October 17, 2008
The IMF Is Getting Back Into Business
The International Monetary Fund is hated by everyone who ever came under its regime. One of its function is to be a lender of last resort whenever a country goes bankrupt. Such IMF loans come with strict conditions and neoliberal policy demands: Fire the teachers, lower taxes, lower social expenditure, allow foreigners to buy up your country and so on.
After the Asian financial crisis the IMF had little to do. Many countries build up foreign reserves to protect their currencies and economies and nobody asked the IMF for loans. Latin America paid off its outstanding debt to the IMF. For a while Turkey was the only country with IMF mangling but this year it repaid most of its outstanding IMF loans and was freed from the international debt tower.
The IMF had nothing to do but as the international credit bubble goes bust it is back in business. Only this time the customers are a bit different.
The current list of countries talking with the IMF is getting longer each day. Iceland was for starters. Estonia, Latvia and Lithuania and the Ukraine are likely to fall under IMF dictatorship. Serbia and Hungary are also candidates.
It will be interesting to see if the IMF will apply the usual torture or have less neoliberal recipes for these countries. Most of the above are already drunk on neoliberal kool-aid like regressive tax regimes and more of that drug will not do them any good.
Another candidate for IMF help was Pakistan which has less than five mouth worth of foreign reserves available, high inflation and immediately needs a loan of at least $10 billion. But there has been no talk of IMF intervention. The IMF has so often intervened in Pakistan that it is accused to be the real culprit of the countries current state.
Pakistan had hoped for help from Saudi Arabia but the Saudis hate president Zardari and his Bhutto clan and want their candidate/proxy Nawaz Sharif to rule that country. They have not answered the calls from Islamabad. Pakistan also asked the U.S. but the result was only a paltry $4 billion international arrangement which comes with very harsh conditions:
During its negotiations with the World Bank and other IFIs, Pakistan pledged to reduce its fiscal deficit from 7.7 per cent of the GDP last year to 4.3 per cent of the GDP this year.
Pakistan agreed to reform its tax policy and tax administration with the aim to mobilize additional revenue. The tax to GDP ratio is to be reduced to 15 percent of the GDP over the next five to seven years. Pakistan promised to tighten monetary policy as and when needed.
In most European countries the tax to GDP ratio is around 40%. In the U.S. it is about 30%. How is Pakistan supposed to provide for its people with a tax ratio of 15%? This is a formula for more instability.
Zardari's first official trip abroad is to China where he is currently asking for more money. He will get some and the conditions will likely be less harsh than those coming with the U.S. arranged loan.
China may well be really smart and lend a full $10+ billion and recommend that some of that is used for infrastructure development. That would avoid the pressure on Pakistan from the conditions of the U.S. arranged loan.
Could the Baltics, the Ukraine and other East- Europeans do something Zardari like and go to Moscow? A bailout from Russia might have better condition then an IMF loan from Washington DC. If they are smart, they will at least give it a try.
Posted by b on October 17, 2008 at 01:03 PM | Permalink
America's Argentina's Economic Collapse (FULL VERSION)
Documentary on the events that led to the economic collapse of Argentina in 2001 which wiped out the middle class and raised the level of poverty to 57.5%. Central to the collapse was the implementation of neo-liberal policies which enabled the swindle of billions of dollars by foreign banks and corporations. Many of Argentina's assets and resources were shamefully plundered. Its financial system was even used for money laundering by Citibank, Credit Suisse, and JP Morgan. The net result was massive wealth transfers and the impoverishment of society which culminated in many deaths due to oppression and malnutrition. If you want to stop the same thing from happening here, and it is happening here, right now, please join the revolution at the Kick Them All Out Project and the Fire Congress Campaign.
Posted by: Uncle $cam | Oct 17, 2008 1:18:31 PM | 1
Could the Baltics, the Ukraine and other East- Europeans do something Zardari like and go to Moscow?
Serbia, it's a given in my opinion. But Hungary and the Baltics are EU member states. I mean, if the Union is serious, it'll help them in a way or another; these idiots leading Western Europe wasted tens of billions on greed corrupt banks, they might as well spare a few more billions for people who could really use it. If not, in the long run, I wouldn't be surprised if some countries leave the Union and go look somewhere else. As for Ukraine, indeed, if the choice is between harsh IMF measures and Moscow, I think Tymoshenko will go East; what is probable is that the pro-US/West faction will lose influence in the next elections - whenever they happen.
