In the 1960s the spectre of a secretive cabal wielding an outsize power over the economies of countries to which they were not accountable was often raised by political leaders. The “gnomes of Zurich”, as the then hugely influential Swiss banking industry was called, wielded a sinister power, and were held responsible for undermining the British pound by George Brown, the Labour minister who coined the term.
Today, if an institution were to arouse similar ire, it would probably be the IMF. The fund claims to be “working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world”.
To its many critics it is a “global loan shark”, forcing countries that wish for loans and debt relief to follow its policies, to the extent of determining spending on education and health and economic strategy; and thereby totally undermining the duly constituted authorities and the will of the people.
There is a famous picture of Indonesia’s president Suharto signing an agreement with the IMF in 1998 under the baleful eye of Michel Camdessus, its then managing director, that sums the charges up. Malaysia’s then premier, Dr Mahathir Mohamad, described Mr Camdessus “standing over president Suharto with his arms folded, watching with almost smirking satisfaction”.
The country’s currency was in free fall and riots had shaken Jakarta. But “when the IMF took control”, continued Dr Mahathir, “the measures they forced the country to take, such as stopping food and fuel subsidies, only made matters worse and there were more riots.”
One of the main reasons for these charges against the IMF is its long-standing support for neoliberalism.
The fund itself, in a recent report, defines this agenda as having two planks: firstly, “increased competition – achieved through deregulation and the opening up of domestic markets, including financial markets, to foreign competition”; and secondly, advocating “a smaller role for the state, achieved through privatisation and limits on the ability of governments to run fiscal deficits and accumulate debt”.
This is immediately identifiable as the right-wing orthodoxy that swept the western world from the late 1970s onwards, utterly displacing the Keynesian model that saw a far bigger role for government in stimulating growth and seeking employment and good wages for all.
What is remarkable about the IMF report, however, is evident from its title – Neoliberalism: Oversold? – and its conclusions, including that “austerity policies not only generate substantial welfare costs … they also hurt demand – and thus worsen employment and unemployment.” And that “instead of delivering growth, some neo-liberal policies have increased inequality, in turn jeopardising durable expansion.”
This admission that the IMF’s “faith” in neoliberalism, as the authors put it, might have been displaced, is breathtaking. But it is also very welcome. For too long neo-liberal economics were indeed a straitjacket that wealthy countries imposed upon developing ones.
Further, the backlash against Keynesianism looks pretty foolish in hindsight. The trickledown effect has hardly worked, while the multiplier effect palpably does. Western countries, too, have seen the damage done by over-reliance on neo-liberal strictures. The vast majority of serious economists agree, for instance, that neo-liberal austerity policies held the UK back from recovery after the Great Recession of 2009.
It should seem blindingly obvious that massive investment in infrastructure, to take another example, is exactly what an economy in recession needs. It provides jobs, boosts spending, and has a virtuous circle effect of making the relevant country more attractive to investors, and of then being in possession of the necessary connectivity and capacity once recovery comes.
Yes, you can spend your way out of recession. And yes, it takes the state to set this in motion, at the very least.
But the further point about the IMF’s admission is that just as it is wrong to try to impose one form of politics on every country, regardless of whether they desire it or whether it is appropriate to their customs and culture, it is equally wrong to insist that one form of economics is right for every country.
The IMF’s habit of doing so is still very much resented. It was interesting to note the comments of Malaysia's prime minister Najib Razak, who is a structural reformist with an open-door foreign policy in a recent interview after an ASEAN summit with Russia.
“The IMF imposes rather austere conditions,” he said, “and this conditionality is not accepted by Malaysia.”
There is no “one-size-fits-all” when it comes to politics or economics. That the high sanctuary of the neo-liberals appears finally to be accepting this is gratifying indeed. It might be too much to expect a formal mea culpa from an organisation that has inflicted huge misery and disruption – of the creative variety for a handful of quick-footed capitalists, but appalling for the poor masses – in Indonesia and many other countries.
But an acknowledgement that they’re not always right is a good start. Let us hope it helps guide them – and other international organisations – better in the future.
Sholto Byrnes is a senior fellow at the Institute of Strategic and International Studies, Malaysia