How Much has the IMF Changed in Response to the Global Crisis?

Matías Vernengo

Following the 2008 Global Crisis the notion that the International Monetary Fund (IMF) has moved away from orthodox views on a range of issues, but particularly regarding the need for austerity, has been pervasive. For example, Paul Krugman has argued, in his influential blog, that Olivier Blanchard, IMF’s director of research (or economic counselor) is “helping make at least one international institution less austerity-mad than the others.”

So what is this new view, exposed by Blanchard? For example, in the preface to the last World Economic Outlook, Blanchard tells us that:

Potential growth in many advanced economies is very low. This is bad on its own, but it also makes fiscal adjustment more difficult. In this context, measures to increase potential growth are becoming more important—from rethinking the shape of labor market institutions, to increasing competition and productivity in a number of nontradables sectors, to rethinking the size of the government, to examining the role of public investment.

Note that in neoclassical (or mainstream) economics speak, potential growth is supply-side determined. That’s why the reforms would be less regulation of labor markets (to allow firms to hire workers for a lower wage), reduced regulation (to generate incentives for firm entry to increase competition), and reduced size of the public sector (that’s what “rethinking” means; nudge, nudge, wink, wink). These policies are needed to boost the supply capacity of the economy, its “potential” or “natural” output. Demand expansion, in the form of more spending and fiscal deficits cannot be pursued, since the growth of potential output is “very low.”

These are, in fact, the same neoliberal reforms that the IMF has always supported, and that since the 1990s have been referred to as the Washington Consensus.

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Ask Mark Blyth: "Austerity Doesn’t Work, Period"

Kevin Gallagher

“Austerity doesn’t work. Period.” This quote is the punch line of Mark Blyth’s Austerity: The History of a Dangerous Idea, second edition just out. If that quote was made into bumper stickers and t-shirts it would have been icing on the cake for what was an amazingly well placed and marketed book. As just about every review in the popular press has noted, Blyth’s book is well researched, accessible to a broad array of readers, and right.

For academics and critical thinkers however, there is more to it than that. This is not only a book where an established academic engages with a broader audience and “gives” that audience the tools to understand a contemporary problem. Blyth should be praised for that in and of itself. During this crisis and many others most academics have not been bold enough or too dis-incentivized to enter the fray beyond the water cooler. But Blyth also makes key contributions to the academic literature in international political economy as well. Blyth shows how and why the idea of austerity keeps on living in our politics.

The book starts with an accessible discussion of how the crises in the U.S. and EU were banking crises, not the sovereign debt crises (especially in the European case) that they and their aftermath have been described of in the financial press and media. In two crisp chapters, he shows how banks created the messes in the United States and in Europe—and how government debt became a big issue only after governments bailed out and propped up banks.

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Ask Mark Blyth: “Austerity Doesn’t Work, Period”

Kevin Gallagher

“Austerity doesn’t work. Period.” This quote is the punch line of Mark Blyth’s Austerity: The History of a Dangerous Idea, second edition just out. If that quote was made into bumper stickers and t-shirts it would have been icing on the cake for what was an amazingly well placed and marketed book. As just about every review in the popular press has noted, Blyth’s book is well researched, accessible to a broad array of readers, and right.

For academics and critical thinkers however, there is more to it than that. This is not only a book where an established academic engages with a broader audience and “gives” that audience the tools to understand a contemporary problem. Blyth should be praised for that in and of itself. During this crisis and many others most academics have not been bold enough or too dis-incentivized to enter the fray beyond the water cooler. But Blyth also makes key contributions to the academic literature in international political economy as well. Blyth shows how and why the idea of austerity keeps on living in our politics.

The book starts with an accessible discussion of how the crises in the U.S. and EU were banking crises, not the sovereign debt crises (especially in the European case) that they and their aftermath have been described of in the financial press and media. In two crisp chapters, he shows how banks created the messes in the United States and in Europe—and how government debt became a big issue only after governments bailed out and propped up banks.

