austin-murphy-the-triumph-of-evil

234 THE TRIUMPH OF EVIL
society. In particular, tight monetary policies tend to increase unem­
ployment (and create more poor people) and thereby also lower labor
demands and real wages (Chossudovsky, 1997). Although this unbalanced
effect on the poor is typically explained, or disguised, as a col­
lective effort to stop inflation, more overt measures to soak the poor
are frequently undertaken in conjunction (such as to reduce welfare, or
"reform the labor market" via a reduction in the power of labor unions),
even though empirical evidence indicates that it is tight monetary policy
and the reduction in real economic growth alone that usually slow infla­
tion (Leybourne and Mizen, 1999).
The heavy concentration of negative effects on the poor and less
mobile elements of society is also often facilitated by policies suggested
(or mandated) by the IMF (Chossudovsky, 1997). The IMF, which is
controlled by the superior voting rights of the developed countries that
provide most of the funding for the organization, 8 offers loans to coun­
tries with balance of trade and current account problems (Eiteman,
Stonehill, and Moffett, 1998). It thereby permits countries to delay the
currency devaluation-inflation-depression spiral. However, IMF loans
have to be paid back and therefore only delay the occurrence of that
spiral, and they actually eventually magnify the problem as the borrowed
amount has to be paid back plus interest (Chossudovsky, 1997).
Moreover, the IMF typically provides loans to temporarily fund a cur­
rent account problem only if the recipient country increases regressive
taxes (such as sales or value-added taxes), decreases benefits to the
poor (such as reduced welfare payments and government subsidies for
essentials), and reduces regional wealth reallocations to poorer areas
(Mufson, 1992). Often enough, the IMF has even mandated restrictions
on nominal wage increases in the debtor country (IMF, 1 986). As. a
result, these measures tend to increase poverty and suffering even 10
showcase countries where some real overall economic growth is eventually
exhibited (Konadu-Agyemaog, 1998). IMF lending conditions can
.
have especially dire consequences on average people's lives in natiOnS
that are already afflicted with extreme poverty and that can ill-afford the
typical re al income decline which IMF policies typically cause (Chos­
sudovsky, 1997). In addition to their negative effect on the welfare
of capitalist countries (or countries in transition to capitalist systems),
IMF-imposed conditions have also been very successful in causing very
CHAPTER 6 235
serious economic problems in communist countries, such as Poland
before its collapse (Marcy, 1982) and more recently in countries like
Vietnam and Yugoslavia (Chossudovsky, 1997).
An alternative (or supplement) to delaying the resolution of a balance
of trade problem with an IMF loan is to attract fo reign capital
funding for the payments deficit. However, like the IMF, private inves­
tors require repayment, and generally at a real market rate of return in
excess of what the IMF might charge (Root, 1990). This rate of return
may be fairly high because it must compensate the investors for the
expected eventual depreciation of the currency (King, 1998). Even if
foreign investors reinvest their capital and investment income in the
country, the effect is merely postponed and compounded to some future
date when real payments (such as in exports) begin to be required. The
day of reckoning can not be postponed indefinitely, as eventually the
foreign providers of financing will effectively own the entire country,
and there will be no more capital or collateral to offer them.
lo addition, although private investors might have less clout to directly
force draconian policies on a country within a loan contract, they can
indirectly create the need for such policies by refusing to provide (or
renew) credit at a reasonable rate (or at all) unless such policies (often
labeled "fiscal and monetary responsibility") are indeed fo llowed (Solo­
mon, 1999). To appease foreign investors, many countries even appoint
people to key positions of power (such as central bankers and ministers
of finance) who have been indoctrinated with a USA education in capi­
�list economics (Torres, 1999), who have connections with large foretgn
investors (Katz and Cohn, 1999), and/or who have actually come
from prior employment at foreign creditor institutions like international
banks (Chossudovsky, 1997).
. Regardless of whether external financing is obtained from private
mvestors, fo reign governments, or international lending agencies like
the lMF, it can only postpone the negative effects associated with a
�try having to eventually reverse a current account deficit, at which
� the negative effects will occur in a magnified form. However,
•f SUch financing reduces the need for (and chance of) an immediate
devaluation, real interest rates do not have to be excessively high, and
10 the necessary devaluation and real income decline (required to even­
tually solve the BOP problem) can be made gradually. Such a gradual