Under a new post-war monetary system, the IMF was created to stabilize exchange rates linked to the dollar and bridge temporary payment imbalances. The World Bank was to provide credit to war-torn developing countries. Both bodies, in fact, proved hugely exploitive, using debt entrapment to transfer public wealth to Western bankers and other corporate predators.
On a grander scale today, the scheme destructively obligates indebted nations to take new loans to service old ones, assuring rising indebtedness and structural adjustment harshness, including:
— mass layoffs;
— deep social spending cuts;
— wage freezes or cuts;
— unrestricted free market access for western corporations;
— corporate-friendly tax cuts;
— tax increases for working households;
— crushing trade unionism; and
— harsh repression against opposition to a system incompatible with social democracy, civil and human rights.
As a result, bankers and other corporate predators strip mine countries of their material wealth and resources, shift them from public to private hands, crush democratic values, hollow out nations into backwaters, destroy middle class societies, and turn workers into serfs if they manage to have any means of employment.
In other words, perpetual debt bondage substitutes for freedom. A race to the bottom follows. An elite few benefit at the expense of the many, entrapped nations henceforth forced to pay homage to their money masters, effectively handing over their sovereignty.
As a result, neoliberalism is neo-Malthusianism writ large, destroying humanity to save it. Its holy trinity, in fact, mandates no public sphere, unrestrained corporate empowerment, and eliminating social spending to devote all state resources for bottom line profits, national security and internal control.
Except for the privileged few, it’s the worst, not the best, of all possible worlds, financializing economies into debt bondage, transforming them into hollow shell dystopian backwaters.
For example, in the 1980s, 187 IMF loans caused poverty, hunger, malnutrition, disease and death for many developing countries, including all sub-Saharan ones entrapped by structural adjustment harshness. Their growth, in fact, declined on average by 2.2% per year, and per capita income dropped below pre-independence levels.
Debt service required health expenditures cut 50% and education by 25%. Moreover, as indebtedness rises, so does forced austerity, what, in fact, becomes a death spiral requiring new loans to service old ones, a never-ending cycle to oblivion for many nations in hock to IMF mandates.
In Latin America, the 1980s was a lost decade. Loans to Chile required 40% wage cuts. During Mexico’s 1982 debt crisis, wages as well as spending for health, education, and basic infrastructure dropped by half. As a result, infant mortality tripled and vital human needs were unmet to assure bankers got paid.
By decade’s end, developing nations overall, in fact, were worse off, not better, deeper than ever in debt the way IMF officials planned. Devaluations followed. Debts burgeoned. Growth fell. Earlier from 1976 to 1982, Latin American borrowing doubled, 70% of new loans needed to service old ones.
Yet Article I of the IMF’s Articles of Agreement audaciously says it lends:
to give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
The IMF’s web site states it provides loans to reduce poverty and increase economic development, adding that “(i)n difficult economic times, (it) helps countries to protect the most vulnerable in a crisis.”
It fact, it does precisely the opposite, entrapping them in debt, poverty and depravation, operating as a global loan shark, demanding not a pound of flesh but all of it no matter the pain and suffering caused.
Once shock therapy entrapped Chile under Pinochet, unemployment rose from 9.1 to 18.7% between 1974 and 1975. At the same time, output fell 12.9% as cheap imports flooded the country. As a result, local businesses closed, hunger grew, and so did mass disenchantment with economic harshness followed by repressive crackdowns against challenges to regime control.
A decade later, growth resumed, but only after conditions worsened, including 45% of Chileans impoverished while the nation’s richest 10% saw their incomes rise by 83%.
It works the same way everywhere under IMF mandates, including mass impoverishment, public wealth transferred to private hands, out-of-control corruption and cronyism, and nations transformed into hollow shells to benefit super-rich elitists already with too much.
In 1980s Bolivia under Victor Paz Estenssoro, austerity included wage freezes, ending food subsidies, lifting price controls, hiking oil prices 300%, imposing deep social spending cuts, permitting unrestricted imports, downsizing state enterprises before privatizing them, and letting unemployment rise sharply.
The decade through the early 1990s saw Latin American debt rise from $110 billion in 1980 to $473 in 1992, accompanied by interest payments growing from $6.4 billion to $18.3 billion. As a result, worker livelihoods, health and welfare suffered. Globally, in fact, many millions lucky enough to have work endure sub-poverty wages to let foreign predators cash in, profiting enormously on their misery.
The scenario replicated from sub-Saharan Africa to Latin America to Russia and Asian Tiger countries in 1997/98, looting them one at a time or in combination, turning Asia’s miracle, in fact, into disaster.
