How the IMF would treat the US if it were anyone else

[Vympel]

Atlantic

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

Too long to quote.

Excerpt:-

The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary.

[Stark]

That would never work in the US!

It's pretty sad that the problems (scale aside) are so common that there's a playbook for it. Oh well, American Exceptionalism, etc.

[aerius]

The funniest part? US Treasury Secretary Tim Geithner was a policy director at the IMF. You'd think he knows the right course of action to take, but funnily enough he goes against the IMF playbook on every one of his decisions.

[Vympel]

That's because the IMF is for helping economic basket cases like Russia, not powerful engines of glorious, unfettered capitalism like the US of A!

[Simon_Jester]

How's the track record of the IMF playbook solution?

Cynics tell us that the IMF is an engine of exploitation that serves to drain the economies of weak countries. If they were right, then it would obviously not be in American interests to follow the IMF's advice, even if it's in American interests to encourage other nations to do so. In that case, the IMF playbook is something that, for your own sake, you really shouldn't follow... but that is forced on you by powerful foreigners. In which case Geithner may not be doing the right thing ethically, but he's at least consistently following his country's interests.

Whereas if the IMF playbook works well, and it's in your country's interests to follow it for reasons other than the threat of your IMF loans being recalled, Geithner is being insanely foolish.
_______

NOTE: I don't know which of these options is true; I'm just trying to frame a question.

[K. A. Pital]

Cynics tell us that the IMF is an engine of exploitation that serves to drain the economies of weak countries.

Considering their "helpful" advice to Russia, Central Asian republics and Latin America, I don't think it's entirely improper judgement.

[PainRack]

The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary

Bollocks. Remember what they DID prescribe for Argentina, Mexico and Indonesia?
Denationalise the banks so that foreign ownership is possible.

Hell, I'm waiting for Stas to come in here and talk about how their main mantra was privatise, privatise, privatise, take the pain, take the pain, take the pain and never think that state owned enterprises are more efficient than the Free Market.

Read this part.

Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.

Geez. What does that sound like?

What does it say later on?

Many IMF programs “go off track” (a euphemism) precisely because the government can’t stay tough on erstwhile cronies, and the consequences are massive inflation or other disasters. A program “goes back on track” once the government prevails or powerful oligarchs sort out among themselves who will govern—and thus win or lose—under the IMF-supported plan. The real fight in Thailand and Indonesia in 1997 was about which powerful families would lose their banks. In Thailand, it was handled relatively smoothly. In Indonesia, it led to the fall of President Suharto and economic chaos.

From long years of experience, the IMF staff knows its program will succeed—stabilizing the economy and enabling growth—only if at least some of the powerful oligarchs who did so much to create the underlying problems take a hit. This is the problem of all emerging markets.

And how did it do that?
Its was called market consolidation.

I'm not saying that the main gist of the article is wrong, but arguing that this is what the IMF would had advised and this is "sound" advice from years of IMF experience is bollocks. In reality, what has happened is what hardcore Republicans argued for last year. Let the banks die, let the survivors be "eaten up" by private markets, and create even bigger banks that won't fail. Damn the job losses, freezing of credit and other problems that a massive infusion of state capital can provide.

[Simon_Jester]

Cynics tell us that the IMF is an engine of exploitation that serves to drain the economies of weak countries.

Considering their "helpful" advice to Russia, Central Asian republics and Latin America, I don't think it's entirely improper judgement.

Not saying it does. The cynics have a point, even if they're not absolutely 100% correct and at least some IMF advice really is helpful.

[Not a rhetorical "if." I don't know whether anything the IMF does is actually helpful, and I don't feel qualified to evaluate its performance]

[K. A. Pital]

I'm waiting for Stas to come in here and talk about how their main mantra was privatise, privatise, privatise, take the pain, take the pain, take the pain and never think that state owned enterprises are more efficient than the Free Market.

