The Case against the International Monetary Fund

by Lawrence J. McQuillan

Summary

In July 1944, delegates from forty-four nations gathered in Bretton Woods, New Hampshire, to design a postwar international monetary system that would promote world trade, investment, and economic growth. The framers created the International Monetary Fund (IMF or fund) to supervise the new "Bretton Woods monetary regime" that sought to keep national currencies convertible at stable exchange rates and to provide temporary, low-cost financing of balance-of-payments deficits resulting from misaligned exchange rates.

In reality, the framers of the Bretton Woods regime created an international price-fixing arrangement enforced by the IMF. After joining the fund, each member country declared a value for its currency relative to the U.S. dollar. The U.S. Treasury, in turn, tied the dollar to gold by agreeing to buy and sell gold to other governments at $35 an ounce; the inflation of the 1960s, however, made the U.S. commitment to sell gold at that price unsustainable. To preserve U.S. gold reserves, President Richard Nixon closed the gold window in August 1971, effectively uncoupling the dollar from gold and ending the fund's original mission of supervising a system of pegged exchange rates. Looking for a new mission, the IMF quickly evolved into a financial medic for developing countries. Beginning in the early 1970s, the IMF skillfully used a series of global economic crises to increase its capital base and financing activities.

Has the expansion of IMF financing activities alleviated the balance-of-payments problems of member countries and encouraged prudent, progrowth economic policies? The evidence, much of it supplied by the IMF, demonstrates that the fund does more harm than good. Historical studies as well as recent initiatives in Mexico, East Asia, and Russia reveal that IMF financing programs, which rarely prescribe appropriate economic policies or sufficient institutional reforms, are at best ineffective and at worst incentives for imprudent investment and public policy decisions that reduce economic growth, encourage long-term IMF dependency, and create global financial chaos.

It is time to scrap the IMF and strengthen market-based alternatives that would promote an orderly and efficient international monetary system. Key reforms include floating exchange rates, internationally accepted accounting and disclosure practices, unfettered private financial markets, and fundamental legal, political, and constitutional rules that would allow free markets to emerge and countries to achieve self-sustaining economic growth and development.

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Essay

The first half of the twentieth century was marked by two world wars and a global depression. The European continent suffered greatly in both wars, and the United States was devastated by the Great Depression. From these conditions arose a desire to create a new international monetary system that would (1) reduce the frequency, severity, and financing cost of balance-of-payments (BOP) deficits, (2) stabilize exchange rates without being wholly reliant on gold to back currencies, and (3) eliminate 1930s-style "beggar-thy-neighbor" trade policies, such as competitive devaluations and foreign exchange restrictions, yet substantially preserve each nation's ability to conduct independent economic policies. Multilateral discussions led to a gathering of forty-four nations in July 1944 in Bretton Woods, New Hampshire, to design a postwar international monetary system. Conference delegates drafted the Articles of Agreement for the International Monetary Fund (IMF or fund), which was created to supervise the new "Bretton Woods monetary regime."

Under the original Articles of Agreement ratified in December 1945, the IMF supervised a system of pegged exchange rates. After joining the fund, each member country declared a value for its currency relative to the U.S. dollar. The U.S. Treasury, in turn, tied the dollar to gold by agreeing to buy and sell gold to other governments at $35 an ounce. A country's exchange rate could vary only one percentage point above or below its declared par value. The IMF permitted rate movements greater than 1 percent only for countries in "fundamental balance of payments disequilibrium" and only after consultation with, and approval by, the fund. Countries with temporary, moderate BOP deficits were expected to finance their deficits by borrowing currency from the IMF rather than imposing exchange controls, devaluations, or deflationary economic policies, which could spread problems elsewhere. Member governments were expected to keep their national currencies fully convertible for current account transactions.

By maintaining convertible currencies at stable exchange rates, thereby eliminating currency risk, the framers of the Bretton Woods regime hoped to promote world trade, investment, and economic growth. BOP deficits resulting from misaligned exchange rates were expected to be temporary and readily financed by IMF resources. In reality, the framers created an unsustainable international price-fixing arrangement that eventually ended the par value system and the fund's original mission. Looking for a new mission, the IMF quickly evolved into a financial medic for developing countries. In this capacity, the fund has lent billions of dollars to member countries with detrimental effects: reductions in economic growth, long-term IMF dependency, riskier global investments, and mismanaged domestic economies. This essay describes the fund's original mission, explains its transformation into a financial medic for developing countries, and details its many failures. As an alternative to the IMF, key market-based institutions would promote an orderly and efficient international monetary system.   http://www.hoover.org/

Time to Terminate the IMF

cato.org

by Anna. J. Schwartz

Anna J. Schwartz is a research associate at the National Bureau of Economic Research and author of Time To Terminate the ESF and the IMF, a new study by the Cato Institute.

Added to cato.org on October 6, 1998

The bailout model of the International Monetary Fund and the U.S. Treasury is an abject failure. Instead of rescuing the financially distressed Asian and Russian economies, the bailouts have worsened their situations.

When the IMF was created in 1944, its well-defined purpose was to enforce the rules in a fixed exchange rate system about altering a country’s exchange rate when fundamental adjustment was needed, as well as to provide temporary resources to deal with a country's balance-of-payments problems. With the collapse of that system in 1971, the IMF lost its purpose. The switch to floating exchange rates eliminated its exchange-rate regulatory role and changed the character of balance-of-payments problems. Since the early 1970s, the IMF has been seeking to reinvent itself. Until the 1995 Mexican bailout, it had pretty much decided that it would promote its purpose as providing advice and information to its members, which number more than 180 countries. That, however, proved to be only an interim stop on the road to acquiring a new identity.

The IMF's role in the 1995 Mexican bailout planted the idea that the fund should serve as an international lender of last resort. The problem with this program is that its advocates have little understanding of the meaning of a lender of last resort.

Anna J. Schwartz is a research associate at the National Bureau of Economic Research and author of Time To Terminate the ESF and the IMF, a new study by the Cato Institute.

Central banks have the capacity to serve as their banks' lenders of last resort. They can create high-powered base money (currency in circulation plus reserves), they can act quickly, and they can decisively stem a banking panic. The IMF lacks each of those features. It cannot create high-powered money. It can issue Special Drawing Rights to central banks that can monetize the SDRs in their national currencies. But the IMF cannot issue SDRs without authorization by its membership. It cannot act quickly. The decisions of its executive board are subject to the votes of executive directors who consult their national authorities. To provide money to a borrowing country, the IMF first engages in lengthy negotiations of a reform program. A national central bank can promptly provide liquidity to the money market without prior external approval. Moreover, a national lender of last resort rescues solvent banks temporarily short of liquidity. It does not rescue insolvent institutions. The IMF has no such inhibition.

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When the IMF was created in 1944, its well-defined purpose was to enforce the rules in a fixed exchange rate system...With the collapse of that system in 1971, the IMF lost its purpose...[and] has been seeking to reinvent itself.

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The IMF reinvented itself again after the Mexican bailout in 1995. The lesson the fund took from the bailout was that it needed a stockpile of money if it was to act as a lender of last resort in the next financial crisis, given that it lacks the capacity to create high-powered money. In early 1997 the IMF announced a plan to raise cash to rescue a country in distress by creating a special $28 billion fund. By 1998 that proposed line of credit was increased to $47 billion. In addition, the IMF decided to increase the quota that each member contributes. For the United States, the total contribution amounts to $18 billion. That amount is what the administration is now asking Congress to appropriate. Since mid-1997, the appeal to Congress to allocate funds to the IMF has been based on the plight of the Asian countries.

Short-term renewable loans denominated in foreign currencies were the undoing of Mexico in 1994; yet the Asian countries welcomed the same form of credits two years later, and the lenders came off scot-free in 1995 as the banks probably will in 1998, because of the IMF. A big pot of IMF money is clearly the wrong response. Bailouts are not needed, especially in today's world of deep capital markets that are ready to lend to liquidity-constrained countries at interest rates that reflect credit risk.