Read the rest of this entry »

India's Double Challenge

Sunita Narain

While climate change is increasing the frequency of extreme weather events, traditional system of flood management through lakes and connected water channels has been forgotten. This makes flood and devastation inevitable.

The floodwaters devastating large parts of the Himalayan state of Jammu and Kashmir caught the people and the government unawares, it is said. But why should this be so? We know every year, like clockwork, India grapples with months of crippling water shortage and drought and then months of devastating floods. This year offers no respite from this annual cycle but something new and strange is afoot. Each year, the floods are growing in intensity. Each year, the rain events get more variable and extreme. Each year, economic damage increases and development gains are lost in one season of flood or severe drought.

Scientists now say conclusively that there is a difference between natural variability of weather and climate change, a pattern brought about by human emissions that is heating up the atmosphere faster than normal. Scientists who study the monsoons tell us that they are beginning to make that distinction between normal monsoon and what is now showing up in abnormal extreme rain events. Remember, the monsoons are known to be capricious and confounding. Even then scientists can see the change.

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India’s Double Challenge

Sunita Narain

While climate change is increasing the frequency of extreme weather events, traditional system of flood management through lakes and connected water channels has been forgotten. This makes flood and devastation inevitable.

The floodwaters devastating large parts of the Himalayan state of Jammu and Kashmir caught the people and the government unawares, it is said. But why should this be so? We know every year, like clockwork, India grapples with months of crippling water shortage and drought and then months of devastating floods. This year offers no respite from this annual cycle but something new and strange is afoot. Each year, the floods are growing in intensity. Each year, the rain events get more variable and extreme. Each year, economic damage increases and development gains are lost in one season of flood or severe drought.

Scientists now say conclusively that there is a difference between natural variability of weather and climate change, a pattern brought about by human emissions that is heating up the atmosphere faster than normal. Scientists who study the monsoons tell us that they are beginning to make that distinction between normal monsoon and what is now showing up in abnormal extreme rain events. Remember, the monsoons are known to be capricious and confounding. Even then scientists can see the change.

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After Horror, Change?

John Miller, Guest Blogger

John Miller is a professor of economics at Wheaton College (Norton, Mass.). This post appeared originally in the September/October issue of Triple Crisis’s sister publication Dollars & Sense , as Miller’s regular “Up Against the Wall Street Journal” column.

After Horror, Change? Taking Stock of Conditions in Bangladesh’s Garment Factories

On April 24, 2013, the Rana Plaza factory building, just outside of Bangladesh’s capital city of Dhaka, collapsed—killing 1,138 workers and inflicting serious long-term injuries on at least 1,000 others.

While the collapse of Rana Plaza was in one sense an accident, the policies that led to it surely were not. Bangladesh’s garment industry grew to be the world’s second largest exporter, behind only China’s, by endangering and exploiting workers. Bangladesh’s 5,000 garment factories paid rock-bottom wages, much lower than those in China, and just half of those in Vietnam. One foreign buyer told The Economist magazine, “There are no rules whatsoever that can not be bent.” Cost-saving measures included the widespread use of retail buildings as factories—including at Rana Plaza—adding weight that sometimes exceeded the load-bearing capacity of the structures.

As Scott Nova, executive director of the Worker Rights Consortium, testified before Congress, “the danger to workers in Bangladesh has been apparent for many years.” The first documented mass-fatality incident in the country’s export garment sector occurred in December 1990. In addition to those killed at Rana Plaza, more than 600 garment workers have died in factory fires in Bangladesh since 2005. After Rana Plaza, however, Bangladesh finally reached a crossroads. The policies that had led to the stunning growth of its garment industry had so tarnished the “Made in Bangladesh” label that they were no longer sustainable.