Posted by: CluelessJoe | Oct 17, 2008 2:37:49 PM | 2
The real elephant in the room is what the IMF might do if the US goes bankrupt. With both the liberal and neocon economists all calling for deficit financing to try and spend their way out of this "crisis" it's only a matter of time before the US goes bankrupt. There's just no way the US can sustain much greater deficits or a larger national debt, or solve its problems with endless printing of more dollars the way the Fed is doing. You don't have to be an economist to see that. The US will then need a major bailout by the international community (more than just the IMF which doesn't have that kind of money), and it will come with some very stringent conditions, beginning with balancing the budget, and especially cutting military spending. Americans are not going to be very happy.
Posted by: mike | Oct 17, 2008 3:48:18 PM | 3
Where does the IMF gets its money? Will it dry up?
Posted by: a swedish kind of death | Oct 17, 2008 4:55:57 PM | 4
"it's only a matter of time before the US goes bankrupt."
Is this the coming state of affairs or only a wish fulfilment scenario dreamt up in the mind of the deeply embittered and angry? There are aspects of outright federal bankruptcy many would find attractive, e.g. cutting military spending. But the end of the American hegemony might gave way to something if not far more menacing than at least as fearful. I cannot say what that would be—except in my most terrifying nightmares.
Posted by: Spyware | Oct 17, 2008 5:01:07 PM | 5
@ Spyware - 5
would u share the nightmares?
a few months ago i read "the road" by cormack mccarthy and yesterday found myself thinking, asbad as it get during the possible amer. depression, it cant get that worse. its a vision far beyond hellish.
so what do your nightmares involve, nuclear armaggedon?
Posted by: fool | Oct 17, 2008 6:13:28 PM | 6
International">http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/17-Oct-2008/International-community-pledges-4bn-to-Pak">International community pledges $4bn to Pak
The international community has assured Pakistan of providing US$4 billions to avoid bankruptcy, but in return Islamabad will have to introduce some tough economic reforms. US and diplomatic sources in Washington told that Pakistan had started negotiating with international financial institutions and friendly countries soon after realizing that it might have to default on its payments without foreign help.
US played a vital role in these talks. A US official present in the talks told there was a real panic in the Pakistani side, adding Pakistani diplomats made 10 visits to the US during the last 10 days.
China vows cash for Pakistan
BEIJING (Agencies) - China vowed Thursday to do what it could to help cash-strapped Pakistan avert financial disaster as President Asif Ali Zardari continued an official visit aimed at rustling up crucial Chinese investments.
“As a long friend of Pakistan, China understands it is facing some financial difficulties,” Foreign Ministry spokesman Qin Gang told reporters. “We’re ready to support and help Pakistan within our capability.”
The Financial Times newspaper has reported, without citing sources, that Zardari would seek a soft loan of between 500 million and 1.5 billion dollars from China to help Pakistan avoid looming bankruptcy.
However, Qin offered no specifics on the form that Beijing’s financial help would take.
Pakistan’s ambassador to China, Masood Khan, said earlier this week in an interview with a private TV channel an agreement on a civilian nuclear pact with China could be reached during the trip.
But Qin declined to give any details on the agreements made so far. “I’m not aware of the specifics of the deals signed,” he said.
China’s Foreign Ministry had earlier confirmed the nuclear issue would be discussed but gave no specifics.
Pakistan offers China access to warm waters
Meanwhile, President Zardari offered special preferential treatment to the Chinese investors in Pakistan, urging them to invest in the country and take advantage of its geo-strategic location.
“With a well-placed geographical location, Pakistan has to offer you the investor-friendly environment, laws and legislation, human capital and other resources”, the President told a luncheon meeting with over 200 top Chinese corporate executives at the State Guest House.
“With other countries interested to tap the trade potential of Pakistan, we offer the Chinese companies and entrepreneurs access to warm waters and beyond”, he added.
The President said Pakistan located at the confluence of South Asia, Central Asia and the Middle East and a vast coastline provides a trade and energy corridor to many regional countries and China can take the lead in this respect for the mutual benefit.
The President assured all facilities to Chinese investors and said the government would establish a special cell for the creation of Pak-China industrial and economic zones across the country including the coastal areas.
Posted by: constant | Oct 17, 2008 8:06:55 PM | 7
The Baltic countries hate Russia about as much as the typical American hates Osama bin Laden. It would need to be a very cold day in hell before any of the Baltic three would go hat in hand to Moscow. Half the population in a state of starvation might be enough for them to consider it.
