Dealing with the International Monetary Fund

Non-central countries in critical fiscal and over indebtedness situations establish biased negotiations with the International Monetary Fund that lead to the imposition of unfavorable policies for its people. How do they fall in this situation, why do they accept so awful “solutions” when there are other sovereign options? 

Recurrent crisis that batter almost all non-central countries do not just happen because a poor management of their rulers, even though when rulers adopt neoliberal policies they contribute to blow crisis out of proportion. The underlying layer of this crisis is a dynamic that concentrates wealth and decisional power, that allows that those who dominate evade their responsibilities and inexorably generates systemic instability.    

Recurrent crisis and functioning of “our” economies

The economies of non-central countries reveals singularities as well as some common denominators. One that prevails in almost all latitudes is that the country productive structure remains dominated and conducted by a handful of large corporations (local or subsidiaries of international corporations) that lead main value chains. These firms act as oligopolies that with marker power abuses  subdue both suppliers and consumers, while condition governments to cut back on regulations and adopt public policies that favor them in detriment of general interests. 

A main output of the concentration dynamic is that a minority expropriate surpluses that they not generate and send them overseas as capital flight. Those surpluses emerge from a combine effort of a huge number of medium and small ventures together with the Estate that provides basic services and social and productive infrastructure. That is, a country wealth is generate by the entire society even though concentrated groups expropriate it and then sterilize as capital flight.     

The power of concentrated groups, extent over media, Justice, politics, some part of the educational and health systems. It also verifies over land ownership, credit allocation, a regressive tax structure, public expense providing dominating interests with subsidies and public works that serve them without assuming its costs.    

The concentrated structure is not a recent creation but have long-terms roots. It started with the colonization that non-central countries suffer, something not to forget or hide since the wealth expropriated served to capitalize the colonists. 

Why countries turn to IMF in spite of the enormous disparity in negotiation power and policy imposition

Immerse in concentrate dynamics and with shrink genuine income, the Estate has to cover as it can basic social needs and the privileges imposed by large corporations and wealthy local groups. The outcome become inevitable: countries fall into large fiscal deficits and sovereign indebtedness that become unsustainable. When even loan sharks disappear, the table is ready to turn imploring before the IMF.

The negotiation that starts looks slanted beforehand, in principle because of the power disparity between the IMF and an isolated country flogged by insane neoliberal policies.

It is worth remember that IMF is an international organization established by central countries that keep for themselves the decisional power. Their rules and recipes are sweeten with nice words even though it is clear that they focus in securing that debtor countries pay off their debts to foreign creditors, most of whom are based in the same central countries.   

This power disparity allows IMF to impose its own perspective and recipes on how to tackle fiscal deficits and sovereign over indebtedness. They just consider the present reality of a country with heavy wealth concentration without suggesting any dynamic transformation; force them to “arrange” the economy with severe public spending adjustments, mostly social expenses, plus opening the country to all types of imports, unregulated capital flows, labor and social security relaxation cutting back rights achieved with great efforts and social struggles. The purpose is to open the economy attracting investments by securing high corporate returns at the expense of middle income and popular sectors.  They contend that by increasing their wealth, investors and speculators will generate an economic spill to all the society, an absurd postulate always refuted by historic experience: it never happen in non-central countries. This strategy do not solve the problems, it enlarge them.  

It happens that IMF arrives to a country supplied with a mandate stipulated by central countries and with a set of analysis and data generated by local or foreign agencies that analyze the country reality from the neoliberal perspective. Therefore, the dashboard that IMF and its local supporters use appear disassociated with the concentration dynamic effects. Those that profit with the wealth and decisional power concentration conceal the need to dismantle the engines that generate it and, in alliance with IMF, focus the solutions (that are impositions) in correcting fiscal and over indebtedness problems with recessionary adjustments. They lay out with crude hardness that those that are already victims of the concentration process make off with the adjustment weight. They do it pleading that there are no better options since those they propose, without discussion, are the most effective ones. 

Alternative options: transform the economy in order to take care of the people and the environment

IMF principles are just one more among many others; its recipes uncover dominating interests and infringe the rights of huge majorities. We firmly uphold that there are other very different public policies to confront fiscal and over indebtedness problems; one that at the same time take care of the people and the environment.  

Even though there is much to consider on this matter, in the following lines we can only present a short but forceful outline of the paradigm change. In few words, we need to address the whole size not just parts artfully chosen, pointing towards the dynamic of a process and not to one particular moment of reality, by definition static. This perspective allows conceiving different analysis and, therefore, other different options to intervene based in criteria that the dominating interests will ever suggest.

We should ask ourselves why confronting a fiscal deficit strangling the people with heavy adjustments when every year, constantly, a tremendous tax evasion and capital flights occurs, an inconceivable amount of resources[1] that “disappear”. If we cut off the tax evasion, the Estate would have the funding to eliminate or dramatically reduce its fiscal deficit. If we close capital flights reorienting surpluses toward strategic investments for development, there will not remain reasons to fall into burdensome sovereign over indebtedness.  

The programs to negotiate with the IMF should head in that direction, something not easy even though it seems (up to now it only seems) that the Fund starts to recognize the futility of its recipes.  

The reallocation of surpluses that today countries loose would allow funding strategic projects and strengthening the productive system that goes much beyond just large corporations. An enormous effort should be oriented towards capitalizing small and medium size enterprises, as well as to associative undertakings of the popular economy. From this perspective, all enterprises are call to contribute, including those leading main value chains, not harming but benefiting the rest. There exist different forms to transform oligopolic structures in value chains so that all participants are able to retain an equitable part of what they produce for its own capitalization. It is about stablishing a fairness, effective and sustainable field to operate far away from the greedy operating principle of each one looking to maximize returns at whatever cost.  

Strength comes in numbers

It is impossible to ignore debtors countries need to set up strategic coalitions to stablish new rules of negotiation with IMF dismissing recessionary adjustments. Margins to negotiate of any individual country are extremely narrow.

In any case, there is nothing intrinsically immutable in the present geopolitical order. Global forces sometimes converge and other times they antagonize. Windows of opportunities open and close in times that need to be distinguish, understood and known how to take advantage. It does not help just to look how reality goes by from our distant walls or wire fences. It is worth to work options joining forces.  

W# cannot accept that IMF rules and policies will remain immutable; are not engraved in stone but stablish by a handful of central countries. Those norms can and need to be changed, unfolding the suicide trajectory of insane interests govern by greed and power eagerness. A joint effort of no central countries opens new possibilities for achieving better and more equitable agreements for the good of the humanity and the planet. It is challenging but also critical what is at stake.


[1] Just for the case of Argentina, specialists in capital flights estimate that in 2012 30.000 million dollar flew out of the country (!!!) “La fuga de capitales en Argentina”, Alejandro Gaggero, Jorge Gaggero y Magdalena Rúa (CEFID-Ar, 2014. In the 2016-2019 period, the flights were even larger.

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