Tuesday, 24 April 2012


Understanding the way the IMF thinks is important for countries  like Ireland which depend on  funds provided by the IMF to pay for  public services. 
I attended some meetings in the IMF in Washington recently to discuss the impact the economic crisis is having on fairness within societies, and in particular the impact of the  type of measures the  IMF recommends to countries to help them get, or  keep, their  finances in order. In the past the IMF has been criticised for imposing programmes that focussed simply on  balancing a country’s books, and ignoring the impact on jobs, equality or growth.
Everyone understands, of course,  that the poorer people are, the more they depend on the Government to pay  for their basic health, educational and other needs. So the poorer people are, the more it is in their interests that Governments are, and remain, solvent, because insolvent Governments cannot help anybody.  An insolvent Government cannot provide any  healthcare, education , or unemployment assistance.
But the IMF is increasingly coming to realise that, in helping countries back to solvency, it also has to take account of the social impacts of the inevitable austerity measures it proposes.
 Badly designed programmes, that cause undue social hardship, undermine essential political support. If some groups suffer much more than others, or if inequality is increased, that makes it harder to restore financial health quickly.   The IMF has to design its proposals so that they   allow the economy to return to growth as soon as possible because growth increases tax revenues, and that helps balance the books.
I was told that the IMF has recently set up a “Jobs and Inclusive growth” working group to work out how best to  ensure that  fairness and growth  are incorporated into austerity programmes.
Inequality WITHIN most countries has increased in recent years, although inequality BETWEEN  countries has dramatically reduced .
 Inequality between countries has become less because emerging economies are catching  up, and economic  growth has at last returned to  Africa .
 In some senses, growth in poor countries has contributed to inequality in  richer countries because  has led to additional demand for the  limited amount of  food and  fuel available in the world  This   has driven up prices, which in turn has added  to problems for less well off consumers in traditionally better off countries .
There are some exceptions. In Brazil, inequality has reduced because the Government has  transferred cash  direct to families on condition that  they send their children to school. This has reduced poverty, and dramatically increased duration of school attendance from an average of four, to an average of nine, years by each Brazilian child.
 In contrast, despite the enormous strides forward by everybody, inequality has greatly increased in China. Other developing countries spend more on indiscriminate fuel subsidies that are enjoyed by rich and poor alike than they spend on health services.
Income inequality has many causes.
 There is a “celebrity “effect.  A firm will pay extra to recruit a high flyer from a rival firm, and that adds to inequality. 
Certain specialised skills can command premium pay rates.
 Incentive schemes boost production, but they also add to inequality.
 But too much inequality undermines the consensus on which a successful capitalist economy rests. These are issues that the IMF understands and this should help countries find the right balance  for their own countries.

1 comment:

Stew said...

I wonder why IMF is now asking for loans from countries such as Thailand and the Philippines. What would be the interest rates for a loan amounting at $1B for instance? I'm not sure if that will benefit those countries but I think that is one bold move. estrosmart

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