Ukraine’s government, moreover, was told to balance its budget by massively slashing state pensions. Only when conditions in the country deteriorated even more in the wake of the Fund holding back on the second tranche of its loan did the IMF agree to loosen its conditions. In Latvia, however, the IMF has continued to demand austerity even in the wake of plummeting growth and rising unemployment that have lead to riots and political instability. Recent World Bank loans are similarly conditioned, in part, on “fiscal discipline.”
Insistence on such policies at a time when the US and most of the rest of the rich world are following virtually the opposite economic strategy indicates the need for fundamental rethinking of what actually generates growth and development. There is a growing body of alternative ideas in this area — including work by Nobel laureates Joseph Stiglitz and Paul Krugman — that the IMF and the World Bank should consider.
ADJUNCT
More importantly, US control has meant that throughout their history these institutions have been used as an adjunct of US foreign policy. Given the centrality of orthodox stalwarts like Larry Summers and Treasury Secretary Timothy Geithner in the Obama administration, the prospect of serious reform appears dim. Summers was a key architect of neo-liberal policies while at the World Bank and the US Treasury during the Clinton administration, and Geithner is a former senior IMF official.
Both men are likely to support the prevailing global double standard, which allows rich countries to use fiscal expansion in the face of recession while forcing poor countries into greater austerity.
But the Obama administration can still help — for example, by asking the Federal Reserve to expand currency swap arrangements it recently offered to Singapore, South Korea and Brazil to other developing countries. That way, the world’s poor could at least avoid the heavy-handed conditionality imposed by the IMF and the World Bank.
Howard Stein, a professor at the Center for Afro-American and African Studies at the University of Michigan, is a member of the Initiative for Policy Dialogue’s Africa Task Force and G8 Working Group. Claudia Kedar is a visiting scholar at the Latin American Studies Center at the University of Michigan.
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