Marc Weisbrot of the Center for Economic and Policy Research has written an op-ed on the IMF’s increased funding and possibilities of reform. At the core of his argument is the belief that the Fund simply hasn’t changed since the bad old days so excoriated by the likes of Stiglitz and Sachs:
in spite of the depth of the world recession, the Fund is too willing to sacrifice employment, and increase poverty, in pursuit of other goals. A country can always reduce a trade deficit by shrinking its economy, since that causes households and businesses to import less. The main purpose of IMF lending in the current crisis should be to enable low- and middle-income countries to do more of what the rich countries are doing: adopt stimulus packages that counter the downturn.
It’s not often that an article comes along with that you can agree with without reservation or qualification, but I think that this might be one of them. In the meantime, The Economist worries that all the attention the IMF is getting runs the risk of sidelining the World Bank. Over at the Bank, Shanta Devarajan insists that ‘even though it is the least integrated with the global economy, Africa may be the worst hit region by the global economic crisis’, due to falling private capital investment inflows, falling remittances, falling commodity prices and falling foreign aid. Owen Barder addresses this last point when he notes that while Wednesday’s Budget didn’t cut aid, it didn’t raise it either. Duncan Green is right to suggest that with Britain’s fiscal condition the way it is, this demonstrates the Prime Minister’s genuine (and somewhat exceptional) commitment to international development.
Across the pond, Simon Johnson argues that the current financial crisis is a similar one to those that plagued middle-income countries in the 1990s:
In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. Just as in emerging-market crises, the weakness in the [U.S.] banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
It’s been widely observed that the US (and other western countries) are now engaging in the very economic recovery strategies denied to the likes of Argentina, Malaysia, Thailand and South Korea. (See Marc Weisbrot’s article for more on this – even now, El Salvador’s agreement with the IMF prevents it from using expansionary fiscal policy.) But for Johnson the financial sector has learnt little from the crisis:
there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive.
Plus ça change, plus c’est la même chose.
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