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The IMF: same old, same old!

The IMF: same old, same old!

By Bereket Gebru 10-13-16

The International Monetary Fund (IMF) holds annual meetings with its member countries and provides them with its advice on the economic route they need to take. Largely criticized for prescribing the same set of remedies for all the differing economic realities of countries around the world, these analyses and recommendations are tools used by the international organization to spread the use of a certain set of policies.

As has been clearly indicated by a number of scholars who closely dealt with the activities of the IMF, the paradigm that shapes the policy recommendations of the international organization is neoliberalism. A recent article by George Monbiot, a published author and activist against neoliberalism, entitled “neoliberalism – the ideology at the root of all our problems” identifies the IMF as a major promoter of the ideology. In his research: “Developing Country’s Experience with Neoliberalism and Globalization” Kalim Siddiqui states that the IMF and the World Bank used neoliberal measures in Latin America and Sub-Saharan African countries in response to the debt crisis in the 1980s.

A paragraph on the official website of the IMF states: “Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.”

Accordingly, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Ethiopia on September 26, 2016. As a member of the international organization, Ethiopia has received hefty loans from it with annual discussions held between the two parties. Although the level is not clearly determined, the policy recommendations of the IMF have a bearing on Ethiopian policies.

As stated in the research by Kalim Siddiqui:

the past decades of neoliberal policies have witnessed slower growth, greater trade imbalances and deteriorating social and economic conditions in most of the developing countries. The UNCTAD reports that, “for developing countries as a whole (excluding China), the average trade deficit in the 1990s is higher than in the 1970s by almost 3 percentage points of GDP, while the average growth rate is lower by 2 percent per annum.” Another study namely by Mark Weisbrot found that, “contrary to popular belief, the past twenty five years (1980-2005) have seen a slower rate of economic growth and reduced progress on social indicators for the vast majority of low and middle income countries (compared with the prior two decades).”

The IMF is a proponent of neoliberalism that has pushed numerous countries into the degrading path of economic colonialism. The slower rate of economic growth and reduced progress on social indicators associated with neoliberalism also pose considerable threat to the hopes of our nation. Therefore, it is important to look into the recommendations of the international financial institution.

The IMF has, since the mid 1970s, pushed developing countries with trade deficits towards opening up markets for foreign investors, export promotion, privatization and devaluation of currency. It is these policies that have effectively handed the poor over to the merciless greed of the rich. Therefore, we will consider if these policies are still in the mix of IMF’s recommendations.  

Accordingly, the IMF indicated: “Ethiopia’s macroeconomic outturn during the past year 2015/16 has been adversely affected by a severe drought and the weak global environment. As a result, output growth is estimated to have slowed down in 2015/16 to 6.5 percent. The slowdown was mitigated by effective and timely policy responses to the drought, and buoyant industrial and services sectors. Stability-oriented macroeconomic policies, including drought-related food imports, curbed inflationary pressures, with overall inflation receding to 6 percent in July 2016.”

The IMF summary also hailed other constructive policy measures by the Ethiopian government and pointed out a few areas of concern before embarking on the executive board assessment. In their summary, the IMF directors “welcomed the (Ethiopian) authorities’ priorities for structural reforms as outlined in the second Growth and Transformation Plan, with a focus on economic and social development, as well as on private sector development.”

Although the development of the private sector would help speed up economic development, the sense of providing individuals with a bulk of the country’s resources could leave the country’s wealth in the hands of a few people. As is the case with developed neoliberal states such as the U.S., the majority of the country’s resources falls into the hands of less than 1% of society while over 99% of the masses do not even get free medical care for their contribution to their rich country. The result is the neoliberal opportunity for trickledown economics which simply does not work. Therefore, it is important to make sure that policies that promote private sector development do not end up widening the gap between the poor and the rich, disrupting the sense of justice in wealth distribution that has been evident in our country until now.

The IMF directors also “called for stepped‑up efforts to reduce the external imbalance, and considered that the authorities’ objective of increasing and diversifying exports is an appropriate response that would yield the highest growth dividend over the medium term.” Increasing and diversifying exports has also been a regular among IMF’s recommendations as it helps the multinationals it truly represents purchase products cheaper because of the increased supply in the international system. There are situations where the tremendous push for exports has rendered the buyers, huge multilaterals, control the trade of some items promoting them as price-fixers.

The summary also states “the directors stressed that a tighter fiscal stance, while protecting the vulnerable, and a more flexible exchange rate would facilitate reducing external vulnerabilities and the necessary buildup of foreign reserves.” As has been proven over the years, more flexible exchange rate refers to devaluation of currency. Numerous Ethiopian economists and the government have argued in recent years that devaluation is going to cause the country more harm than good. Regardless of that reality, though, the IMF and other international monetary institutions keep pushing for it. With inflation levels so high already and contributing to the country’s current unrests, more devaluation could potentially pour gas on to the fire.

Yet another of their suggestions is: “fiscal revenues could be increased by introducing property taxes, reducing exemptions, and administration reforms to enhance taxpayer coverage and compliance.” The reduction of exemptions would presumably open up some activities exempted for the private sector. Social services make up one aspect of theses exemptions while another includes banking.

The IMF also could not resist a call for privatization. Its “directors also welcomed the remit of the new Ministry for Public Enterprises to strengthen the commercial profitability and governance of the key state‑owned enterprises, while advancing in the privatization of those with a less strategic role.”

With years of experience showing that the IMF recommends these same things no matter what the problem is, I do not think governments should bother on the content of their annual summary. After all they can anticipate beforehand exactly what they are going to be. The IMF should also feel embarrassed about this. Countries like Ethiopia, on the other hand, need to scrutinize the IMF’s recommendations and resist its path down neoliberville.

 


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