Real Progressives

How the IMF sows the seeds of Global Neoliberalism

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As a citizen of any one country, it’s sometimes difficult to grasp the full picture of the corruption going on in your own homeland, let alone see past it to other people’s. But when you begin to closely examine the current events of other countries, you begin to see patterns emerge, shining light on the backbone of corruption running through them.

But understanding how the bones that make up that skeleton are connected is another story altogether.

When looking for a good example to illustrate this point, I discovered that the best place to build a list is to select from arguments with conservatives about countries with universal healthcare. When they say “Well, X country forced their citizens to adopt universal healthcare, and look what happened to them!” When universal healthcare fails, corruption often isn’t far away.

Just as an example, let’s take one of them to examine more closely: Thailand.

In every single case that I encountered, it looked as though the country being pointed at was a country with monetary sovereignty, but NOT a fiat currency. In other words, they could produce their own currency, but the value of said currency was pegged to the US dollar or another country’s currency denomination. When they are pegged to the dollar, their currency is based on the US dollar, which for them is a finite resource due to their inability to produce US dollars themselves.

The result is that these countries are almost totally at the mercy of their currency’s country of origin. When you control a country’s debt, you control that country’s economy. Some have coined the term “dollar zombies” to describe these countries for this very reason. Considering the tenuous situation this causes, it’s no mystery who likely played an active role in this; the party who stands to gain the most, which just so happens to be the only party capable of exacting such an effect.

…But that isn’t the case with Thailand. In fact, Thailand began to run into serious trouble only when it stopped pegging its currency to the US dollar and converted to a free-floating currency in 2007. The Thai Baht was weaker than the dollar, and though some adjustments were expected, unfortunately, what happened was a disaster. It is the result of this disaster, however, that brought about an even worse development.

The idea of ‘fiscal responsibility’ is not just used to control US spending policy, it’s also used to control other countries when they rack up too much debt, and the International Monetary Fund (IMF) is called upon to step in and “bail them out’. Money is provided on loan, but countries are forced to enact neoliberal policies like increasing taxation, cutting social programs and public spending, privatization, and raising interest rates until the money is paid back in full.

Even if a country is monetarily sovereign with a fiat currency, if they take this money, they have just gone into debt in a foreign currency that they cannot produce themselves. That in itself is a recipe for disaster, but the IMF’s restrictive, exploitative terms add insult to injury. The IMF has a current budget of 616 billion US dollars, and that’s what you get if you are deemed dependent upon it: US dollars.

…Which brings us back to Thailand. This is a country which is often demeaned by people who like to try and legitimize austerity. They like to point out the fact that their universal healthcare is so staggeringly expensive for citizens, in spite of it being ‘available’ to everybody (this was only true for a while). They like to try and cast doubts upon the viability of socialized healthcare with this fact, ignoring the glaring issue of monetary sovereignty which is at its core, while also ignoring the scads of countries with thriving, successful socialized healthcare programs.

Researching a University of Washington academic paper by Charles W. L. Hill which discusses the Asian financial crisis, one can clearly see the aftermath of enforced IMF austerity on Thailand.

“On July 28th the Thai government took the next logical step, and called in the International Monetary Fund (IMF). With its foreign exchange reserves depleted, Thailand lacked the foreign currency needed to finance its international trade and service debt commitments, and was in desperate need of the capital the IMF could provide. Moreover, it desperately needed to restore international confidence in its currency, and needed the credibility associated with gaining access to IMF funds. Without IMF loans, it was likely that the baht would increase its free-fall against the US dollar, and the whole country might go into default. IMF loans, however, come with tight strings attached. The IMF agreed to provide the Thai government with $17.2 billion in loans, but the conditions were restrictive. The IMF required the Thai government to increase taxes, cut public spending, privatize several state owned businesses, and raise interest rates ” all steps designed to cool Thailand’s overheated economy. Furthermore, the IMF required Thailand to close illiquid financial institutions. In the event, in December 1997 the government shut some 56 financial institutions, laying off 16,000 people in the process, and further deepening the recession that now gripped the country.”

So even if Thailand desperately needed to spend that money on infrastructure, healthcare, education, and elderly/veteran care, their agreement with the IMF prevented them from doing so.

We are monetarily sovereign, monopoly issuers of US dollars. They are not. This is a fundamentally important distinction. We can honor any debt in US dollars at any time, but we cannot create inflation in our own country by producing money to be used in another. There is literally no need for us to ask anything of Thailand but their support, in return for this. What helps them, helps us, but instead, we exploit their shortcomings in order to profit from them.

The reasons why Thailand opted to un-peg their currency from the US dollar in the first place is largely because of the freedom that a free-floating currency afforded them. Having their currency backed by US dollars gave it credibility and desirability, as well as stability in international markets due to the size and diversity of US markets, but this relationship sets up a scenario which can be exploited ruthlessly. Even though they had eliminated that pitfall, Thailand still succumbed to the effects of debt in another country’s denomination, and the effect can be just exactly the same; a loss of monetary sovereignty.

Considering the aftermath of the IMF’s involvement in the Thai economy, it’s not difficult to see the resulting effects on Thailand, which is sadly not the only example.

The IMF could be helping countries like Thailand get back on their feet by providing aid in wisely accountable ways, helping to build their societies into smarter, healthier, happier and more productive allies, but instead it addicts them to dollar subscriptions which offer them less and less benefit all the time, impoverishing millions with totally unnecessary austerity. While Thailand’s universal health system has undergone many trials and turmoils, it has emerged to cover nearly 100% of Thai citizens, in spite of all its initial limitations and costs to both Thailand and its citizens.

But just think of what they could have done if they hadn’t been straddled with debt that continued for the next 20 years, until the Thai government converted all of its foreign debt into Baht, and paid it off in 2017.

So what is the IMF, and why are they doing this?

The IMF, or International Monetary Fund, is comprised of 189 member countries and was set up in 1945 by the Bretton Woods Accord to “foster global monetary cooperation, and secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world” . As for who is in control of it, the IMF is “œgoverned by and accountable to the 189 countries that make up its near-global membership.”

…but as you might have guessed, it’s headquartered in Washington DC.

The policies and practices of this organization can best be described in one word: Neoliberal. The IMF does not hide this, in fact, they freely admit to it. Based on the Bretton Woods Agreement, one of its major problems is the implicit advantage that the US gains when its currency is the standard international reserve currency, and it can best be summarized this way:

From Wikipedia:

“In France, the Bretton Woods system was called “America’s exorbitant privilege[4] as it resulted in an “asymmetric financial system” where non-US citizens “see themselves supporting American living standards and subsidizing American multinationals.” As American economist Barry Eichengreen summarized: “It costs only a few cents for the Bureau of Engraving and Printing to produce a $100 bill, but other countries had to pony up $100 of actual goods in order to obtain one””

This was an issue even before 1971 when the US dollar became fiat, but again, it’s about monetary sovereignty and lack thereof. That one facet makes all the difference. When the US dollar is the sole reserve currency for international trade, the US is clearly in a place of priority and privilege because we, alone, can produce US dollars.

The other problem is the advantage the IMF takes when countries are in trouble, and in need of financial aid. These countries are basically selling their right to budget on their own behalf, in exchange for a loan. To say that this is taking advantage of the desperate is an understatement. It is unconscionable.

In the case of Thailand, they were one step away from safety, if only they had been able to pull through without IMF interference.

After all is said and done, what may seem strangest is not that the IMF fully acknowledges their role in a neoliberal agenda, but that they admit that it’s not working, for mostly the wrong reasons. That was almost three years ago.

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