remember, all of this austerity in Europe is, and the suffering there, is completely unnecessary. You have no–inflation is less than one percent in Europe. So they can create money, they can bail out the banks, they can have expansionary fiscal policy and it doesn’t cost [crosstalk] them anything.
PERIES: [interceding]–And still make money.
WEISBROT: Yeah. And it wouldn’t cost them anything.
PERIES: Yeah. It’ll be interesting to watch.
Now, one of the things about the IMF you mentioned earlier is that they themselves are going through some assessment where they are wondering about whether neoliberalism has been oversold, as you indicated. Does that mean they’re going to change their strategic approach to how they deal with middle income countries and poorer countries?
WEISBROT: Well, I would like to think so, but so far we don’t have much to show for it. You don’t have real changes in their economic policy. Now, as I said, in Europe they’re not really the main decision maker. But in the, I mean, in the countries where they really do have power, well, you can look at the Great Recession, you know, 2009.
We looked at 41 countries that signed, had operating under IMF agreements towards the end of 2008, and 31 of those had what we would call, economists would call pro-cyclical policies. That is, policies that made the economy worse. In other words, that would tend to slow the economy if it was in recession or already slowing down, it would make it worse, both fiscal, monetary or both.
So, they didn’t really change then. IF you look at their policies as expressed in their what are called article four agreements in Europe, still the same kind of things.
PERIES: Which are agreements they enter into with [crosstalk] finance departments of each country.
WEISBROT: Well, article four agreements are something that every country that’s a member of the IMF has to have regular consultations with the IMF. And then they produce a paper and the paper has, you know, kind of the state of the economy and policy agreements. And that’s where you see these–and policy recommendations–and that’s where you see all these recommendations that have been implemented in Europe in recent years like the cuts in healthcare spending and pensions, and weakening the power of labor unions, increasing labor supply and those kinds of things.
So, the IMF hasn’t really changed its practice much at all. Very, very little. It’s mostly just some changes in the research department.
PERIES: Even when they concede, in cases like Bolivia, that their pursuit of the policies that they pursued were actually successful in Bolivia.
WEISBROT: That’s right. They have kind of conceded that, and it doesn’t really change what they recommend. And I think it’s because it’s–You know, again, we have all these big questions here that are coming to the fore in the media now. You have Brexit. You have the Trans-Pacific Partnership and so-called trade agreements that are being a huge issue in the US presidential elections, and you have this populist revolt.
And it’s the same question, really. What is the IMF? It’s this organization that is run by the rich countries completely, and it’s determining policy where they can for poorer countries and developing countries. And, of course, they’re also helping determine policy and implement it in Europe. And what are they? They’re completely unaccountable to the people who are having to be forced to take their advice.
And so that’s the fundamental problem. You know, what you’re seeing in Europe is just kind of the IMF kind of policies that developing countries have suffered for decades now being implemented in the more vulnerable countries in Europe. But it’s the same thing, and it’s also, of course, a long term failure of neoliberal policies in almost all the places where they’ve been implemented.
PERIES: And that’s something that your book was very good at doing, which is to sort of plot the long-term nature of these failures. And so here we have a situation now in Europe. Time and time again, you know, the countries have failed, in terms of their economic goals and objectives and taking care of their populations.
As we mentioned in the first segment, you know, we have this situation where places like Spain, you know, there’s 50 percent unemployment when it comes to youth. It’s equally high in places like Greece and Portugal, or at least almost as high. And we’ve seen signs of it in France with young people joining the labor protests that are going on and protesting the policies that are being implemented by decree, you know.
And so, is there going to be any kind of change, even when the IMF itself is admitting that these policies have contributed to inequality around the world. And after Piketty’s study, which became so profound in the economic dialogue, how can they continue to ignore it?
WEISBROT: Because they don’t have to answer to anyone. Again, that’s the problem. You know, in a way you don’t even need any economics to understand. I mean, if you have an organization that is not accountable to any electorate, and in this case the IMF is run by the rich countries, do you expect it to look out for the interests of the poorer countries in the world? Do you expect the chamber of commerce to look out for, you know, make sure that labor law is enforced, that workers can organize unions in the United States? They’re not going to do that.
So, in terms of that kind of change you’re not going to see. The big change came by people voting with their feet, by the vast majority of low and middle income countries getting out of the IMF’s agreements, okay? That’s what was a big part of the big rebound you saw in economic growth and poverty reduction in the first decade of the 21st century. They lost that power.
You can look at Europe and you can look at it two ways. You know, are the European authorities going to change or is Eurozone going to break up and maybe even the European Union? I think the jury’s still out on that, but one of those two things is going to happen. They’re going to have to change their policies a lot, or countries are going to start leaving.
PERIES: All right, Mark. In our next segment let’s take a look at Latin America, specifically why they did so well in the period you outlined between 2000 and 2015, and the kind of crisis they’re now dealing with in the recent years.
And please stay tuned and we’ll be coming back with Mark Weisbrot. Thanks for joining us.
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