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Step forward, IMF, and do your job

And do it fast, or the eurozone will find its way without you.

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by Chris Marshall on Sep 30, 2011 at 10:27

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‘The IMF took me coat’ reads one of Irish website Puckout.com’s best-selling t-shirts. ‘I’d rather be screwed by the IMF’ goes another.

Resentment against the International Monetary Fund's demands is a timeworn pastime, one that can seem irrational to outsiders when a country is paying the price of years of profligacy and poor economic management.

In Ireland’s case, its downfall wasn’t the result of complex financial experimentation of the sort that regulators and journalists around the world failed to understand. Instead the nation’s finances became dangerously reliant on a property binge. Construction accounted for a huge chunk of Ireland’s GDP, nearly double the EU average.

Somehow the alarm bells were drowned out by the Celtic Tiger’s roar. And so we all missed them – and the chance to act early – the IMF included.

Following its failure to see the warning the signals in Ireland and in systemically more important economies, the fund – which counts financial stability among its core objectives – has been frantically trying to justify its existence in the global financial system.

It is currently pitching itself as a cheerleader for global coordination: its message it an important one, but its staff are vainly shouting to be heard above a cacophony of the world’s most powerful voices – be it US treasury secretary Timothy Geithner calling for the Chinese to let their currency strengthen, or China’s Premier Wen Jiabao telling Europeans to ‘put their own houses in order’.

New fund chief Christine Lagarde’s oft-repeated refrain – please work together – is the same one her predecessor, Strauss-Kahn, was fruitlessly espousing in October when he joined in the chorus of policymakers warning about the currency wars – the dispute caused by countries devaluing their currencies in order to boost the competitiveness of their exports (the very same policy the IMF has historically encouraged).

Sadly, the IMF should have been put out to pasture long before its failures in the crises of the past few years. Its ill-thought-out policies in the 1980s and ‘90s, and the conditions imposed with them, contributed to inequalities that led to conflict in many countries. And that’s fact rooted in academic rigour, not anti-capitalist conspiracy.

Past failures aside – careers are dedicated to charting the fund’s misdeeds – the eurozone debt crisis is providing the IMF with another chance to reinvent itself and prove its worth in a changing world economic order. But if it doesn’t act fast, emerging nations will become the new bailout fund, or more likely Europe will get there on its own.

Does Europe need the IMF even now? After all it has created its own fund, the EFSF, and squabbling politicians across the eurozone even seem on the verge of agreeing on its extension.

And the last massive cash raising, when in 2010 a joint European and IMF $1 trillion 'shock and awe' package bailout package was announced, could have been done without the IMF, at least financially. The IMF’s contribution of €250 billion is chump change that Europe could have stumped up (we’re talking stand-by funds and loan guarantees here). The IMF’s role was psychological – to add gravitas – but judging from how quickly the market bulldozed through that thin veil of credibility, this was not a success.

And now the IMF is running out of cash; if things get worse, the IMF simply won’t be able to do anything. It sucks up resources, yet doesn’t have enough

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7 comments so far. Why not have your say?

It's bust, like almost all governments.

What do you expect when you run a Ponzi fraud?

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Thank you nickle - comment about right.

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You have to look at what all these deals are. They are just trying to shuffle around the debt. A bit of financial engineering here, a bit there. Try and move some maturities around. That's attempt one.

Attempt two is to screw over one set of taxpayers (from another country), in a way that they don't notice. ie. Guarantees, take the loans on with delayed payments, print some cash.

Next they will try partial bankruptcy, but they won't go far enough. Pain has to be shared, and the problem is that its now obvious.

None of these address the fundamental issue.

Too much debt and too much spending.

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Basically western governments (and people) have spend money they dont have hoping the economic growth will solve the problem. Trouble is, that none will admit, continuous growth is not sustainable therefore will not come to the rescue. Challenge is that they need to balance the books assuming no growth - painfull because we will all be worse off as we have been spending more than we earn. Sooner someone has the balls stands up and say it the sooner we can start on the road to recovery. And yes those that have over spent the most (people and governments) should suffer the most!

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Hmmmmm... it seems that ALL western economies are in debt to each other and 'others'.

What would happen if we all decided to default on all our debts to each other and say 'sorry we're not going to pay' to 'the others'?

WW3 or a 'new start'?

It still wouldn't be a solution; within 24 hours our noble governments would already be piling on the debt anew.

There's something fundamentally wrong here.

Linear growth versus exponential growth. Linear growth is boring and slow; exponential growth is hugely leveraged, exciting and very, very risky.

I'd rather slow linear debt free growth or even stasis rather than the hysteria surrounded by exponential growth fuelled by external funding and more and more debt.

The 'Beeb' has a Rado 4 programme entitled:

'Capitalism on Trial'

Capitalism has given us fantastic wealth, but maybe time now to take a breather and consider what we REALLY want - even subjective things like 'quality of life' and what they really mean to us rather than the size of tv screens and how much data we can carry around in some mobile communication device when sometimes we need peace and quiet and time to think and breathe without constant input of data that overcomes our senses.

The IMF?

We wouldn't need the IMF if we set our sights on a sustainable life where we didn't have to grow materially so quickly or run in circles like headless chickens just to stay still!

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Interesting isn't it that there is a natural braking system to "continuous" growth The great Global Economy mantra has reached its limitations having destroyed its credibility in the process. Think global, act local has never had more relevance. We are beginning to witness, grass roots empowerment driven by appalling mismanagement from Local Authority level right through to global institutions. There is another way and it is a movement that is growing. Global, like America and Corporate, has had its day as the controlling forces manipulating wealth for the few. It will still have relevance but as a more equal partner to Local.

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Rose G

Oct 03, 2011 at 11:54

The constant need to have economic growth often obscures the need to have growth which actually means an improvement in quality of life for the people.

The rise in consumerism has meant that we suffer from diseases of the affluent ie diabetes, obesity, heart disease da da da!

We cannot go on growing - anyone with common sense will tell you that but we know no one in the economic or financial world is grown up - we are in thrall to these idjeets because of what we perceive to be an influential area but actually, how influential can one be when one is not only financially, but morally bankrupt.

The IMF has been morally bankrupt since its inception, & now it can claim another way to fame, financially bankrupt or close to it - imagine what a laugh I am having as someone who has not awarded this corrupt organisation the same plaudits that those in the financial markets did or continue to do!

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