As the financial turmoil in Russia this summer proves, money infusions have not bought Russia's compliance with pledges to convert a command economy into a market-oriented one.

Within Congress the IMF faces two groups of opponents: liberals who seek labor and environmental reforms in the countries to which the IMF is prepared to lend as a quid pro quo for supporting the increase in funding, and conservatives who seek concessions related to abortion legislation or the way in which the IMF operates. Congressional opponents of whatever stripe should not demand a quid pro quo but should reject the increase in IMF funding on principle.

The countries in Asia that are experiencing financial problems will either adopt measures to reform their banking systems, to eliminate political domination of credit allocation, and to earn restoration of their creditworthiness in international capital markets, or they will not. To do so requires political resolve, not the IMF. Not to do so means those countries will fail to grow out of their problems. The world financial system will not be undermined if the IMF does not bail out those countries. Low-income countries have gotten into trouble financially many times in the past two centuries. Investors who lost money in ventures in those countries were hurt, and the countries involved had setbacks. The world did not collapse.

The IMF is weak on crisis prevention. It says it warned Asian countries and Russia against bad policies, but they rejected its advice. If the moral authority of the IMF as a source of sound advice cannot win the rewww.cato.org spect of its client members, it is in the wrong business. Reform of the IMF is not the answer. It should be shut down.

What the hell are you going to do about it Gilmore If You get in to Government?? SFA . So get down of your pedestal because you're as USELESS as the rest of them.

The Government has been accused of pawning the country in signing up to the multibillion-euro international bailout.

Government 'has pawned the nation' Enlarge photo

Labour leader Eamon Gilmore branded the deal lousy and a sell-out, and claimed it tied the hands of the Government.

The Opposition rounded on Taoiseach Brian Cowen over the massive rescue package and questioned if he would put it to a vote in the Dail.
"Taoiseach, last Sunday you and your Government took this country to the pawn shop," Mr Gilmore said.
"I can't believe that you come in here and try to convince us that what you got last Sunday represents some sort of a good deal."
http://uk.news.yahoo.com/21/20101130/tuk-government-has-pawned-the-nation-e1cd776.html

The Hungarian Guard: restored, renewed, and here to stay.

Politicians in the Guard's uniform

The Hungarian Guard Movement was re-established today, at a gathering in Budapest attended by several thousand Hungarian citizens and members of Jobbik, the Movement for a Better Hungary.
After the controversial edict calling for the disbandment of the civic movement, the Guard has reasserted its legal legitimacy after several prominent politicians came out in support of it, and against the regime's dictatorial attempts to flout the country's constitutional provisions protecting free assembly.

 Csanad Szegedi, the newly elected MEP, was the first in line to don the Guard's famous waistcoat, stating his firm intention to be inducted into the European Parliament in Strasbourg next Tuesday while wearing the very same uniform.


Prof. Kirsztina Morvai, Gabor Vona the Jobbik President, Lajos Fur the former Defence Minister, Reverend Lorant Hegedus and Levente Muranyi the 56' freedom fighter all followed suit: in proudly wearing the newly re-formed Hungarian Guard Movement's uniform. Former Minster Fur was moved by the event's significance to remark, "This is the best thing that's happened for the last 20 years!"
The Hungarian Guard, now estimated at being an at least 3000-strong, totally unarmed, civilian movement; has recently been the subject of a catalogue of serious politically motivated attacks from Hungary's deeply unpopular pro-communist Socialist (MSZP) Bajnai/Gyurcsany government.
Scoring only 17% against Jobbik's 15% in the most recent national elections, the regime's blatant violation of the democratic process was clear for all to see in their unconstitutional clamp down and brutally excessive break-up of a seated protest held in Budapest last Saturday; which culminated in the violent arrest and detention of the Jobbik President, Gabor Vona. The 21st century had not, until that day, seen a major European opposition leader so violently maltreated; or seen a failed incumbent government's desperation to cling onto power be so eloquently demonstrated.
Gordon Bajnai, Hungary's unelected Prime Minister, in an incredible move last night, actually decorated those senior police officers who chose by their actions to act as the regime's personal political security force; in attempting to crush last Saturday's legal protest. (Regular readers will recall such a move being anticipated by last Sunday's Jobbik.com article)

In a turn of events chillingly reminiscent of the darkest days of the 1950's, the permanently out-of-touch PM remains utterly oblivious to the wave of righteous uproar and indignation sweeping his country; over his regime's attempt to ban a Guard which had not broken a single law in its' two year history. And whose only mistake is continuing to highlight the institutional corruption and ineffectual disinterest in elementary law and order that is the sad hallmark of Hungarian policing.

53 years on after 1956, the cause of Hungarian liberty and democracy seems tragically as distant as ever it was so it seems from the regime's naked act of repression on July 4th. http://www.jobbik.com/hungary/3088.html

Michael Quinn On Saturdays March (27/11/10) And Irelands Traitors Democr...

Tomorrow Belongs To Us!!

Many thanks to all our visitors who support and promote DRM it is because of you we are currently getting a thousand hits per week. This is really impressive given the fact that our blog is only online for less than six weeks. So Onwards and upwards Comrades because "Tomorrow belongs to us"

Michael.

Zionist: Sarkozy Attempting To Silence Front National France.

To defend Jean-Marie Le Pen, unjustly dragged to court by the system, the JNF has decided to launch an offensive against government censorship Sarkozy.
Propaganda material (posters and stickers) is at your disposal, you can order it by clicking the link below:
http://www.fnjeunesse.fr/wp-content/uploads/2010/11/Bon-de-commande-v2.pdf
Or by visiting the website of the JNF: http://www.fnjeunesse.fr
Additional information: 01.41.20.20.80 / fnj@frontnational.com
David Rachlin, National Coordinator of the JNF,
Regional Advisor PACA
Councillor Fréjus

Girly, Gay Galloway.

As you all know, Galloway lost his seat in Westminster in The recent UK, general elections. I wonder did his constituents get to see their pro Islamic Jihadist and pro Taliban, MP prancing about his constituency in his red leotard in an attempt to garner some support for al Qaeda that turned them off old Georgy "Boy"???? HaHa.

Rally against the illumination of the Eiffel Tower in the colors of Turkey

http://www.frontnational.com/?cat=56

'Who the Hell Do You Think You Are?' Nigel Farage Tells It As It Is. And Shows Up Our Own Political Elite For The Pathetic WIMPS That They Are.

Putin ditches dollar, backs Euro on trip to Germany

Truth Is Out: Katyn massacre carried out on Stalin's direct orders

Whining Irish Traitors!

The majority of the Irish public are a bunch of thick gob-shites. What RIGHT do they have to complain and whinge about the present economic meltdown. It is THEY that have created this mess. People like me have been warning them for years about the deadly consequences of handing over our HARD-WON Sovereignty to unelected EU bureaucrats, but they REFUSED to LISTEN every time. Well now they are reaping what they have sown and I hope they CHOKE on it the bunch of Treacherous Bastards.

U.S. Bond Bubble Ready to Burst While the World Focuses Attention Elsewh...

