Adonis Diaries

Posts Tagged ‘International Monetary Fund (IMF)

 International Monetary Fund:  Top Ten Reasons to Oppose the IMF

I have already written a dozen posts about the calamities and damages that International Monetary Fund has and is still doing on world financial and economic stability.  An extra concise article is a great reminder, from an unknown author.

What is the IMF?

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The International Monetary Fund and the World Bank were created in 1944 at a conference in Britton Woods, New Hampshire, and are now based in Washington, DC.

The IMF was originally designed to promote international economic cooperation and provide its member countries with short-term loans so they could trade with other countries (achieve balance of payments). Since the debt crisis of the 1980’s, the IMF has assumed the role of bailing out countries during financial crises (caused in large part by currency speculation in the global casino economy) with emergency loan packages tied to certain conditions, often referred to as structural adjustment policies (SAPs).

The IMF now acts like a global loan shark, exerting enormous leverage over the economies of more than 60 countries. These countries have to follow the IMF’s policies to get loans, international assistance, and even debt relief.

Thus, the IMF decides how much debtor countries can spend on education, health care, and environmental protection. The IMF is one of the most powerful institutions on Earth — yet few know how it works.

  1. The IMF has created an immoral system of modern-day colonialism:  The IMF — along with the WTO and the World Bank — has put the global economy on a path of greater inequality and environmental destruction. The IMF’s and World Bank’s structural adjustment policies (SAPs) ensure debt repayment by requiring countries to cut spending on education and health; eliminate basic food and transportation subsidies; devalue national currencies to make exports cheaper; privatize national assets; and freeze wages. Such belt-tightening measures increase poverty, reduce countries’ ability to develop strong domestic economies and allow multinational corporations to exploit workers and the environment A recent IMF loan package for Argentina, for example, is tied to cuts in doctors’ and teachers’ salaries and decreases in social security payments…The IMF has made elites from the Global South more accountable to First World elites than their own people, thus undermining the democratic process.
  2. The IMF serves wealthy countries and Wall Street: Unlike a democratic system in which each member country would have an equal vote, rich countries dominate decision-making in the IMF because voting power is determined by the amount of money that each country pays into the IMF’s quota system. It’s a system of one dollar, one vote. The U.S. is the largest shareholder with a quota of 18 percent. Germany, Japan, France, Great Britain, and the US combined control about 38 percent. The disproportionate amount of power held by wealthy countries means that the interests of bankers, investors and corporations from industrialized countries are put above the needs of the world’s poor majority.
  3. The IMF is imposing a fundamentally flawed development model: Unlike the path historically followed by the industrialized countries, the IMF forces countries from the Global South to prioritize export production over the development of diversified domestic economies. Nearly 80 percent of all malnourished children in the developing world live in countries where farmers have been forced to shift from food production for local consumption to the production of export crops destined for wealthy countries. The IMF also requires countries to eliminate assistance to domestic industries while providing benefits for multinational corporations — such as forcibly lowering labor costs. Small businesses and farmers can’t compete. Sweatshop workers in free trade zones set up by the IMF and World Bank earn starvation wages, live in deplorable conditions, and are unable to provide for their families. The cycle of poverty is perpetuated, not eliminated, as governments’ debt to the IMF grows.
  4. The IMF is a secretive institution with no accountability: The IMF is funded with taxpayer money, yet it operates behind a veil of secrecy. Members of affected communities do not participate in designing loan packages. The IMF works with a select group of central bankers and finance ministers to make polices without input from other government agencies such as health, education and environment departments. The institution has resisted calls for public scrutiny and independent evaluation.
  5. IMF policies promote corporate welfare: To increase exports, countries are encouraged to give tax breaks and subsidies to export industries. Public assets such as forestland and government utilities (phone, water and electricity companies) are sold off to foreign investors at rock bottom prices. In Guyana, an Asian owned timber company called Barama received a logging concession that was 1.5 times the total amount of land all the indigenous communities were granted. Barama also received a five-year tax holiday. The IMF forced Haiti to open its market to imported, highly subsidized US rice at the same time it prohibited Haiti from subsidizing its own farmers. A US corporation called Early Rice now sells nearly 50 percent of the rice consumed in Haiti.
  6. The IMF hurts workers: The IMF and World Bank frequently advise countries to attract foreign investors by weakening their labor laws — eliminating collective bargaining laws and suppressing wages, for example. The IMF’s mantra of “labor flexibility” permits corporations to fire at whim and move where wages are cheapest. According to the 1995 UN Trade and Development Report, employers are using this extra “flexibility” in labor laws to shed workers rather than create jobs. In Haiti, the government was told to eliminate a statute in their labor code that mandated increases in the minimum wage when inflation exceeded 10 percent. By the end of 1997, Haiti’s minimum wage was only $2.40 a day. Workers in the U.S. are also hurt by IMF policies because they have to compete with cheap, exploited labor. The IMF’s mismanagement of the Asian financial crisis plunged South Korea, Indonesia, Thailand and other countries into deep depression that created 200 million “newly poor.” The IMF advised countries to “export their way out of the crisis.” Consequently, more than US 12,000 steelworkers were laid off when Asian steel was dumped in the US.
  7. The IMF’s policies hurt women the most: SAPs make it much more difficult for women to meet their families’ basic needs. When education costs rise due to IMF-imposed fees for the use of public services (so-called “user fees”) girls are the first to be withdrawn from schools. User fees at public clinics and hospitals make healthcare unaffordable to those who need it most. The shift to export agriculture also makes it harder for women to feed their families. Women have become more exploited as government workplace regulations are rolled back and sweatshops abuses increase.
  8. IMF Policies hurt the environment:  IMF loans and bailout packages are paving the way for natural resource exploitation on a staggering scale. The IMF does not consider the environmental impacts of lending policies, and environmental ministries and groups are not included in policy making. The focus on export growth to earn hard currency to pay back loans has led to an unsustainable liquidation of natural resources. For example, the Ivory Coast’s increased reliance on cocoa exports has led to a loss of two-thirds of the country’s forests.
  9. The IMF bails out rich bankers, creating a moral hazard and greater instability in the global economy:  The IMF routinely pushes countries to deregulate financial systems. The removal of regulations that might limit speculation has greatly increased capital investment in developing country financial markets. More than $1.5 trillion crosses borders every day. Most of this capital is invested short-term, putting countries at the whim of financial speculators. The Mexican 1995 peso crisis was partly a result of these IMF policies. When the bubble popped, the IMF and US government stepped in to prop up interest and exchange rates, using taxpayer money to bail out Wall Street bankers. Such bailouts encourage investors to continue making risky, speculative bets, thereby increasing the instability of national economies. During the bailout of Asian countries, the IMF required governments to assume the bad debts of private banks, thus making the public pay the costs and draining yet more resources away from social programs.
  10. IMF bailouts deepen, rather than solve, economic crisis:  During financial crises — such as with Mexico in 1995 and South Korea, Indonesia, Thailand, Brazil, and Russia in 1997 — the IMF stepped in as the lender of last resort. Yet the IMF bailouts in the Asian financial crisis did not stop the financial panic — rather, the crisis deepened and spread to more countries. The policies imposed as conditions of these loans were bad medicine, causing layoffs in the short run and undermining development in the long run. In South Korea, the IMF sparked a recession by raising interest rates, which led to more bankruptcies and unemployment. Under the IMF imposed economic reforms after the peso bailout in 1995, the number of Mexicans living in extreme poverty increased more than 50 percent and the national average minimum wage fell 20 percent.

