After weeks of denial and bluster from a variety of government ministers, the Irish Taoiseach, Brian Cowen, announced on Sunday November 21st 2010, that the his government had formally applied for a multibillion euro rescue package from the European Union and the International Monetary Fund (IMF). The announcement marked one of the bleakest days in Irish politics almost since the foundation of the State in 1921.
Most Irish people have a good idea of the role that the European Union (EU) has played in Irish public life for the past 40 years. Some of the EU initiatives such as the Structural Funds benefitted Ireland. Though most people would agree that the Common Agricultural Policy (CAP) benefitted Irish agriculture, it has its critics. Some of the European Commission’s decisions such as the one to close the sugar factory in Carlow was based on out-of-date data, and the impact on beet farmers and the workers at the factory was devastating.
In contrast, Irish people would know little about the IMF, unless they have worked as missionaries or development workers in countries which are economically poor in Asia, Africa or Central and South America. From the early 1980s onwards the neo-liberal policies of the IMF which included, promoting free trade, untrammelled entry of foreign investment, and integration of the local economy into the global economy have often increased poverty, widened the gap between the rich and the poor and caused irreversible ecological damage.
What is the IMF? The IMF was one of the institutions which emerged from a meeting of economists and policy makers which took place in July of 1944, at the town of Bretton Woods in New Hampshire, in the US. It was obvious at this point that the Allies, (Britain, France and the US) were going to defeat Germany and Japan. A number of financial institutions emerged from Bretton Woods. The first was the Bank of Reconstruction and Development. Its task was to fund the reconstruction of Europe and Japan in the wake of the appalling damage caused by World War II. This institution is now known as the World Bank. The IMF was the second institution to emerge from Bretton Woods. Many of the negotiators at Bretton Woods believed that monetary chaos of the late 1920s led directly to the Great Depression, the rise of Fascist Parties in Germany, Spain and Italy and ultimately to World War II. The dominant monetary problems at the time had to do with the difficulty of converting money from one currency to another, and the fact that countries were devaluing their own currencies in order to boost exports.
The IMF was designed to maintain the smooth functioning of the global economy, through regulating the volume of international liquidity and ensuring the stability of the exchange rates. The monetary architecture was based on the bedrock of the US dollar which was linked to gold. One ounce of gold cost $35 dollars. Other major currencies were then linked to the dollar. This arrangement lasted until 1973, when President Nixon took the US off the gold standard and allowed the dollar to float. Effectively, this devalued the dollar and sent a wave of inflation right around the world, since most countries kept the bulk of foreign reserves in dollars. This was one of the factors that triggered the massive hike in oil prices in the same year.
In 1944, the US population was 6 per cent of the world population. However, the US economy amounted to 50 percent of global gross domestic product. Because of their massive economy, the US negotiators dominated the Bretton Woods conference. The most famous English negotiator was the Cambridge economist, John Maynard Keynes, whose economic theories had been adopted by President Roosevelt in shaping the ‘New Deal’ which lifted the US out of the Great Depression. Keynes suggested that IMF should enshrine policies not just for debtors but for lenders as well. This suggestion was brushed aside by the US negotiator, Harry Dexter White. Little did he expect that in 2010, the US would be the largest borrower on the planet and that, at the recent G20 meeting in Seoul Korea, the US President would plead with both China and Germany to import more in order to stabilise the global economy.
As envisaged by Bretton Woods each member country paid a certain amount of money in its own currency into the Fund. This entitled the country to apply for a short-term loan when it ran into a short-term balance-of-payments problems. If a country wished to borrow more than its allotted quota, it had to submit itself to series of strict regime of monetary and fiscal policies drawn up principally by the IMF.
In the 1950s, 1960s and 1970s, the IMF’s attention was almost exclusively directed to industrialised countries. All that changed in August 1982, when Mexico ignited the Third World Debt crisis by threatening to default on its loans. Fearful that this might sink the international financial system, the IMF stepped in and organised new commercial loans to head off the threatened default. In return the IMF insisted on deep cuts in public spending which affected the health, education and welfare these countries. These policies called Structural Adjustment Programmes (SAPs) caused severe hardship for scores of countries and tens of millions of people in economically poor countries around the world. In the 1980s, I and many missionaries, and development workers and economists, challenged SAPs. We supported and helped fund the work of the Freedom From Debt Coalition in the Philippines and similar groups in other debtor countries. When I returned to Ireland in the early 1990s, I helped set up the Debt and Development Coalition. The Columban Justice and Peace office in Washington, D.C. played a pivotal role in the 50 Years is Enough campaign in 1995 which challenged the destructive polices of both the World Bank and the IMF.
Despite good critical analysis, based on first hand experience of the impact of these policies on the poor and energetic lobbying by missionaries and other organisations in the North and South, SAPs were rigorously imposed on many poor countries. The one-size-fits all mentality caused pain, suffering and even death. Compassion, equity and solidarity were in short supply. Irish people can expect that the IMF will attempt to slash similar budgets in Ireland. If, as suggested, that the loans is in region of €90 billion, it will take a long time for Ireland to pay off these loans. The Celtic Tiger is certainly dead and buried.