Largest-Ever Insider Trading Probe Targets (Zionist Controlled) Goldman Sachs

The Sunday Times gains unprecedented access to the world's most powerful, and most secretive, investment bank

John Arlidge

Number 85 Broad Street, a dull, rust-coloured office block in lower Manhattan, doesn’t look like a place to stop and stare, and that’s just the way the people who work there like it. The men and women who arrive in the watery dawn sunshine, dressed in Wall Street black, clutching black briefcases and BlackBerrys, are very, very private. They walk quickly from their black Lincoln town cars to the lobby, past, well, nothing, really. There’s no name plate on the building, no sign on the front desk and the armed policeman stationed outside isn’t saying who works there. There’s a good reason for the secrecy. Number 85 Broad Street, New York, NY 10004, is where the money is. All of it.
It’s the site of the best cash-making machine that global capitalism has ever produced, and, some say, a political force more powerful than governments. The people who work behind the brass-trim glass doors make more money than some countries do. They are the rainmakers’ rainmakers, the biggest swinging dicks in the financial jungle. Their assets total $1 trillion, their annual revenues run into the tens of billions, and their profits are in the billions, which they distribute liberally among themselves. Average pay this recessionary year for the 30,000 staff is expected to be a record $700,000. Top earners will get tens of millions, several hundred thousand times more than a cleaner at the firm. When they have finished getting "filthy rich by 40", as the company saying goes, these alpha dogs don’t put their feet up. They parachute into some of the most senior political posts in the US and beyond, prompting accusations that they "rule the world". Number 85 Broad Street is the home of Goldman Sachs.
The world’s most successful investment bank likes to hide behind the tidal wave of money that it generates and sends crashing over Manhattan, the City of London and most of the world’s other financial capitals. But now the dark knights of banking are being forced, blinking, into the cold light of day. The public, politicians and the press blame bankers’ reckless trading for the credit crunch and, as the most successful bank still standing, Goldman is their prime target. Here, politicians and commentators compete to denounce Goldman in ever more robust terms — "robber barons", "economic vandals", "vulture capitalists". Vince Cable, the Lib Dem Treasury spokesman, contrasts the bank’s recent record results — profits of $3.2 billion in the last quarter alone — and its planned bumper bonus payments with what has happened to ordinary people’s jobs and incomes in 2009.
It’s even worse in the US. There, Rolling Stone magazine ran a story that described Goldman as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money". In his latest documentary, Capitalism: A Love Story, Michael Moore drives up to 85 Broad Street in an armoured Brinks money van, leaps out carrying a sack with a giant dollar sign on it, looks up at the building and yells: "We’re here to get the money back for the American people!"
Goldman’s reputation is suddenly as toxic as the credit default swaps and other inexplicably exotic financial instruments it used to buy with glee. That’s bad for the one thing it values more than anything else: business. Being the prime target for popular and political outrage could put Goldman first in line for draconian new regulation. So it has, reluctantly, decided that the time has come to speak out, to fight its corner. That’s how, on one of those bright autumnal New York mornings when anything seems possible — even an invitation to break bread with the masters of the universe — I find myself walking past the security guard who held up Michael Moore and into the building with no name.
"Aha! You catch us plotting in real time," says Lloyd Blankfein, breaking away from a cabal of senior executives discussing his trip to Washington the previous day. Blankfein, 55, Goldman’s chairman and chief executive, is wearing a grey suit with a jaunty Hermès tie with little red bicycles on it. In his hand, he’s carrying one of those cups of coffee that look bigger than the human stomach. Maybe it’s the caffeine, maybe it’s the tie — a birthday present from his daughter — but he’s in a remarkably jolly mood for a man everyone seems to hate. "It’s like a safari here," he jokes. "You’ve come in to look at the animals."
Blankfein may be Wall Street’s Sun God, but, with the economic outlook stormy, he doesn’t want to advertise it, so the merest hint of a status symbol or — horror! — ostentation is airbrushed out of his life, publicly, at least. Take his office on the 30th floor. The chairs are the same ones that were there when he became CEO three years ago. There are none of the $87,000 handmade rugs or $5,000 wastepaper baskets of Wall Street lore. There’s no sign of irrational exuberance. Only coffee, which arrives cold. It sets just the right tone for the job in hand. The grand wizard of Wall Street is steeling himself for the hardest sell of his life: he’s here to argue for good ol’ capitalism, for investment banks and for Goldman Sachs.
Luckily for him and his firm, he’s a damn good salesman. He starts with a little humility. He understands that "people are pissed off, mad, and bent out of shape" at bankers’ actions. Goldman played its part in the meltdown that almost destroyed the global financial system. It, like most other banks, lent too much money, made its first quarterly loss for more than a decade last year and ended up taking bail-out cash from Washington. "I know I could slit my wrists and people would cheer," he says. But then, he slowly begins to argue the case for modern banking. "We’re very important," he says, abandoning self-flagellation. "We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle." To drive home his point, he makes a remarkably bold claim. "We have a social purpose."
Social purpose? Those who have lost their jobs or seen their pay slashed thanks to bankers who flogged dodgy mortgages and dreamt up investments so complex not even they understood them, would gladly tell him where to stick his social purpose. But the problem is, Blankfein is a good advertisement for wealth creation. His own. He is no scion of privilege, dispensing plummy-voiced homilies to raw capitalism from his 30th-floor eyrie. Born in a tough neighbourhood in the Bronx, the son of a postal worker and a receptionist, he was the first in his family to go to college and used financial aid to go to Harvard.
Even though he proudly pays himself more in a year than most of us could ever dream of — $68m in 2007 alone, a record for any Wall Street CEO, to add to the more than $500m of Goldman stock he owns — he insists he’s still "a blue-collar guy".
But what about the charge sheet? Bankers brought the world to the brink of bankruptcy and instead of doing the decent thing and jumping out of the nearest window, they turned up cap in hand to governments to hoover up taxpayers’ money to save their skin. Now, just one year on, they are carrying on as if nothing has happened, gambling, and winning, handsomely, with our cash. Goldman’s profits in the second quarter were a record $3.4 billion. Most of the money is being made in trading in bonds, currencies and commodities.
Goldman is coining it again for two reasons. First, global markets are booming — up 50% from the credit-crunch lows, as new money, much of it from governments, has gushed into the financial system. Second, with Lehman Brothers and Bear Stearns off the street, Merrill Lynch a crippled shadow of its former self, and neither Citigroup nor UBS the forces of old, Goldman has a bigger slice of a growing pie. "We didn’t f*** up like the other guys. We’ve still got a balance sheet. So, now we’ve got a bigger and richer pot to piss in," is how one Goldman banker puts it. Small wonder the bank is on course to set aside over $20 billion for salaries and bonuses. http://www.timesonline.co.uk/tol/news/world/us_and_americas/article6907681.ece?token=null&offset=0&page=1

"Tell the EU and IMF to Shove It!"

Memo to Ireland

By MIKE WHITNEY
Imagine that Yasser Arafat had succeeded in ending Israeli occupation and establishing a Palestinian state in the West Bank and Gaza. Now imagine that 10 or 15 years later, new Palestinian president, Mahmoud Abbas, agreed to hand over control of his country's budget to the IMF so his people's future would be controlled by outsiders. Do you think Palestinians would praise Abbas as a patriot or denounce him as a traitor?

Irish Prime Minister Brian Cowen is Mahmoud Abbas. He's caved in to the demands of foreign capital and transferred control over the nation's budget to the EU and the IMF. Here's an excerpt from a November 24, article in Reuters:

"Ireland's teetering government will announce plans on Wednesday to cut welfare spending sharply and raise taxes to help pay for the country's catastrophic banking crisis and meet the terms of an international bailout.

The four-year plan to save 15 billion euros is a condition for an EU/IMF rescue under negotiation for a country long feted as a model of economic development that has become the latest casualty in the euro zone's emergency ward.

Prime Minister Brian Cowen told parliament no final figure had been agreed for financial assistance, "but an amount of the order of 85 billion (euros) has been discussed.

The finance ministry said the austerity plan would be published at 1400 GMT and posted on the official government website." (Reuters)

This is a black day for Ireland. The Irish people will now face a decade or more of grinding poverty and depression thanks to their venal leaders. As soon as the ink dries on the IMF loans, the second occupation of Ireland will begin, only this time there won't be armored cars and Paramilitaries in fatigues, but nerdy-looking bureaucrats trained in the art of spreading misery. In fact, the loans haven't even been signed yet, and already IMF officials are urging the government to cut jobless benefits and the minimum wage. They're literally champing at the bit. They just can't wait to get their hands on the budget and start slashing away.

