Friday, July 17, 2009

What the IMF Does

It's a one-product institution according to Sebastian Mallaby: help countries having balance of payments (BOP) problems. Well at least in theory. Mauritius for example had to go knock on their doors in 1979 for a structural adjustment programme when economic hell broke loose on our mostly monocrop island.

The MMM, Berenger and Sithanen have used this episode as an indication of apparently typical Labour mismanagement. And an important section of the press has successfully drilled that in the heads of many of our fellow citizens over a couple of decades. They have also tried, this time rather unsuccessfully, to broadcast the lie that external factors are unfavourable only when Paul and Rama are in government. We've called this bluff recently.

It is interesting to note that when the Mauritian flag was raised for the first time sugar represented about 95% of our export earnings. While that was reduced by 20% over the next 7 years as the economic diversification program got underway our economy was still pretty much vulnerable when Gervaise visited us a week before Valentine's day in 1975 wiping out 30% of that industry's output (sugar represented 24% of our GDP in 1975 and 65% of export earnings in 1979).

Neither do we ever hear the fact that the UK was, as per Krugman, forced to accept loans and advice from the IMF -- a humiliation usually reserved for Third World nations. And they took that bitter pill in 1976, that is three years before Mauritius.


Bruno said...

I'd be happy to comment if the post was written in ... English. :) I'm a physicist and i have to research a lot to understand what you said (wth is BOP?) ok, if i understood you cry for help when you run out of cash and the IMF runs to the rescue. This also happened to the UK in 1976 ... did i understand?

Sanjay Jagatsingh said...

Sorry about that. BOP can be thought of as the balance of a country's relationship with the rest of the world (ROW). If you're importing way more than you are exporting without getting some form of additional cash coming in (dividends, FDI, grants, etc) a country may run out of cash to pay its imports. This is where the International Monetary Fund usually steps in. It will give you cash but with strings attached (conditionality). The snag is that these conditionalities have often made a bad situation worse: both on an economic and social standpoint.

In fact the IMF's own independent evaluation office has found their advice quite wanting. And all of this had led to a severe shrinkage of its debt portfolio. You may have a look at this to get you up to speed.

akagugo said...

And this little article gives ample proof that the IMF is actually a vampire sucking off vital life-blood from already lifeless cadavers: Malawi, Ghana, Peru, Ethiopia, Hungary... the list of victims is staggering, to say the least.

The author concludes by saying:

"If Strauss-Khan is guilty, I suspect I know how it happened. He must have mistaken the maid for a poor country in financial trouble. Heads of the IMF have, after all, been allowed to rape them with impunity for years."


Sanjay Jagatsingh said...

seski soz pe fer ar nu zoli pei usi...