How IMF became Guardian of Modern Imperial World Order, Prabhat Patnaik

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The outlook behind the Bretton Woods system, along with which the International Monetary Fund (IMF) and the World Bank were born, was to facilitate State intervention in the economy to overcome the limitations of unrestricted capitalism.

Both the chief architects of the system, John Maynard Keynes of Britain and Harry Dexter White of the United States, believed in the necessity of State intervention.

Keynes had written a classic book advocating it, and White represented an administration, that of F.D. Roosevelt, whose New Deal had been path-breaking.

The Bretton Woods system, therefore, permitted countries to impose strict capital controls so that the State could intervene in the economy without fearing capital flight; also permitting the imposition of trade controls as well.

The Fund and the Bank operated within this perspective; the former, which is our concern here, gave loans to countries to tide over the balance of payments crises.

One of the failures of the Bretton Woods arrangement was its inability to compel countries with balance of payments surpluses to make adjustments, for if they could get rid of their surpluses through greater domestic absorption, then the deficit countries would automatically be rid of their crises.

The IMF of course imposed “conditionalities” like a moneylender, but these had to do with “stabilisation”, not “structural adjustment”, that is, with correcting macro imbalances to get rid of balance of payments deficits, not with altering the direction of policy.

For correcting imbalances, it employed a model (the Polak Model) that used only some identities that one could not quarrel with.

The IMF’s role, however, changed over time. Enormous concentrations of finance in the hands of metropolitan banks, aided by the two oil shocks of the 1970s, forced a shift in the channel through which third-world borrowing started being financed, from multilateral government “aid” to private commercial loans.

Metropolitan banks had funds they wanted to lend, for which they needed a supervising “monitor”; and, third-world countries whose deficits worsened because of the oil shocks wanted larger amounts of loans than before, for which they also needed an intermediary to arrange.

The IMF whose own funds were paltry compared to the new needs, became this intermediary-cum-monitor.

It became an instrument through which the agenda of neo-liberal capitalism that international finance capital was keen to promote was actually imposed. It became in effect an agent of international finance capital, pushing countries to undertake “structural adjustment” whose essence lay in a dismantling of the dirigiste regimes they had erected following decolonisation.

It favoured flexible and unified exchange rates as opposed to fixed and multiple exchange rates; frowned upon bilateral trade arrangements that by-passed the US dollar; wanted “fiscal responsibility legislation” that restricted the fiscal deficit relative to GDP; and encouraged the adoption of a regime of freer cross-border movement of goods and services and of capital including finance.

It pushed in short for a regime and for policies that were the very opposite of the policies Keynes had wanted.

This change had a wider significance. Metropolitan capitalism requires a whole range of primary commodities, not just minerals but tropical and sub-tropical agricultural products that it cannot do without but cannot produce, either at all, or in sufficient quantities, or all year around.

Since the tropical and subtropical land mass is more or less fully used, the metropolis typically wants such supplies to be made available to it by compressing the local absorption of such goods.

This could be done easily under colonialism through the taxation system; decolonisation, however, created a problem in this respect, for which the Bretton Woods system had no panacea.

The neoliberal order that the IMF helped promote filled this gap and thereby created a new imperial arrangement.

Whenever the metropolitan demand for some tropical and sub-tropical primary commodity exceeds its supply nowadays and generates inflation, this inflation would be particularly marked in the economy of the periphery.

And, hence, anti-inflationary “austerity” measures would have to be undertaken, for fear otherwise of triggering a capital flight, which would automatically keep down local absorption of the commodity (or its substitute).

The IMF has thus become the midwife and guardian of a new imperial arrangement.

(This article was originally published in the Business Daily Africa on October 16, 2023)