Saturday, June 9, 2018

Ramanan — The Burden Of Adjustment And Keynes’ Solution

Argentina had a balance-of-payments crisis recently and required help. The IMF has agreed for a stand-by arrangement of $50 billion on the condition in the IMF’s own words:
“At the core of the government’s economic plan is a rebalancing of the fiscal position. We fully support this priority and welcome the authorities’ intention to accelerate the pace at which they reduce the federal government’s deficit, restoring the primary balance by 2020. This measure will ultimately lessen the government financing needs, put public debt on a downward trajectory, and as President Macri has stated, relieve a burden from Argentina’s back.
So Argentina has to agree on policies with deflationary bias to its output. John Maynard Keynes made this observation, had a completely different attitude than the IMF and proposed to change it. From The Collected Writings Of John Maynard Keynes, Volume XXV: Shaping The Post-War World: The Clearing Union, Chapter 1, The Origins Of The Clearing Union, 1940-1942, pages 27-30:
The solution that Keynes proposed was in terms of the monetary system current then. That is no longer the case, but the principle remains the same.
Of course we are past the Bretton Woods system and have a system of a mix of fixed and floating exchange rates but it hasn’t provided the market mechanism required to resolve imbalances. The adjustment is still on output and employment. Hence the need for an official mechanism to resolve imbalances. Bancor isn’t relevant now, but official intervention is.
The Case for Concerted Action
The Burden Of Adjustment And Keynes’ Solution
V. Ramanan

1 comment:

Konrad said...

Argentina’s latest problems started in late 2012 when Argentina's trade surplus became a trade deficit, which has steadily become worse during the last six years.

By late 2014, Argentina’s economic problems had worsened to the point where the neoliberals and the IMF saw an opening, and they decided to attack. On 10 Dec 2015 they installed Mauricio Macri as Argentina’s president, and they used him to begin a campaign of austerity and neoliberalism against Argentina’s people.

On the surface, austerity may seem necessary in these cases. The country is importing far more than it is exporting, and its currency is not widely accepted outside its borders. In order to keep buying imports, the country must borrow money in foreign currencies. This creates an ever-rising foreign debt load. Therefore the government imposes austerity so that average people consume less, and therefore import less.

However neoliberals don’t stop with fiscal austerity. They use economic crises to steal (i.e. privatize) all public assets, so that neoliberals live as gods, while they reduce the masses to poverty and slavery.

Neoliberals would be forced to do this even if they didn’t want to, since it is a condition of IMF loans. (The IMF creates its loan dollars out of thin air, and those dollars are accepted worldwide. Any government that takes the IMF’s loans is doomed to neoliberalism, whether the country’s politicians want it or not.)

Keynes wanted international creditors to be willing to accept credit write-downs when necessary to save a nation’s economy.

However the only thing the IMF seeks to save is the ever-widening gap between the rich and the rest.