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Gita Gopinath On Fiscal Policy

Published by Anonymous (not verified) on Thu, 26/11/2020 - 6:09am in

Gita Gopinath, the IMF’s chief economist is now arguing for a coordinated fiscal expansion, and that “coordinated spending is better than the sum of the individual parts” (CNN interviewer quoting her) and that “it is time for a global synchronised fiscal push to lift up prospects for all” (FT article referred in the CNN interview.

This is of course welcome! A lot of countries can’t do it alone and a coordinated expansion would allow them to raise output, keeping balance of payments in check.

It’s sad however, that the message was this late (although anything better than never). Also the characterisation of the problem as if we’re in a liquidity trap is dubious as they just want to say that fiscal policy will work only now, not after a recovery. But fiscal policy always works.

Forget the record deficits and public debt – focus on what the net spending is doing to advance well-being

Published by Anonymous (not verified) on Thu, 22/10/2020 - 1:35pm in

Tags 

britain, IMF

Yesterday (October 21, 2020), the British Office of National Statistics (ONS) released the latest – Public sector finances, UK: September 2020 – which, predictably tells us that government borrowing was “£28.4 billion more than in September 2019 and the third-highest borrowing in any month since records began in 1993” and that the public debt ratio has risen to “103.5% of … GDP … this was the highest debt to GDP ratio since … 1960.” Shock horror. While I yawn. The financial media went to town on the data. The Financial Times article (October 22, 2020) – UK government borrowing reaches record in first half of fiscal year – claimed the second wave that is now sweeping the northern hemisphere “have dampened hopes” that the stimulus “could be quickly scaled back” which has “fuelled concerns over the US’s mounting public debt”. It didn’t clarify as to who was concerned or why. The old canards seem to die slowly. Meanwhile, the IMF has changed tack somewhat after its tawdry display during the GFC. Overall, we should be relaxed about the records being set (deficits, public debt) and focus on what the net spending is doing to advance our interests. Focusing on the financial parameters will just divert our attention away from what is important.

British fiscal data topping the charts!

The only concern that the FT article mentioned was quoting a management consultant who said the ONS data release:

… may add more tension between the need to respond to renewed Covid outbreaks and preserving the public purse.

Exactly what might “preserving the public purse” mean?

The English meaning of the word – ‘purse’ – is:

… a small pouch of leather or plastic used for carrying money, typically by a woman.

Gender issues beside, a person needs a ‘purse’ to store currency so they can go shopping, which in modern times are more receptacles for credit cards.

So a purse traditionally implies a prior stock of currency.

The currency-issuing government neither has nor does not have currency as a ‘state’ variable. It just spends its currency into existence … boom, there it is – a number in a bank account.

But this idea that there is some trade-off between the health responses and the fiscal capacity of the government is erroneous reasoning and the type of (il)logic that has created such poor outcomes over the last several decades.

When the government spends its currency into existence a flow of spending enters the non-government sector, which stimulate sales, production, income generation, and employment.

Those flows have no ‘state’ – they are not a stock that carries over to another period.

So there is never a question about the capacity of the British government to render those flows as large as they like.

How large should they be?

Context!

Consider two scenarios.

At full employment, inflationary pressures will arise if government competes at market prices with non-government spending for productive resources.

To increase its use of productive resources, but avoid inflationary pressures, the government has to ‘free up’ resources.

Taxation is one option because it reduces non-government purchasing power and creates the real resource space to accommodate non-inflationary government spending.

Importantly, the taxes do not provide any extra spending capacity for government.

In the second scenario, idle productive resources can be brought back into productive use with higher deficits. There are no constraints – financial or resource – on such government spending.

Ask yourself where Britain is at present.

The answer is that it is very firmly in the second situation, which means it can just type flows of spending into bank accounts – nothing necessary to ‘preserve’ other than jobs, private incomes, services, health care, and all the things that matter.

Fiscal space is much broader than mainstream economists suggest and can only be defined in terms of available real resources rather than numbers in fiscal statements.

The ONS public finance data tells us nothing about fiscal space.

But there data on unemployment, underemployment, GDP is where we have to go to see how much (non-inflationary) fiscal space there is.

Modern Monetary Theory (MMT) focuses on how policy advances desired functional outcomes, rather than what the state of the deficit might be.

To maximise efficiency and minimise output losses, the responsibility of government is to spend up to full employment.

The fiscal outcome will be whatever is required to achieve that functional goal and will be largely determined by non-government saving decisions (via automatic stabilisers).

Under current institutional arrangement, where the government matches its net spending flow in a period by issuing new debt, the stock of debt obviously rises, which is what the ONS is reporting.

