On Friday, February 15, the International Monetary Fund (IMF) announced that it had concluded its most recent Article IV consultation with Honduras. The Fund’s recommendations varied little from those it has offered many other countries in recent years: cut public spending, reduce deficits, reform pensions and depress wages.
The IMF regularly conducts Article IV consultations with almost all of its member countries—with Argentina, which since 2006 has refused to take part in the process, being one notable exception. The official reviews are a way for the Fund to present its analysis of each country’s economic prospects and to advocate for a set of reforms. While it is difficult to precisely assess the influence of the consultations, it has been noted that in many cases the recommended policies have been adopted against popular public opinion. And in countries that end up borrowing from the fund, these policies are often preconditions for receiving future IMF loans.
The Fund’s recommendations on Honduras diverged little from the policies it is pushing in many other countries. Below is a selection from the IMF’s brief (347-word, to be exact) Executive Board Assessment of its most recent consultation with Honduras:
Directors . . . underscored the need to tighten macroeconomic policies and press ahead with structural reforms . . .. [They] welcomed the planned reduction of the budget deficit in 2013, and urged early adoption of the measures needed to ensure this outcome and avoid further central bank borrowing or accumulation of domestic payments arrears. They called for sustained medium-term fiscal consolidation . . . [and] supported plans to restrain the public sector wage bill . . . and emphasized the importance of reducing energy subsidies . . .. Directors concurred that monetary policy should be tightened . . . [and] regarded plans to reform state-owned enterprises as critical to strengthen the fiscal position and support growth, and encouraged timely implementation . . . and welcomed the ongoing reform of public pension funds.
It is difficult to overlook how much this assessment resembles the Fund’s recommendations to European countries struggling to emerge from the global recession. CEPR co-director Mark Weisbrot and Senior Research Associate Helene Jorgensen recently released a paper analyzing 67 Article IV consultations for European member countries between 2008 and 2012, in which the authors found that the lending body was pushing a “one-size-fits-all” approach that often included pro-cyclical policy recommendations. In the paper Weisbrot and Jorgensen summarized their findings, in part, as follows:
This content analysis finds a consistent pattern of policy recommendations, which indicates (1) a macroeconomic policy that focuses on reducing spending and shrinking the size of government, in many cases regardless of whether this is appropriate or necessary, or may even exacerbate an economic downturn; and (2) a focus on other policy issues that would tend to reduce social protections for broad sectors of the population (including public pensions, health care, and employment protections), reduce labor’s share of national income, and possibly increase poverty, social exclusion, and economic and social inequality as a result.
Given the consistency of the Fund’s advice, one might think there are no alternatives to such prescriptions. But a look at Ecuador’s economy definitively tells us otherwise.
As detailed in a new paper by CEPR’s Weisbrot, Jake Johnston and Stephan Lefebvre (and noted recently on The Americas Blog), since Rafael Correa was sworn in as president in 2007, Ecuador’s government has taken an unorthodox approach to shoring up its macroeconomic standing. From bringing the Central Bank under the control of the executive branch, to taxing capital flight, to defaulting on illegitimate foreign debt, and launching new regulations on the financial industry, the Correa government repeatedly took steps that are antithetical to the IMF’s perspective and advice. The results? A reduction in unemployment to its lowest point on record, a 27% decline in poverty from its 2006 level, and an increase in government revenue from 26 to 40% of GDP over the same period, all in the context of greatly expanded spending on infrastructure, health, and education. The Ecuadorian example should be enough evidence that the IMF’s singular prescriptions are not the only option—in fact, they may be far worse than other “unconventional” approaches.
In the case of Honduras, it is perhaps worth noting that the IMF had a rocky response to the June 28, 2009, military coup that deposed Honduras’ democratically elected president Manuel Zelaya.
Exactly two months after Zelaya’s illegal ouster, which led most foreign governments and international lenders to freeze aid to Honduras, the IMF announced that it would extend $150.1 million in loans to the Central American country’s illegitimate government. Another $13.8 million was released just a week later. Yet on September 6, perhaps partly in response to criticism, the IMF released a statement saying the de facto government could not use the money “until a decision on whether the Fund deals with this regime or the government of Honduras.” That decision was finally made on September 24, when the IMF ordered that the funds would only be made available to the deposed president.