And don't believe the hype about European unity or saving Ireland. My ass. This is about bailing out the banks. The bondholders get a free ride while workers get kicked to the curb. Here's a clip from the Financial Times that spells it out in black and white:

"According to data compiled by the Bank of International Settlements, the three largest creditors to the Irish economy at the end of June...were Germany to the tune of €109bn, the UK at €100bn and France at €40bn. These sums amount to 2 per cent of France’s gross domestic product, 4.5 per cent of Germany’s GDP, and 7 per cent of British GDP."

See? Another bank bailout. Ireland is being asked to cut to social services, slash wages, renegotiate contracts, and dismantle the welfare state so that undercapitalized banks in France and Germany can get their pound of flesh. But, why? They're the ones who bought the bonds. No one put a gun to their head. They knew they could lose money if Irish banks went south. That's the risk they took. "You pays your money, and you takes your chances." Right? That's how capitalism works.

Not any more, it doesn't. Not while Cowen's in charge, at least. The Irish PM has decided to bail them out; make all the bondholders "whole again." But who made Cowen God? Who gave Cowen the right to hand over his country to the IMF?

No one. Cowen is a rogue agent kowtowing to international capital. After he finishes his work in Ireland, he'll probably join globalist Tony Blair on the French Riviera for a little hobnobbing with the tuxedo crowd.

It's revealing to watch the way Cowen works, as though the interests of foreign bankers mean more to him than those of his own people. For example, the Green Party withdrew from the government last night calling for new elections, but even though the government is in a shambles, the slippery Taoiseach wants to stay in power long enough to push through a new 4-year budget that will leave Irish workers on the brink of destitution. Who is Cowen working for anyway?

This is from the Irish Times:

"Opposition parties have today stepped up pressure on the Government as it seeks to push ahead with passing next month's budget.

Fine Gael again called for an immediate general election and said the four-year budgetary plan should only be implemented by a Government which has a proper mandate....

"What is best for the country is that the negotiation about a programme for four years be done by a government which has four years to serve, that has a mandate from the public so that it has the authority and the credibility to not only develop and negotiate it but to implement it. I think that is in Ireland's best interest," he said. ("Opposition steps up pressure", Charlie Taylor, Irish Times)

The prospective belt-tightening measures will include the firing of 28,000 public employees, a boost in property taxes, a 10 percent cut in welfare benefits, and higher taxes on low-wage workers. Cowen believes that taxing low income families is preferable to making billionaire bondholders eat their losses. The whole thing stinks to high-heaven.

Is there a way out for Ireland? Economist Mark Weisbrot thinks so. Here's what he thinks should happen:

"The European authorities and IMF can loan Ireland any funds needed in the next year or two at very low interest rates....Once these borrowing needs are guaranteed, Ireland would not have to worry about spikes in its borrowing costs like the one that provoked the current crisis....The European authorities could scrap their pro-cyclical conditions and, instead, allow for Ireland to undertake a temporary fiscal stimulus to get their economy growing again. That is the most feasible, practical alternative to continued recession.

Instead, the European authorities are trying what the IMF... calls an "internal devaluation". This is a process of shrinking the economy and creating so much unemployment that wages fall dramatically, and the Irish economy becomes more competitive internationally on the basis of lower unit labour costs."

It's all de rigeur for the IMF. It wouldn't be an IMF program unless someone was starving. That's the benchmark for success.

Ireland doesn't need structural adjustment programs that shrink GDP, dismantle popular social programs and strip wealth from workers when low interest funding and fiscal stimulus can bring the economy back to life. This is politics not economics. The EU and IMF are using the crisis to push through their own agenda. Their real goal is to crush the unions, shred the social safety net, and roll back the gains of the Progressive Era.

The Irish people are left with no choice but to resist. Presently the Cowen government is collapsing. Bravo. Now it's off to the barricades to see if the damage can be undone. Ireland needs to withdraw from the EU and start fresh. It'll be a bumpy road at first, but there's no other way. Economist Dean Baker sums it up like this in an article in The Guardian. Here's what he said:

"Even a relatively small country like Ireland has options. Specifically, they could drop out of the euro and default on their debt....Like Ireland, Argentina had also been a poster child of the neoliberal crew before it ran into difficulties.

But the IMF can turn quickly. Its austerity programme lowered GDP by almost 10% and pushed the unemployment rate well into the double digits. By the end of the 2001, it was politically impossible for the Argentine government to agree to more austerity. As a result, it broke the supposedly unbreakable link between its currency and the dollar and defaulted on its debt.

The immediate effect was to make the economy worse, but by the second half of 2002, the economy was again growing. This was the start of five and a half years of solid growth, until the world economic crisis eventually took its toll in 2009."

The Irish people didn't struggle through centuries of famine and foreign occupation so they could be debt-peons in the EU's corporate Uberstate. Like Sinn Fein president Gerry Adams said, "We don't need anyone coming in to run the place for us. We can run it ourselves." Right. Tell the EU plutocrats to take their Utopian Bankstate and shove it.

Mike Whitney lives in Washington state and can be reached at fergiewhitney@msn.com.

Across Europe Anger Spills Into The Streets

This Is The Gang Of Crooks That Now Control Our Economy.

HERE'S A RIDDLE: What is the difference between Tony Soprano and the International Monetary Fund? Answer: Nothing, except that Tony and his Mafia pals, who extort and impoverish a handful of people in New Jersey, are a television creation. The IMF, on the other hand, does this to hundreds of millions in the real world.

The organization's latest victim is Argentina, where Latin America's third largest economy has been derailed by IMF policies that have devastated populations and economies from Moscow to Jakarta while stuffing the coffers of financial organizations and banks. And those policies were made right here in the USA.

The prevailing myth about the IMF is that it is an "international" body. Indeed, it has lots of members, but the United States and its allies make all the decisions. The Netherlands, for instance, has more voting power than China and India. "International" is a handy fiction that allows the organization to avoid congressional oversight.

And what the IMF does is to make an offer you can't refuse.

When Argentina hit an economic rough patch back in the early '90s, President Bush (senior) and the fund offered a loan. But the money was contingent on Argentina pegging its peso to the dollar, privatizing everything from banking to utilities, removing all tariffs and allowing the free flow of capital.

Argentina took the bait, and foreign capital surged in. For some -- the wealthy -- the economy took off. But tying the peso to the dollar made Argentina's exports prohibitively expensive, while the flood of cheap foreign imports blitzed the country's industrial base. Factories closed, unemployment spread and the debt exploded.

The free flow of capital allowed foreign companies to bleed profits overseas and opened the gates for "vulture funds," which bought up the debt to make a killing on higher interest rates. The Toronto Trust Argentina market fund made a 79.25 percent return on debts it purchased -- 30 times what it would have made holding U.S. Treasury bonds. Privatization drove up prices. A French company purchased the country's water system and hiked rates by 400 percent.

The Mafia works with blackjacks and sawed-off shotguns. The IMF does its mayhem with opaque-sounding documents, like the "Technical Memorandum of Understanding" that Argentina signed in 2000. The agreement required Argentina to cut its budget, slice civil services salaries by 15 percent and cut pensions 13 percent.

Not to worry, the IMF said. Do what we say, and production will jump 3.7 percent. Instead, it fell 2.1 percent (until it dropped off the charts four months ago). "Hey, but we're here for you guys," said the IMF. "We've got a $26 billion loan to help you out." Not exactly. You see, the Argentinians can only get the loan if they pay off their debts in dollars. But because of the meltdown, they have to pay a 16 percent premium to get the dollars. A year's payment on their $132 billion foreign debt, plus the added premium, comes to $27 billion. No Argentinian will even get a whiff of that IMF "loan." It will go straight into the vaults of Citibank in New York and Fleet Bank in Boston.

The IMF also insists that Argentina balance its budget by the end of 2002, which would require the government to cut $7 billion from the budget and raise taxes $4 billion -- the equivalent of the United States implementing spending cuts and tax increases of $400 billion in a single year, or $2,500 per family.

