Let’s not be fooled by Kristalina Giorgeva and the IMF

5 December 2023 by Maxime Perriot


In an interview given to Marie Charrel for Le Monde on 12 November 2023, Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), displays once again the total disconnect between the thinking of the IMF, current social issues and the ecological and climate crisis we are going through. This is a worrying fact in a context where the international financial institution is regaining considerable influence. To analyse the IMF Managing Director’s views, we will comment on a few passages from this interview and refer to the IMF’s 2023 Annual Report.



 Excerpt 1 : The hypocrisy of Kristalina Giorgeva



Marie Charrel : Protectionist temptations are on the rise on every continent. Is globalisation based on free trade dead? ?


Kristalina Giorgeva : We have over-emphasised the benefits of globalisation. They have been considerable: over the last three decades, the world economy has tripled, in particular benefiting the developing economies, which have quadrupled, and the result has been an incredible reduction in poverty. But not everyone has gained. For too long, insufficient attention has been paid to those whose jobs and livelihoods have been destroyed, because compensation mechanisms have been inadequate. This has created fertile ground for anti-globalisation movements and populism.


In this excerpt, Kristalina Giorgeva seems to be making a mea culpa for the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
’s policies over recent decades.

Let’s go back to what she says at the beginning of the section. While the rate of extreme poverty (people living on less than $1.90 a day) in the world fell from 36% to 10% between 1990 and 2015, 700 million people still live on incomes below this extremely low threshold [1]. If, as the Managing Director of the IMF says, “developing economies” have quadrupled in size, we have a right to demand that they leave no one in extreme poverty. What she does not say is that since the Covid-19 pandemic, 500 million people are at risk of falling into poverty [2], and that 350 million people in 79 countries are acutely food insecure [3]. This is unacceptable in such a rich global economy with so many billionaires and so much inequality.

According to Éric Toussaint and Pablo Laixhay: “According to the latest World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

report, between 2019 and 2022, 95 million more people fell into extreme poverty internationally. Furthermore, according to the IMF’s World Economic Outlook published in April 2023, while in 2008 it would have taken 80 years to halve the difference in per capita income between the countries of the South and the countries of the North, the updated calculation now suggests that it will now take 130 years to make the same progress. These two observations underline the deterioration in inequalities between North and South, between the capitalist classes and the working classes, between the so-called ’developing’ countries and the so-called ’developed’ countries, and the bankruptcy of these two institutions that are supposed to be fighting poverty and promoting global economic stability
”.

Furthermore, this pretence of self-criticism is an absolute sham: the IMF, which is back in business with 300 billion dollars lent to 96 countries since the Covid-19 pandemic [4], continues to apply neo-liberal recipes that increase inequality.


Source : IMF Annual Report 2023

Let’s take the Sri Lankan example. After defaulting on its foreign debt in the spring of 2022, the Sri Lankan government reached an agreement with the IMF in March 2023, for a US$3 billion loan that will run until 2027 [5]. As the IMF has been doing since the 1980s, it has imposed austerity measures on the government that are disastrous for the population, particularly for women, workers and the poorest: cuts in public spending, a 50% increase in value added tax, which hits the poorest hardest, and cuts in electricity, gas and kerosene subsidies. 500,000 households have been disconnected from the electricity grid. Farmers and fishermen have borne the full brunt of the 400% rise in the price of kerosene, and have had to cut back on their fishing trips, and therefore their income.

Sri Lanka is just one example of the conditionalities imposed by the IMF in many countries since the Covid-19 pandemic. Contrary to Kristalina Giorgeva’s misleading rhetoric, the IMF has not changed and continues to increase inequality through its destructive neo-liberal policies.

 Excerpt 2 : No desirable change will come from the IMF and its leadership



Kristalina Giorgeva : Our advice to countries is not to play the national interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. card against others, but to think about mechanisms for furthering global integration and balancing the risks. Because if world trade were to become more fragmented, the consequence would be very clear: we would all be poorer and less secure.


Marie Charrel : What exactly could be the cost of this fragmentation?


Kristalina Giorgeva : Depending on the scenario, it could reach between 0.2% and 7% of the world’s gross domestic product GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
(GDP); 7%, the extreme case, would be equivalent to excluding two countries like Germany and Japan from the world economy. To limit this risk, we must resist the temptation to impose trade barriers, the number of which has risen from around 500 in 2017 to 2,000 in 2019 and 3,000 in 2022. [...]


The IMF has two priorities: to preserve world trade and growth, two of the main factors leading to the destruction of ecosystems, greenhouse gas emissions and the extraction of resources.