When government bonds are issued to match deficits, the central bank effectively just marks down reserve accounts and marks up a ‘treasury debt’ account.

The bond sales do not alter the net financial worth in the non-government sector in the first instance.

The debt issuance is a redundant part of the process and a hangover from past currency arrangements (pre 1971).

Governments could avoid all the nonsensical commentary about ‘record’ debt levels and the rest of it by abandonding the debt auctions.

Redundant means it is not required to accomplish the goals of the spending.

The current system of debt-issuance in Britain – the gilt auctions – was introduced in 1987 as part of the so-called – Big Bang – which was the “the sudden deregulation of financial markets” that the Thatcher government introduced in 1986.

In July 1995, the Treasury released the – Report of the Debt Management Review – which described the elaborate machinery that had been put in place to facilitate this redundant practices.

Lots of high-paying jobs, consultancies, kick-backs and the rest of it. But little functional purpose other than to maintain the system of corporate welfare that the investment banks had become used to.

It also concluded that “Auctions will constitute the primary means of conventional gilt issuance”, which means that the government allows the private bond speculators to set the yields.

It recognises that, even within a debt-issuance mindset, the alternative (and prior) system of tap sales can “function primarily as a market management mechanism.”

In this blog post – Direct central bank purchases of government debt (October 2, 2014) – I discussed the way the Australian government shifted in the 1980s from a tap system of debt sales to the current auction system.

In the former system, the government set the rate it would pay on debt issued and if the bond markets were not happy with the return and declined to buy the debt, the central bank would always buy the difference.

In the neoliberal era, this was the anathema so they shifted to a system where the government would announce an amount it wanted to borrow and the bond dealers would then bid for the debt by disclosing yields they were prepared to pay.

The auction model merely supplies the required volume of government paper at whatever price is bid in the market.

So there is never any shortfall of bids because obviously the auction would drive the price (returns) up so that the desired holdings of bonds by the private sector increased accordingly.

And if there are ‘concerns’ about the debt in the financial markets it is not showing up in the auction data.

The following graph shows the latest gilt market auction bid-to-cover ratios which are well above 2 mostly – which means there are twice as many sterling bids than the gilts on issue.

Please see this blog post – Bid-to-cover ratios and MMT (March 27, 2019) – for more information on that.

Enter the IMF to tell us why all this debt worry is misplaced

The IMF – Fiscal Monitor: Policies for the Recover – issued October 2020, provided data for this graph.

It shows the discretionary fiscal response since the pandemic began and up to September 11, 2020.

The two components of the discretionary fiscal responses have been:

(a) Additional spending and foregone revenue (temporary tax cuts).

(b) Liquidity support – loans, guarantees and equity injections by government.

There has been huge variation across the nations shown in terms of the bias towards (a) or (b).

In general, additional spending is much more expansionary than items under (b).

The IMF make an interesting point:

Advanced economies and large emerging markets account for the bulk of the global fiscal response … their central banks were able to provide massive monetary stimulus and purchase government or corporate securities while retaining credibility to deliver low inflation … their treasuries were able to finance larger deficits at low interest rates.

Of course, any central bank can purchase its own government’s debt – left pocket/right pocket stuff.

And any central bank can keep yields low on that debt if they desire, which means the ‘low interest rate’ story really is misleading.

But the important part of what is going on right now is that:

1. “The fiscal response, coupled with the sharp decline in output and government revenue, will push public debt to levels close to 100 percent of GDP in 2020 globally, the highest ever.”

2. And, yes central banks are buying most of the debt:

Central banks in several advanced economies and emerging market and middle-income economies have facilitated the fiscal response by directly or indirectly financing large portions of their country’s debt buildup.

So nothing to see here.

Record debt issuance, central banks buying the new debt, government buying and owning its own debt, end of story.

But, while there is nothing to see here in terms of the ‘economics’, this is a huge shift in mindset.

The IMF admit that the:

… massive fiscal support undertaken since the start of the COVID-19 crisis has saved lives and livelihoods.

So fiscal policy is not ineffective as many mainstream economists have led us to believe over the last several decades.

Now it is saving lives and livelihoods.

Paradigm shift underway.

Not quite.

The IMF cannot quite let go:

Record-high public debt levels limit the room for further fiscal support …

No. Especially when the central banks are buying up the debt and can buy all of it if the government wanted. Japan anyone!

Meanwhile, in the Eurozone, the game must be nearly over.

The IMF projections suggest that by 2025, the debt ratios in the Euro area will be 80.9 per cent of GDP, with France at 114.6 per cent, Italy at 141.5 per cent, Spain at 106.4 per cent.

Both France and Spain among the big 4 will violate Stability and Growth Pact deficit limits and I suspect Italy will too (given the ridiculous IMF forecasts to the contrary).

