It was a fun start to the year for Kristalina Georgieva, managing director of the International Monetary Fund (IMF), who kicked off 2023 with a half-hour interview for CBS News. By the following morning, newspapers from London to New Delhi were repeating Georgieva’s prediction that one-third of the global economy, including half of the European Union, would go into recession this year.
Georgieva’s prophesy of economic collapse prepared the ground for three predictable demands: Georgieva exhorted central banks to “stay the course” in their battle with inflation, keeping interest rates high even if that means crashing economies and causing immense human suffering; instructed governments to keep reducing spending; and warned all of us to guard against the fragmentation of the global economy and the bubbling trade war between China and the USA. In other words, the playbook of globalisation and neoliberalism.
It’s not unusual for the IMF to perform political manoeuvres of this kind. Founded in 1945, the fund was intended to help stabilise the new Bretton Woods system of international trade by acting as the lender of last resort for countries going through a currency crisis. Those loans gave it considerable power because every loan came with conditions – often including cuts to corporate tax rates, opening up to foreign trade and the privatisation of state services.
Through its loan-making power, the IMF has become a cornerstone of an unequal and undemocratic global system, allowing local elites to circumvent domestic opposition to austerity by claiming their hands are tied while imposing neoliberal economic policies on developing countries – all despite evidence that the IMF’s “conditionalities” increase poverty and inequality, decimate local healthcare and education systems and leave people fatally exposed to pandemics.
The fund’s directors have been similarly controversial. Rodrigo Rato, who led the IMF in the mid-2000s, was found guilty of embezzlement and money laundering by Spanish courts in 2016. His successor, Dominique Strauss-Kahn, has been repeatedly accused of rape and sexual assault. He was followed by Christine Lagarde, who led the IMF for most of the 2010s, and was implicated in a €400m corruption scandal during her time as French finance minister. Georgieva, who took over in 2019, was found to have fiddled the data to make China look better during her tenure as chief executive of the World Bank.
A pro-austerity agenda.
Georgieva’s recent defence of the economic status quo should come as no surprise. Bringing down inflation has always been a central tenet of the IMF – even during the “golden era” of Keynesian economics when inflation was widely tolerated in pursuit of full employment. And in the midst of the current battle against inflation, recessions and unemployment are no bad thing. They are not unfortunate side effects, but rather the tools to bring down wages and with them, prices.
The drive for “balanced budgets” (spending no more than you bring in through taxation) also has a long history at the IMF. Through its experiments in Latin America in the early 1950s – when countries like Chile were forced into repeated currency devaluations as a result of persistent inflation – the IMF developed a package of “stabilisation measures” which included deep cuts to social spending in exchange for loans. In so doing, the IMF continued the venerable tradition of creditor nations imposing vicious austerity on poorer ones – a tradition that stretches from Albania and Austria in the 1920s through the Asian financial crisis of 1997 to Greece in the 2010s, and which ensures that wealthy creditors get paid even while local populations suffer.
But Georgieva’s defence of globalisation on CBS reflects a more recent development in IMF thinking: the turn to an unashamedly pro-market agenda.
An expanded role.
In the second half of the 1980s James Baker, Ronald Reagan’s second secretary of the Treasury, set out an ambitious project to rebuild the global economic system within a pro-market, neoliberal framework. The IMF was central to Baker’s plans, and it soon broadened its brief beyond economic stabilisation to becoming a global enforcer of trade liberalisation, privatisation and deregulation. Whereas previously the fund might have made a loan conditional on a state balancing its books, now a condition might include that it privatise its healthcare system.
The “structural adjustment programmes” the IMF implemented – which involved demanding widespread changes to domestic economic policy in exchange for loans – proved immensely controversial and were so widely discredited that even the fund seemed to be having doubts. “Structural adjustments?” Christine Lagarde asked reporters in 2014, “That was before my time. I have no idea what it is. We don’t do that anymore.” (This turned out to be a lie: recent loans offered by the IMF show the same structural adjustments being imposed.)
But if the US was instrumental in building this integrated global economic system, there are signs the country is having second thoughts. Trump’s 2018 tariffs on imported steel and aluminium were widely assumed to be an aberration, but Biden has maintained many of them, particularly for Chinese firms. In December 2022 the World Trade Organisation ruled those tariffs illegal, but the Biden administration simply rejected its authority. He has also ramped up efforts to destroy China’s microchip sector on national security grounds, while the EU is currently protesting his renewable energy subsidies as a violation of the principles of free trade.
It is these new threats to an integrated global economic system that Georgieva nodded to in her demand to guard against the fragmentation of the world economy. But it is also where she is least likely to have any impact. The USA is the largest contributor to the IMF – accounting for about 20% of its core fund – and will pay no attention to its recommendations. Instead, it is smaller and weaker nations that will bear the brunt of the IMF’s efforts to impose austerity and neoliberalism around the world.
Will punishing the poor solve today’s economic crisis? In the words of a Mexican government official the New York Times quoted in 1988: “We have followed the IMF’s prescription. We have cut the deficit, opened up the economy and increased non-traditional exports. We have adjusted – but we have not grown.”
Matteo Tiratelli teaches sociology at University College London.