These two passages perfectly illustrate the priorities of the IMF and its Managing Director: preserve world trade and growth, two major factors responsible for the destruction of ecosystems, greenhouse gas emissions and the extraction of resources.

International trade drives countries to specialise in the production of one or more products in which they are most competitive. For the countries of the South, this means exporting a mass-produced raw material at the expense of soil impoverishment, the surrender of all food sovereignty (because the country imports what it does not produce or no longer produces), and an extractivism that destroys living organisms. These countries are encouraged to export more and more in order to earn as much foreign currency as possible to pay off their debts. So they embark on a frantic race for growth, multiplying the effects described above and the depletion of resources.

This race for production and international trade, based on GDP as the benchmark for a country’s health, also generates enormous greenhouse gas pollution, the main cause of global warming. This system generates an astronomical amount of travel by plane, container ship, and truck. It produces tonnes and tonnes of plastic. By encouraging the production of tonnes of absolutely useless products that are traded all over the world, this system pollutes and depletes the planet’s resources.

Also read : The International Monetary Fund (IMF): an ABC

It is clear from this passage that for the Managing Director of the IMF, there is no argument for abandoning neo-liberal globalisation and the race towards unlimited growth. She justifies the need for continued world trade on the grounds that there is a risk of a fall in GDP if countries impose too many customs barriers. For her and for the IMF, the ultimate catastrophe is a slowdown in growth and in the pace of international trade.

A slowdown in international trade, coupled with national or regional policies aimed at food independence (diversification of agricultural production and industries through the introduction of customs barriers), would be beneficial for the populations of the South, for the planet and for the species that live there. Southern countries would no longer be dependent on imports, exports, foreign currency and IMF and World Bank conditionalities.

Similarly, a slowdown in growth combined with a policy to reduce inequalities and redistribute wealth through high taxation of the richest and biggest companies [6] would also be very good news for the planet and for the vast majority of the population.

The two realities we have just described are referred to by Kristalina Giorgeva as “the national interest card against the others”. The IMF Managing Director prefers the battle of all against all, with governments increasingly sacrificing the living conditions of their populations in order to be competitive, to be able to export their goods while exhausting resources and destroying the planet. The following extract shows this very well:



Kristalina Giorgeva : A government wishing to upgrade its industry could, for example, act by making its economy more attractive to investment rather than by introducing trade barriers, in defiance of the rules of the World Trade Organisation WTO
World Trade Organisation
The WTO, founded on 1st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

- which would prove negative for the world.


Without putting forward any argument, no more than in the previous extracts, Kristalina Giorgeva asserts that in order to develop a more thriving industry, a State must become even more competitive, with no consideration for the taxation of the richest and the working conditions of workers. But history shows just the opposite. Western states such as Germany developed by protecting their fledgling industries, so that they could grow without international competition and join the international market once they had reached a sufficient size. This is exactly what South Korea did, despite being held up as an example of “development” by the World Bank and the IMF.

Also read : The South Korean miracle is exposed

South Korea is one of the few countries not to have followed the model advocated by these two institutions, i.e. industrialisation by export substitution (adapting export activities to world market demand), but industrialisation by import substitution (manufacturing locally what was previously imported) [7]. “Thanks” to very strong state intervention, the application of customs barriers, state price-fixing to protect nascent industries, strong support from the United States, the over-exploitation of peasants and workers and a series of other measures, South Korea has succeeded in developing industries with high added value (at what human and environmental cost?). The country has therefore relied on a number of measures advised against by the World Bank and the IMF (state intervention, price fixing, customs barriers, state control of the banking sector, planning, control of foreign exchange and capital movements, etc.) to become a”development model“. Needless to say, these institutions modelled another narrative to make it appear that South Korea had”succeeded" because it had followed their advice.

Éric Toussaint on the case of South Korea during the opening conference of the Marrakech counter-summit(in french):

So, contrary to Kristalina Giorgeva’s argument, a government wishing to upgrade its industry must introduce customs barriers so that these industries have time to develop without facing competition from similar industries around the world [8]. This is obvious. How can a fledgling industry compete with multinationals that achieve gigantic economies of scale by producing astronomical quantities?

We must also question the relevance of the kind of development South Korea is implementing, given the needs of its people on the one hand and the destruction of the planet on the other.

This excerpt further confirms that the IMF Managing Director and her institution are totally intoxicated with neo-liberal ideology, with complete disregard for logic, and that we absolutely cannot trust them to implement an effective ecological bifurcation and reduce inequalities. These people will continue to apply their schemes without thinking and will lead the planet and all living things to their ruin. These institutions must be fought and replaced by others that would allow reparations to be paid by the countries of the North to the countries of the South for all the damage committed during the colonial period and afterwards.