They will not be able to return to their fiscal rules within any foreseeable time horizon.

So how will that play out?

The point is that during the GFC, the IMF was out there forcing governments to cut net spending and accelerate the pace of consolidation which really meant they were just consolidating the elevated levels of unemployment and poverty.

Now, 10 years later, there is some give in their position and we are not reading anything about “growth friendly austerity”.

In their recent – World Economic Outlook, October 2020: A Long and Difficult Ascent – (released October 2020), the IMF project that world output will languish and fiscal deficits will have to remain at elevated levels for the foreseeable future.

I have just finished an academic paper that will be published soon (details available later) where I argued that Capitalism is now on life support with fiscal policy dominant.

Significantly larger and sustained fiscal deficits will be required indefinitely and that we should be comfortable with that.

Focusing on the size of the deficits is to focus on the wrong problem. The way out of the crisis requires an orthogonal shift in policy thinking and new theoretical understandings.

The usual narratives about the dangers of deficits and public debt are giving way to a new understanding.

This policy shift is diametric to what mainstream macroeconomists have been advocating for decades and their analytical framework cannot provide an understanding of the fiscal space available to governments nor the consequences of these policy extremes.

MMT has consistently advocated a return to fiscal dominance and disabuses us of the claims that deficits and debt are to be avoided.

MMT defines fiscal space in functional terms, in relation to the available real resources that can be brought back into productive use, rather than focusing on irrelevant questions of government insolvency.

Conclusion

MMT economists have always held the view that a focus on deficits and debt aimed at assessing solvency thresholds and the like has never been justified and has underpinned destructive policy interventions that have undermined prosperity.

Now, as never before, the scale of the socio-economic-ecological challenges before us requires a rejection of the deficit/debt scaremongering. Meeting these challenges will require significant fiscal support over an extended period.

Such fiscal support is necessary to sustain income growth to allow the non-government sector to reduce its debt levels and to provide for jobs growth. But it should also target longer-term challenges, such as restoring some self-sufficiency in manufacturing; reforming the gig economy that has exposed millions to poverty during the pandemic; supporting regions that have experienced a major loss of firms (for example, tourist destinations); address the housing crisis; and, importantly, accelerate the transition away from carbon-intensive production and consumption.

Even before the pandemic, the climate issue suggested large fiscal deficits would be required in the transition phase. The health crisis has added another dimension to that need.

The old orthodoxy does not provide a reliable framework for understanding these options and consequences.

It is likely that relying on ‘business as usual’ will result in an inadequate level of fiscal support being provided and a premature withdrawal of that support as the old debt and deficit themes return.

MMT provides a comprehensive macroeconomic framework, which allows us to understand that the problem into the future will not be excessive deficits and/or public debt.

Rather, the challenge is to generate productivity innovations derived from investment in public infrastructure, education and job creation.

And relax about the deficits and record debt.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.

For the sake of money creation the Tories are going to tear this country apart

Published by Anonymous (not verified) on Thu, 15/10/2020 - 8:19pm in

The IMF issued a pretty exceptional blog post yesterday. It was about addressing the coronavirus crisis and its economic impacts. In it they said:

With many workers still unemployed, small businesses struggling, and 80‑90 million people likely to fall into extreme poverty in 2020 as a result of the pandemic—even after additional social assistance—it is too early for governments to remove the exceptional support. Yet many countries will need to do more with less, given increasingly tight budget constraints.

I could have written that. That cannot always be said of IMF blogs.

They then added:

Although the global fiscal response to the crisis has been unprecedented, responses by individual countries have been shaped by their access to borrowing as well as their public and private debt levels heading into the crisis.

And they then noted:

In advanced economies and some emerging market economies, central bank purchases of government debt have helped keep interest rates at historic lows and supported government borrowing. In these economies, the fiscal response to the crisis has been massive.

In many highly indebted emerging market and low-income economies, however, governments have had limited space to increase borrowing, which has hampered their ability to scale up support to those most affected by the crisis. These governments face tough choices.

But it was what came next that was exceptional. They said, and I think this worth sharing in detail. They started with this:

As economies tentatively reopen, but uncertainty about the course of the pandemic remains, governments should ensure that fiscal support is not withdrawn too rapidly.

This could be targetted at Rishi Sunak. This is, of course, exactly what he is planning to do.

But they went further, saying:

However, it should become more selective and avoid standing in the way of necessary sectoral reallocations as activity resumes. Support should shift gradually from protecting old jobs to getting people back to work—for example, by reducing job retention programs (wage subsidies), reintroducing job search requirements, and training new skills—and helping viable but still-vulnerable firms safely reopen. With low interest rates and high unemployment, boosting public investment—starting with maintenance and ramping up projects—can create jobs and spur economic growth.