Four years later:  World Financial and economic conditions deteriorating

In 2010, the US witnessed economic growth of 3.2% , customer consumption growth of 4.4%, and a doping increase of export of 8%.  Normally, the US should have paid this monetary creation with hyper-inflation, worse than what Germany experienced in 1920.  Chairman Ben Bernarke declared this year, 2011: “The US economic growth is deteriorating”.  What is happening?

In 2011, the world is experiencing unbriddled speculations that madly increased the prices of basic food ingredients, industrial interests sacrificed in Europe, and the Arab world witnessing massive upheavals.  The people in Spain, Portugal, and Greece are emulating the Arab tactics for non-violent sit ins in main locations and demanding reforms in the priority of budget cuts:  Shifting the focus from benefiting the rich classes to the common people.

The rest of the world has decided to counter-attack constructively to US monetary policies of dumping worthless dollars.

Since the dollar is still the world currency reserve, it is the rest of the planet that is subjected to inflation.  Edouard Tetreau, an ex-financial analyst consultant, wrote an essay “As the dollar kills us” affirming that the dollar is currently the main enemy.  The French Edouard said: “In order to relaunch its economy, without paying the price, or tightening its budget cuts, or fighting inflation, the USA managed to export all the problems to the rest of the world.”

If the US can sustain a budget hole of $1.4 trillion in 2010, quickly reaching two trillion in 2012, the Federal Reserve (US central bank) was conducting a ludicrous monetary policy:  It loans to banks at real negative interest rate and keeps the money press in full work.  The FED has surpassed China in February as the number one holder of US Treasury Bonds.

