{"id":122396,"date":"2018-11-19T13:37:13","date_gmt":"2018-11-19T13:37:13","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=122396"},"modified":"2018-11-19T13:37:13","modified_gmt":"2018-11-19T13:37:13","slug":"the-international-monetary-fund-flexes-its-muscles-in-latin-america","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2018\/11\/the-international-monetary-fund-flexes-its-muscles-in-latin-america\/","title":{"rendered":"The International Monetary Fund Flexes Its Muscles in Latin America"},"content":{"rendered":"

Thanks to the IMF, the pockets of the forgotten from Argentina to Mexico will suffer so that finance is left intact.<\/em><\/p><\/blockquote>\n

15 Nov 2018 – <\/em>On December 1, Mexico will have a new president\u2014Andr\u00e9s Manuel L\u00f3pez Obrador. He will take over the presidency from the lackluster Enrique Pe\u00f1a Nieto, whose administration is marinated in corruption. Pe\u00f1a Nieto\u2019s legal office has already asked the Supreme Court to shield his officials from prosecution for corruption. The elite will protect itself. L\u00f3pez 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.<\/p>\n

\"\"<\/a>
\nL\u00f3pez 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. Mexico\u2019s economy, through geography and trade agreements, is fused with that of the United States. More than 80 percent of Mexico\u2019s exports go to its neighbor to the north, while Mexico\u2019s financial sector is almost entirely at the mercy of Northern banks.<\/p>\n

Already, L\u00f3pez Obrador has had to deal with the leash from Northern banks that sits tightly around Mexico\u2019s throat. On October 28, after the election, L\u00f3pez Obrador canceled the project to build a new airport for Mexico City. This new airport\u2014at a cost of US$13.4 billion\u2014is 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 \u201cnegative,\u201d and international investors frowned.<\/p>\n

Then, in early November, legislators from L\u00f3pez Obrador\u2019s party\u2014Morena\u2014proposed laws to limit bank fees. Mexico\u2019s stock market collapsed. It was the worst single-day loss of the BMV stock index in seven years. The bankers sent L\u00f3pez Obrador a message: don\u2019t rock the boat.<\/p>\n

Hastily, L\u00f3pez Obrador\u2019s choice for the finance ministry\u2014Carlos Urz\u00faa\u2014scolded the legislators and winked to the banks. Urz\u00faa, 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 policy\u2014one 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.<\/p>\n

L\u00f3pez Obrador and Urz\u00faa do not have the political power to challenge the order of things.<\/p>\n

IMF Comes to Mexico City<\/strong><\/p>\n

Just a month before L\u00f3pez Obrador takes office, the IMF sent a team to Mexico. This team came to do a study based on the IMF charter\u2019s Article IV. Its report<\/a> set limits on what L\u00f3pez Obrador\u2019s 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 Mexico\u2019s grave problems of poverty and inequality.<\/p>\n

What the report details instead is a caution that L\u00f3pez Obrador must not try to invest funds in infrastructure that benefits the Mexican people\u2014investment, for instance, in the sclerotic oil industry (Pemex). Mexico, an oil exporting state, imports oil because it has limited refining capacity. L\u00f3pez Obrador has said he wants Mexico to properly develop the state-run oil firm Pemex. But the IMF staff statement says that \u201cfurther improvements of Pemex\u2019s financial situation are a prerequisite before new investments in refining can be contemplated.\u201d L\u00f3pez 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.<\/p>\n

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 IMF\u2019s same old recipe\u2014make cuts, target welfare, privatize and make sure that the banks are happy.<\/p>\n

Latitude for creative policy making is simply not available. The IMF comes to town to tell new governments to behave. L\u00f3pez 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.<\/p>\n

IMF Comes to Buenos Aires<\/strong><\/p>\n

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.<\/p>\n

Even Mexico\u2019s conservative President Felipe Calder\u00f3n (2006-2012) had to lean into the prevailing winds of Bolivarianism. In 2011, at the Community of Latin American and Caribbean States, Calder\u00f3n championed integration of Latin America\u2014something that is least to be expected from a Mexican head of government, because Mexico is firmly integrated into the United States.<\/p>\n

The world financial crisis from 2007 hit Latin America hard. Calder\u00f3n 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 partner\u2014the United States\u2014contracted. An IMF study<\/a> 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.<\/p>\n

A quick summary: Why did Latin America\u2019s 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 bubbles\u2014U.S. housing prices\u2014collapsed. 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 Argentina\u2019s private debt was in dollars in 2002, while only a quarter of Argentina\u2019s 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.<\/p>\n

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 governments\u2014from Argentina to Brazil\u2014lost elections, while social turmoil struck others\u2014from Venezuela to Nicaragua. It is in this context that the International Monetary Fund returned to Latin America with a vengeance.<\/p>\n

After two decades of relative absence, the IMF has now returned to Argentina (on which please see this dossier<\/a> from Tricontinental: Institute for Social Research). Its Article IV staff statement<\/a> 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 finance\u2014centered at Wall Street and the City of London\u2014prevented any easy pivot out of this problem. It was easier to demand cuts from the already meager incomes of ordinary people.<\/p>\n

In 1994, Mexico suffered from what became known as the \u201ctequila crisis,\u201d 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 \u201ctequila effect\u201d 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.<\/p>\n

_______________________________________________<\/em><\/p>\n

\"\"<\/a><\/em>Vijay Prashad is an Indian historian, editor and journalist. He is a writing fellow and chief correspondent at <\/em>Globetrotter<\/a>, a project of the Independent Media Institute. He is the chief editor of LeftWord Books<\/a> and the director of Tricontinental: Institute for Social Research. <\/em>He is the author of 18 books, including <\/em>Arab Spring, Libyan Winter (AK Press, 2012), <\/em>The Poorer Nations: A Possible History of the Global South (Verso, 2013), Red Star Over the Third World <\/a>(LeftWord, 2017) and The Death of the Nation and the Future of the Arab Revolution <\/a>(University of California Press, 2016).<\/em><\/p>\n

Go to Original – go.ind.media<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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