No one should be surprised by any of this. The IMF's track record is one of unalloyed disaster. It was the IMF that help bankrupt Russia and turned the 1997 Asian monetary panic into a full-fledged economic disaster. When the Asian bank crisis started, the IMF arrived with loans, but only if everyone privatized and opened their markets. The result was a major meltdown in every Asian economy except Japan and Taiwan. In Indonesia 100 million people -- half the population -- now live on less than $1 a day.

When Argentinians asked the Bush administration for aid, you would think they'd have gotten it. After all, Argentina was one of the few Latin American countries to actively support the 1991 Gulf War, is a strong supporter of NATO, and is sending peacekeepers to Afghanistan at a cost of $20 million.

But like Tony Soprano and the goodfellas, the administration doesn't let friendship and alliances get in the way of business.

The Bush administration has washed its hands of any responsibility, in spite of the fact that Washington's fingerprints are all over the crisis. "It was very clearly the Department of the Treasury that pushed Argentina over the edge and allowed it to collapse," Walter Molano of BCP Securities argues, "so I think the issue of accountability has to come up." Indeed it should.

The White House says it wants to stop terrorism. It can start by reining in an organization that has terrorized populations across the globe.

Examiner columnist Conn Hallinan is a journalism lecturer and provost at the University of California, Santa Cruz. His column appears every other Friday.

BELIEVE IT OR NOT? Read And Learn.

BELIEVE IT OR NOT?



Think of world finance and most people picture some huge establishment over which they have no control. This image is what those running our finances prefer us to see and they go to great lengths to maintain their grandiose illusion.

Impressively they engrave their currency notes with faces of authority and issue them from triumphant buildings supported by glorious pillars often decorated with gold leaf. The marble halls that dwarf the individual and inspire awe are designed to intimidate and remove all doubt about who holds the power.

Yet this intricate frame so cunningly designed has only one purpose: to distract attention away from the one element that is vital to a currencies survival.

That element is actually our collective faith in money's value.

It has been said that faith is the substance of things hoped for and the evidence of things unseen, but in the case of currency, it is even more than that. It is the vital ingredient that transforms paper into gold.

Alternatively if we all stopped believing that our current currency has value, then it would become worthless overnight.

A staggering thought!

We do not accept currency because it features fine works of art or intricately engraved designs or even because it is produced by an official mint. We accept currency because we believe others will accept it from us later, in return for things we might want, and for no other reason.

In simpler terms, if people in general did not believe in the value of money, money would have no real value of itself.

Power to the people is not a futuristic chant, it's a fact, today.

We collectively, almost unconsciously, have the vital ingredient which supports the whole financial system. If enough of us wanted to, we together could shift this support to something more fairer such as the currency XAT is providing.

We have the ability to give this alternative real value, simply by believing in it.

FRACTIONAL RESERVE BANKING = Creating Money Out Of THIN AIR. Read And Learn.

FRACTIONAL RESERVE BANKING



Usury however is not the only way in which banks can produce money from nothing. Most of new money creation comes from high street banks giving out private loans for anything from a designer suit to a new car; as well as the interest earned on these loans, they also benefit through the practice known as fractional reserve banking. Depending on risk, a bank needs to keep just 8% to 20% of its capital in reserve, the rest, it is allowed by current regulations to lend.

How does this create money out of thin air?

Imagine an individual goes into a bank and deposits £100 (we'll call them person A); from this £100 deposit only 8% needs to be kept by the bank, the remaining 92% can now be lent out to someone else (we'll call this other someone person B).

Person A still has £100 in their account, but person B now has £92 as well. From out of thin air £92 has been created. But the process doesn't have to stop there. If person B wishes to put their £92 into a bank account also, then the money creation cycle will be repeated even further. (This scenario we give is actually generous to the bankers as it doesn't take into account the fact that they can use their own capital, buildings and so on, as reserves, so allowing for an even bigger chunk of deposited cash to be used in their money creating project. The richer the bank gets, the more money they can loan out).

Restricting this practice is paramount if we wish to have more control over the amount of money in circulation. Fractional reserve banking is one of the main reasons for our mounting private debt and this in turn is adding considerably to the economic uncertainties that businesses and individuals are finding themselves at the mercy of.

Remove Usury and fractional reserve banking from the equation and a wide range of alternative economic strategies open up to us, including ones which will free us from the cyclical effects of boom and bust and from the need to collect taxes. From here a more caring economic alternative can be allowed to grow taking in the needs of both people and the environment.

USURY = INTREST ON BORROWING. Read And Learn.

USURY



What the world financial systems are primarily involved in, is known as Usury, (loaning money at interest), which has been condemned throughout history for moral reasons, legal reasons, and for the detrimental effects this practice has on society.

The major religions of Hinduism, Buddhism, Judaism, Christianity and Islam have all criticised the practice of Usury. So too have many of the worlds greatest thinkers like Plato, ¹Aristotle, ² Seneca,³ and Plutarch.

Many pages, books in fact, have been written explaining why Usury is bad. The main contention is however that it allows the rich to get richer at the expense of the poor getting poorer. You might not begrudge a person making money for providing a product or service to the community. But Usury allows a person to get richer simply because they are rich. As a result whole countries are now in debt to the banking system.

To give an example of just how destructive Usury can be, imagine a situation where a choice exists between two investment projects. One is for the placing of money into a bank at a 5% return, which the bank then unethically invests in a polluting business, the other choice is for a direct investment into a project beneficial to both people and the environment, say a hydroelectric plant, but with returns of only 3%. Financially the more viable project is the one which is most destructive to us and our environment and whilst profit incentives are vital in encouraging progress, the unregulated practice of Usury is highly damaging and can actual hinder progress, if such a direction is deemed to be less profitable to pursue.

"Only after the last tree has been cut down,
only after the last river has been poisoned,
only after the last fish has been caught,
only then will you find that money cannot be eaten."
Cree Indian Prophecy

The practice of Usury allows only the rich to benefit by choosing whether or not to invest and what to invest in, simply on the grounds of how much money it will make for them.

To add insult to injury, there exists a potentially even more harmful aspect of Usury, and that is that projects being invested in needn't even be successful in order for the investors to make money on them!

Because financial institutions more often than not demand collateral to be held against loans, as a guarantee should a venture fail, there is no incentive for them to invest in workable projects above pointless ones. People now are borrowing vast amounts against their homes and lenders encourage this, standing to gain either money from repayment or property from repossessing.

The rewards made possible by Usury can encourage all sorts of irresponsible investments, because from the financiers point of view, it appears sensible, being guaranteed to make them a profit, no matter what the result.

When it doesn't make any difference they don't have to care.

If we are talking about a fair way to share the resources in our world, then this is not it.

The rot starts the moment the currency is produced.


1. Plato, Laws, v. 742

2. Aristotle, Politics, I, x,xi

3. Seneca, De beneficiis, VII, x

THE WORLD CENTRAL BANK (1948 - Present). Read And Learn.

 In Washington, the headquarters of both the World Bank and the IMF (International Monetary Fund) face each other on the same street. What are these organisations, and who controls them?

To find out we need to look back to just after WWI. At this point the money changers were attempting to consolidate the central banks under the guise of peacemaking. To stop future wars they put forward the formation of a world central bank named the Bank of International Settlements, a world court called the World Court in the Hague, and a world executive for legislation called the League of Nations.

In his 1966 book entitled Tragedy and Hope, president Clinton's mentor Carroll Quigley writes about this.

"The powers of financial capitalism had [a] far-reaching [plan], nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.

This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences.

The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations.

Each central bank... Sought to dominate its government by its ability to control treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."
Carroll Quigley, Professor, Georgetown University

They got 2 out of 3. The league of nations failed largely owing to the suspicions of the people and while opposition concentrated on this, the other two proposals snuck their way through.

It would take another war to wear the public resistance down. Wall street invested heavily to rebuild Germany, as the Chase bank had propped up the Russian revolution.

