The Ominous Return of the IMF to Latin America
Vijay Prichard, Truthdig
Pictured right, Argentinian President Mauricio Macri. (Mauricio Macri /
Flickr)
On December 1, Mexico will have a new presidentAndrés Manuel López Obrador.
He will take over the presidency from the lackluster Enrique Peña Nieto,
whose administration is marinated in corruption. Peña Nietos legal office
has already asked the Supreme Court to shield his officials from prosecution
for corruption. The elite will protect itself. López Obrador will not be
able to properly exorcize the corrupt from the Mexican state, let alone from
Mexican society. Corrupt weeds grow on the soil of capitalism, the loam of
profit and greed as well as of rents from government contracts.
López Obrador comes to the presidency as a man of the left, but the space
for maneuvering that he has for a left agenda is minimal. Mexicos economy,
through geography and trade agreements, is fused with that of the United
States. More than 80 percent of Mexicos exports go to its neighbor to the
north, while Mexicos financial sector is almost entirely at the mercy of
Northern banks.
Already, López Obrador has had to deal with the leash from Northern banks
that sits tightly around Mexicos throat. On October 28, after the election,
López Obrador canceled the project to build a new airport for Mexico City.
This new airportat a cost of US$13.4 billionis seen as far too expensive
(Istanbul has just inaugurated a new airport, far bigger, for almost US$2
billion less). The peso fell, the Mexican stock market fell, Fitch
downgraded Mexico to negative, and international investors frowned.
Then, in early November, legislators from López Obradors
partyMorenaproposed laws to limit bank fees. Mexicos stock market
collapsed. It was the worst single-day loss of the BMV stock index in seven
years. The bankers sent López Obrador a message: dont rock the boat.
Hastily, López Obradors choice for the finance ministryCarlos
Urzúascolded the legislators and winked to the banks. Urzúa, an economist,
has spent years consulting for the World Bank and other such agencies. It is
hard to find an economist these days who has not put his fingers into a
consultancy for either the World Bank or the International Monetary Fund
(IMF). The economics profession has slid almost wholesale into the pocket of
international agencies that are committed to a very asphyxiating version of
public policyone that goes by the name of neoliberalism. It is a policy
framework that favors multinational corporations over workers, one that
seeks to control inflation rather than find ways to improve the livelihood
of people. Finance is the religion, while Money is God.
López Obrador and Urzúa do not have the political power to challenge the
order of things.
IMF Comes to Mexico City
Just a month before López Obrador takes office, the IMF sent a team to
Mexico. This team came to do a study based on the IMF charters Article IV.
Its report set limits on what López Obradors government can do. There is
the usual verbal concern expressed for inequality and poverty, but this is
just window-dressing. Nothing in the IMF staff statement indicated a policy
that would tackle Mexicos grave problems of poverty and inequality.
What the report details instead is a caution that López Obrador must not try
to invest funds in infrastructure that benefits the Mexican
peopleinvestment, for instance, in the sclerotic oil industry (Pemex).
Mexico, an oil exporting state, imports oil because it has limited refining
capacity. López Obrador has said he wants Mexico to properly develop the
state-run oil firm Pemex. But the IMF staff statement says that further
improvements of Pemexs financial situation are a prerequisite before new
investments in refining can be contemplated. López Obrador will be forced
to make drastic cuts in Pemex and to continue to drain the exchequer to
import oil. No structural change is going to be possible here without a
negative IMF report, which would further encourage an investment strike into
Mexico.
Someone should encourage the IMF to stop sending staff teams into countries
like Mexico. Each report is identical to the previous one. Nothing seems to
be learned by these teams. Years ago, a senior IMF economist told me that
when he arrived in a Central Asian country he knew nothing of that country,
he got to see nothing of it when he was there and he knew virtually nothing
when he drafted the Article IV review. All he did in the country was sit in
one air-conditioned room after another, listen to canned reports from
nervous finance ministry officials and then develop the report based on the
IMFs same old recipemake cuts, target welfare, privatize and make sure
that the banks are happy.
Latitude for creative policy making is simply not available. The IMF comes
to town to tell new governments to behave. López Obrador and his cabinet
will have to listen. Any deviation from the IMF recipe will make investors
flee and foreign investment dry up. It is so easy these days to suffocate a
country.
IMF Comes to Buenos Aires
For the past two decades, the IMF had found it difficult to dictate terms in
Latin America. From 2002 to 2007, left-leaning governments governed most of
the region, where economic activity was helped along by high commodity
prices (including oil prices) and high remittance payments.
Even Mexicos conservative President Felipe Calderón (2006-2012) had to lean
into the prevailing winds of Bolivarianism. In 2011, at the Community of
Latin American and Caribbean States, Calderón championed integration of
Latin Americasomething that is least to be expected from a Mexican head of
government, because Mexico is firmly integrated into the United States.
The world financial crisis from 2007 hit Latin America hard. Calderón went
to Davos the next year and said that Latin America would be insulated from
the crisis. Far from it, Mexico had already begun to suffer job loss as the
economy of its main trade partnerthe United Statescontracted. An IMF study
found that Latin America lost 40 percent of its wealth in 2008. Public
finances contracted, and public investments declined. Inflation led to
higher poverty rates and to social instability.
A quick summary: Why did Latin Americas economies suffer a crisis after
2007? It was not because of the left-leaning governments and their policies.
It was because of the over-leveraged financial system, only one of whose
asset bubblesU.S. housing pricescollapsed. Deep integration into and
reliance upon the U.S.-dominated financial system, and poor diversification
of their economies from the U.S. market, meant that as the U.S. banks
contracted, Latin America felt the pain. Over 80 percent of Argentinas
private debt was in dollars in 2002, while only a quarter of Argentinas
economy was geared toward exports. This was the fuel that was fated to burst
into flame. It is this dollar reliance that could not be corrected.
The exported economic problem had a political impact. It weakened the
left-leaning governments, even as these governments tried to ameliorate the
crisis. Many of these governmentsfrom Argentina to Brazillost elections,
while social turmoil struck othersfrom Venezuela to Nicaragua. It is in
this context that the International Monetary Fund returned to Latin America
with a vengeance.
After two decades of relative absence, the IMF has now returned to Argentina
(on which please see this dossier from Tricontinental: Institute for Social
Research). Its Article IV staff statement from December last year pointed to
the problems of high borrowing in foreign currency, a problem that was
recognized in 2001-2002. But the power of international financecentered at
Wall Street and the City of Londonprevented any easy pivot out of this
problem. It was easier to demand cuts from the already meager incomes of
ordinary people.
In 1994, Mexico suffered from what became known as the tequila crisis, as
the peso collapsed when international capital fled the country. The
government would not place capital controls to protect the peso against
currency speculators. The tequila effect then spread to South America. No
one was prepared to stand up to the dollar and the speculators. From the
forests of Chiapas, Subcomandante Marcos of the Zapatistas spoke out in
favor of the pockets of the forgotten, the people who did not cause the
crisis but who would bear the cost of these financial shenanigans. Once
more, with help from the IMF, the pockets of the forgotten from Argentina to
Mexico will suffer so that finance is left intact.
This article was produced by Globetrotter, a project of the Independent
Media Institute.
Vijay Prashad /