Why not just call it the Green New Deal with a dollop of care and education thrown in? Because that is what is required.

But correctly they note:

Emerging market and low-income economies facing tight financing constraints will need to deliver more with less, by reprioritizing spending and enhancing its efficiency. Some may need further official financial support and debt relief.

That is true, and also welcome, as is this:

Governments should also adopt measures to improve tax compliance and consider higher taxes for the more affluent groups and highly profitable firms. The ensuing revenues would help pay for critical services, such as health and social safety nets, during a crisis that has disproportionately hurt the poorer segments of society.

I was literally saying this last night.

And they concluded that section of their commentary saying:

Once the pandemic is under control, governments will need to foster the recovery while addressing the legacies of the crisis—including the large fiscal deficits and high public debt levels.

  • Countries with fiscal space and major scarring from the crisis, such as large long-term unemployment, should provide temporary fiscal stimulus while planning for an adjustment over the medium term.

  • Countries with high debt levels and less access to financing will also need to adjust over the medium term, striving to protect public investment and transfers to lower-income households.

We are in the first category. We have the room to create money and borrow money: there is, in the IMF view, no reason not to support the economy through this, and every reason to do so.

So what was their overall conclusion? It was this:

Looking ahead, countries will need to make it a priority to invest in health care systems and education. They should also strengthen social safety nets to ensure that all people have access to food and other basic goods and services.

As economies begin to recover, governments should seize this moment to move away from the pre-crisis growth model and accelerate the transition to a low-carbon and digital economy.  Carbon pricing should be a key feature of this transition, because it encourages people to reduce energy use and shift to cleaner alternatives—and, moreover, it generates revenue that can be used in part to support the most vulnerable.

As governments ramp up their public investment and other fiscal measures to foster the recovery, their policy choices will have long-lasting effects. They should make a decisive push to make economies more inclusive and resilient, and to curb global warming through green measures that also boost growth and employment.

I agree.

There was no MMT in this, but there was money creation. And there was an appreciation that it is not money that is the constraint now. And yet in the UK it is money that is already being said to be the reason why we cannot address the crisis that we are in.

The IMF has this right.

Rishi Sunak and the Tories have this very badly wrong.

No wonder this country is heading for turmoil and breakdown. For the sake of money creation the Tories are going to tear this country apart. And even the IMF says that they have got that wrong.

When disaster strikes the poorest nations, the IMF guarantees to make it worse

Published by Anonymous (not verified) on Tue, 13/10/2020 - 1:37pm in

Tags 

Economics, IMF

When a nation or region is experiencing the worst crisis the IMF always comes to the party and makes it worse. The latest evidence from those who study the detail of IMF interventions across the globe have found that the IMF has imposed harsh conditionalities (healthcare spending cuts, cuts to jobless assistance, cuts to public service wages and employment) in 76 out of the 91 loans it has extended to nations in peril as a result of the pandemic. On the other hand, data show that the wealth of billionaires has scaled new heights between April 2020 to July 2020 – a 42.4 per cent increase in their total wealth. If all that doesn’t tell us that the neoliberal system has overextended it indecency and rebellion is required then what else would? The point is that when disaster strikes the poorest nations, the IMF guarantees to make it worse. It should be dissolved immediately through defunding from national states and a new progressive, multilateral institution created that helps people not punishes them.

In this report (October 8, 2020) – Fighting Inequality in the time of COVID-19 – we learn that the:

The 2020 Commitment to Reducing Inequality (CRI) Index shows clearly how the majority of the world’s countries were woefully unprepared for the coronavirus pandemic.

The CRI includes measures of “spending on public healthcare and weak social protection systems and rights for workers” and the conclusion reached after assessment is that the “very low levels of spending” by governments in these key areas of well-being means that:

… their populations were left brutally and unnecessarily vulnerable. The failure of governments to tackle inequality is now forcing ordinary people to bear the brunt of the crisis and pay a much higher price than they should.

The Oxfam spokesperson said in releasing the report (Source):

The failure of governments to tackle inequality has resulted in hundreds of millions suffering hardship or missing out on the healthcare they need. Women have paid a higher economic price as a result of the lockdowns introduced in response to the pandemic, while unpaid care work and gender-based violence have increased dramatically.

That spells – failed states.

That tells us that the essential role of fiscal policy to advance well-being in society has been deliberately abandoned by governments who have chosen to use their fiscal capacities to pursue other ends that profit from on-going and worsening income and wealth inequality.

That spells – a successful paradigm for those that benefit but for most people it means the system in place has failed them.