The International Monetary Fund (IMF) is admitting: “Four years after the financial crisis, confidence in the stability of world banking system still need to be entirely restored.”  What Ben Bernarke qualified as as “the worst financial crisis in world history” did not generate any penal sanctions to Goldman Sachs, Morgan Stanley, JP Morgan.  Actually, these falty financial institutions received bonuses for the crisis.

Three years of G20 meetings and reunions conserved intact the flammable system.  Andrew Cheng, first counselor of the Chinese Commission on banking regulation said:  “it is a case of the financial institutions capturing and dominating the political systems in the developed States.”

China decided to react constructively of the worthless dollar by focusing its growth in its internal market: Agricultural lands, infrastructure, ports, mining, social development…

Edouard Tetreau suggest that the rest of the G18, excluding US and China, that weight twice heavier economically and financially counter with the following remedies:

One: Delocalization and reforming the market of essential prime agricultural and energetic products, which are actually based in New York and Chicago.

Two: Assuming the instoration of financial and commercial protectionism to challenge the dumping of US dollars and Chinese social dumping.

Three: Delocalization, outside the US, of the World Bank and the IMF.

Four: Replacing the dollar with a real world currency.

Note:  Edouard Tetreau published “20,000 billion dollars” in 2010.

Least Developed Countries (LDC):  How are they fairing with the UN?

Least Developed Countries (LDC) is a name given in 1972 to the poorest nations, during the third conference of the UN on world commerce and development. How LDC are fairing after the many UN conference made in their name?

It is 1972, Santiago, the Capital of Chili, during President Salvador Allende. The UN consisted of 120 recognized States (currently, there are 189 States).  In that UN conference, the richest powers qualified 24 countries as LDC.

For example, a LDC is generally an insular country (no commercial sea port), has no satisfactory sanitary and hygienic facilities, high rate of illiteracy, high rate of infantile mortality, and earning less than $200 per year per individual.

At that conference, the World Bank economic ideology was supported by the US government under the “Washington Consensus”.  The guidelines under the consensus was that the International Monetary Fund (IMF) would not support State policies that refused to have open market for foreign products, or refuse to adopt loose laws permitting free flow of money, or capital managed by multinational financial companies, disposing of unregulated liberal commerce, have reduced the government involvement in social institutions and contribution to health and social security…

Tough reduction in social benefits like what current England, France, Ireland, Portugal, Spain, and Greece… are trying to make their people swallow under the banner of balancing budgets while increasing huge gifts extended to their multinational companies, and financial institutions…

It is 1981, Paris.  The first UN conference focused on the LDC that have grown from 24 to 49 poorest States. The rich powers decided to allocate 0.7% of their GNP to developing countries; 20% of that miserly aid was to be attributed to the LDC.

It was all well-intentioned promise that was not kept.

Latin America States were undergoing US pressures for avoiding social reforms and maintaining oligarchic structures…Most African States were experiencing long-lasting civil wars while multinational companies were exploiting the raw minerals at full scale.

It is 2001, Bruxelles (Belgium).  The third UN conference for the LDC.  The Washington Consensus on economic guidelines have proven to be the worst remedies for the developing countries. Emerging nations suffered financial crisis for obeying the guidelines of the IMF.  The new guidelines are oriented toward human development in education, preventive health, equitable job opportunities,

The civic organizations for sustainable development, conserving biodiversity, climatic changes…have been very dynamic and virulent in transforming the UN conferences from an economic and financial Davos focus to Porto Alegre spirit.

Still, the aid to development to the LDC never increased to 0.7% of GNP. Worse, the effective development aid was reduced to half:  Included in the budget of development to poorer nations are paying off accumulated debts and paying employees of the main institution at home base.

Since 2001, the world witnessed serious upheavals such as invasion of Iraq that lasted 9 years, the financial crisis of 2008, and the polarization of world powers between the US and China.  The US counted on for maintaining financial world stability and China being given the prerogative of world effective productions…

How are the least developed countries fairing with the successive UN conferences?

Evidences point out that central government of the powerful States have given up getting involved directly.  Only civic organizations are relied upon to cover for the impotent States activities.

I decided to relegate the introduction last. Why?  I have read many articles on the critical problem of Sovereign Debts and what did I discover?  They are basically series of data, abridged definition of convoluted terms, and then nothing.  Without any serious analysis, who cares to consider conclusions that are politically oriented but inconsequential for learning anything?

State public debts may be contracted through external creditors (government funds, institutions, or private financiers), internal resources, and hidden debts such as social security funds…

There are 9 technical ways to resolving or camouflaging excessive sovereign public debts that State governments have invented through centuries of steady accumulation of debts:

Increasing taxes, direct, indirect, and hidden taxes that most citizens are not aware that they are actual taxes.

Decreasing expenditure in the budget and allocating the savings to paying interest on debts.