 Excerpt 3 : Right into the wall

Marie Charrel : Is there never any good protectionism, if only to protect the environment or to prevent products from travelling around the world three times before being sold?

Kristalina Giorgeva : We have to learn from history. History has taught us that the division of labour between countries is beneficial because it makes it possible to provide food, goods and services to everyone at lower cost. But these exchanges must take into account the well-being of society. We need to think about global supply chains in terms of their carbon footprint, but also in terms of the extent to which their restructuring could harm workers elsewhere on the planet. It is possible to accelerate the decarbonisation of our societies without causing such harm. R&D subsidies that allow green technologies to penetrate the economy more quickly are, for example, a good use of public money./poesie>

This excerpt clearly shows that the IMF is a long way from reconsidering the ecological and climate issues. Kristalina Giorgeva continues straight ahead with her eyes closed, hoping that technology will save the planet. For her, reducing international trade is out of the question, even though she half-heartedly admits that it is responsible for the climate catastrophe. There is no question of giving up a few points of growth, as we saw earlier. It is out of the question because it would “harm” workers. By pushing for competition between the world’s workers, cuts in social budgets, the destruction of public health and education services and privatisations, the IMF has for decades not only “harmed” workers, it has destroyed their lives.

We can see here that the IMF has incorporated the climate emergency into its neo-liberal discourse by asserting that this crisis will be resolved by continuing to produce more, but greener, thanks to “green technologies.”. An absolutely illusory vision, given the urgent need to reduce greenhouse gas emissions and the decline in public investment in fundamental research. Even the magical discovery of a 100% clean source of energy (which is totally illusory) would not solve the problems linked to extractivism to monocultures of agricultural exports that impoverish soils and populations.

 What’s so serious about this interview?

The serious thing is that this interview with Kristalina Giorgeva reveals an institution that has regained considerable power in the world by multiplying its loans since the Covid-19 pandemic.

The IMF, an institution totally disconnected from the climate emergency, obsessed with growth (a word that appears 23 times in the IMF’s latest annual report), the deepening of the extractivist system and the expansion of international trade, is back with a vengeance, taking advantage of the debt crisis that the countries of the South have been going through since the pandemic. In the IMF’s 2023 annual report, we read: “Other priorities are also critical for restoring trust that the rules-based global system can work well for all countries, including strengthening trade [9]”.

The institution is logically in step with its Managing Director.

The report also tells us that the IMF lent $300 billion to nearly 100 countries between the start of the Covid-19 pandemic and 30 April 2023. These loans were not only “granted” to combat the pandemic directly, since the start of Russia’s invasion of Ukraine, the IMF has approved 41 requests from 37 member countries for $128 billion [10]. Austerity measures are attached to each of these loans: cuts in health and education budgets, privatisations, cuts in public subsidies, VAT increases, specialisation in export monocultures, etc. With each loan, the population of the country pays a little more for the domination of the neo-liberal ideology embodied by institutions such as the IMF and the World Bank. According to IMF, it “advises their governments on potential policy adjustments. This work supports the international monetary system in pursuing its goal of facilitating the exchange of goods, services, and capital among countries, thereby sustaining sound economic growth [11].”

Also read : Marrakesh Statement : 79 years of neocolonial exploitation and destruction by the WB and the IMF, this is enough! and Marrakech counter-summit demands: debt, microcredit, climate justice, food sovereignty, social movements, migration...

There will be no desirable future from the IMF and the World Bank, which will not change because the United States has veto power over every important decision. We need alternatives to the IMF and the World Bank, democratic institutions that support feminist, anti-racist and radically ecological alternatives. A bank in the South that lends at 0% for projects that promote such a shift is one example.

The author would like to thank Christine Pagnoulle, Sylvie Cartaillac, Fiona Vanston, Thérèse Di Campo and Éric Toussaint for their proofreading and additional comments.


Footnotes

[1UNO, Sustainable Development Goals, Goal 1 : End poverty in all its forms everywhere

[2Ibid.

[4Ibid.

[5Balasingham Skanthakumar, Bailing Out the Creditors

[6This taxation policy should be combined with controls on capital movements. For example, a ban on all international transactions above a certain amount

[7Éric Toussaint, The South Korean miracle is exposed, CADTM, 15/06/2020

[8On this subject, see the writings of Friedrich List, who theorised “educational protectionism”.

[10Ibid.

[11Ibid. p.25

Translation(s)

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80
info@cadtm.org

cadtm.org