The IMF has failed the Greeks

There is something eerily symmetrical about the decision by the Greek prime minister, Alexis Tsipras, to call a referendum about what he has described as the ‘extortionate ultimatum’ of ‘strict and humiliating austerity without end’ coming from the International Monetary Fund, European Commission and the European Central Bank – the troika.

The country that is the cradle of democracy has decided to ask the people if the financial markets have the right to rule over them.

Predictably the response has been a mixture of fury and disbelief. ‘You are asking the people what they think? We tell you what to think’ is the implicit message.

The great absurdity of modern geo-economics is that the world of money, which is just a human construct, is being treated like a natural force that must be obeyed, much as we have to respect the law of gravity.

One might call it the cart-before-the-horse syndrome. Money is supposed to serve us, but increasingly we are becoming servants to those who run it.

Few are being asked to be more servile than the Greeks. When the IMF came in with what is amusingly referred to as its austerity ‘plan’, the Greek economy was expected to grow at over 2 per cent, unemployment was below 9 per cent and the debt was about 120 per cent of GDP.

By 2014, after the ‘plan’ had taken effect, the country’s economy had shrunk by a quarter, unemployment was over 25 per cent, youth unemployment was over 50 per cent and the debt had risen to over 170 per cent of GDP.

The IMF’s abject failure to provide a sound strategy was hardly a surprise. IMF prescriptions have a long history of failing, and countries that ignore them are often the ones that do surprisingly well.

One especially prominent example was the reaction of Malaysian prime Mahathir during the Asian Financial Crisis in 1998. He was roundly criticised for ignoring the IMF prescriptions, instead fixing the currency and imposing capital controls.

Malaysia performed best during the crisis and it was later hailed as a master stroke. It is almost a case of the best strategy is to ask the IMF what to do, then do the opposite. Continue reading

  • David James is a business journalist with a PhD in English literature. He edits Personal Super Investor.
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