The truth is that the foibles of Dominique Strauss-Kahn, the
managing director who recently resigned under pressure after
being indicted for sexual assault in a New York hotel, are a
While the global financial news outlets have covered the
Strauss-Kahn scandal with about as much substance as would the
National Inquirer, the real issue is that, whoever gets his
former job, this powerful global institution is likely to
change its policies not a hair.
That may be fine for money center banks and other big
government bond-holders. But it offers little to cheer for
investors or ordinary people who'd like to see a
real economic recovery in Europe, complete with opportunities
for robust long-term growth.
Ironically, many of the countries that swore off dealings
with the IMF after the 1990s debt crises Indonesia,
Malaysia, South Korea, for example have come through the
current global recession reasonably well. Russia, which also
showed the IMF the door, is at least not facing a debt crisis.
But some of the countries now in the worst straits
Ireland, Iceland, and Spain, for instance were poster
children for IMF-type economic policies before the '08 crash.
They cut taxes, maintained relatively modest ratios of
government debt to GDP, and demolished barriers to foreign
The IMF became the target of terrible scorn in the late
1990s, when its harsh conditions for loans to stricken
countries helped turn the Asian debt crisis into a full-blown
disaster. The street-level movement against what's sometimes
known as corporate globalization was precipitated in part by
the IMF and World Bank's imposition of fiscal austerity and
ultra-free market economic policies on developing countries and
ex-Soviet Bloc states. The result for most of the population in
these countries was a disastrous boom-and-bust cycle.
This shows up starkly in the economic record that Latin
America has compiled over the last 50 years. According to the
research by Mark Weisbrot and David Rosnick at the
Center for Economic and Policy Research, per capita annual
GDP for the region grew 3% from 1960 through 1979, or 80% for
the entire period. Then came a commodity price collapse
followed by the Latin American debt crisis, which turned the
1980s into a lost decade. Governments throughout
the region turned to free-market policies engineered by the IMF
and the World Bank.
But while the 1990s were often advertised as a new
beginning, in reality growth was sluggish for these countries
while economic inequality already among the worst in the
world soared. For the period 1980-1999, per capita
annual GDP was down to 0.5%, for a cumulative 11% over the two
decades. The past decade has seen some improvement, to 1.9%
annual per capita growth, but that's still comparatively
Under Strauss-Kahn, the IMF paid lip service to the notion
that its traditional economic prescriptions needed adjustment.
But in truth, its judgments about what constitutes sound
economic policy haven't changed much. For instance, a recent
IMF report on the United States urged Washington to slash
spending on lifelines such as Social Security and Medicare,
despite the fact that the U.S. has a 9% unemployment rate that
under current trends, isn't expected to improve substantially
Whoever succeeds the disgraced Strauss-Kahn will have the
opportunity, at least in theory, to rethink the IMF's
traditional demands to stricken countries. But it's highly
unlikely this will happen. Major banks, loaded down with
at-risk debt from Greece, Spain, and Portugal, like the current
dynamic because the IMF gets behind them as a kind of enforcer,
making sure debtor nations prioritize repayment of loans, with
low inflation, over economic growth.
None of this figures in most mainstream media accounts of
the IMF succession crisis. Instead, the global punditocracy
focus on the name game of who will be the next managing
director. Another European? Or will a developing country get
bragging rights? There's some symbolic value here, since by
unwritten compact, the top job has always gone to a European,
while the fund's near twin, the World Bank, always has an
American as president.
But there's little substance beyond the symbolism. Christine
Lagarde, who's solidifying support among the IMF's European
co-owners, is a former corporate lawyer and political associate
of Strauss-Kahn, now serving as French foreign minister. With
respect to Greece, Spain, and other countries now being
squeezed to pay their debts, it's unlikely Lagarde, a
dyed-in-the-wool member of he country's political
establishment, would do anything to compromise the interests of
major French banks and other lenders.