An alternative to IMF needed

The IMF claims success in helping poor countries to recover from economic crises.  This may be true to some extent in terms of economic parameters like GDP, interest rates, revenue, debt/GDP ratio, etc. But it has, by and large, failed to bring about a positive change in the lives of poor people, particularly in Asian and African countries. For example, Sri Lanka faced an acute economic collapse and the IMF helped it to recover from the immediate contingency,

but the poor people have not benefited. Whether they would ever recover is uncertain, going by what has happened and is happening in the world. Poverty rate which was 14% before the crisis is 24.5% now and although the World Bank is all praise about the economic upturn there is no improvement in the poverty statistics or the perceptible living standards of the poor. In the world the rich are getting richer while the poor are left behind, despite the IMF.

IMF was formed in 1945 at the Bretton Wood conference and has a membership of 191 countries. The US is the biggest donor to the IMF and therefore holds the whip hand which it uses to further its own interests and also to maintain the status quo with regard to the global economic system which is in the grip of neoliberalism. The IMF cannot deviate from these neo-liberal policies which disallow government intervention and welfarism. Leading economists like Joseph Stiglitz, who was once the head of the World Bank, had severely criticized these policies.

The economic situation in African countries bears witness to the ineffectiveness of the IMF to lift the people out of poverty. The continent has suffered from neoliberal economic policies that have undermined development. The IMF continues to advocate for austerity despite mounting evidence that it has stifled economic development and human development across Africa. IMF’s insistence that countries prioritise debt repayments, rather than seeking a systemic solution to debt, is a major obstacle to spending on health, education and climate action. Globally, six billion people are now facing austerity, largely owing to the IMF’s reluctance to accept that its economic model has failed.

Even governments with a powerful democratic mandate find themselves with no other choice but to follow the IMF’s outdated advice – pursuing narrow measures of Gross Domestic Product (GDP) and austerity policies. According to the IMF’s own debt data, 19 of the region’s 35 low-income countries are already in debt distress or facing high risk of debt distress. UNCTAD recently found that the amount African governments are forced to spend on interest payments on debt is often higher than spending on either education or health (Roos Saalbrink David Archer, Rick Rowden, 2023).

Another research report says that ” Of 763 programmes between 1980 and 2015, 512 were interrupted, of which 291 did not resume – as our data from the IMF Monitor Database shows.” (Bernhard Reinsberg, et. al. 2023). The researchers say this high failure rate is due to the fact that the programmes are  unimplementable by design.

What has happened in Asia is no better. Sri Lanka went bankrupt due to debt and even in India, with a very impressive GDP, 30 million have gone below the poverty line in the last 15 years. Pakistan has had 23 IMF programmes and despite all that 11 million have gone below poverty line in the recent past.

While this was going on the billionaires of the world have doubled their wealth. The new wealth produced by the world since 2020 has been USD 42 trillion. Two thirds of this huge amount of wealth has gone into the pockets of 1% of  the world population which comprises the billionaires of the world. The whole of the rest of the world population, i.e. 99%, will have to do with one third of this wealth, which was largely produced by them (Andrea Barolini 28 Jun 2018).

To illustrate the inherent contradiction in IMF policies, we could consider the IMF dictum for all Third World countries ‘live within your means’ which is good advice, yet IMF’s own conditions preclude the implementation of this policy. The IMF does not allow control of imports and advocates that the free market must decide on imports. Invariably  all developing countries import more than they export forcing them into ever increasing debt. If its intentions are genuine, why cannot the IMF be more flexible and allow the highly qualified economists in these countries to decide on such matters?

Another aspect of the problem is the government’s inability to regulate the dollar. For instance, if the rupee value of the dollar rises by 10%, debt obligations also would rise by 10%. Could Sri Lanka cope with such a situation? Debt servicing, starting in 2028, would entail a significant increase in exports and paradoxically imports, which also would have gone up in price, also will have to be increased to supply the necessary inputs for export production. This situation would lead to more borrowing and a vicious cycle.

In the Global South, several groups and organisations have come together reflecting the dire need to break away from the tethering neo-liberalist global economic system. They have realized that the dollar has been turned into an exploitative instrument and almost weaponised. BRICS, SCO, ASEAN, AU are fledgling and floundering as yet.  They have to find common ground and iron out their differences if they are to survive. China seems to be very keen to develop an alternate currency to the dollar but India is not, however it has announced its willingness to trade in Indian rupees which virtually is a challenge to the dollar. Why cannot other countries emulate India and set up systems of exchange between each other.

The export-led economy cannot work for the benefit of the poor. It is designed to serve the interests of the rich. Free market, manipulable trade and aid, dollar dominance, export orientation, and debt are the components of the present global economic system and the IMF is its main instrument.

The Global South has no choice but to develop together, help each other, and try and create a new world order. What it must do is leave aside vexed issues, and help each other to achieve self sufficiency in essential requirements of food, medicine, textile, and renewable energy. By this means more than 75% of the battle would be won. These countries must gradually move away from an export-led economy and move towards self-sufficiency. They must realise that time is running out for them. Self-reliance of the Global South is the alternative to IMF.

N. A. de S. Amaratunga 

from The Island https://ift.tt/ExnDI7d