Now the Chase merged with the Warburg's Manhattan Bank to form the Chase Manhattan which would later merge with the Chemical Bank to become the largest bank on Wall Street.

In 1944 the US approved its full participation in the IMF and the World Bank. By 1945 the second League of Nations was approved under the new name 'The United Nations'. The war had dissolved all opposition. The methods used in the National Banking Act of 1864 and the Federal Reserve Act of 1913 were now simply used on a Global scale.

The Federal Reserve Act allowing the creation of Federal Reserve notes is mirrored by the IMF's authority to produce money called Special Drawing Rights (SDR's). It is estimated the IMF has produced $30 billion dollars worth of SDR's so far. In the United States SDR's are already accepted as legal money, and all other member nations are being pressured to follow suit. With SDR's being partially backed by gold, a world gold standard is sneaking its way in through the back door, which comes with no objection from the money changers who now hold two-thirds of the worlds gold and can use this to structure the worlds economy to their further advantage.

We have gone from the goldsmith's fraud being reproduced on a national scale through the Bank of England and the Federal Reserve, to a Global level with the IMF and the World Bank. Unless we together stop giving these exchange units their power by our collective faith in them, the future will probably see the Intergalactic Bank and the Federation of Planets Reserve set up in much the same way.

This radical transfer of power has taken place with absolutely no mandate from the people.

Nations borrow Special Drawing Right from the International Monetary Fund in order to pay interest on their mounting debts. With these SDR's produced at no cost, the IMF charges more interest. This contrary to bold claims does not alleviate poverty or further any development. It just creates a steady flow of wealth from borrowing nations to the money changers who now control the IMF and the World Bank.

The permanent debt of Third World Countries is constantly being increased to provide temporary relief from the poverty being caused by previous borrowing.

These repayments already exceed the amount of new loans. By 1992 Africa's debt had reached $290 billion dollars, which is two and a half times greater than it was in 1980. A noble attempt to repay it has caused increased infant mortality and unemployment, plus deteriorating schools, and general health and welfare problems.

As world resources continue to be sucked into this insatiable black hole of greed, if allowed to continue the entire world will face a simular fate.

As one prominent Brazilian politician, Luis Ignacio Silva,ðput it.

"Without being radical or overly bold, I will tell you that the Third World War has already started - a silent war, not for that reason any the less sinister. This war is tearing down Brazil, Latin America and practically all the Third World. Instead of soldiers dying there are children, instead of millions of wounded there are millions of unemployed; instead of destruction of bridges there is the tearing down of factories, schools, hospitals, and entire economies . . . It is a war by the United States against the Latin American continent and the Third World. It is a war over the foreign debt, one which has as its main weapon interest, a weapon more deadly than the atom bomb, more shattering than a laser beam . ."¹

If a group or organisation had used its hard earned money to help these developing nations, then we might sympathise that there should be a real effort to repay these loans. But the money used was created from fractional reserve banking. The money loaned to the Third World came from the 90% the banks allow themselves to loan on the 10% they actually held. It didn't exist, it was created from nothing, and now people are suffering and dying in an effort to pay it back.

This has gone beyond clever financing, it's whole sale murder and it's time we stopped it. We can!

The Zionist House of Rothchild. Following The Money Train. Read And Learn.

WORLD WAR I (1914-1918)

The Germans borrowed money from the German Rothschilds bank, the British from the British Rothschilds bank, and the French from the French Rothschilds.

American super banker J.P. Morgan was amongst other things also a sales agent for war materials. Six months into the war his spending of $10 million a day made him the largest consumer on the planet.

The Rockefeller's and the head of president Willson's War Industries Board, Bernard Baruch each made some 200 million dollars while families contributed their sons to the bloody front lines, but profit was not the only motive for involvement.

Russia had spoiled the money changers plan to split America in two, and remained the last major country not to have its own central bank.

However, three years after the start of the war the entire Russian Royal Family was killed and Communism began.

You might find it strange to learn that the Russian Revolution was also fuelled with British money. Capitalist businessmen financing Communism?

Author Gary Allen gives his explanation:

"If one understands that socialism is not a share-the-wealth programme, but is in reality a method to consolidate and control the wealth, then the seeming paradox of super-rich men promoting socialism becomes no paradox at all. Instead, it becomes logical, even the perfect tool of power-seeking megalomaniacs.

Communism or more accurately, socialism, is not a movement of the downtrodden masses, but of the economic elite."
Gary Allen, Author

W.Cleon Skousen wrote in his book 'The Naked Capitalist'.

"Power from any source tends to create an appetite for additional power... It was almost inevitable that the super-rich would one day aspire to control not only their own wealth, but the wealth of the whole world.

To achieve this, they were perfectly willing to feed the ambitions of the power-hungry political conspirators who were committed to the overthrow of all existing governments and the establishments of a central world-wide dictatorship."
W.Cleon Skousen

Extreme revolutionary groups were controlled by being financed when they complied and cut off, with money sometimes being given to their opposition, when they didn't.

If you find this hard to believe, listen to what the so called dictator of the new Soviet Union had to say.

"The state does not function as we desired. The car does not obey. A man is at the wheel and seems to lead it, but the car does not drive in the desired direction. It moves as another force wishes."
Vladimir Lenin ¹

Rep. Louis T. McFadden, chairman of the House Banking and Currency Committee throughout the 1920-30s explained it this way.

"The course of Russian history has, indeed, been greatly affected by the operations of international bankers... The Soviet Government has been given United States Treasury funds by the Federal Reserve Board... acting through the Chase Bank. ...

England has drawn money from us through the Federal Reserve Banks and has re-lent it at high rates of interest to the Soviet Government... The Dnieperstory Dam was built with funds unlawfully taken from the United States Treasury by the corrupt and dishonest Federal Reserve Board and the Federal Reserve Banks." Rep. Louis T.McFadden (D-PA) ²

Even when Communism collapsed in the Soviet Union, Boris Yeltsin revealed that most of the foreign aid was ending up, we quote. "straight back into the coffers of western banks in debt service."


1. Wurmbrand, "Marx and Satan," p. 49
2.United States Congressional Record, June 15, 1934

What A Mess.

I have a question which I have wondered about recently. That question is: Who owns and runs the Central Bank of Ireland? Is it run by the government? Is it run by private business? If it is private, who makes money out of it? Ok, that was four questions.
I am asking the question because I think people need to be asking it and looking for answers. In America, the Federal Reserve is a private company which is run by private shareholders, whose main goal is the making of profit, at the expense of the everyday worker on the street. When America first set up its banking system, the money system was controlled by the government and the money was created by the government, who passed it onto society through the banks, and there was no debt attached to the money when it was put into society, which was a very fair way.
The system got changed along the way by people who saw the immense opportunities that controlling the Federal Reserve would have in terms of making money, and so in 1913, a bill was passed which privatised the Fed. Since then, the government has had to request money off the Federal Reserve, which the Fed would print up and give to the government, but this time, at interest, so there was a debt attached to the money before it even reached the banks.
It's a system where the very richest control the money supply and in turn, control the futures of millions of people across America, and thus billions across the world. The American government has absolutely no control over the Fed whatsoever. The Federal Reserve used to back up their money supply with gold, but that ended in 1971, so since that date, the money created hadnot been backed up by anything of value; the Federal Reserve has literally been printing money that is worth nothing.
The current economic crisis we are in has been caused by the banks who control the money supply. Who controls the banks? Who controls the European Central Bank? What was the net profit of the European Central Bank last year? The answer is 1.32 billion Euros.
I think it's time for some questions to be asked by everyone. Use resources available to you. Use the internet. Ask the questions. You'll find you are not the only one. Ask yourself: Why are we in the recession that we are? Who caused it? Who owns the Federal Reserve? Why are recessions just accepted as being a part of life? Is it not the responsibility of the Banks to ensure that recessions do not happen? How can a Central Bank of any country be controlled by private directors and share holders? Is that not a conflict of interest?
"All that is necessary for the triumph of evil is for good men do nothing." Edmund Burke, Irish Statesman who served in the British House of Commons

The GREEDY Irish Have Brought This Economic Meltdown On Their Own Heads

If you want to know what happens when the IMF come in, look at the Baltic Tiger...

