Notes From Underground: The IMF, an Atavistic Vestige of a Structural Colonial World

As Notes From Underground has been publishing for five-and-a-half years, a recurring theme has been the ineptness of the IMF. While there are many fine economists and researchers working for the IMF, its history is laden with policies that were devastating for the nations that used its facilities as an act of financial desperation. As the global lender of last resort, the FUND demanded onerous policies of raising interest rates, devaluing currency and undergoing fiscal austerity as a prerequisite for an IMF bail out. The recipients  of most IMF loans were “third world” nations that had run out of alternative creditors. The IMF was the “only game in town.” During the height of the Asian crisis of 1997-1998, many of the Asian Tigers shunned IMF advice and money and operated outside the bounds of the Bretton Woods-IMF system.

The traditional playbook was cast aside and each nation went its own way to seek forbearance from global creditors. The quick recovery from the Asian crisis placed the IMF into the global financial background and the IMF was relegated to an advisory role for the G7  and G20, and a lender with the client base of a traditional payday loan operator. During the height of the 2008 financial crisis, it was not the IMF rescued the global financial institutions. When British banks failed they were bailed out by the domestic authorities (no role for the IMF). Under the direction of Christine Lagarde, the IMF did become involved in the Greek restructuring of 2012 as it joined with the ECB and European Commission in what became known as the TROIKA, and made a large financial loan in order to maintain the solvency of the Greek government.

I wrote in 2012 that this was a mistake and was the result of politics as the Europeans were trying to ensure that the French and German banks would not be the bag holders for any type of major Greek default. ECB and IMF funds flowed into Greece via bond purchases by the ECB and Greek government debts were covered by IMF loans. This was done under severe conditions for fiscal austerity. The IMF wanted taxes raised and government spending cut to ensure that IMF loans would be repaid as the government ran a primary surplus. The Greek government operated under the draconian guidelines of the IMF but as the economy shrank the outstanding debt continued to increase even as austerity did create a primary surplus. (Again, the IMF playbook proved to be a burden.) By late 2014, the Greek electorate said NO to more austerity and voted in a government planning to negotiate for better terms on the money owed to the TROIKA: politics trumps the economic models.

The SYRZIA party in Athens has vowed to maintain its election pledges and search for some forbearance on its debt load. The IMF keeps pushing for its money and Greek Prime Minister Tsipras keeps maintaining that he will keep his promise to the Greek people for less stringent loan terms. Director Lagarde  stepped deep into the politics of Europe by advancing the money to Greece and as the previous Finance Minister of France  she had to be well aware of the financial morass in which Greece and the peripherals were trapped. The IMF had no business getting involved in the Greek problems when the entire EU system was very solvent.

If Greece is part of the EU then it is the problem of the ECB and the European Commission. But in typical IMF fashion, Lagarde is playing hardball and demanding the scheduled loan payment. In a Financial Times article over the weekend–“Eurozone tells Greece No Deal Without IMF”–it seems that the IMF is being used as the one to make or break the entire Greek bail out. It said in the article:

“The IMF has clashed with the European Commission over how tough a line to take, with the commission going so far as to moot cutting the IMF out of a deal. But German officials have bristled at the commission’s interventions and have made clear all three bailout monitors–the IMF, the commission and the ECB–must approve any deal.”

This is politics laid bare. Everyone is pointing their fingers at the IMF as being the final arbiter but it is the U.S. who ultimately controls the FUND through its weighted veto power and the U.S. has stated many times that it seeks a positive outcome to the Greek debt situation. Director Lagrade has to wear the FOOL‘s crown for entering where angels fear to tread.

The weekend FT also noted another IMF faux pas.The FUND has inserted itself in the global currency wars and called on the Bank of Japan to increase its QE program in an “… all-out effort to push inflation to 2 per cent.” The Japanese government has taken a wait-and-see approach to further stimulus with recent economic data being more positive. Prime Minister Abe has been concerned that the sharp fall in the YEN has harmed the middle class by pushing up the cost of imported goods. Last week the BOJ made its decision to keep monetary policy unchanged yet the IMF feels the need to criticize a sovereign government about its domestic policy.

The FT article said, “The IMF took Japan’s government to task for using overly optimistic assumptions in its fiscal plans and called for a ‘concrete and credible plan’ to tackle Japan’s huge public debt and deficit.” The IMF is an institution in search of a reason to exist. Maybe it is time to dismantle the IMF and redistribute its holdings to its members. Otherwise, the IMF staff should seek out ways to enhance its lending power by creating a GOLD-SECURITIZED IMF BOND. Now there is a worthwhile project.

***In another effort to be relevant, today the IMF announced that the Chinese YUAN was at fair and full value. This pronouncement will surely raise the ire of many in Brussels and Washington. The Chinese currency has been a negotiating point for many nations in their efforts to create a more balanced trade environment with the Chinese. This will not sit well with Senator Schumer and others as President Obama looks to enhance his trade agenda. The IMF needs to find some other areas to make itself seem relevant.

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10 Responses to “Notes From Underground: The IMF, an Atavistic Vestige of a Structural Colonial World”

  1. Mark T Says:

    The differences between the Asian nations and Greece in terms of labor productivity and debt/GDP are too great to warrant a comparison relative to any other variable.

