Late night drinking borrowing with the IMF

53 DEGREES NORTH, DERBYSHIRE – “I should tell you to leave Sir. But tonight, I’d like you to keep on drinking.”

Sadly, this is not something I’ve been told by any barmen on my ongoing voyage through English pubs.

It is, however, a statement now being whispered into the ears of government ministers all through the developed world by the man behind the bar of the global financial system who is trusted to keep their excesses in check: the International Monetary Fund.

Our government’s finances (like many others) are already “well past 10pm”, but for tonight, the rules are suspended. “Push the boat out,” he says. “Don’t worry about the tab”…

From the Financial Times, emphasis mine:

The IMF has issued a rallying call to rich countries around the world to increase public investment and spark a strong economic recovery from the coronavirus pandemic.

Advanced economies should worry less about their public debt, but instead take advantage of historically low borrowing costs to increase spending on infrastructure maintenance immediately, the IMF said in a report published on Monday.

Rich countries should also prepare plans for subsequent new capital spending on digital infrastructure and green technology, the fund said in a chapter of its semi-annual Fiscal Monitor.

The report marked a shift away from the IMF’s normal concerns about public finances in rich countries, although it also added that “policymakers should ensure that the amount and quality of public investment are such as not to pose risks by overly worsening debt dynamics”.

This encouragement by the IMF for the developed world to load up on more debt to funnel into “digital infrastructure” and green tech sends an interesting signal.

The IMF has a reputation for recommending that public purse strings are drawn tight, and warning against exuberant spending. It’s notorious for extracting brutal repayment terms from governments which do not do this – those who indulge in too much debt and drive their finances into the river.

The IMF will happily pull ‘em out with a bailout, but the terms are harsh indeed – the indebted government won’t just have to pay it back with interest, it’ll have to hand over the economic sovereignty of the nation too. The IMF will only perform the rescue if it’s allowed to dictate a new relationship between economy and state in the bankrupt nation.

The fallout from the “structural adjustments” are infamous, with the IMF often blamed for suicides in the various countries where it has imposed its will and restricted the government’s spending programmes in order to pay down debt.

Handing over your nation’s economic sovereignty to a three-letter acronym should be incentive enough to avoid the profligacy that leads to it, yet it keeps on happening. Napoleon’s words more than two centuries ago ring just as true today as then: “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes.”

IMF “assistance” comes with ropes attached – if your government wants one, you should be afraid. You run up a tab at this bar, and the barman will extract it from you one way or another.

And yet here we are today, and the tight-fisted IMF is recommending that actually, borrowing and splurging is a really good thing to do right now, especially when it’s on, uh – checks notes – “digital infrastructure and green technology”.

If I were a structurally adjusted nation, I’d be fuming. They had to get their debt-to-GDP ratios down no matter the cost after the IMF men showed up. But apparently, they don’t matter any more if you’re a rich country?

Again, from the FT:

The IMF also warned that emerging economies and low income countries, which did not have unlimited access to finance, would need to be more careful in using public investment as a vehicle to aid their recovery from the downturn.

Curious choice of words. “Unlimited access to finance”… we’ve got that over here? Well, nobody tell the politicians. Or maybe somebody has told them and that explains why government spending has blown the ceiling off this year and few seem to care about it.

No doubt members of the conspiracy crowd see this as an attempt by the IMF to get the developed world so indebted that they must themselves surrender to it, allowing the organisation to rule the world.

While I’ve always time for such speculation, I expect this is more just a signal of how the times are changing, and that the global growth famine is bending even the IMF into a pro-spending institution that harries governments into spending billions/trillions on moondoggles.

Previous barriers to profligacy are being removed, and it’s becoming increasingly hard to find anyone in power who wants to stop spending the megabucks on the taxpayers’ behalf. As the printing press runs hotter, the political atmosphere does too.

The scene is set for us to witness a level of government spending of an utterly enormous magnitude in the coming decade – greater than anything we’ve seen before. The boat will be thoroughly pushed out, and then some more, until it’s totally at sea.

Don’t worry though – the barman approves.

All the best,

Boaz Shoshan
Editor, Capital & Conflict

Category: Economics

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