Increasing production and facilitating internal trades to increasing economic growth, thus, increasing fiscal revenues.

Decreasing the interest rates on contracted debts through financial transparency and political stability.

Increasing consumer prices by forcing inflation and a fictitious decrease of the debt rate compared to GNP.

Creating wars on the “enemy” creditors to defaulting on external debts (principal and interest portions).

Refinancing the debts by decreasing the interest rate or lengthening the due dates:  Creditors are willing to be paid something on regular basis than submitting to lengthy litigation procedures with the World Commerce and Trade organization.

Simply “defaulting” and letting the chips fall where they please (the most frequently adopted decision since the Middle Ages).  In the last two centuries, 320 cases of States’ outright defaults have been registered with frequent consequences of wars, swapping of colonies, and mandated power over military weaker nations.

What are the signs that a State is planning to default?

One: The newer elected government immediately demands refinancing the debts and renegotiating the terms in amount, interest rate, and timetable of payments.

Two:  Banking institutions threaten to declaring bankrupcy; meaning, the banks start to cut down on loans in amount and in numbers; thus, slowing down internal trade and the creation of small new enterprises.

Three:  Foreign creditors stop lending for many reasons.

Four: Financial institutions actually declaring bankrupcy and setting off a financial crisis so that government reacts promptly and comes to the rescue by infusing massive liquidity of the hardworking “citizens’ savings”

Why government generally goes for the policy of accelerated inflation in order to resolving sovereign debts?  First, consumer prices are allowed to increase by increasing tariff barriers for cheaper imports, encouraging monopolistic mergers, increased interest rates on loans, and slowing down internal production.  Inflation diminishes export competitiveness by an over valuation of the currency. Inflation is connected by dramatic rise in Real Estates prices called “bubble”.

What is the rational for creating inflation?

Debts not “indexed” on inflated prices (fiscal revenues are inflated since generated taxes seem to have increased and the nominal GNP shows increases) reduce the ratio of the debt to the GNP and the fiscal revenue, giving the illusion that effective amount of debt was reduced.  An annual inflation rate of 4%mechanically reduces the debt ration by 20% within 5 years.

What are the consequences of inflation?

If the salary is not indexed on the inflation rate then, the purchasing power of an individual diminishes and he has to borrow or find an additional job to making ends meet or be supported by his parents’ savings.  Usually, the State maintains all public salaries unchanged for several years in order to keep spending “under control”.

After WWII in 1945, the public debts of the England was 250% on its GNP, France 110% (which represented 10 fiscal years of revenues), and the USA was 100% of GNP.  These countries adopted the inflation plan for 30 consecutive years, factitiously reducing the ratio.  With steady economic growth, and since when prices of commodities increase they never come down, the average yearly income increased, but it was mostly hidden by the inflation factor.  For example, the Chinese worker with a salary less than $1,000 is saving half his earning so that the Chinese government finances the growing external debts of the “rich States” in order to maintaining the “standard of living” of their citizens that effectively reflects 30 years of inflation policy.  Fact is, one of the methods for sustaining inflation was creating credit cards with limits up to 50 times the actual earning of the individual!

When a State decides to default it might start by temporary suspending paying interest on due date if refinancing negotiation failed; coupons of lesser values are issued.  Property values drop 35% within 6 years; share values decline 55% within 3 years; unemployment increases 7% within 4 years, and production rate drop 9% within 2 years.  If you notice that many of these consequences are effectively taking place then, your State has defaulted but was not transparent in declaring the difficult situation.

In the medium-term after defaulting, a State witnesses internal unrests, higher in frequency and in violence; government creates a preemptive war on a neighboring State to absorb the surplus unemployed citizens in the lower middle class; and the State is reduced to a vassal position to more dominant creditor nations:  the defaulting State is unable to secure more loans for many years.

What kinds of financial mechanisms and financial tools (gimmicks) a powerful State resorts to amortizing the impact of a large sovereign debt?

One, the State may use special right of withdrawal from the International Monetary Fund (IMF), which is starting issuing worthless banknotes.  Two, the State may create special perpetual funds generated by particular taxes designed to repaying the debt (political exigencies always use special funds for missions not intended to it, under the pretext of extraordinary emergency events).  Three, the State may nationalize productive sectors in the industries and then issue bonds on public properties.  Four, the State may declare the land of the nation is public property and all private properties should be rented for a specific period.  Five, all the time, the State is just printing money with decreasing values as long as the sovereign debts is huge.

