IMF is wrong: India doesn’t have to wait till 2029 to be a $5 trillion economy; it can still be done
“There's no such thing as a free lunch.” How true was Milton Friedman, the American Nobel Prize-winning economist about capitalist society and the capitalist world?
In the world of ‘friends with benefits’, the large, gigantic, respected institutions have become just another medium of cashing in on opportunity, promoting business, enhancing profitability, even if it means one needs to climb on the bodies of the poor, hungry, or even dead.
One such great institution came into existence in 1944 in an era of the post-Great Depression of the 1930s — the International Monetary Fund (IMF).
The World Bank and IMF both were created as part of the United Nations with an aim to alleviate poverty and bring stability to economies across the globe. Whilst World Bank invests or lends in longer-term projects across developing nations, IMF is expected to stabilise currencies, countries, and financial systems as the modern world, modern societies and modern economies are conjoint and conjunct. If an economy collapses, the domino effect can collapse the world economy or can lead to a ripple effect, or can cause economic shock waves, running through the continents.
Thus the IMF acts swiftly and is expected to lend a helping hand to a collapsing economy.
What’s the problem then?
The IMF has nearly 190 countries; however, countries that contribute to the war chest of the IMF get more voting rights. The US is the largest contributor with $115 billion in a trillion-dollar balance sheet (drawing power of IMF), with 16.5 per cent voting rights, followed by Japan with 6.2 per cent, China with 6 per cent, Germany with 5.3 per cent, and France and the UK with 4 per cent each.
The countries with higher voting rights enable the IMF by providing more funds to the coffers of the IMF, alongside pushing their capitalist agenda by putting the conditions while lending money to countries under duress.
Though IMF has mostly worked as a saviour, White Knight, guardian angel, the result has been contravening, contradictory, and conflicted.
This also reminds me of Christopher Columbus, the famous explorer and voyageur, the one who accidentally found America on his way to find Asia in the East. Describing his first encounter with Native Americans, he wrote: “They… brought us parrots and balls of cotton and spears and many other things, which they exchanged for the glass beads and hawks’ bells. They willingly traded everything they owned…They were well built, with good bodies and handsome features…They do not bear arms, and do not know them, for I showed them a sword, they took it by the edge and cut themselves out of ignorance. They have no iron. Their spears are made of cane…They would make fine servants…With fifty men we could subjugate them all and make them do whatever we want.”
How can a small force of the IMF subjugate country after country?
Obviously, countries or their policies or their leaders who have shot themselves in their own foot approach the IMF and not vice-versa.
One such case in point is Argentina. At the beginning of the last century, the second-largest country in South America boasted of being one of the wealthiest countries on the planet. Until World War I, its per capita income was similar to that of the US. It was one of the largest exporters of cereals and meat, to the point of representing almost 7 per cent of all international trade. Argentina accumulated 50 per cent of the GDP of all Latin America in 1913; the average salary in Buenos Aires was up to 80 per cent higher than in Paris.
Then came the wars, followed by infamous decades of military coups, excessive borrowings, freebies and commercial protectionism. By the beginning of the new century, the country was on the brink of a collapse. There came the saviour with conditions and a bait of a $20 billion loan package and standby credit facility.
On 5 September 2000, When Argentina was facing severe depression, with 20 per cent of its workforce being unemployed, a technical MoU was signed between Argentina’s Central Bank and the IMF with an understanding that the government budget deficit required to be cut from $5.3 billion in 2000 to $4.1 billion in 2001. Furthermore, the country was asked to cut 20 per cent of monthly salaries paid under an emergency employment programme for the weak, poor and vulnerable, a 15 per cent cut in civil servant salaries, and a pension rationalisation by 13 per cent for the elderly.
Following several austerity measures, industrial production fell by 25 per cent in Q1 2001 before it collapsed completely by 2002, drowning the labour market, and bringing workers into a desperate situation.
Whilst the country was crumbling on account of its past misdeeds, the IMF continued to incarcerate indirectly with a false sense of belief that austerity measures will lead to an eventual bounce-back in the latter half of 2001.
Before one understands the present, one needs to delve into the past.
In 1991, when inflation went spiral in Argentina multiple times, an intelligent thought was enacted by the Argentinian government and IMF to solve the country’s deficit problem, where the Argentinian currency Peso was pegged to the US dollar 1.4:1 with full and unlimited current and capital account convertibility. Thus Argentina was able to place its bonds with the US and European banks and lenders. Banks did not do this for free and earned a hefty risk premium of 15-16 per cent over and above the US treasury. Thus risk was priced well and in case of default the lenders should have taken the haircut, on the other hand, IMF acted to protect the interest of lenders by acting as their proxy.
In 2002, Argentina owed $128 billion in debt. Normal interest plus the premium amounted to $27 billion a year. Most of the bailout money and cost savings done on account of austerity ($3 billion) were used to pay off foreign banks and US creditors who owned the bonds of Argentina. Even the amounts earmarked for education and healthcare expenses of the country were diverted to pay off banks and creditors. Despite that, the sovereign default occurred on $93 billion of debt in December 2001.
As the US dollar and peso were pegged at 1:1.4 (Whilst peso may not have been even worth 1:50), the rich, the corrupt, and influential foreigners and locals both took money out from Argentina to the US and other Western countries. Some say, as much as $750 million per day was sent out of the country.
Protests, use of force, and deaths gobbled up the streets of Argentina, but financiers mostly sat pretty.
Read More at https://www.firstpost.com/opinion/imf-is-wrong-india-doesnt-have-to-wait-till-2029-to-be-a-5-trillion-economy-it-can-still-be-done-by-2025-10645501.html