Perverse conditionality – double standards in the IMF

by Joseph Markus

We are, step by step, approaching a Greek bailout deal. The price that Greece is paying for this act of

self-interest on the part of European technocrats and financiers is decades of painful austerity that will touch on every aspect of Greek life, from the public to the private, and from the poor to the moderately wealthy upper-middle class.

What is happening to Greece—the imposition of economic and fiscal policies from the top-down—is remarkably reminiscent of another dark part of the saving impulse of both rich nation-states and the international financial institutions.

For decades, through the gift of development aid, the developed world—and in particular the US, which in 2010 held a 15.85% voting stake in the IBRD limb of the World Bank Group (remembering that the most significant decisions require an 85% qualified-majority vote), and whose Congress has adopted a notoriously vacillating attitude towards the concept of aid—has been extracting concessions and conditions from the (under-)world that found, and continues to find, itself under the gaze of those financial giants.

In exchange for the vast sums of money at welcomingly low levels of interest distributed by these entities, all that those countries were required to do was conform to a set of economic and fiscal policies. Invariably this included the requirement that target nations underwent a set of structural reforms: privatisation, trade liberalisation (an end to protectionism), and deregulation (this last one is particularly far-reaching). This was Structural Adjustment and it continues to this day in anything but name under the guise of Poverty Reduction Strategy Papers and the Heavily-Indebted Poor Countries initiative.

Strangely, though, even then, back in the days of an explicit ‘Washington consensus’, the perversity of the present deal struck between the IMF-EU-ECB troika and Greece was absent. Then the focus was genuinely—due in large part, perhaps, to the arrogance of IMF and World Bank salaried economists—on improving the life of those targeted countries. Growth was a significant motivating feature: the development agencies sought to develop, and to do so they courted economic growth. While this might be thought to constitute a rather emaciated understanding of what ‘development’ can be (and on this the collection by Wolfgang Sachs, The Development Dictionary, is well worth a read: find here the Preface), at least proponents acted with the right intention.

The perverse conditionality to which the title of this article refers is the slew of requirements advanced by the European troika. Without the consent of the ruling élite of Greece, the huge sums needed to rescue Greece from default and EZ-exit will not be provided. In the circumstances the idea of meaningful consent quickly evaporates; what we are left with is imposition.

Perversity is found in the fact that, unlike previous forays in the developing world, the conditions imposed do not aim at even the ostensible best interests of Greece. The primary concerns are to save the Euro from the threat of a Greek default, to support private lenders with money tied up in Greece, and to prevent the possible contagion that might follow from a Greek collapse. As a consequence growth is not an issue for these conditions. They are just cuts: puritanical and simple.

Putting to one side the fact that a longer-term policy aimed at reigniting growth in Greece would arguably represent a better investment of the many billions of euros at stake, this approach represents a shocking level of intellectual (as well as plain old) dishonesty. It was only a few weeks ago when the leaders of each of the major international financial institutions, including Christine Lagarde of the IMF, at Davos concluded that austerity was not the way forward. Strange, then, that the IMF seems happy to back hard-nosed austerity for Greece.

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