The financial clubs and institutions that the powerful nations used to recovering their assets were: One, the “Club of Paris” was established in 1956, constituted of all the creditor nations (the G7) and international institutions, to manage the public debts contracted by the third world countries.  As Germany and Japan accumulated surplusses in their economies they tended to convert their dollars to gold; Nixon decided in 1971 suspended the convertability of dollar to gold and starting the devaluation trend of the dollar.  That was the end for the fictitious “Gold Exchange Standard”.  Two, the “Club of London” was established in 1979 in order to gathering all the commercial banks creditors to poorer States.  Thus, debtors States had to first refinance or renegotiate their public debts with the Club of Paris so that the Club of London executes the details with the commercial banks. Three, the International Monetary Fund (IMF) began getting involved after 1983 when major emerging States suffered financial problems.

Invariably, States unable to generate enough fiscal revenues so that 50% of the budget are dedicated to paying interests on sovereign debts are in deep trouble.  Many developed Nations can sustain up to 300% of debt to GNP for several years, while developing countries crumble under 50% ratio, simply because the political system is unstable and unable to bring in at least 50% of the budget to cover paying interest on debts.

Women are back to being the most vocal and active members in society as in the 1840’s, though the “Mamas Grizzly” are on the wrong side for the proper political reforms.  Fact is, women are not equitably represented in the political system. In economical downturns, unemployed men feel worthless and barely take on their responsibilities in the family.  Unemployed men and husbands start imagining that women and wives have the magic wand to making ends meet.  Unemployed men and husbands hand long faces and loaf around in the house; wives want men out of the house, away from their skirts.  Wives want the government to open up free extracurricular activity centers so that men are out-of-the-way and enjoying their free time.  Wives don’t need adult husbands behaving like kids, complaining and whining and expecting wives to tranquillize their unsatisfied ego.

Save a limited health care reform that is yet to be effectively executed next year, nothing is working in the US after the financial crash.  The number of unemployed is increasing, the economy has not restarted, foreign policies for stabilizing world disturbances have not changed much, the environment degradation did not improve, and the troops are being relocated and reshuffled to other “hot regions”; there is diminished credibility that the dollar is worth the expense of printing it and no viable medium-term resolutions are seriously contemplated.  Politics in the US is heavily biased toward short-term election timeline.

Nothing is giving the US citizens and the world communities much hope that change in on the way; any kind of change.  The banks and financial institutions were salvaged but productive lending transactions have not materialized.  All financial facilitation laws are encouraging the elite richest class of the 10% to resuming their disgusting flatulent life-style, as if the system was meant to satisfying their greed and large ego.  The budget for the military and the thousands of “security agencies’ (old and newly established) are taking up 25% with no substantial returns for the common people.  The modernization and maintenance of the infrastructure are on slow burner waiting for better times.

Women are the most vocal and active members in this economic downturn that has no light at the end of the tunnel; women are demanding transparency in the political and economic decisions, procedures, and processes; women are demanding accelerated reforms options with fair representation of their gender and all the economic classes, especially the lower middle class representing 50% of the population.

The Federal Regulatory Commission known as the FED has maintained the lowest interest rate ever for years and is now zero per cent.  What for?  So that the richest enterprises can borrow more money and not spending it on creating new enterprises.  Actually, billions are invested in other more promising States economies such as Brazil that witnessed its currency the Real appreciates 30% in less than 20 months. 

To make things worse, the FED wants to be imaginative:  Its chairman Bernanke is planing on purchasing the long-term loans.  With what?  Printing more worthless money that has lost all credibility in the exchanges of world finance and economy.  What are the consequences?

First, the ever successively devalued dollar, unable yet to compete with emerging countries, will reach a critical point that will wipe out the liquid savings of the elderly and retired people who won’t be able to survive for another couple of years.

Second, China and Japan would reduce purchasing the treasury T-Bills to the bare minimum commensurate to political concessions.

Third, The competitiveness of the US is far from being appetizing to exporting goods.  China has appreciated its currency 20%  up but the US could not compete:  the direct consequence was for Vietnam and Malaysia taking on the slacks for Wal-Mart and other wholesalers.

The worst part is that the government has decreed a moratorium on immigration from Mexico.  How can the economy restart without fresh, and young immigrants aiding small enterprises to restart or be created?  Giovanni Peri, assistant professor at the University of Davis, wrote in Foreign Policy in Focus that “Mexican immigrants increase production capacity, stimulate investment, and is a catalyst for specialization.  Young Mexican immigrants never had any negative consequences in the US economy in the last 40 years.  In the last 40 years, the active potential doubled and salaries increased 40%.”

Peri goes on: “Immigrants are basically competing among immigrants but do not rob jobs to Americans.  When immigrants are hired, productivity increases and Americans are elevated to higher ranks such as supervisors and foremen, simply because they know the language; thus, this process increases the base of the lower middle class.  Immigrants complement the economy and do not substitute for existing jobs except when highly educated and specialized.  An engineer cannot do anything alone; give the engineer workers and enterprises are created.” 

