Wednesday, 21 April 2010

More on the comings and goings of the IMF

As I have noted in the past, one of the more significant consequences of cost cutting and savings in order to "vouchsafe the recovery" is that more and more people end up without jobs. The number of people for whom recovery means nothing as they languish on the unemployment line is growing fast;
Unemployment increased by 43,000 between December and February to 2.5m, according the last set of official figures released before the General Election.

The number of Britons out of work now stands at a 16-year high, while the number of people classed as economically inactive also reached record levels.

The latter category, which includes students, people looking after a sick relative or those who have given up seeking work, soared by 110,000 in the latest quarter to 8.16m, the worst figure since records began in 1971.
Meanwhile long-term unemployment, counting those out of work for over a year, increased by 89,000 to 726,000.

And some 4,000 more 16 to 24-year-olds also found themselves without a job during the three-month period.
It seems that this isn't affecting the public purse, though, as "the number of people claiming Jobseeker's Allowance fell by 32,900 last month to 1.54m." So that's alright then. Masses of people being out of work is okay if there's a reduced cost.

Nonetheless, this rise in unemployment fits with a warning from the International Monetary Fund (IMF) that unemployment will remain "persistently" high for at least the coming year. Though Britain's situation is not as bad as Spain or the United States, the reason why is a "puzzle" and the country remains a "significant concern."

The IMF maintains a keen focus on Britain, warning of a £270bn "financial black hole" and a "public debt mountain" triggering a new phase in the financial crisis. That this comes after they "downgraded its UK growth forecast for 2011 from 2.7% to 2.5%,"suggesting that "whoever wins the election will be facing an even tougher task to rein in the deficit.

Yesterday I reported, with skepticism, of the IMF's proposal that future crises should be paid for by the financial sector rather than the taxpayer. As I noted, the announcements appear to have arisen out of pragmatism rather than any sense of progressive values. Given this broader context, it seems that skepticism was justified.

There is only one way that governments know how to reign in a public deficit, which is to cut public spending. Since this means jobs and services, this tallies with the assessment of "persistently" high unemployment in the near future. We can see this in the situation in Greece, where working class anger has once again exploded as Prime Minister George Papandreou enters talks with EU and IMF financiers. The expectation is that he will request activation of a €30bn bailout package, triggering a further round of austerity measures.

The IMF has also approved a bailout for Iceland, whose economy (and government) completey collapsed during the recession, and we wait to see what the consequences of this are. However, in the third world, the expectations and the consequences of IMF loans are well known;
When the International Monetary Fund (IMF) and the World Bank announced at their 1999 annual meeting that poverty reduction would henceforth be their overarching goal, this sudden "conversion" provoked justifiable skepticism. The history of the IMF shows that it has consistently elevated the need for financial and monetary "stability" above any other concern. Through its notorious structural adjustment programs (SAPs), it has imposed harsh economic reforms in over 100 countries in the developing and former communist worlds, throwing hundreds of millions of people deeper into poverty.

The IMF came to hold virtual neo-colonial control over developing countries as a result of the Third World "debt crisis" of the 1980s. In the 1970s, commercial banks were eager to make large loans to developing countries and newly independent countries. The interest rates on these loans were initially very low, but variable. But when interest rates were raised sharply in the early 1980s, heavily indebted countries suddenly found themselves unable to make soaring interest payments on these bank loans, and many were simultaneously indebted to the World Bank. That's when the IMF stepped in.

Unless the IMF certified that an economy was being "restructured" and "maintained soundly," the world's public and private lenders would refuse to extend loans. The IMF decided that countries must now adhere to the policy package of structural adjustment, which essentially integrates national economies into the global market, enabling multinational corporations to access cheaper labor markets and natural resources, and increase exports. Sold as means to increase domestic growth and living standards, countries must remove restrictions on trade and investment, promote exports, devalue national currencies, raise interest rates, privatize state companies and services, balance national budgets by slashing public expenditures, and deregulate labor markets.

Caught in the trap of having to repay massive debts, most developing country governments-representing 80 percent of the world's population-have felt they have had little choice but to agree to implement these reforms in exchange for IMF assistance. The results, however, have brought ruin to national economies, cutbacks in schools and hospitals, increased poverty and hunger, and environmental harm.
There is, of course, the question of whether the first world will suffer anything even remotely equivalent. Several factors, from the (limited) protections offered by social democracy to the fact that it would be much more difficult for western governments to suppress their own populace through violence without any condemnation, make this unlikely. But, as in Greece, we know that the consequences can still be harsh.

We need to keep a more watchful eye on the actions of the IMF, especially as it seems to to be turning its attention towards Britain now. Two and a half million people unemployed may be just the start.