Neoliberalism, the IMF, Summers, & Geithner
Interesting post by Ken Hanly on lbo-talk, about Obama’s new economics appointees: Timothy Geithner (to be Treasury Secretary) and Larry Summers (to be head of the National Economics Council, which coordinates economic policy throughout the executive branch):
Both Summers and Geithner worked at the IMF and favored the deregulation that caused the financial crisis and Geithner of course has worked with Paulson and Bernanke and also used taxpayer money to help JP Morgan purchase Bear Stearns.
Geithner also won solid reviews for his handling of the Bear Stearns meltdown in March, when he greased JP Morgan’s purchase of the failed investment bank by insuring it against up to $29 billion in losses on Bear’s dowry of toxic assets. As the economist Brad DeLong has written, Geithner seemed to strike the right balance between preventing a crisis (by effectively saving Bear’s bondholders and counterparties) and discouraging irresponsible risk-taking (JP Morgan’s bargain-basement purchase-price saddled Bear’s stockholders with huge losses). Though some complain that JP Morgan itself made out too well, few disagree with the deal’s basic contours.
The IMF is continuing neoliberal policies of the sort that prevailed during the time when Summers was there. The neoliberals are not dead they are just changing tack because they need to socialise losses for a while and government intervention is a means of doing this. There is a need to spread a few crumbs as well since not enough have trickled down to stimulate demand. The public also needs to pay for the worn down infrastructure of advanced capitalist countries. Here is what is happening due to the IMF in Hungary and Iceland:
This unfolding social crisis has returned the IMF to center stage. Typically, the IMF lends to those countries facing potential collapse and, in return, demands the fulfillment of stringent economic conditions. The scale of borrowing is already immense: Iceland ($2.4-billion), Ukraine ($16.5-billion), and Hungary ($15.7-billion) have been extended loans with Pakistan, Serbia, Belarus, and Turkey likely candidates in the near future.
The conditions that come with this latest round of IMF lending have been particularly opaque. The policies that Ukraine is expected to pass, for example, are not yet known despite the fact the country has essentially agreed to take a $16.5-billion loan from the IMF. Hungary has agreed to cuts in welfare spending, a freeze in salaries and canceling bonuses for public sector workers yet the final details have not been made public. Iceland was required to raise interest rates to 18% with the economy predicted to contract by 10% and inflation reaching 20%.
We can certainly expect that the conditions attached to loans in the poorer countries in the Global South will be much more stringent than those imposed on these European countries. There is little doubt that these countries will face massive job losses, intense pressure to privatize public resources, and slashing of state spending on welfare, education and health in the name of ‘balanced budgets.’ Whether these attacks on the social fabric are successful, however, will ultimately depend on the level of resistance they face.