With the dynamic market system in the USA, hundred of thousands of jobs are lost and an equal number re-appears.  The more there are able and young workers on the market and the higher are the odds for creating new enterprises.   Immigrant salaries are low but still high compared to what they earn in their homeland, even when the higher cost of living is factored in.

The International Monetary Fund (IMF) met in Washington DC with its 187 representative members to discuss this raging war related to currency appraisal.  The institution demonstrated incredible impotency to resolving this problem, giving the illusion that currency value is the main and critical factor for restarting economies and stabilizing world commerce. Chairman Strauss-Khan pointed out that more focus should be on strict supervision of the vulnerable factors in the most advanced States.  Thus, the IMF is going to study the viability of zero interest rate in the US  that is diverting investments to other promising economies such as Brazil.

The US brand of “capitalist liberal democracy” has to be revisited and fairer representation of women and the lower middle class be reformed in election laws and procedures.  This liberal democracy guided by the elite richest 10% of the population and hoarding 50% of the wealth of the nation must reformed so that the lower classes can have a say on the kind of laws that preserve their interest during economic downturns.

The gimmicks of slightly increasing taxes on the rich classes with large loopholes cannot continue indefinitely.  Political power should be reinstituted to the common people and election laws and procedures simplified to encourage the lower middle class to run for election and get organized.

How markets can function in developing countries? (Mar. 31, 2010)

            Many developing States have leaned during Globalization to act contrary to the International Monetary Fund (IMF) and World Bank pressured suggestions on policies for economic stability and liberalization of State’s monopolies.  The successful developing countries have learned the main pre-requisites for an adequate functional market working properly. They are:

            First, reforming institutions for control and management of speculative economic investments; they erected barriers and taxing mechanisms that desist speculative financial multinationals from ruin their real economy base.  They trained personnel and expert professionals to target and pinpoint investments that do not benefit their society but force the State to pay high interest rate on superfluous loans that enrich only the speculators.

            Second, successful developing countries focused on reforming institutions such as the legal business system that arbitrate speedily according to compatible modern business laws. Democratic institutions that establish continuity in power successions on timely manner encourage the influx of foreign investment.

            Third, policies of eradicating unemployment by encouraging investment in rural regions and extending greater powers to regional administrators for local economic development have much greater return values on investment. Cheaper land and affordable manpower in rural areas enhances economic development and the consequent investment on appropriate infrastructure, transport, and educational facilities.

            Fourth, policies that encourage banks and financial institutions to opening branches in rural regions with government support in lower interest rates, minimizing paper works and collateral requirements on family businesses.

            Fifth, adopting gradual privatization processes on State’s monopolies for inefficient government assets so that further analysis and evaluations of the process rectify errors in economic assumptions and models.  Privatization into many smaller enterprises should be done to encouraging competition for higher quality products and services. Until the institutions have learned and assimilated the pitfalls of privatization then further phases should be postponed.

            Sixth, the State should intervene to stem galloping inflation to reasonable levels.

            Seventh, budget deficit should not be considered a critical factor that needs to be reduced quickly at the expense of development in real economy and people’s quality of life. The best return in government investments are in education, training in economic sectors that do not require high investment and that put to work many citizens.  Tourism is a highly expensive sector and highly polluting. Unless the government is set to remedy, control, and manage sanitation requirements then it is better to postpone investing on tourism until relevant infrastructures are in place.

            Eight, local and regional economic policies should take priority over highly dense urban centers where land and infrastructure needs are extremely expensive and unable to catch up with the flux of citizens fleeing rural impoverished regions.

            Ninth, custom tariffs should be eliminated on technological imports and highly taxed on luxury items such as expensive cars, expensive beverages, and expensive furniture. In any event, it is the poorer sections in society that are indirectly paying for the tariff barriers, especially basic food stuff.

            Tenth, any economic policy must rely on the power structure within particular economies.  When syndicates are powerful and independent of political party allegiance then syndicates should be represented in parliament and government. When most enterprises are highly indebted then government should facilitate credit extensions for business activities; reducing tax levels on small businesses along with incentives to better control and administration of enterprises keep the market functioning and potentials readily available for further development.

            Eleventh, government should invest in “think tanks” with mission to be informed in timely manners on policies, decision processes, and discussion of world institutions such as IMF, WB, WTO, and UN.

            Most important, developing States with economies that can be salvaged should devalue their currency rate of exchange and promptly default on external debts: every dime paid out to financial multinationals and the IMF loans is actually paid for by the poorer sections in society on speculative investments that benefit speculators only.