The following graphic is taken from Figure 1 of the Oxfam Report on the CRI progress and gives you an idea of what they consider as part of the index.

I urge interested people to read the full details in the Report.

The summary results show that:

1. “Just 26 of the 158 countries … were spending the recommended 15% of their budgets on health going into the pandemic.”

2. “In 103 countries, at least one in three of the workforce had no labour protection such as sick pay.”

3. “Only 53 countries had social protection systems against unemployment and sickness, and they covered only 22% of the global workforce.”

4. “those governments already committed to reducing inequality were the ones best placed to face the economic and health challenges posed by coronavirus. They were best placed to ensure that ordinary people were protected as much as possible, and that the impact of the virus was not dictated by whether you were rich or whether you were poor.”

Oxfam noted that some countries have failed to reduce inequality with “disastrous consequences” and they found that:

The United States ranks last out of the wealthy G7 countries and trails 17 low-income countries like Sierra Leone and Liberia on labour legislation due to anti-union policies and a very low minimum wage. The Trump administration gave only temporary relief to vulnerable workers with its April stimulus package after having permanently slashed taxes which overwhelmingly benefitted corporations and rich Americans in 2017.

What would Biden have done?

Obviously, the Report has flaws.

It tries to draw a link between the size of GDP and the capacity of governments to spend via the broader tax base.

Clearly that is incorrect logic. The government does not need tax revenue to spend.

The size and exploitation of a tax base does allow the government sector to be larger, other things being equal, because it reduces that much non-government spending capacity which would tie up productive resources in non-government uses.

The taxes create idle resources in the non-government sector, the public spending brings them back into productive use – in the government sector.

Oxfam also examined the performance of the World Bank and the IMF during the pandemic.

They found that:

While the World Bank has pledged US$160bn (£124bn) in emergency funding, including health projects in 72 countries, only eight of these projects attempt to remove healthcare user fees, which each year bankrupt millions of people and exclude them from treatment.

Count that as a fail.

The World Bank recently announced (October 7, 2020) – Updated estimates of the impact of COVID-19 on global poverty: The effect of new data – that “The increase in extreme poverty from 2019 to 2020 is projected to be larger than any time since the World Bank started tracking poverty globally in a consistent manner”

They said:

We estimate that an additional 88 million people will live in extreme poverty in 2020 as a result of COVID-19 and that this number could rise to 115 million under the COVID-19-downside scenario

There is no statement by the World Bank about the contribution that inadequate stimulus measures to this appalling situation.

The other side of the coin is the recently released UBS/PwC Report – Riding the storm – (aka “Billionaires insights 2020”) which shows that:

1. “Wealth reaches new heights from April 2020 to July 2020 from USD 8.0 trn to USD 10.2 trn” – there has been “V-shaped rebound in asset prices”.”

2. “During 2018, 2019 and the first seven months of 2020,4 technology billionaires’ total wealth rose by 42.5% to USD 1.8 trillion”

3. “healthcare billionaires’ total wealth increased by 50.3% to USD 658.6 billion”.

So do the juxtaposition and the only conclusion is that the global system has failed humanity

It cannot be business as usual.

We need a radical overall of all of this and if that requires widespread rebellion then that strategy has worked in the past when the indecency of the elite surpasses any reasonable levels.

And then we get to the IMF, that august international organisation that receives millions of dollars in funding via the quota system from – Member governments.

The Oxfam release (October 12, 2020) – Over 80 per cent of IMF Covid-19 loans will push austerity on poor countries.

The headline really tells you everything.

This is what has been happening.

1. Less well-off nations are hit with a pandemic that they didn’t start. It would have entered their nations through mobility and you can be sure that the poorest members of the societies are unlikely to be those who have been venturing wide and far.

2. The IMF extends loans to 91 nations – they committed $1 trillion to help nations but to date have spent on $89 million (Source).

3. 84 per cent of the loans extended – “76 out of 91” – which involved 81 countries required the nations to cut public spending and target “deep cuts to public healthcare systems and social protection.”

4. The IMF has published research in recent years that show such cuts increase poverty and drive up inequality – see Neoliberalism: Oversold? (June 2016).

5. Oxfam provides a full examination of the IMF programs and conditionalities – HERE.

Specific examples include:

1. The IMF forced the Ecuadorian government to cut healthcare spending, end any cash transfers to those who lost jobs, cut petrol subsidies which benefit the pooor, at the same time that the healthcare and burial system has been overwhelmed.

2. Other nations have been forced to cut public sector wages and sack public servants including healthcare workers.

3. Other nations have been forced to increase taxes on “food, clothing and household supplies” which damage the poorest citizens.

