Hey kids, remember the IMF riots that occurred in poor countries as a result of IMF-imposed neo-liberalization of their economies and the havoc it wreaked on their societies? Let’s have Greg Palast refresh our memories, as he wrote about Joseph Stiglitz getting the economic Nobel Prize:
“Each nation’s economy is individually analyzed, then, says Stiglitz, the Bank hands every minister the same exact four-step program.
Step One is Privatization – which Stiglitz said could more accurately be called, ‘Briberization.’ Rather than object to the sell-offs of state industries, he said national leaders – using the World Bank’s demands to silence local critics – happily flogged their electricity and water companies. “You could see their eyes widen” at the prospect of 10% commissions paid to Swiss bank accounts for simply shaving a few billion off the sale price of national assets.
And the US government knew it, charges Stiglitz, at least in the case of the biggest ‘briberization’ of all, the 1995 Russian sell-off. “The US Treasury view was this was great as we wanted Yeltsin re-elected. We don’t care if it’s a corrupt election. We want the money to go to Yeltzin” via kick-backs for his campaign.
Stiglitz is no conspiracy nutter ranting about Black Helicopters. The man was inside the game, a member of Bill Clinton’s cabinet as Chairman of the President’s council of economic advisors.
Most ill-making for Stiglitz is that the US-backed oligarchs stripped Russia’s industrial assets, with the effect that the corruption scheme cut national output nearly in half causing depression and starvation.
After briberization, Step Two of the IMF/World Bank one-size-fits-all rescue-your-economy plan is ‘Capital Market Liberalization.’ In theory, capital market deregulation allows investment capital to flow in and out. Unfortunately, as in Indonesia and Brazil, the money simply flowed out and out. Stiglitz calls this the “Hot Money” cycle. Cash comes in for speculation in real estate and currency, then flees at the first whiff of trouble. A nation’s reserves can drain in days, hours. And when that happens, to seduce speculators into returning a nation’s own capital funds, the IMF demands these nations raise interest rates to 30%, 50% and 80%.
“The result was predictable,” said Stiglitz of the Hot Money tidal waves in Asia and Latin America. Higher interest rates demolished property values, savaged industrial production and drained national treasuries.
At this point, the IMF drags the gasping nation to Step Three: Market-Based Pricing, a fancy term for raising prices on food, water and cooking gas. This leads, predictably, to Step-Three-and-a-Half: what Stiglitz calls, “The IMF riot.“
The IMF riot is painfully predictable. When a nation is, “down and out, [the IMF] takes advantage and squeezes the last pound of blood out of them. They turn up the heat until, finally, the whole cauldron blows up,” as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998. Indonesia exploded into riots, but there are other examples – the Bolivian riots over water prices last year and this February, the riots in Ecuador over the rise in cooking gas prices imposed by the World Bank. You’d almost get the impression that the riot is written into the plan.
And it is. What Stiglitz did not know is that, while in the States, BBC and The Observer obtained several documents from inside the World Bank, stamped over with those pesky warnings, “confidential,” “restricted,” “not to be disclosed.” Let’s get back to one: the “Interim Country Assistance Strategy” for Ecuador, in it the Bank several times states – with cold accuracy – that they expected their plans to spark, “social unrest,” to use their bureaucratic term for a nation in flames. (…)
Now we arrive at Step Four of what the IMF and World Bank call their “poverty reduction strategy”: Free Trade. This is free trade by the rules of the World Trade Organization and World Bank, Stiglitz the insider likens free trade WTO-style to the Opium Wars. “That too was about opening markets,” he said. As in the 19th century, Europeans and Americans today are kicking down the barriers to sales in Asia, Latin American and Africa, while barricading our own markets against Third World agriculture.”
Unsurprisingly, this same pattern is no at work with Greece, with the same predicted deleterious effects on society, except that the riots have already started even before implementation of the shock therapy:
“The Greek crisis has justifiably been about the fiscal and economic crisis that led to the setting up of the EU-IMF bailout plan. In months to come, however, media attention will focus on the looming social crisis. In a country with a weak and ineffective welfare state, where social cohesion has been maintained through inter-generational transfers, family support and other forms of informal assistance, the austerity measures will make such forms of social solidarity all the more difficult. To take but one example, pension cuts will harm the elderly and the young alike, as the latter often depend on elderly help to secure their first mortgage or add to their savings for household purchases.
Greek unemployment levels are on the rise and could end up close to 15% by the end of the year, with predictions in the medium term being even worse. Poverty levels hovered around 20% in the good times and they will inevitably rise once the austerity measures are implemented. The so-called “€ 700 generation” of 18-24 year olds with lots of degrees and no employment prospects will from now on need to compromise with even lower starting salaries – and yet more desperation for the future. Reports suggest that the many young people are ready to emigrate en masse in search of a better future, thus depriving the country of its biggest asset.
The Greek tragedy is economic as well as social. Those responsible for it, and they have been many over many years, have managed not only to wreck the country’s finances. They have also dealt a massive blow to the country’s social cohesion. Let us hope that the latter will survive the tough times ahead.”
And there seems to be a good chance that what happened to Greece will happen to other members of the Eurozones… maybe European leaders will then see that it was a bit of a mistake to base European integration almost exclusively in market terms rather than in social terms as, as one commenter puts it, “the social glue binding together the eurozone is weak. The strains on it will increase. And it is hard to see a happy outcome.”
Or as Yves Smith, over at Naked Capitalism, puts it,
“The bailout plan shifted risk from the periphery to the core of Europe, and the core, upon examination, does not look too solid. Prepare yourself for a rough ride.”
Of course, it is not going to be a rough ride for everyone. The IMF riots are mostly triggered by brutal impoverishment of the general population, especially the already poor, and by the sudden removal of the capacity to attain basic means of living (which may be access to water in Bolivia, but might be access to education or a first mortgage in Europe). Social movements and political radicalization are often part of the package.