Part Two: “The Great Disillusion”; (Mar. 24, 2010)

Joseph Stieglitz, Nobel Prize for economics, stated in his book “The Great Disillusion, 2002”:

“Today, Globalization is not working; not for the poor of the world and developing States; not for the environment; and not for world economic stability.”

Although it is no longer feasible to abandon globalization, its management must be reformed according to greater consensus on the rules of the game that needs to be revisited for it to work.

Globalization has functioned relatively well in the Far East of Asia by promoting trades and technological exchange and transfer.

It also brought great successes in health progress and in galvanizing civil societies toward dynamic social justice and greater transparencies in policies and administration.

So far, the real culprits for the failure of globalization were the international institutions such as the World Bank (WB), the International Monetary Fund (IMF), and the World Commerce Organization (WCO).  Why?

These institutions fixed the rules of the game unilaterally to the profit of the developed States and specifically the USA: the US imposed options for recovery to other developing States that it had rejected for its own economic development.

Although these international institutions are public institutions they in fact are not accountable but to the Central Banks Chiefs and the corresponding ministers of the leading economic and financial States.

Thus, the international institutions that were meant to rescue faltering developing countries functioned mostly according to the interest of the industrial and developed nations.

There is great need for serious reforms to the financial structure and management practices.  Debates are demanded to be more open in World Forums.

Until now, it appears that the international institutions are not serious in engaging any reforms: they simply changed their discourse to mentioning “poverty” more often.

Financial interests dominated the ideology of the IMF as economic interests dominated the World Commerce Organization. The same as the IMF feels not concerned with the poor (its focuses is on banks crisis), and the WCO is ready to sacrifice everything to trade facilities for the rich nations. For example, environment and fishing industries that kill many varieties of fishes such as turtles and small fishes are considered as collateral damages.

The greatest challenge is in the mind of the institution structures because they simply reflect the state of mind of those they are responsible to. Their theses do not enjoy any consensus.

For example, the governor of a central bank starts his day by worrying of inflation statistics and not on its effects on the poor.  The minister of trade and commerce worries on export numbers and care less of pollution indexes.

There is a need for a functional economic global system vision such as it was extended by Adam Smith and Karl Marx.

Many States have better standard of living per capita than the USA and they still have much lower inequalities and far better health care systems.

It is how State governments intervene in the market that makes the difference in matter of health, unemployment, adequate retirees’ compensations, and social justice for all.

The performing States ensure high quality education, convenient infrastructures, independent efficient legal systems and regulations, technological development and innovations.

It is important that economic structure differ among States: some States have strong syndicates and others have high levels of debts among enterprises. Thus, alternative resolutions for financial and economic aid should be tailored made to economic structures in order not to penalize the entire society and the poorer of the poor.

The next post will provide details on reforms for collective global participation in the international institutions, the mode of governance of these institutions, and further transparency in their management and decision processes.

Part One: “The Great Disillusion”; (Mar. 16, 2010)

            Joseph E. Stieglitz, Nobel Prize for Economics, published “The great disillusion” in 2002 six years ahead of the financial crash.  It was followed by “When capitalism lost its head” in 2009.  “The great disillusion” is of 407 pages divided in nine chapters such as: promises of international institutions; promises not kept; liberty of choice; the Asiatic financial crisis; who lost Russia; the “unjust laws of fair trade”; the best alternatives toward the market place; other programs of the International Monetary Fund (IMF); and the future.

            Joseph E. Stieglitz was doing research on the imbalances in fair market competition because of the lack of adequate and precise flow of economic intelligence that are not equitably disseminated and shared equally by competitive companies and enterprises. Former President Clinton asked Joseph to join in 1993 the “Economic Advisory Council (EAC)” that was represented by three experts nominated by the President to counsel the Executive branch on economic matters. Thus, Stieglitz was de facto immersed into politics since then and witnessed closely the processes of decision making.

            In 1997, Stieglitz was transferred as First Vice President to the World Bank or economist in chief till 2000. In these 7 years in Washington DC, Stieglitz followed the transition in Russia and the Far East Asia financial crisis that extended globally. Stieglitz had the opportunity to visit countless developing States and converse with many financial and economic ministers and political leaders.