A campaign has been launched – The IMF Must Immediately Stop Promoting Austerity Around the World – to bring citizens around the world to rise against this cruel and indecent institution.

The IMF couches the austerity as “fiscal consolidation in the recovery phase” but, of course, the cuts stifle recovery and then the IMF further burdens the nations with extended loan arrangements and more austerity.

It is not as if we haven’t been there before.

The long and sordid history of the IMF ‘structural adjustment policies’ (SAPs) has shown them to have been a disaster. The IMF and the World Bank are both institutions that serve to facilitate income movements from poor to rich.

Developing countries seeking finance from the IMF and the World Bank have been forced to adopt neoliberal policies that included harsh austerity measures as a condition of international support.

The programmes of structural adjustment and austerity imposed by the IMF on developing countries in the 1980s and 1990s undermined many of the achievements of the previous growth model, driving living standards down and poverty levels up.

By the mid-1990s, no less than 57 developing countries had become poorer in per capita income than 15 years earlier – and in some cases than 25 years earlier.

In almost all countries where austerity-driven policies were imposed, poverty and unemployment grew, labour rights deteriorated, inequality soared, and financial and economic instability increased.

This study in the Public Health Reviews journal (published July 10, 2017) – Structural adjustment programmes adversely affect vulnerable populations: a systematic-narrative review of their effect on child and maternal health – is an indictment of the IMF and the World Bank.

The researchers concluded that:

… rigid fiscal targets stipulated under structural adjustment loans often take precedence over social spending, and that aid funds are siphoned from health and social sectors to repay debt or increase reserves …

The notion that IMF fiscal consolidation is conducive to growth is likewise contested … with implications on revenues available for health spending.

There are many other studies that conclude along similar lines.

The overwhelming evidence shows that the so-called structural adjustment program (SAPs) that the IMF and World Bank typically impose on poor nations struggling with balance-of-payments problems – based upon fiscal austerity, elimination of food subsidies, increase in the price of public services, wage reductions, trade and market liberalisation, deregulation, privatisation of state-owned assets, etc. – have had a disastrous social, economic and environmental impact wherever they have been applied.

Please read my blog post – IMF policies undermine the health of mothers and children in the poorest nations (November 2, 2017) – for more discussion on this point.

And now in the worst crisis to hit humanity in living memory, the IMF officials, cosy in their high-paid jobs, are repeating this form, which will have similarly terrible outcomes.

Conclusion

Clearly, the IMF and the World Bank have outgrown their original purpose and have ceased to play any positive role in the management of world affairs.

Rather, their interventions have undermined prosperity and impoverished millions of people across the world.

In this context, a new multilateral institution (or series of institutions) should be created to replace both the World Bank and the IMF, charged with the responsibility of ensuring that these highly disadvantaged nations can access essential real resources such as food are not priced out of international markets due to exchange rate fluctuations that may arise from trade deficits.

There are two essential functions that that need to be served at the multilateral level:

1. Development aid – providing funds to develop public infrastructure, education, health services and governance support.

2. Macroeconomic stabilisation – the provision of liquidity to prevent exchange rate crises in the face of problematic balance of payments.

A progressive multilateral institutions would aim to reduce (and ultimately eliminate) poverty through economic development but within an environmentally sustainable frame.

We outline such a model in new book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017).

Quite sad and angry to be writing this today.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.

IMF Seizes on Pandemic to Pave Way for Privatization in 81 Countries

Published by Anonymous (not verified) on Tue, 13/10/2020 - 3:43am in

The enormous economic dislocation caused by the COVID-19 pandemic offers a unique opportunity to fundamentally alter the structure of society, and the International Monetary Fund (IMF) if using the crisis to implement near-permanent austerity measures across the world.

76 of the 91 loans it has negotiated with 81 nations since the beginning of the worldwide pandemic in March have come attached with demands that countries adopt measures such as deep cuts to public services and pensions — measures that will undoubtedly entail privatization, wage freezes or cuts, or the firing of public sector workers like doctors, nurses, teachers and firefighters.

The principal cheerleader for neoliberal austerity measures across the globe for decades, the IMF has recently (quietly) begun admitting that these policies have not worked and generally make problems like poverty, uneven development, and inequality even worse. Furthermore, they have also failed even to bring the promised economic growth that was meant to counteract these negative effects. In 2016, it described its own policies as “oversold” and earlier summed up its experiments in Latin America as “all pain, no gain.” Thus, its own reports explicitly state its policies do not work.

“The IMF has sounded the alarm about a massive spike in inequality in the wake of the pandemic. Yet it is steering countries to pay for pandemic spending by making austerity cuts that will fuel poverty and inequality,” Chema Vera, Interim Executive Director of Oxfam International, said today.