Despite the clumsiness of this decision and the mixed messages it sent the coup-government in Tegucigalpa, it marked an improvement over the Fund’s response to the 2002 coup that temporarily overthrew Venezuela’s socialist president Hugo Chavez. One day after the coup, a spokesman stated that the lending body stood “ready to assist the new administration in whatever manner they find suitable.”
The Washington Post has never been fond of left-wing Venezuelan President Hugo Chavez. As serious questions mount about the state of Chavez’s health, the paper’s editorial page (1/5/13) found it a good time to take another swipe:
Venezuelans are bracing themselves for the death of the caudillo who has ruled them–and wrecked their once-prosperous country–over the past 13 years.
Since Hugo Chávez first took office, he and his party have won 13 of 14 national elections, mainly because they greatly improved the living standards of the majority of voters in Venezuela. Since 2004, after the economy recovered from the devastating opposition oil strike, poverty has been cut by half and extreme poverty by more than 70 percent.
Weisbrot goes on to show some of the other ways Venezuelans’ lives have improved in the Chavez years, adding:
These numbers are not really in dispute among economists or international statistical agencies. If you follow Venezuela and haven’t heard any of this, it’s because the news media is giving you the equivalent of a “tea party” view of the country.
So there’s maybe a chance that Venezuelans don’t think Chavez “wrecked” their country at all–unless you think reducing poverty and income inequality are bad things. To the Post, the fear seems to be that Venezuelans will remember this after Chavez’s passing:
Sadly, the economic pain caused by Mr. Chavez could, after his death, help create a political movement that will revere his memory.
Their point is that Chavez’s policies will force the next government to oversee harsh austerity policies to correct Chavez’s supposed mistakes. But Venezuelans might actually “revere” Chavez for the same reason they voted for him: His policies worked for the majority of the population. And that doesn’t sit well with the Washington Post.
The New York Times updates readers today (12/13/12) on the health status of left-wing Venezuelan president Hugo Chávez, and the political implications for his country. But the paper starts out by suggesting that the people who keep electing him must have some kind of problem.
According to the Times’ William Neuman, life in Venezuela is pretty dismal. Christmas tree shipments were fouled up, a government ice cream factory closed down, and “all of this happened while the economy was growing — before the slowdown many predict next year.”
Such frustrations are typical in Venezuela, for rich and poor alike, and yet President Hugo Chávez has managed to stay in office for nearly 14 years, winning over a significant majority of the public with his outsize personality, his free-spending of state resources and his ability to convince Venezuelans that the Socialist revolution he envisions will make their lives better.
So people believe that, somewhere in the future, life will get better thanks to Chávez? But it’s already happened for the majority of Venezuelans. As Mark Weisbrot wrote (Guardian, 10/3/12):
Since 2004, when the government gained control over the oil industry and the economy had recovered from the devastating, extra-legal attempts to overthrow it (including the 2002 US-backed military coup and oil strike of 2002-2003), poverty has been cut in half and extreme poverty by 70%. And this measures only cash income. Millions have access to healthcare for the first time, and college enrolment has doubled, with free tuition for many students. Inequality has also been considerably reduced. By contrast, the two decades that preceded Chávez amount to one of the worst economic failures in Latin America, with real income per person actually falling by 14% between 1980 and 1998.
It’s not that Neuman is unaware of this. Deep in the piece– after saying that “Mr. Chávez’s own record is mixed”– he admits, in between all the hand-waving and caveats, that maybe there’s something that explains Chávez’s popularity:
He has used price controls to make food affordable for the poor, but that has contributed to shortages in basic goods. He created a popular program of neighborhood clinics often staffed by Cuban doctors, but hospitals frequently lack basic equipment.
There is no doubt that living conditions have improved for the poor under Mr. Chávez, and that is the greatest source of his popularity. But the improvements came at a time when high oil prices were pouring money into the country and fueling economic growth, which some analysts say would have led to similar improvements under many leaders, even some with more market-friendly policies.
So life is better for the vast majority of the country. That’s a far cry from the point he stressed at the beginning, that Chávez has somehow sold people on the questionable idea that the outlook would someday improve. The Times has to downplay that reality so you’ll take away the message: things are bad there. Or, if they’re not, someone else with superior, “market-friendly policies” could have achieved the same results, if not better.