I don’t really understand world economics and I won’t pretend to be an expert for a moment. However, simply by watch TV, a few discrepancies and injustices became so apparent I felt compelled to try my hand as an economics writer and came up with this.
IMF, Ruin and Recovery… and Ruin.
The news that Indonesia recently loaned the $1billion to the IMF, to help towards a European bail out fund is certainly positive. Back in 1997 in the midst of the Asian financial crisis, (which occurred for reason which I, and apparently even some experts can’t quite put their finger on) the Indonesian currency crashed.
Thankfully, in flew the well-dressed, helpful westerners from the IMF with plenty of loans to help prop up the Indonesian economy, and in just fifteen years Indonesian has transformed its sovereign debt from 80 per cent of gross domestic product to 24 per cent. No wonder the lovely Miss Merkel is now sighting it as a model for European debt reduction.
What’s more, it’s now one of the world’s strongest emerging economies, with the financial clout to repay the favor and help support ailing European economies, in our time of need, with a billion dollars of loans and lots of tasty trade. What a kind and fair world we live in! Encouraging stuff I think you’ll agree.
However, there is another story of financial ruin and recovery that the west and the IMF are not so keen to shout about. In 2001, Argentina defaulted on its public debt, totaling US$132 billion. The largest default ever. I recently watched this http://www.channel4.com/programmes/travels-of-a-gringo/4od . It’s completely one sided, and a little bias. But it raises some very good points.
The IMF is not structured to serve the people of this world; it is structured to serve the money of this world. Member’s clout in decision-making is dependant on how much money they contribute. Hardly a system promoting the democratic values the west wages wars to apparently spread. Presumably, because ignoring our core values here, benefits us here. Predictably, this leads to a situation where the US treasury can make sweeping decisions about the international communities money, almost independently.
The west has always been keen to access Latin America’s natural resources. And through a clever use of loans and the stupidity of military dictators we were able to manipulate a situation where they were forced to privatize much of their industry and open themselves up to free trade. And in moved the western corporations to milk the continent dry. Put succinctly; “The institutions designed to promote stability are now being used to promote a free market ideology”.
And when it all went wrong, Argentina was not making enough money to pay these reckless loans, were the IMF the kind westerners to the rescue again? No. They insisted on austerity package after austerity package until Argentinean citizens could literally not withdraw their money from their banks.
But, Argentina and now Europe have been living above our means and must pay that money back. $80 billion of the IMF’s European bail out pot was secured from emerging economies at the recent G20 Mexico. So let us just hope they treat us more humanely when our economies crumble under our own greed.
Furthermore, this is just another example, in our age of credit, of cheap lending, being the problem not the solution. Be it a risky mortgage, or billions to push an economy forward. To the non-economically minded such as myself, the solution seems blindingly obvious. The world must stop borrowing and start saving. But there’s always a complex reason why the answer is so much more complex.
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