What, that requires "talking about"? It's pretty much their modus operandi, a thing so self-evident and manifested in so many (failed) national economic reform programs that it's not even worth "talking about" - well, other than explaining it to people who do not know.

[PainRack]

Considering their "helpful" advice to Russia, Central Asian republics and Latin America, I don't think it's entirely improper judgement.

Not saying it does. The cynics have a point, even if they're not absolutely 100% correct and at least some IMF advice really is helpful.

[Not a rhetorical "if." I don't know whether anything the IMF does is actually helpful, and I don't feel qualified to evaluate its performance][/quote]
How does the IMF demand that Indonesia and other countries increase their import of US grain before more loans are approved beneficial to said countries?

How is privatising a nationally owned telephone enterprise going to help stabilise Mexician(or is it Argentinian) currency?

The IMF policies could be summed up in 3 ideologies.
1. The free markets, free capital, globalisation is good. Therefore, to have a healthy, vibrant economy, you must be structured like modern day economies such as Hong Kong, US and etc.
2. Market confidence is EVERYTHING. Its more important that global investors think your economy is good than whether your domestic policy.
3. To reach a state of prosperity, your economy must "look" like its prosperous and allow rich people in.

The problems are legions. Any country driven to the bank of last resort has nowhere else to go and is in dire straits. Its simply not healthy enough, and you can't expect to conduct massive restructuring that would inflict unemployment and other economic pain and torture on a country without some lasting damage.
Similarly, the belief that big business, and remember, in this case, we're talking about MNCs based in foreign countries are more important than your own local industries and people. That means huge pain. MNCs already have their own extant production infrastructure, more often than not, they're not looking to expand and acquire more production in your country. They're looking for more markets as they strip away competitors that are dead and dying, salvaging their dead opponents markets or they're there to add brand names to their own. Meanwhile, the said benefits of globalisation, poorly realised when developing countries are in relatively good finanicial and political health is FUBARed under IMF policies. Companies are selling assets at firesale prices, the government is desperately spinning off assets, taxes are kept low at the very same time revenue is needed for investment in infrastructure, alleviating social proverty and education.
Lastly, appearing to "look" good doesn't really seek to analyse why said problems pop up in the first place, and instead assumed that such problems could only happen when a "flawed" economy is in place. And how do you solve that problem? By making it look good to businesses/

[Narkis]

Just to chime in, Greece has ran into much of the same problems due to the crisis. A couple weeks ago, the IMF offered some "helpful" advice on what we should do before we reach the point that we need their help. Remarkably (or not) it's advice wasn't

nationalize troubled banks and break them up as necessary

It was

privatise, privatise, privatise, take the pain, take the pain, take the pain and never think that state owned enterprises are more efficient than the Free Market

and reduce taxes, for good measure.

[Simon_Jester]

Considering their "helpful" advice to Russia, Central Asian republics and Latin America, I don't think it's entirely improper judgement.

Not saying it does. The cynics have a point, even if they're not absolutely 100% correct and at least some IMF advice really is helpful.

...Ah, I didn't say that. StasBush did.

Speaking for myself, I have no great faith in the IMF, or in any specific IMF decisions. I expect that some of their advice is good- even the most ruthless exploiters may want to make sure there's still something there to exploit next year. Like almost all human institutions, the IMF is likely to mix in some good with its bad and some bad with its good.

I'm quite prepared to believe that 90% of their advice is crappy; I just don't know. So I'm not going to go "The IMF sucks!" I don't have the right.
__________

Just to chime in, Greece has ran into much of the same problems due to the crisis. A couple weeks ago, the IMF offered some "helpful" advice on what we should do before we reach the point that we need their help. Remarkably (or not) it's advice wasn't

nationalize troubled banks and break them up as necessary

It was

privatise, privatise, privatise, take the pain, take the pain, take the pain and never think that state owned enterprises are more efficient than the Free Market

and reduce taxes, for good measure.

I have this image of a besuited IMF envoy getting thrown into a pit for coming to Athens with a surrender demand...