The truth is that the foibles of Dominique Strauss-Kahn, the managing director who recently resigned under pressure after being indicted for sexual assault in a New York hotel, are a sideshow.
While the global financial news outlets have covered the Strauss-Kahn scandal with about as much substance as would the National Inquirer, the real issue is that, whoever gets his former job, this powerful global institution is likely to change its policies not a hair.
That may be fine for money center banks and other big government bond-holders. But it offers little to cheer for investors – or ordinary people – who’d like to see a real economic recovery in Europe, complete with opportunities for robust long-term growth.
Ironically, many of the countries that swore off dealings with the IMF after the 1990s debt crises – Indonesia, Malaysia, South Korea, for example – have come through the current global recession reasonably well. Russia, which also showed the IMF the door, is at least not facing a debt crisis. But some of the countries now in the worst straits – Ireland, Iceland, and Spain, for instance – were poster children for IMF-type economic policies before the ’08 crash. They cut taxes, maintained relatively modest ratios of government debt to GDP, and demolished barriers to foreign investment.
The IMF became the target of terrible scorn in the late 1990s, when its harsh conditions for loans to stricken countries helped turn the Asian debt crisis into a full-blown disaster. The street-level movement against what’s sometimes known as corporate globalization was precipitated in part by the IMF and World Bank’s imposition of fiscal austerity and ultra-free market economic policies on developing countries and ex-Soviet Bloc states. The result for most of the population in these countries was a disastrous boom-and-bust cycle.
This shows up starkly in the economic record that Latin America has compiled over the last 50 years. According to the research by Mark Weisbrot and David Rosnick at the Center for Economic and Policy Research, per capita annual GDP for the region grew 3% from 1960 through 1979, or 80% for the entire period. Then came a commodity price collapse followed by the Latin American debt crisis, which turned the 1980s into a “lost decade.” Governments throughout the region turned to free-market policies engineered by the IMF and the World Bank.
But while the 1990s were often advertised as a new beginning, in reality growth was sluggish for these countries while economic inequality – already among the worst in the world – soared. For the period 1980-1999, per capita annual GDP was down to 0.5%, for a cumulative 11% over the two decades. The past decade has seen some improvement, to 1.9% annual per capita growth, but that’s still comparatively anemic.
Under Strauss-Kahn, the IMF paid lip service to the notion that its traditional economic prescriptions needed adjustment. But in truth, its judgments about what constitutes sound economic policy haven’t changed much. For instance, a recent IMF report on the United States urged Washington to slash spending on lifelines such as Social Security and Medicare, despite the fact that the U.S. has a 9% unemployment rate that under current trends, isn’t expected to improve substantially for years.
Whoever succeeds the disgraced Strauss-Kahn will have the opportunity, at least in theory, to rethink the IMF’s traditional demands to stricken countries. But it’s highly unlikely this will happen. Major banks, loaded down with at-risk debt from Greece, Spain, and Portugal, like the current dynamic because the IMF gets behind them as a kind of enforcer, making sure debtor nations prioritize repayment of loans, with low inflation, over economic growth.
None of this figures in most mainstream media accounts of the IMF succession crisis. Instead, the global punditocracy focus on the name game of who will be the next managing director. Another European? Or will a developing country get bragging rights? There’s some symbolic value here, since by unwritten compact, the top job has always gone to a European, while the fund’s near twin, the World Bank, always has an American as president.
But there’s little substance beyond the symbolism. Christine Lagarde, who’s solidifying support among the IMF’s European co-owners, is a former corporate lawyer and political associate of Strauss-Kahn, now serving as French foreign minister. With respect to Greece, Spain, and other countries now being squeezed to pay their debts, it’s unlikely Lagarde, a dyed-in-the-wool member of he country’s political establishment, would do anything to compromise the interests of major French banks and other lenders.
Another often-mentioned candidate, Agustin Carstens, now governor of Mexico’s central bank, was himself deputy managing director of the IMF from 2003 to 2006. Before joining the Banco de Mexico, he was finance minister to right-wing President Felix Calderon. There’s little indication that Carstens espouses anything but the orthodox IMF economic prescriptions, despite the profound dislocations such policies have brought about in his country.
A third candidate, Trevor Manuel, has been finance minister of South Africa almost continuously since 1996 and is regarded as the architect of its long-term economic policy. He’s a hero in international banking circles for implementing a strict cocktail of fiscal austerity and privatization of public services. But many in his own country see him as one of the main obstacles to any progress for the millions of impoverished South Africans who had hoped for a better life post-apartheid.
Most handicappers are betting on Lagarde. But neither Manuel nor Carstens would represent any change. The fact is that debt holders have little to fear if leadership of the IMF shifts to a developing country, because over the last two decades, these nations have developed economic cadres thoroughly indoctrinated in IMF-brand orthodoxy. It doesn’t do much for their people, but it does wonders for their careers.
The fault in this situation, then, lies to some extent with the developing nations themselves. Brazil, India, Malaysia, and other fast-growing nations are far more economically powerful today. That’s thanks in part to the victories the movement for global justice won a decade ago, and in part to the industrial decline of the U.S. Instead of using their clout to demand real change at the IMF, however, these countries’ governments are prioritizing a window-dressing change in the top job. Whoever succeeds Strauss-Kahn, then, the only hope for real change at the IMF lies where it always has: in the streets.