The International Labor Organization estimated 24 million lost jobs as a result of selling state enterprises at fire sale prices, replacing local brands with Western ones, and letting foreign predators benefit from what The New York Times called “the world’s biggest going-out-of-business sale.”
At the same time, Asian workers became human wreckage, the fallout IMF policy statements never explain, perpetuating the myth they offer help as a lender of last resort when, in fact, their mandate is plunder for profit, no matter the damage caused.
Mandated Austerity in Greece
In his June 7 article titled, “Will Greece let EU Central Bankers Destroy Democracy,” Michael Hudson discusses proposed bailout terms, calling them “an opportunity for privatization grabs,” what local voters didn’t bargain for with 2000 Euroland membership.
They didn’t understand its unintended consequences, including agreeing to foreign-controlled central bank authority running Greece like a colony, substituting its will over national sovereignty.
According to Professor William Black (former senior bank regulator and Savings and Loan prosecutor), Eurozone membership has strings, including foregoing rights to:
— to devalue currencies to make exports more competitive;
— sovereignty over members’ own money or (for “periphery nations”) influence over European Central Bank (ECB) policies; and
— expansive fiscal policies to stimulate growth.
In fact, mandated bondage “is a double oxymoron – preventing effective counter-cyclical fiscal policies harm(ing) growth and stability throughout the Eurozone,” weak members hurting stronger ones.
Moreover, like all debt-entrapped countries, Greece’s bailout price is structural adjustment harshness, making a bad situation worse. It requires new infusions during hard times, causing rising indebtedness – the familiar IMF-imposed death spiral no responsible leader should accept.
Last year, however, in return for a $150 billion loan, Greek Prime Minister Georgios Papandreou imposed earlier cuts, including:
— large public worker layoffs;
— public sector 10% wage cuts, including a 30% reduction in salary entitlements;
— cutting civil service bonuses 20%;
— freezing pensions;
— raising the average retirement age two years;
— higher fuel, alcohol, tobacco, and luxury goods taxes with much more to come given Greece’s worsening debt problem.
Euroland officials now demand them in return for more bailout help, Eurogroup President Jean-Claude Juncker expecting Greek political consensus to agree, saying:
“In the case of countries with difficulties, it would be wise for the principal political forces of those countries to agree on the path to follow. That’s what happened in Ireland, and that’s what we would like to happen between the political parties in Greece,” no matter the economic wreckage or human cost.
Undeterred, on June 8, Papandreou announced new tax increases and over $9 billion in spending cuts. Earlier he divulged plans to raise nearly $75 billion by privatizing state enterprises, including water companies, Piraeus and Thessalonika port facilities, the Athens racecourse, Greece’s Postbank, a casino, the OPAP lottery company, and state rail system.
However, Brussels demands more, including deeper cuts and selling off Greece’s crown jewels at fire sale prices, effectively ceding its entire sovereignty to foreign buyers able to strip mine its wealth, no matter the human cost.
Greek public assets are worth an estimated $440 billion. Brussels wants at least the best of them sold as well as no restructuring to assure full debt repayment in return for another $125 billion loan.
However, given Greece’s rising burden, no amount is enough as greater austerity impedes economic growth and recovery, compounding its current crisis.
The Argentina Solution
On May 31, Irish Times.com headlined, “Ireland ‘may try to restructure debt,’ ” saying:
According to Ernst and Young, “Ireland may try to restructure its debt to lower interest payments or extend the maturity on its borrowings as the economy contracts again this year.”
Like Greece, Portugal, Spain, Italy, and troubled Eastern European countries, Ireland’s burden shows no signs of abating, perhaps heading it either for restructuring or default as the most sensible step to take.
In December 2001, Argentina halted all debt payments to domestic and foreign creditors. Months earlier, an IMF loan didn’t help. Nearly $100 billion in debt was restructured, completed in 2005 on a take it or leave it basis, imposing stiff haircuts to bondholders agreeing to terms of around 65%, deciding something was better than nothing. Most holdouts out finally capitulated in 2010 on similar terms.
Sustained economic growth followed from 2003 through 2007, helped by debt restructuring and a devalued currency. Eurozone countries can relieve their burdens with a similar option, reclaiming their sovereignty by reinstating their pre-euro currencies, what they never should have sacrificed in the first place.
Stephen Lendman is the author of How Wall Street Fleeces America and The Iraq Quagmire. Listen to his cutting-edge Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. Lendman lives in Chicago and can be reached at [email protected]. Also visit his blog site at sjlendman.blogspot.com.