Ukrainian politics are more complicated. The eastern half of the Ukraine is pro-Russia while the western half is in more of a neo-liberal, anti-Russian, policy orbit. Where the Ukraine would go for a bailout would depend on which faction was running the country at the time and which minor political groupings had veto points.
Posted by: Curmudgeon | Oct 17, 2008 9:39:26 PM | 8
"Is this the coming state of affairs or only a wish fulfilment scenario dreamt up in the mind of the deeply embittered and angry?"
It's just an objective analysis of the federal financial situation. The deficit has gone up $300 billion in one year and is skyrocketing, the national debt is way too big to ever pay off and is also skyrocketing, the interest alone is becoming the largest part of the federal budget, they're printing up money and writing bad checks as fast as they can, and neither party is even going through the motions of attempting to deal with it. In fact the measures they're taking are making things worse. I don't just think the US is going to go bankrupt, I think there's a serious possibility that the federal government is going to collapse. Not right away but in a decade or two. I hope I'm wrong, but my study of history says otherwise.
But it's more than that. Anecdotal evidence: A couple of weeks ago I was in San Francisco for a visit. Stopped by a hotdog stand there, and they wouldn't take a $20 bill I had because they've been losing so much money to counterfeiters. I had to go get change. I was flabbergasted, to say the least. Americans who won't accept American money! My landlords, a very nice old couple and very pro-American, won't accept $100 bills for my rent. They don't trust them. We got serious problems folks. :)
Don't really understand what could be fearful about the end of American hegemony. What could possibly be worse? The federal government is destabilizing the entire world. As an American I look forward to it, and am quite convinced that the end of the American Empire will be the beginning of a much better world. The idea that the world depends on the US is just American exceptionalism. Or so it seems to me, but what do I know?
And Americans are very severely underestimating the degree and extent of the hatred for America that is building up, or the intensity of the inevitable reaction, which will be fierce. See this recent article from Iraq, for instance:
Posted by: mikep | Oct 18, 2008 3:03:34 AM | 9
Thanks for the link, here's another, Yet Another Atrocity in Afghanistan, [with] More to Come...
A BBC reporter in the provincial capital Lashkar Gah saw the bodies - three women and the rest children - ranging in age from six months to 15.
But hey, Obombma will make it all better...
We are going to reap the whirlwind one day, and rightly so...
Posted by: Uncle $cam | Oct 18, 2008 3:44:10 AM | 10
@ fool 6
My nightmare? You want me to share my nightmare with you? A State or state of affairs in which the wars both the U.K. and the U.S.A. have been waging throughout the world since the close of WW2 are brought home in a total military occupation of the homeland with a complete shut down of all civil liberties. Where incidents like the murder of Jean Charles de Menezes by the police in the London Underground or the State murder of Dr. David Kelly by MI5, MI6 or the Ministry of Defence in the lead up to the invasion of Iraq is almost a common place event. A police state in the name of national emergency where the military take over every aspect of civilian life. Where “something out there” really is lurking to destroy both me and mine and all of us are powerless to resist it. A pogrom on a vast and almost unimaginable scale equal to what was done to eliminate the Native Americans from the nineteenth century early United States. On a scale equal to the suppression of the populations of Mexico and the Philippines and Hawaii in the same century. The institution of slavery in the southern states of America. The internment of U.S. citizens of Japanese origin during the Second World War. But, this would not be done to a wholly supine and submissive civil population by a military intervention on it’s own. That segment of society which presently comprises the neocons and the Christ crazy conservatives would be an intrinsic part of it. Anyone not of that political persuasion would be like Jews in Nazi Germany in the lead up to WW2. I know because my family came from that. I am a Jew and I believe what has happened in the past to us can also happen to you tomorrow. The growing possibility of it would be followed by a moral bankruptcy of catastrophic proportions. Democracy would simply cease to exist. It lurks within me that awful fear that what is happening right now in Iraq and Afghanistan could be happening in the streets of a town near you. Don’t for a moment think that it could not. America’s bankruptcy would not that long ago have been regarded as an absurd scenario. Well, turn around and look at today. Yesterdays absurdity is today’s reality.