These measures could leave millions of people without access to healthcare or income support while they search for work, and could thwart any hope of sustainable recovery. In taking this approach, the IMF is doing an injustice to its own research. Its head needs to start speaking to its hands.”

Oxfam has identified at least 14 countries that it expects will imminently freeze or cut public sector wages and jobs. Tunisia, for example, has only 13 doctors per 10,000 people. Any cuts to its already scant healthcare system would cripple it in its fight against the coronavirus. “If people can’t afford testing and care for COVID-19 and other health needs, the virus will continue to spread unchecked and more people will die. Out-of-pocket healthcare expenses were a tragedy before the pandemic, and now they are a death sentence,” Vera added.

 

An IMF case study

Ecuador is a perfect example of the consequences of IMF actions. Previously ruled by the radical administration of Rafael Correa, who made poverty reduction a priority, condemned the IMF and its sister organization the World Bank, and gave asylum to Western dissidents like Julian Assange, the country has been ruled by Lenin Moreno since 2017. Moreno immediately began unpicking Correa’s legacy, even attempting to prosecute him. In 2019, on orders from the IMF, Moreno slashed the country’s health budget by 36 percent in exchange for a $4.2 billion loan from the IMF, a move which provoked massive, nationwide protests that threatened to derail his administration.

The results were near-apocalyptic, as the country’s largest city, Guayaquil, became the worldwide hotspot for coronavirus, with bodies left to rot in the streets for days as services were overwhelmed. The city suffered more deaths than New York City at its height, and with far less infrastructure to deal with the problem. While the official number of cases in the country is low, the death rate has been among the highest in the world, suggesting that services have been completely overwhelmed.

Earlier this month, Moreno announced a new $6.5 billion deal with the IMF, who has advised his government to backtrack on emergency increases in health spending, stop cash transfers to those unable to work due to the virus and to cut fuel subsidies for the poor.

 

In crisis, opportunity

The IMF also directly interferes with the internal politics of sovereign nations. In March, it refused to lend to the Venezuelan government because of the “lack of clarity” about who was in charge, suggesting that the democratically-elected Nicolas Maduro would have to step down before they would consider lending to the country. At the same time, however, self-declared president and opposition figure Juan Guaidó announced that he had secured a $1.2 billion commitment from the organization on the proviso that Maduro resigns and allow an “emergency government” to take control of the country. A poll taken in the same month by a sympathetic pollster found that only three percent of Venezuelans backed Guaidó.

In crisis, there is always opportunity. For many, the pandemic is an opportunity to reorient the economy away from mass consumption and towards a more ecologically sustainable system. For the IMF, however, it is being used to push through more privatizations and austerity measures that invariably enrich the wealthy and weaken the poor and the powerless. It appears that, if the organization has its way, that it will be the poor who pay for the pandemic, while the rich prosper.

Feature photo | A demonstrator holds a banner against International Monetary Fund during a protest in Quito, Ecuador, May 18, 2020. Photo | Dolores Ochoa. Editing by MintPress News

Alan MacLeod is a Staff Writer for MintPress News. After completing his PhD in 2017 he published two books: Bad News From Venezuela: Twenty Years of Fake News and Misreporting and Propaganda in the Information Age: Still Manufacturing Consent. He has also contributed to Fairness and Accuracy in ReportingThe GuardianSalonThe GrayzoneJacobin MagazineCommon Dreams the American Herald Tribune and The Canary.

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Wynne Godley On Sensibility

Published by Anonymous (not verified) on Thu, 20/08/2020 - 5:21am in

Wynne Godley in a 1988 article, The Sensibility Of Contemporary Institutions in Theology, (first given as a Sermon before the University in King’s College Chapel, 31 May 1987:

Recourse to the dictionary gives, among the definitions of the word sensibility, ‘the glad or sorrowful recognition of a fact or a condition of things’. Also, ‘readiness to feel compassion for suffering’.

But the major issues at stake have been vastly more important than ones which concern sensibility narrowly defined. They go beyond who becomes rich and who remains poor. They extend to matters such as slavery, mass unemployment and civil war.

… The IMF would do well to reperuse its own Article I, which .lists among its purposes: ‘to facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy … ‘ In this passage you hear the authentic note of optimism and mutual concern which informed economic relationships within and between countries in the first twenty-five years after the war.

I have been forced to recognize with sadness and very great disappointment that I have so far failed in my personal endeavour to change the course of events or the attitudes of other people. But I remain steadfast to what I understand to be the meaning of Christianity: the unique value it places on the individual inner life; the ability to tolerate aloneness and the imminence of death; the joyful and sensitive concern for and love of other human beings.