But just how much change has taken place since Rana Plaza? That was the focus of an International Conference at Harvard this June, bringing together government officials from Bangladesh and the United States, representatives of the Bangladesh garment industry, the international brands, women’s groups, trade unions, the International Labor Organization (ILO), and monitoring groups working in Bangladesh.

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Understanding China's Stock Market, Post-Alibaba

Sara Hsu

Recently, Chinese e-commerce giant Alibaba officially listed on the New York Stock Exchange in the United States, and not on the Shenzhen or Shanghai stock exchanges in mainland China, to the chagrin of many yield-seeking Chinese citizens. As Alibaba’s listing underscores, China’s domestic stock exchanges remain unappealing IPO destinations. Why? Excessive listing rules and procedures, coupled with inadequate supervision and a significant presence of fraud and insider trading, have rendered the Chinese stock markets a second-best choice for competitive and innovative companies. But there’s potential for it to become a more attractive option for companies like Alibaba.

China’s stock market is the third largest in the world by market capitalization, weighing in at $3.7 trillion in 2013. However, despite recent reform proposals for a streamlined registration-based listing system that would allow companies that meet criteria for making a public offering (instead of the current system in which the China Securities Regulatory Commission approves IPOs), China’s stock market remains one of the poorest-performing in the world. This can be seen in the MSCI Index, calculated by Morgan Stanley, and even in the Shanghai Composite Index.

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Understanding China’s Stock Market, Post-Alibaba

Sara Hsu

Recently, Chinese e-commerce giant Alibaba officially listed on the New York Stock Exchange in the United States, and not on the Shenzhen or Shanghai stock exchanges in mainland China, to the chagrin of many yield-seeking Chinese citizens. As Alibaba’s listing underscores, China’s domestic stock exchanges remain unappealing IPO destinations. Why? Excessive listing rules and procedures, coupled with inadequate supervision and a significant presence of fraud and insider trading, have rendered the Chinese stock markets a second-best choice for competitive and innovative companies. But there’s potential for it to become a more attractive option for companies like Alibaba.

China’s stock market is the third largest in the world by market capitalization, weighing in at $3.7 trillion in 2013. However, despite recent reform proposals for a streamlined registration-based listing system that would allow companies that meet criteria for making a public offering (instead of the current system in which the China Securities Regulatory Commission approves IPOs), China’s stock market remains one of the poorest-performing in the world. This can be seen in the MSCI Index, calculated by Morgan Stanley, and even in the Shanghai Composite Index.

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Battling to Curb "Vulture Funds"

Martin Khor

External debt is rearing its ugly head again. Many developing countries are facing reduced export earnings and foreign reserves.

No country would like to have to seek the help of the International Monetary Fund to avoid default.

That could lead to years of austerity and high unemployment, and at the end of it, the debt stock might even get worse.

Low growth, recession, social and political turmoil are probable. This has been experienced by many African and Latin American countries in the past, and by several European countries presently.

When no solution is found, some countries then restructure their debts. Since there is no international system for an orderly debt workout, the country would have to take its own initiative.

The results are usually messy, as it faces a loss of market reputation and the creditors’ anger. But the country swallows the pill, rather than have more turmoil at home.

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September 25, 2014 | Posted in: Uncategorized | Comments Closed

Battling to Curb “Vulture Funds”

Martin Khor

External debt is rearing its ugly head again. Many developing countries are facing reduced export earnings and foreign reserves.

No country would like to have to seek the help of the International Monetary Fund to avoid default.

That could lead to years of austerity and high unemployment, and at the end of it, the debt stock might even get worse.

Low growth, recession, social and political turmoil are probable. This has been experienced by many African and Latin American countries in the past, and by several European countries presently.

When no solution is found, some countries then restructure their debts. Since there is no international system for an orderly debt workout, the country would have to take its own initiative.

The results are usually messy, as it faces a loss of market reputation and the creditors’ anger. But the country swallows the pill, rather than have more turmoil at home.

Read the rest of this entry »