            The book discusses and analyzes the terrible effects of globalization and the ideological economics precepts of the IMF on the rampant poverty that was exacerbated by unilateral neo-liberal economic ideology of the USA. Stieglitz said: “Today globalization is not working; not for the poor of the world; not for the developing States; not for the environment; and not for world economic stability.  Globalization is not working because it is badly managed: the unilateral rules of the game of the US disturbed the process for developing States to comprehend why non working and non applicable decisions in the US should be forced to work in the developing countries.” (To be continued)

Counter shock upheaval: the earlier the better (Greece)

            A developing State deciding to default on external debts should default on all its debt; then, it can rest appeased and contented for several reasons: first, defaulting does not occur frequently in any single State; second, the bad credit rating is the same whether a State default on all or partial debts; and third, the State will generate immediate cash flow on unpaid interests that covers its budget deficit.   

            Before Greece, Lithuania, Hungary, and Spain suffered the same fate of a prematurely imposed Euro on States of weak economies. There are many articles analyzing the financial crisis in Greece. I thought that I can make sense in a short post for readers eager to know but would refrain reading lengthy erudite articles.

            There are two main factors for Greece financial problems; there are two resolutions available, equally painful, but one is far better in shortening the pain and healing faster. First, the common currency Euro forced weaker economies to relinquish their sovereignty over issuing money (printing money) in time of shrinking economy to re-launch the inner trade.  Second, the US financial multinationals before the crash infused too much credit in a small economy that did not correspond to normal credit rating behaviors; this quick infusion of money inflated the sense of economic boom and generated laxity in financial control and management.  Greece is awakening to new demands for harsher financial control and imposition of higher taxes to straighten the budget balance sheet.

            The first remedy is inviting the International Monetary Fund (IMF) to intervene and infuse $1.7 billions in the Greek coffer to pay the debts due this spring. This would be a bad decision. It is worse because even the EU is encouraging Greece toward that option. For example:

            Lithuania GNP shrank 18% in the first year the IMF intervened with its draconian conditions: jobless rate climbed to 20%, the high level in health, education, and retirement suffered greatly. Actually, retired persons are bleeding and the socialist political parties lost ground.

            In Hungary, the IMF intervention made sure that the people suffer and the socialist government be replaced by like minded anti-socialist government headed by the former minister of economy. If Greece ends up asking the “help” of the IMF, as the EU wishes too, then the socialist George Papandreou will start packing; a decision that will please Merkle PM of Germany.

            Greece with budget deficit reaching 13% of GNP and growing has a reasonable solution out of this mess if it wants to avoid 10 years of suffering and humiliation. Until the EU comes up with a financial recovery plan then Greece should revert to its national currency the drachma. Greece should regain its sovereignty issuing money in this difficult period: Internal and external trades should not be hampered for lack of liquidity.

            Since Greece imports amount to only 20% of its GNP then better competitive drachma should enhance exports and reduce the loan deficit. With the already strict financial control in place, Greece will be able to shorten the period of its pain.  The EU will accept Greece currency to revert to the Euro in due time in order not to let other Euro member States following Greece decision.

            Greece should learn how Argentina recovered.  After four years insisting of keeping the currency linked to the dollar the economy faltered entirely.  Argentina decided to float its currency and it devalued accordingly. Argentina was able to default on $100 billion of foreign loans. The government insured that bank deposits of consumers keep the same purchasing power by regular re-evaluation and re-fixing of the national currency.  People living in their own properties enjoyed the same financial facility at the rate of pre-devaluation.  Within a single semester, Argentina economy was back to normal and going strong.

            Greece has choices: either the MIF intervention accompanied by ten years of suffering or reverting to the drachma until the economy is back to normal within a semester. If Greece default on all its external debts then, suppose the interest rate on debts is 8% and the debt amount to 140% its GNP, defaulting will generate fresh cash of 9% of Greece GNP which is over its annual current budget deficit. What developing State would decline such solution?  Obviously, the US, Japan, China, Germany, France, and England would refuse to default on the ground that they are actually running world economy.

            Defaulting on bad credits that financial multinational encouraged developing States to taking does not hurt badly or disturb the multinational creditors: they were not supposed to pay taxes on interests as long as debtor governments did not restitute the original entire capital; the financial multinationals have then to pay taxes on the previous 20 years of lending the same capital, minus what they submit as expenses of doing businesses.

            The neoliberal financial ideology and “The Economist” are back on the offensive after the shameful financial crash: they are ordering indebted States to reducing public employment by 10%, reducing salaries, reducing retirement benefit, and elongating the age for retirement.  The financial institutions claim that all these hassles are none of its business, even if they caused the miseries.

            Unless people revolt now with a counter shock to what they are being submitted to then any delay to the next financial crash will hurt them more than the rich classes.  People should demand that taxes be raised and increased to all capitalist transactions, financial administrators and bonuses be taxed high, and dividends to shareholders be delayed until the economy is stabilized.  Waiting for another financial crash to get in action is tantamount to increasing social injustices with a maddening upheaval that runs amuck.




March 2023

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