    If I recall correctly, the private sector, including French and Grrman banks, took 60%+ writedowns in the 2011 restructuring, suggesting a different explanation for the EC and ECB involvement.

    The IMF needs to demand repayment of loans for existential reasons, yes, but also because, unlike the ECB, it cannot create the currency needed to repay its own loans, pay expenses, or return capital.

    • yra Says:

      In thinking this thru—i don’t believe the German and French banks took that large of haircut—-much of the paper found its ways to sovereign wealth funds and the ecb and probably pension funds–the banks took very little write downs as i recall.The IMF was a deep pocket composed of other peoples money[OPM] which irritated the Chinese and other emerging markets and they raised the issue of a very different standard for Europe.Also,as one of the previous blogs that was highlighted at the bottom of today’sNOTES acknowledges that the typical IMF “advice” could not be followed for Greece could not devalue its currency putting the entire burden on the austerity side of the equation—burden sharing is rightfully called for by SYRZIA

  2. mikegre2014 Says:

    The IMF was originally established to set a value for each currency in relation to gold. When the gold standard was abandoned in 1971, the IMF lost its reason for existing.

    Of course, the people whose livelihood depended on the IMF were not about to be cast out into the cold, cruel world so they came up (and have still been coming up) with other reasons to keep the party going.

    Congress should stop funding any new IMF programs and should demand an audit of their finances. But of course none of this will ever happen.

  3. yra Says:

    Mark and Mike–good points but even though the IMF cannot print it can certainly leverage up its asset base to be a more powerful player in the global credit game—Bretton Woods islong gone and its principal reason for existing is long gone and getting involved in the domestic politics of “member” nations is not a good path to travel.Mark,the senior status of IMF loans is laughable as it is no better then any other creditor

  4. Dan DeRose Jr Says:

    Yra, Great point about redistributing member holdings at the IMF! Maybe the Greeks were onto something as they made their recent debt payment…
    Also, it appears long overdue for the IMF to take Keynes’ advice that if it were to become politicized, it would be best for it to “fall into an eternal slumber, never to waken or be heard of again in the courts and markets of mankind.”

  5. Blacklisted Says:

    It is not only the IMF that acts like a sledge hammer in the dark looking for a nail. The bureaucrats in Brussels, DC, Tokyo, and Dept’s to big to audit (DOD) are all prioritizing their self interest over the interest of the citizens they are supposed to serve. This has always been the problems with govt’s, and as they exceed critical mass the chain reaction (exponential expansion) is unable to maintain a constant rate and they simply blow up.

    If US debt doubled in less than a year, as occurred with Greek debt when the euro appreciated, would Americans idly sit back as their taxes were doubled and services cut to pay back the bankers currency windfall? I don’t know, but we are about to find out.

    Instead of the rapid increase in debt obligations coming from a currency conversion that only impacts the imprudent PIIGS, Americans (and other holders of dollar-based debts), will get their chance at rebellion in the near future when much of the world seeks out the “relative” safety of the dollar, propelling the dollar and debts northward.

    Will American voters sit back and wait for more change that only a politician can believe in, as their pensions, 401K’s/IRA’s, and bank accounts get bailed-in to save the jobs, perks, and power of bureaucrats? Will they sit back as TPP sucks more jobs overseas, as Obamacare sucks more of the dwindling money out of their pockets, as the Patriot Act get renewed and FATCA gets fully implemented (insuring bureaucrats can track and confiscate the capital needed for growth)?

    Unless Joe Sixpack decides to vote out every incumbent every election (implementing de fact term limits), and stays in the streets until political contributions are eliminated, a balance budget Amendment is passed, and the debt is swapped for equity, Mr. Sixpack will become intimately familiar with the struggles of Mr. Papadopoulos and the 77-year-old Greek man who killed himself in front of Greek Parliament in Athens because he was tired of eating garbage and didn’t want to pass on debt to his children.

    Hopefully, there will come a time when we take a stand, before we no longer can –

  6. ShockedToFindGambling Says:

    Yra- you said “the IMF staff should seek out ways to enhance its lending power by creating a GOLD-SECURITIZED IMF BOND. Now there is a worthwhile project”.

    I agree, but you are assuming that their Gold is not pledged or encumbered.

    It is taking the FED 6 years to return to Germany it’s Gold held at the FED. This should take 6 days.

    I can only guess what the IMF has done with their Gold.

  7. Ronald Says:

    The IMF is simply another cabal of progressive thinkers pushing their agenda of world power. They “know better”. Smug and inured to other points of view, they tell everyone else what they should be doing, as they screw up almost everything they touch. Of course, by being an organization that simply is a tax burden on countries supporting it (a United Nations of financial sort), they are not accountable to anyone.

    Better choice for the governments facing financial crisis is to go to large investment banks.

    I am not an anarchist, nor anti-government, but even Alexander Hamilton would, I believe, find the IMF to be a throw-back to feudal times. Atavistic indeed.

  8. yra Says:

    Shocked–that is why the GOLD BACKED BOND will call the issue and we will find out

  9. Notes From Underground: Just a Song Before I Go | Notes From Underground Says:

    […] to Greece and the IMF from these dates: July 20, 2011 November 9, 2011 November 26, 2012 May 26, 2015 Every now and then I like to revisit the 1,200 or so blogs I have written since December 2009 and […]

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