The IMF’s mea culpa?

By Vincente Navarro

At first glance it would seem that the International Monetary Fund (IMF) has issued a mea culpa for imposing austerity policies on Eurozone countries (such as Greece, Portugal, Ireland, Spain and Italy), having recognized that not only have they not stimulated economic growth, but that they have hurt the economies of these countries. Olivier Blanchard, IMF chief economist, said that “we have been wrong.” And many articles in widely read publications have applauded that statement, confirming the validity of such a recognition, putting the IMF on a pedastal for alleged honesty. It is almost funny – if not for the terrible consequences that such austerity policies have had on millions of lives in the peripheral eurozone countries, among many others – to see the same columnists and newspapers that only months ago were demanding public spending cuts – including social spending – arguing that they were necessary (in addition to being the only option) now applauding the recognition by the IMF of the error of these policies. One of them is, of course, The Washington Post that had been the great defender and promoter of the IMF and its policies. In Spain, predictably, the list of newspapers that in their editorials or their columns now applaud what they previously condemned is long.

Having been among the few who from the beginning denounced such austerity policies, I have no sympathy for this supposed mea culpa, because it has been too timid, belated and insufficient. Timid because the mea culpa is adorned in silk, claiming purely methodological errors, indicating that they had miscalculated the impact of the fiscal deficit multiplier on economic growth. For every euro of spending that is cut, another euro and a half is destroyed, instead of only half a euro (as the IMF had estimated earlier). According to the IMF, therein lay its error, reducing a moral and ideological issue to a mere statistical mistake. Suppose that in a military exercise, a nuclear bomb dropped on an area inhabited by millions of people rather than a desert. And the explanation that the army were to provide was that this was due to a statistical error in calculating where it should have dropped the bomb. A scandal of the first order would surely follow, and accountability would be sought with international prosecutions. Well this is what happened, as they have been dropping many bombs of mass destruction, which caused many silent deaths. And what is worse is that it was easy to detect that it would be a mistake. It was entirely predictable that these austerity bombs would fall on an urban centre. Several of us predicted it.

Indeed, the evidence that such austerity policies have been causing huge damage is overwhelming. In 2008, the IMF itself published a report on the impact of austerity policies in 133 cases in several countries during the period 1993-2001. The failure of such policies was already documented in this report by the Independent Evaluation Office of the IMF, confirming the extensive literature that clearly documented the failure of such policies that were then called adjustment programmes. It knew, moreover, that such policies were damaging the welfare of the common people in those countries, causing enormous suffering. One of the most popular forums in academic health policy and social welfare, the International Journal of Health Services, documented,with empirical evidence, in a series of articles in 2011 that these policies had consequences for the welfare and quality of life of ordinary people, creating death, disease and social unrest. This forced a response from the IMF that lacks credibility. Only the neoliberal dogma that dominates the IMF (impervious to data and scientific evidence) can explain how the situation reached such dramatic levels (as we are seeing in Greece) that they were impossible to ignore.

But the correction in the IMF’s position, written by Blanchard, in his report Growth Forecast Errors and Fiscal Multipliers, in addition to being timid and belated, is also dramatically insufficient. Indeed, the reading of such correction by many columnists and editorials, presenting it as an expression of mea culpa from the IMF is exaggerated, since neither Blanchard nor the IMF have abandoned their support for these austerity policies. They continue to stress that such policies are desirable, against all the evidence that shows otherwise. Their revision in position is in the way austerity policies are carried out; they still argue that they are urgently needed.

Today the International Monetary Fund should disappear. And many international voices are demanding it. Its historical mission of helping countries with financial problems, ceased to exist from the early eighties, when neoliberalism became its dogma, becoming “an instrument of financial terrorism”, exclusively in defence of finance capital.

The fact that within the troika (the IMF, the European Central Bank or ECB, and the European Commission) the IMF has become the least enthusiastic in promoting austerity policies in the Eurozone does not mean that there is a change in direction and that it now supports the expansionary policies to support job creation and full employment that Europe needs like the air we breathe. The fact that the IMF has cooled in its  vocation as a promoter of spending cuts is due to international pressure, to which neither the European Commission nor the ECB are as exposed. These European institutions still cling to their dogma because they serve the interests of the ruling elites in those European countries where such policies are being imposed on the population. That much is clear.

Vincente Navarro

Nueva Tribuna  17.1.2013

Translation by Revolting Europe