The IMF and Trevor Manuel: A Plague on Both their Houses

By Leonard Gentle · 31 May 2011

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Picture: World Bank
Picture: World Bank

The arrest of Dominic Strauss-Kahn (DSK) on allegations of attempted rape certainly has got tongues wagging. In the Guardian newspaper, French journalist Angelique Chrisafis alleged that DSK “always had a problem with women.” Also writing in the Guardian, Dean Baker, co-director of the Washington DC-based Centre for Economic and Policy Research, notes how ironic it is that the immigrant hotel worker who made the allegations may simply have been dismissed under the “flexible labour market policies” so favoured by the IMF, had she not been in a job protected by a trade union.

But now that DSK has resigned, the question of his successor has seen much lobbying within Europe where the seat has always been reserved for a European. But elsewhere, the BRICS countries are putting forward the name of our very own Trevor Manuel for the job. The debate is being conducted in highfalutin moral terms of “fairness,” the “best man for the job,” “why should it always be a European,” etc. Some are even saying that there should be recognition of the changing power of “emerging economies” like South Africa.

But like NATO or the Pentagon for that matter, the IMF is firstly an instrument of global power and secondly a bank seeking returns for its shareholders (with the US being its largest shareholder). It is not an example of “world governance,” as we have been led to believe and all that talk about “merit” and “transparency” is humbug. DSK’s disgraceful resignation is a more graphic illustration of what the IMF has been doing to the world for many years.

This was however not always the case. Interestingly enough the IMF was formed at a time when the world was faced with a crisis whose magnitude was not so different to that confronting the world today. However, back then the founders of the IMF were not obsessed with “fiscal discipline” or “fighting inflation” or even “satisfying the market” - they were concerned with rebuilding a shattered Europe after World War II (WWII), on the basis of stimulating demand and establishing full employment.           

The IMF was one of the banks formed along with the World Bank (WB) when the finance ministers of the major countries met at Bretton Woods in the US a year before the end of WWII. The story of Bretton Woods is a remarkable one in that the meeting brought together countries that were still at war, to plan the post-war recovery. South Africans will be surprised to learn that one of the few non-major powers present at the meeting was South Africa. 

The major intellectual force at the meeting was John Maynard Keynes and the economic orthodoxy, which Bretton Woods launched, was Keynesianism. This was the idea that a crisis of such scale required reconstructing Europe as a welfare state in addition to restoring the global economy. 

Rebuilding Europe and restoring capitalism to profitability required a massive stimulation of demand and full employment while global trade required the stability and certainty of fixed exchange rates with the dollar at the centre. The dollar’s value was fixed against gold at US$35 an ounce (as the owner of some two thirds of the world’s known gold reserves, South Africa – yes apartheid South Africa - was an important player). 

Underpinning this system of fixed exchange rates and stability was of course the domination of the US. This is why the American dollar became the world’s reserve currency. As a sop to Europe, the head of the IMF was guaranteed to be a European whilst the US retained its prerogative to always appoint an American as head of the WB.

Even though the IMF was, relatively speaking, the “bad cop” to the WB’s “good cop,” its infamous structural adjustment programmes of the 1980’s and 1990’s were unknown. Countries that generally did experience balance of payments problems – in a world of fixed exchange rates – devalued their currency to a new fixed value until their exports improved. IMF loans were thus not punitive or vindictive in the way that the Greeks know them today. 

All this was to change when the US President, Richard Nixon, squashed the Bretton Woods system in 1971, delinked the dollar from gold and ended the world of fixed exchange rates. Successive US Presidents began opening the world to fewer and fewer forms of financial regulation and Ronald Reagan took this to the point where neo-liberalism became the new economic orthodoxy.

Castigated by Reaganite Republicans as centres of do-good liberalism, the WB and its “soft” developmental focus, as well as the United Nations (UN) were railed against by President Reagan. First the US tamed UN development agencies by simply refusing to pay US dues to the UN. Then the US used its muscle as the biggest investor in both the WB and the IMF to make the WB accountable to the IMF while making the IMF an instrument of neo-liberal US policy. Thus, WB loans became conditional on IMF approval and IMF approval was conditional on “reforms” such as devaluing currency, getting rid of “market distorting” food subsidies, relaxing labour market regulations and privatising public assets. 

This was a disaster of epic proportions for African, Latin American and Asian countries. Devaluing their currencies against the dollar meant that their dollar-denominated debt escalated. State enterprises that were privatised became vehicles for transnational corporation takeovers. National industries collapsed and countries were forced to indulge in a race to the bottom.                