Mexico State Oil Company Files $22 Billion Debt Swap amid IMF Threats and White House Visit

Published by Anonymous (not verified) on Sat, 11/07/2020 - 6:16am in

Mexico’s president, Andres Manuel Lopez Obrador, known colloquially as AMLO, arrived back in his nation’s capital yesterday aboard an American Airlines flight after his first state visit to the United States since taking office in a historic, landslide victory in 2018. The commercial flight included a stopover at Miami International Airport as coronavirus-induced protocols have resulted in the suspension of direct flights in and out of the North American country.

AMLO’s choice of traveling commercial instead of flying on the official presidential airplane is part of a carefully-crafted everyman image he has been cultivating for years since he left the ranks of the once immovable conservative ruling party, the PRI, and joined the left-leaning PRD in the late 1980s. In 2014, Obrador formed a new party called MORENA after having served as Mexico City’s mayor for four years and later losing his first bid to become president in 2006.

The Trump White House hosted AMLO on Wednesday, one day after Pemex – the embattled Mexican state-owned petroleum company – announced a $22.4 billion debt swap to mitigate its massive financial liabilities. The swap will be the largest of the recent refinancing operations carried out by the once state-owned company; and while the filing with the U.S. SEC did not specify when the bonds would be issued, the action was intended to alleviate pressure mounting on the oil giant, which Obrador had planned to use as a “pillar” in his strategy to turn the Mexican economy around. Falling oil prices, however, have severely hampered the execution of that idea.

In addition, the coronavirus-induced economic crisis is being evoked by entities like the International Monetary Fund (IMF) to predict a veritable collapse of the Mexican economy. In their June World Economic Outlook Update titled “A Crisis Like No Other, An Uncertain Recovery,” the Atlanticist organization forecasts a devastating 10.5 percent contraction for Mexico this year, nearly four percent lower than its April forecast.

 

The IMF threatens Mexico

The IMF’s dire estimate comes on the heels of the official start of the USMCA, which went into effect on July 1 and comprised a significant portion of the state visit’s agenda. The revamped NATFA agreement has mostly modest improvements over its predecessor and has served mostly as a political tool by all three heads of state.

The one sector that did get a complete overhaul in the new trilateral agreement was the U.S. tech sector, which secured important concessions from both Canada and Mexico, such as the fact that they cannot be sued for “the content appearing on their platforms” or forced to store their data on in-country servers. Intellectual property protections heavily skewed in favor of American companies were also expanded.

Related to these provisions are ones surrounding biotechnology that could have critical implications for the agricultural sector provisions in the trade deal. The original NAFTA made Mexico a net corn importer through unfair rules allowing the U.S. to subsidize its own corn industry while prohibiting the same of the country that gave birth to corn, itself. New biotech rules are sure to exacerbate these problems for the Mexican agricultural sector and a multitude of groups have come out in opposition.

 

The USMCA’s “new normal”

In a letter signed by more than 80 agricultural associations in Mexico petitioned the government to prohibit the introduction of GMO seeds into the country. The coalition, which calls itself “Group in Defense of Agricultural Diversity and Mexican Food Against Genetically Modified Organisms” warns of the “grave danger” posed by the lack of defined rules against the introduction of GMOs throughout the national territory. In addition, the group condemns the provisions in the USMCA, which forces Mexican farmers to adhere to the UPOV 91 protocol that makes seed hoarding and trading illegal.

Casting a shadow over the implementation of the USMCA is compliance to the extraneous COVID-19 “new normal” policies, which are forcing a “rethinking about global supply chains” and are sure to affect exactly how the new trade deal is ultimately enforced.

AMLO’s trip to D.C. may have been a signal to the Atlanticist power bloc that he is ready to give in to their demands, recently outlined in an article authored by a CFR senior fellow, where the Mexican president is called on to “save his presidency” by embracing globalization lest the country slip into a more severe recession. Presciently, the author recommends that AMLO “welcome foreign money and expertise into the energy sector,” foreshadowing the debt swap announcement a day prior to Obrador’s official White House visit.

“Adherence to market-based rules” are also endorsed by the perennial Atlanticist mouthpiece as a way to carve a “path out of the permanent poverty of subsistence farming” by enabling the “specialization in more profitable fruits, vegetables, coffees and other products,” a strategy first implemented by NAFTA and which has resulted in the precise opposite effect.

Feature photo | President Donald Trump and Mexican President Andres Manuel Lopez Obrador wait to sign a joint declaration at the White House, July 8, 2020, in Washington. Evan Vucci | AP

Raul Diego is a MintPress News Staff Writer, independent photojournalist, researcher, writer and documentary filmmaker.

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