Posted by: Spyware | Oct 18, 2008 4:25:28 AM | 11
But hey, Obombma will make it all better...
in which case, Warren Buffet as Treasury Sec. will likewise play a big role in making it better.
sometime in the first 100 days, Buffet is going to break the news that "we are flat-out ass-broke and cannot afford to maintain our huge military expenditure and we can neither afford to ... or else we'll be pawning off whats left of our country to China pretty soon"
Posted by: jony_b_cool | Oct 18, 2008 4:39:41 AM | 12
Uh, what's all this love for Warren Buffet? I'd be rather surprised if he actually took on a government post. He has money to make. And the guy will often talk his own book - that is, talk up his own holdings (hell, I do too). And, yes, he is one of the sane Billionares. But he's still a member of the ruling class. And as Arthur Silber so elequently said - they call it the ruling class because THEY RULE. Don't look for saviours there.
Posted by: InTheCity | Oct 18, 2008 6:19:59 AM | 13
I agree for the most part, with what Curmugeon said in #8, but want to ask questions to modify somewhat --
1) generations pass on, and the refugees from the Baltic states and W. Ukraine who fled from the Soviets to the US right after WW II are a much less powerful force now. Similarly, the 2nd gen. Cubans are not such determined anti-Castro-ites as their parents were. The 2nd gen. is much less dedicated in working to influence what the US government will do to Cuba.
2) Similarly, I'm not so sure about the exent of the hate of US citizens for Osama Bin Laden as compared to the hate of the Baltics for the Russians as being the same. The Soviets (Russian) empire collapsed one generation ago. First-hand memories of atrocities have to fade away. There are also sizeable Russian minorities in the Baltic countries -- are they considered as something like permanent enemies even now?
3) The US is quite capable of alienating its most ardent admirers, causing severe disillionment. Not only capable -- but even, may be unable to help out. I do not imagine that the Georgians are terribly happy right now ... just as the Hungarians were not so happy after their revolt.
Realism in relations with Russia should be setting in -- Putin & Medvedev are not idiots -- and besides, "Countries have no permanent friends and no permanent enemies, only permanent interests."""
Posted by: Owl | Oct 18, 2008 7:18:30 AM | 14
U.S. envoy visits Pakistan amid cross-border incursions
ISLAMABAD, Oct. 18 (Xinhua) -- The U.S Assistant Secretary of State Richard Boucher arrived in Islamabad on Saturday amid increasing cross-border missile attacks in Pakistan, local media reported.
Boucher is paying an unannounced visit to Pakistan and will meet Pakistani officials during his stay in Islamabad, News Network International (NNI) news agency said.
Posted by: b | Oct 18, 2008 7:52:33 AM | 15
Warren Buffet has given 85% of his ~ $50B net worth to charity. His personal lifestyle is absent of luxury & and he lives in the same home he bought 50 years ago. And nobody questions that he's a genius, add creative genius.
And he hates derivatives. Quote: In my view, derivatives are financial weapons of mass destruction"
He's not going to ban derivatives but if we really want them cleaned up, who better than someone with the perfect mind-set & passion for the task to really shake things up
If appointed as Sec of Treasury. he is not going to be a radical-revolutionary. But neither is any other potential candidate, given the way things work in Washington.
He's definitely way preferable to yet another investment bank head like Paulson or Rubin.
Posted by: jony_b_cool | Oct 18, 2008 8:49:56 AM | 16
Eventually, some country is going to go on the gold standard (or an equivalent) and there will be a run on the US dollar.
Posted by: Albertde | Oct 18, 2008 9:43:16 AM | 17
Generational changes have not effected Baltics politics all that much. Ethnic Russians living in the Baltic countries are still viewed as enemy colonizers and are denied basic civil and political rights, despite considerable pressure from both the EU and Moscow for reforms. Anecdotally, the passage of time does not seem to have softened opinions much; young Balts I have spoken with have extremely hard line attitudes towards Russians and Russia.
My comment re: Osama bin Laden and Americans was intended as an example of hatred that most people could relate to rather than as a statement of direct equivalence.
Posted by: Curmudgeon | Oct 18, 2008 10:16:49 AM | 18
Looks like I was wrong on China?
NYT: Rebuffed by China, Pakistan May Seek I.M.F. Aid
President Asif Ali Zardari returned from China late Friday without a commitment for cash needed to shore up Pakistan’s crumbling economy, leaving him with the politically unpopular prospect of having to ask the International Monetary Fund for help.
Pakistan was seeking the aid from China, an important ally, as it faces the possibility of defaulting on its current account payments.
With the United States and other nations preoccupied by a financial crisis, and Saudi Arabia, another traditional ally, refusing to offer concessions on oil, China was seen as the last port of call before the I.M.F.
Accepting a rescue package from the fund would be seen as humiliating for Mr. Zardari’s government, which took office this year.