Since the Reagan era, the WB and the IMF have been the principal instruments of imposing neo-liberalism in the new world order and the battering ram for smashing down any resistance from governments concerned with fighting poverty with social development and jobs or any such social niceties. Throughout Africa, Asia and Latin American, countries have had to close down hospitals and schools, tear up budgets and abandon feeding schemes at the explicit instruction of IMF technocrats. 

It is estimated that the scale of deaths and malnutrition meted out by IMF moguls exceeded that of both world wars. If there were an international court for economists then the IMF and the WB would be first in the dock. Such was the testimony of ex-WB chief economist, Joseph Stiglitz, when he resigned from that organisation.

On top of its sheer moral bankruptcy, the IMF has also been shown up as being technically incompetent. 

Despite its remit of ensuring global financial stability by tracking countries that may suffer extreme balance of payment difficulties, the IMF failed to alert its masters of the looming Asian currency crisis of 1997. This was a major embarrassment from which it has never recovered. As a result, increasingly the US and others have sought to engage directly by establishing forums where central bankers, their finance ministers and other elite players could speak directly to one another through the G5, G7, G8 and now even the G20, without relying on the ineptness of the IMF. These forums are the de facto evidence that the IMF is incompetent. This evidence of IMF incompetence was once again revealed by the 2008 financial crisis when the IMF was still predicting healthy growth while the world’s stock markets were collapsing all around it. 

Even the choice of DSK as IMF head is evidence of its declining authority. DSK was the losing candidate for the Socialist Party’s presidential nomination in the 2009 French elections, and, as a concession to the opposition party, French president, Nicholas Sarkozy, decided to kick him upstairs. 

Then there is the question of Trevor Manuel and his glowing reputation as South Africa’s finance minister, which makes him so eminently suitable for the position. 

But what is Manuel’s record?

Well in a very real sense he is an ideal candidate for the IMF. Manuel’s been doing a hatchet job on the South African economy for years. 

His “brilliance” came to the fore in dealing with an apparently ineluctable squeeze.

On the one hand there were the demands from the people needing more resources for almost everything -- services, jobs, transformation, etc. And on the other, there was the rule laid down by the markets that wanted tight control over expenditure and a smaller state.

Impossible you might say, especially when Manuel encouraged capital flight by opening the door for South Africa’s corporations to shift their primary listing to the London Stock Exchange as well as relaxing exchange controls to help them along. But wait! There’s more! He reduced corporate tax and even the regular salary-earning middle classes got their income taxes cut. 

All this and he got the budget deficit down. How’s this possible you might ask? 

Manuel presided over a declining budget deficit to the point where South Africa actually had a budget surplus in 1999.

This fiscal discipline against the backdrop of a 40% unemployment rate, zero services, declining expenditure on public hospitals and the crisis in schools, certainly takes some doing.

It was something he learnt from Bill Clinton’s administration (the real source of the famous “Tips for Trevor”) and is something any accountant can do - shift the responsibility to other spheres of government and then make them accountable. In the 1990’s, Clinton famously achieved a major reduction in the US Federal government deficit, whilst California, New York and other states suddenly found themselves with escalating debt. 

South Africa’s negotiated settlement of devolving so many services to provincial and local authorities made this possible. But Manuel made this devolution appear like his success story. Inter-governmental transfers dropped by 90% between 1994 and 2000. Admittedly some of these cuts were made before Manuel, but he mastered the art.

A masterstroke you may say, but all the talk today of a service delivery crisis must be paid at the door of the Treasury. Local authorities sit with the problem, while Treasury looks good. 

So local authorities squeeze citizens through cost recovery, charge higher rates for services, cut services or, in the case of Durban and Cape Town, even indulge in borrowing via municipal bonds (this is what got the Greeks into trouble).                   

Under Manuel’s watch major South African corporations like Anglo American, Billiton and Old Mutual were allowed to leave. As a result, we have crippling balance of payments problems, as profits and dividends accrued here have to be paid in London, New York and Sydney. Manuel made the Rand one of the most volatile currencies in the world. As a result, today under his successor, Pravin Gordhan, we are 80% more in debt, as speculators bet on the South African bond market and take advantage of our extremely relaxed exchange controls.            

On Manuel getting the top job at the IMF? It won’t happen because this game is about global power plays. The US is in decline and the sidelining of the IMF has already become a reality. But the IMF remains true to its history. It still lives on to punish weaker countries like Greece, as it continues to do in all African countries in hock to it.

But it’s still an interesting thought to speculate about Manuel and the IMF, because, frankly, they deserve each other.                                                                                                   

Gentle is the director of the International Labour Research and Information Group (ILRIG), an NGO that produces educational materials for activists in social movements and trade unions.

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