When Latvia's credit-fuelled property bubble burst, the country got outside help. The result was both hardship and signs of recovery, writes Political Correspondent Conor McMorrow

Pointing the way: German chancellor Angela Merkel enjoys a bird's eye view of Riga earlier this year. Latvia has shown signs of recovery after savage budget cuts

In December 2008, the Latvian government was forced to seek an IMF bailout when it could not raise short-term funds. The payback, however, was immense. If Ireland needs similar help, stringent cuts across the board would be inevitable.

Last week, the Sunday Tribune spoke to a number of Latvian journalists about that bailout and how it has affected their country over the past two years.

Known as the 'Baltic Tiger', Latvia's economy grew by 50% between 2004 and 2007. Not unlike Ireland, much of the country's growth was generated by a credit-fuelled property bubble.

Paul Raudseps, economics editor of the Latvian weekly news magazine Ir, recalled: "We had a huge real estate bubble and we were importing more and exporting less. We were borrowing to pay for that deficit and then the global financial crisis hit."

Unlike Ireland, where we have had an across-the-board banking crisis, only one of Latvia's banks, Parex, had to be rescued by the state. The government initially took a 51% stake in the bank before it nationalised it, pouring taxpayers' money into it.

The rest of the country's main banks are Swedish-owned and as a result of Scandinavian banks managing to pull through the global crisis, Latvia was spared a full-scale banking crisis.

The Baltic Tiger breathed its last in a similar manner to the Celtic Tiger. The Latvian economy had peaked in 2007 and the government was already worried about declining tax receipts when the global financial crisis hit towards the end of 2008.

Raudseps explained that 10% of Latvia's GDP was poured into the failed Parex bank and by November 2008, the crisis hit breaking point. The Latvian government was no longer able to borrow money on the bond markets so it was forced to call on a joint EU/IMF financial bailout.

"The total package was €7.5bn. About half of that was put up by the EU Commission, with a further 20-25% from the IMF and the rest was made of bilateral loans," said Raudsepps.

"Overall, the contraction in the economy from its peak in 2008 to the bottom in 2009 was just a little less than 25% of GDP. The government that was in office at the time the EU/IMF deal was done signed an agreement in December 2008 which foresaw a 5% contraction in 2009 but the contraction in that year was actually 18%."

The IMF has become the bogeyman in Irish politics. Any mention of its arrival has been met with commentary about the level of reputational damage it would do to a country that fought so hard for its political and economic sovereignty. So what has the bogeyman actually done to Latvia?

Nathan Greenhalgh is the editor-in-chief of the Baltic Reports news website and he explained that "the IMF has primarily insisted that Latvia continue with deep cuts to meet agreed-upon GDP deficit percentages. It's been a bit of good cop, bad cop with the World Bank praising Latvia's resolve to cut while the IMF insists it isn't doing enough and must cut more.

"The IMF has insisted on cuts, cuts, cuts and it has also pressed Latvia to reform its pension scheme which is unsustainable at current levels."

In the last two years, the austerity measures in Latvia's budgets have seen massive cuts in the health and education sectors. The number of hospitals has been cut from 59 to 42 and 58 schools have been closed down.

Daiga Grube, of the LETA news agency, believes the IMF intervention has focused mostly on guiding Latvia's fiscal policies.

"Pressure from the IMF to consolidate the state's budget helped our politicians to take very hard steps, but we can't be 100% sure that these steps were the best solution for society in general," she said.

On a positive note, Grube said the IMF has saved the Latvian state from bankruptcy and it has been able to keep functioning by continuing to pay pensions, salaries and social welfare payments.

While the IMF bailout has not affected the country's ranking in the World Bank's 'Ease of Doing Business' survey, it has affected investment. According to Latvia's Central Statistics Bureau, the inflow of foreign direct investment, which fuelled the post-Soviet country's growth during the Baltic Tiger boom years, has taken a massive hit and shows little sign of recovering, especially as domestic demand remains in the doldrums.

Since the crisis hit, neighbour Lithuania has managed to attract IBM, Barclay's and Western Union to locate there while Estonia expects an influx of investment after it switches to the euro in January. Latvia has not experienced any such investment in the last two years as cutting the budget deficit has taken priority over everything else on the political and economic agenda.

The unemployment rate tripled, hitting a peak of 22% in January before it fell back to 16% in June.

In March 2009, Valdis Dombrovskis left his role as an MEP in Brussels and returned home as prime minister.

Since, then Dombrovskis has pushed through some of the most draconian measures in Europe to rescue Latvia from bankruptcy.

There have been salary cuts of up to 30% across the public sector, income tax has been increased from 23% to 26%, Vat from 18% to 21%, the number of state agencies has been halved from 76 to 39 and there have been further tax increases on alcohol, cars and property.

Despite the initial widespread anger about his austerity measures, Dombrovskis has succeeded in convincing the Latvian people that his fiscal policies represent the best chance for the country to restore its financial stability. His centre-right coalition was re-elected comfortably in elections last month.

Journalist Paul Raudsepps remembers everyone in Latvia being depressed after the austerity measures took hold in the spring of 2009.

But he added: "In general, after almost two years, Latvian people have shown they are tough and they can take the pain. The results of the election kind of show that. It is pretty amazing that the government got re-elected after all the cuts.

"If you come to Riga it does not look like a place where there has been a 25% decrease in GDP."

For Latvia, the last two years have been among the worst of times. But the country has survived.

Following the death of the Celtic Tiger, all we can do is take solace from the way Latvia has mourned the passing of the Baltic Tiger.

November 14, 2010http://www.tribune.ie/article/2010/nov/14/if-you-want-to-know-what-happens-when-the-imf-come/

International Bankers Deliberately Destroyed Our and Other European Economies So As To Gain A Foothold In The EU As A Whole.

Who’s afraid of the IMF
14 November 2010 By Richard Curran

They’re the bogeymen of international finance – so what can we expect if they impose their medicine on Ireland?

For some, they are seen as the ultimate signal of economic failure. For others, they are seen as the only way of achieving necessary corrective measures to get back on the road to economic growth.

It is ironic that the International Monetary Fund (IMF), set up to assist advanced economies around the world deal with the foreign exchange rate system, later became associated with what some would call economic ‘‘basket cases’’.

It is also ironic that, as recently as 2007, the IMF was being seen as increasingly irrelevant in global economies. Its loan commitments that year were just $2 billion. They are now closer to $200 billion as the fallout from the global financial crash continues.

In Ireland’s case, the big question is whether the country will need to apply for external assistance and, if so, what form it would take. Greece set the precedent earlier this year when, as a full eurozone member, it sought outside financial assistance.

The European Financial Stability Facility (EFSF) was set up, consisting of €750 billion from the IMF, the European Commission and the European Central Bank (ECB). This is available to lend to eurozone countries that get into trouble. If Ireland needed to avail of outside help, this is where the money would come from.

Commentators who believe a bailout loan of some kind will be necessary suggest it could be in the region of €48 billion to €50 billion.

Ireland must apply to avail of the fund, and there would be terms and conditions attached. They would have to be agreed between the government, the IMF, the EU, and the ECB, particularly where there is a banking dimension to the need for a bailout.

Long seen as the ‘‘bogeymen’’ of troubled economies, actual teams from the IMF and the EU would arrive in the country to hammer out a deal. In 2008 when the IMF landed in Latvia, there was such trouble they had to re-locate - or ‘‘retreat’’ - to Poland.

Availing of loans from the fund would do one very positive thing immediately. It would ensure that Ireland had access to money it needed. In other countries, it is not unusual that, once an IMF deal has been reached, the bond spreads for that country’s debt improve, and it doesn’t even have to draw down all of the IMF money.