An I.M.F.-backed plan would require Pakistan’s government to cut spending and raise taxes, among other measures, which could hurt the poor, officials said.
Asked about the likelihood of Pakistan winning the direct cash infusion it was seeking, a senior Chinese diplomat was reported by Western officials to have said, “We have done our due diligence, and it isn’t happening.”
Don't know the Chinese ideas on this. They don't like Zardari 8a U.S. asset)?
Posted by: b | Oct 18, 2008 2:52:10 PM | 19
There has been some sort of temporary trade off b. Some missiles have been loosed on the "Taleban in Pakistan' those former USuk assets who had been attacking Chinese interests in Pakistan. One Chinese national was 'rescued' overnight. Who knows the wheels within wheels but I would guess that Zardari has cut some deal beneficial to him and PPP elements in the military. The Chinese will get back to building Pakistan's infrastructure paid for with amerikan 'aid' to Pakistan. For them this is a long game with little point or advantage to be gained from confrontation. Amerika will continue to blunder around in the area backing one horse then another, each attempt making them less and less friends. The amerikan need for 'immediate gratification' as a solution to issues which require generational change guarantees that.
That is an optimistic scenario without factoring in the liklihood that the 'aid' pipeline will run dry. Eventually amerikans out of work and seeing their own infrastructure in disrepair might ask the question "Why is everything going on destroying other nations, then fucking up the attempt to rebuild them ?"
How long could Zardari last without the billions? You would have to think "about 5 minutes" would be overly optimistic.
Posted by: Debs is dead | Oct 18, 2008 4:43:42 PM | 20
b @ 19,
Pakistan rebuffed by China?
These deals are never drawn in 24 hours, as demonstrated during the confusion over Russian aid to Iceland just days ago. NYT is taking an opportunity to plant discord, I'd guess.
The Pakistan connection is quite important to China. Witness: China will help Pakistan build two more nuclear plants where the Pakistani Foreign Minister is quoted as saying "the assistance pledged by China was far more than Pakistan required to overcome the economic crisis." Which remains to be seen, of course. But flat out refusal is not likely.
Posted by: Alamet | Oct 18, 2008 8:23:50 PM | 21
By the way, poor IMF, just when they were about to enjoy the spotlights again:
IMF to investigate its director
The International Monetary Fund is investigating whether its chief Dominique Strauss-Kahn abused his power in an affair with a subordinate who has since left the global institution.
Tabloid territory. Couldn't happen to a nicer institution.
Posted by: Alamet | Oct 18, 2008 8:32:26 PM | 22
Tabloid territory - indeed. Recall Paul Wolfowitz and his payments to his GF at the World Bank.
Dominique Strauss-Khan is a French Socialist whose nomination was sewed up before the election of Sarkozy. Sark, Roman I, then tried to take credit for getting a Frenchman nominated to that important post.
Before DKS was anointed there was much anxiety expressed in the French press and more in the French blogs, viz. that cultural bents, and ‘lifestyle’ issues, to put it delicately, made DKS an unsuitable choice. (His knowledge of finance, supposedly slim, was also questioned.)
DKS is known for very loose zipper behavior, a French Billy C, which, believe me, is absolutely out of the range of what sexually-correct Internationals, or Americans, can tolerate. This characteristic was mentioned often on TV (words not print), was poo-poohed by the right, as Sarkozy backed him. Personal slurs! Defamation! Scandalous!
Some even expressed the opinion - rare in France - that he was being kicked upstairs to get him away as his behavior was intolerable, potentially harmful to the French Socialists.
Traditionally, the power sharing scheme stipulates that the US nominates the Head of the World Bank, and the EU the head of the IMF. I have heard gossip that that agreement is now moot, and the next head of the WB may be non-American.
If true (a quick google was fruitless) it represents a consequent loss of US power. Bit trivial as well. Symbolic.
Posted by: Tangerine | Oct 19, 2008 6:36:24 AM | 23
Moscow Times: Russia in No Rush For Crisis Summit
The Kremlin signaled Sunday that it was in no hurry to confirm its participation in an international summit called by U.S. and EU leaders to tackle the global financial crisis over the weekend.
The apparent reluctance to join other world leaders came as a senior government official said that unlike in the West, there was no crisis in Russia.
He said the government was aware that countries like Ukraine had begun feeling the weight of the global liquidity crunch and would consider helping neighbors that sought support. Moscow has already extended loans to China, India, Cuba and Belarus this year, he said.
Posted by: b | Oct 21, 2008 4:34:18 AM | 24