Evolution or business as usual?

A provocatively titled article, Neoliberalism: Oversold?, written by senior IMF staffers, has created quite a stir, yet a closer look at its content does not seem to signal any significant rethink in IMF policies, or the conditions attached to the lending programmes that the entity offers to developing countries around the world.

The IMF’s rhetorical admission of flaws in its lending policies is nothing new. Let’s consider, for instance, the joint announcement by the IMF and the World Bank that they would try and ensure country ownership and greater participation in use of their lending programmes through introduction of Poverty Reduction Strategy Papers (PRSP) back in 1999. The PRSP approach however did little to question key assumptions of the IMF and the World Bank that the best way to ensure growth and poverty alleviation is through the market mechanism.

The IMF’s and the World Bank’s use of their lending programmes to curb public spending in order to manage fiscal deceits, and instead facilitate the private sector and market mechanisms to deliver not only growth, but essential social services, have made the IMF, and its partner organisation, the World Bank, the target of much criticism.

Given this broader context, an article by senior IMF officials suggesting that the powerful financial institution may now be questioning the utility of its neoliberal policies does seem intriguing at first. However, the overall position adopted in the above mentioned article is more cautious than its title suggests. Despite acknowledging the potential shortcomings of using capital flows to encourage growth and alleviate poverty, the IMF has not changed the core of its approach, which is based on promoting competitive markets.

The IMF has, however, begun to recognise how removing restrictions on the movement of capital across a country’s borders have increased inequality, instead of delivering promised economic growth. Free flows of capital across national boundaries have caused widespread destabilisation, volatility and several financial crises.

An interview of the IMF’s Chief Economist, published in the IMF Survey, has further admitted that some countries let public debt rise to such high levels that they have to tighten their belts, and then the poor often suffer disproportionately when public expenditures for essential services are slashed. Recognising, in principle, the importance of considering the most vulnerable when planning fiscal adjustment, it would be interesting to see what tangible measures the IMF’s Chief Economist will now propose. The IMF support for debt re-profiling or debt reduction, which require creditors to bear part of the cost of adjustment, an approach it is currently recommending for Greece, provides an interesting precedent. One wonders if developing countries around the world, which have also accumulated unsustainable debts, doled out to irresponsible leaders, often to achieve strategic leverage, will also be provided similar opportunities.

Despite admitting that the consequences of trade are complex, and that governments need to do a better job to help those adversely impacted by trade liberalisation, IMF’s Chief Economist still considers trade as the primary engine of global growth. He also does not seem too concerned about the need to revise terms of trade between rich and poorer countries.

Instead of remaining fixated on the market mechanism however, the IMF needs to consider, and also engage with other multilateral agencies, to address and why the market mechanism only serves the interests of elites in developing countries, while doing nothing to address underlying causes of poverty, such as the uneven distribution of productive capital (such as land), which prevents poor people from benefiting from market based economic opportunities.

The IMF’s Chief Economist describes the current shift in macroeconomic thinking and policy approaches within the IMF as a process of evolution, rather than a revolution. Yet, unless the IMF lends its weight to the redistribution of productive assets currently concentrated in the hands of the elites, its proclaimed evolution is no more meaningful than pouring old wine in new bottles.

Published in The Express Tribune, October 7^th, 2016.

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