The Bourbons of Global Finance
ANN ARBOR, MICHIGAN – Today’s International Monetary Fund (and, to a lesser degree, the World Bank) recall Talleyrand’s description of France’s Bourbon kings: it has learned nothing and forgotten nothing. At a time when rich countries like the United States are running deficits of 12% of GDP because of the global financial meltdown, the IMF has been telling countries like Latvia and Ukraine, which did not start the crisis but have turned to the Fund to help combat it, that they must balance their budgets if they want aid.
Such hypocrisy would be laughable if global economic conditions weren’t so dire that even countries that once swore never again to deal with the IMF have returned to its door, cap in hand. Some leading economists in Argentina justify this reversal by arguing that the world now has an “Obama IMF,” one presumably friendlier and more attuned to local problems than the “Bush Fund.” But, as the IMF programs for Latvia and Ukraine suggest, the main difference may only be a smile.
To be sure, IMF Managing Director Dominique Strauss-Kahn recently called for a global fiscal response to the worsening recession. But will the Fund now abandon its long-held emphasis on government cutbacks, monetary contraction, and overall austerity, policies that – in the opinion of many development economists – do considerably more harm than good? Are the IMF and the World Bank actually willing to reconsider their failed policies?