Greece – a victim of finance curse?

Those who have studied development economics will be familiar with the term ‘resource curse’ – a paradox of plenty, when countries or regions with abundance of natural resources tend to have less economic growth and worse development outcomes.

The recent developments in Greece reminded me of another phenomenon – finance curse – which is a story about ‘country capture’ where an oversized financial sector comes to control the politics of a finance-dependent country and to dominate and hollow out its economy.

One particular quote seems to be so timely to mention here: “Beyond a certain point, financial development is bad for an economy. Instead of supplying the oxygen that the real economy needs for healthy growth, it sucks the air out of the system and starts to slowly suffocate it.”

You can read more about finance curse here.

IMF loan to Latvia and few blunt questions

Every time i read something about IMF loan to Latvia I want to scream. IMF, a bunch of Anglo-Saxon economists – graduates from the right Universities (keep in mind Milton Friedman) pretends to know the best how the things should be run in countries where they have never been, where they have never lived and where they dont have to live and dont have to experience personally the life they have imposed.

I just read this article on 31 January 2011 in Dienas Bizness “IMF believes that Latvia can repay its international loan” and just felt I wish i could talk to this Ms Anne Marie Gulde Wolf, and ask some questions:

1. she says that there are few countries which have successfully completed IMF programmes. My question, first of all is, which ones? I am really interested to hear which countries she considers as successful ones! Then Latvia maybe could visit them and exchange experience. I am afraid, though, there is no single success story. and here I would like to emphasize two things: a) even though there is a country or even few countries which have successfully completed IMF programmes which means – have paid back the loan as per agreement and without delay, it does not mean that at the end of the day this programme has brought positive change to the country; b) secondly, it is well known how many countries have taken IMF loans and how many have failed both to repay the loan and to improve the economic/ social situation in the country. if the percentage of success (even if we take into account the countries which have repaid loans disregarding the level of improvement of the people’s lives) of IMF programmes is low (I am still wondering which are those lucky countries to be called as the successful ones), does not it actually mean that this IMF programme – this counter-cyclical neoliberal medicine – simply does not work??????? IMF has been experimenting with the whole African continent for several decades. Where are the success stories??

2. in this article Ms Gulde-Wolf also says that IMF would not have given a loan to Latvia if it would not have been convinced that Latvia will be able to pay the loan back. I would say, it is only half-truth. In 2008 IMF was experiencing actually internal/ ideological crisis as it was widely criticized by academic/ non-governmental community and developing world about its inefficient programmes. Many countries which needed financial assistance chose not to link up with IMF because of ill-famed failures of IMF programmes and extremely strict conditionalities (structural reforms, intervention in national economy and decision making). Global economic crisis in 2008 actually saved IMF from its bankruptcy. suddenly there were new and relatively wealthy countries which run in to trouble and needed help. IMF needed to get these countries on board to justify its own existence. Therefore, i could even speculate and say that IMF needed us more than we. However, only 25% of the total international loan comes from IMF. The rest is given by European Commission and EBRD.

I think it is absolutely unfair and wrong to have a public institution owned by national governments which is monopolized by one single ideology and which cant be challenged even with clear evidence and facts. IMF may say that they have helped some countries to fix the numbers and make the statistics look right, but in most of the cases it has not promoted the quality of life of the people. and it never will, because, i apologize to all economists (but less to those – Friedman’s students), but with such terms like ‘social costs’ or ‘social consequences’ you are rarely familiar with.