That certainty would be a positive. Another big positive is that it provides political cover for painful and difficult cuts to be introduced on issues like reform of the public sector.

The downsides are obvious. There is a loss of economic sovereignty, as the bailout fund involved insists on various measures. In other countries where the IMF has become involved in recent years, slashing public sector numbers and wages has been common. Raising retirement ages, re-organisation of government quangos and sales of state assets have all been on the table. Targets are set for getting back to a deficit of 3 per cent within a certain time in the case of EU countries.

Every case is a little different. For Ireland, the country has already made budgetary adjustments of close to €14 billion. It has agreed a four-year €15 billion programme of cuts and taxes. The European Commission has had staff in the Department of Finance in recent weeks, agreeing all of these measures.

The government has set up a working group to examine state privatisations. Outside intervention would simply mean continuing with that programme. But if the situation deteriorated, or the promised austerity measures were not being met, the fund would very publicly insist on further changes. It is hard to imagine a bailout agreement which kept the Croke Park deal intact.

Earlier this year, the Hungarian government said it would not implement certain measures that had been agreed, and a stand-off ensued.

The IMF isn’t all about cutting. The Hungarian government wanted to introduce an enormous bank levy to help improve the state finances. The IMF felt this was too severe and would reduce growth and recovery, and make the country less attractive for financial services.

In Ireland’s case, there is enormous sensitivity about losing the 12.5 per cent corporation tax. But any bailout fund wants its money back. It is by no means certain that Ireland would be forced to cripple its recovery prospects further by having that measure taken away.

According to Mark Copelovitch, author of The International Monetary Fund in The Global Economy, the most influential players in the IMF are the US and Britain. He believes it has a track record of going easier on countries where US and British banks have significant financial interests. Because of the likes of the IFSC, and Ireland’s massive foreign multinational presence, that could augur well for us.

But the EU has an entirely different dynamic. Our European partners - Germany, for example - are not happy about the 12.5 per cent corporation tax, the reckless handling of the public finances during the boom and the risk to German banks now posed by Ireland’s difficulties.

As the first country to avail of the fund, Greece got a reasonably good deal. Its €110 billion bailout funding facility was priced at an interest rate of just 5 per cent. Opinion is divided about how much Ireland could end up paying. A low rate creates a moral hazard which may be seen as too soft and which could encourage other countries to move towards the fund early, before trying to fix their problems themselves. A rate that is too punitive could just be a further financial burden.

The hope would be that the certainty provided by a flow of funding would actually reduce Ireland’s sovereign debt rates, and help it to move more quickly back to raising funds itself.

The impact on Ireland’s reputation is harder to gauge. External assistance would surely damage our ability to attract new inward foreign investment. Equally, a shot of cash in return for further tough medicine might improve the country’s ability to attract foreign investment quickly.

Where the IMF has struck before

Latvia
Although part of the EU, Latvia is not a member of the single currency. After a major banking collapse, it had to call in the IMF for external assistance. As an EU member, it was already in receipt of some outside EU funding.

The package implemented amounted to €7.5 billion. Really tough austerity measures followed, including a 30 per cent cut in public sector employee numbers, a 30 per cent cut in public sector pay, the closure of 37 out of 76 state agencies, a new financing model for education including higher student/teacher ratios and the closure of 17 of the country’s 59 hospitals.

On the revenue side, it increased excise duties and gambling taxes, personal tax allowances were cut and Vat went up from 18 per cent to 21 per cent.

Latvia is a case of a country taking the pain upfront rapidly to try and get back on track. To a certain extent it has worked. The country has not had to draw down all of the funding available and it is looking at economic growth of around 3 per cent next year. It is targeting a budget deficit of below 8.5 per cent for 2010 and 6 per cent by 2011. This is in a country that saw an 18 per cent contraction in GDP in 2009.

Iceland
The financial collapse in Iceland was one of the most high-profile crises of the global economic crisis. Iceland, after years of reckless lending by its banks, went into meltdown in 2008 and needed a €4.3 billion bailout.

The IMF provided about $1 billion of emergency cash, with the rest coming from Norway, Sweden and Denmark. Its economic situation has been mired by a row over the repayment of debts from a nationalised bank to British and Dutch deposit holders.

So far, the country has honoured all of its other international sovereign commitments and wants to join the EU. But, just as there are tentative signs of growth and the country is borrowing again, the domestic situation for consumers remains very tough. The currency fell by 80 per cent in value against the euro in 2008.

However, since then, interest rates have come down from a high of 18 per cent to 5.5 per cent. The government and the banks are beginning talks about a debt relief programme following proposals which included forgiving 15.5 per cent of mortgage debts.

Thousands of Icelanders have protested about the growing number of repossessions and evictions. There are concerns that its deficit will be greater than expected next year, and the economy is far from out of the woods yet.

Hungary
Hungary agreed an €18 billion funding package with the IMF and EU in 2008. The relationship between the parties has not been smooth. Problems in the country’s financial markets sparked other problems which resulted in the need for external assistance.

Outside the single currency, the Hungarian forint lost 20 per cent of its value in the run-up to the assistance package. The country has already borrowed over €75 billion from abroad. The IMF walked away from discussions last summer over disagreements with the government. Hungary had a new government in April, and the new prime minister said he needed to talk to the EU about restoring economic self-rule, not the IMF.

The original facility was agreed in October 2008, but was not touched as Hungary sought to get back on its own feet. The new government had been elected on a platform of tax cuts. The country has broadly stuck to tough austerity measures since, even before the bailout funding, and it is now showing signs of growth.

The Hungarian economy grew by 2.1 per cent between July and September this year. Among the austerity measures was a 98 per cent tax on public sector severance pay over €7,300. The proposal was shot down by the country’s constitutional court.

Hungary plans to cut 30,000 public sector jobs next year. However, it is now seen as preparing to ease some austerity measures as it gambles on growth beyond 2012.

Greece
Greece is probably the best test case for any possible external financial intervention for Ireland. It was the first eurozone country to need assistance and agreed a €110 billion package with a new IMF, EU and ECB fund.

The terms of the loans are seen as quite good, with an interest rate of just 5 per cent. However, the austerity measures that have gone with it have been met with violence on the streets and a major political challenge for the government. But in an international context, they weren’t that tough.

The payments of the 13th and 14th month public sector pay cheques were not abolished, but capped. Government workers get a flat €250 Easter bonus, a €500 Christmas bonus and an additional €250 ‘‘subsidy leave’’. It also included higher excise on fuel and cigarettes, a three-year public sector wage freeze, tax on buildings erected without a permit, and new taxes on luxury items.

It wasn’t spartan by the standards of many countries. But change always hurts, as people get used to what they have. The real problems arise from continuous reviews of the funding. This week, the IMF and the EU are expected to press Greece for deeper spending cuts after a government official acknowledged that the country’s budget deficit this year would be worse than expected.

Greece is set to miss its targeted budget deficit of 7.8 per cent of gross domestic product (GDP) this year, a government official told Reuters last week, adding it would come in around 9.3 per cent.

Britain
Britain was the last truly advanced western economy to need a bailout from the IMF. It came in 1976 and it caused an enormous political row as members of then prime minister Jim Callaghan’s cabinet resisted the austerity measures being sought.

Britain was a different country back then and had borrowed from the IMF many times before. But the crisis in 1976 was very serious. Britain sought a then record £2.4 billion from the fund, which needed extra money from Germany and the US to cover it.

Britain’s budget deficit was only around 6 per cent at the time, but the pound had come under serious pressure. The IMF sought severe cuts to public expenditure.

Following the loan, the economic situation improved. Interest rates were soon reduced and the pound quickly appreciated in value.

Britain did not need to draw the full IMF loan, but the crisis reinforced a change of policy orientation away from full employment and social welfare towards the control of inflation and expenditure. It is widely seen as a major turning point in British economic policy.http://www.sbpost.ie/newsfeatures/whos-afraid-of-the-imf-52832.html