Warren Weertman
Warren Weertman

Greece, an African tragedy

When the troika (the IMF, European Central Bank and European Commission) rode into town, the Greeks didn’t have to look far too to see what impact the troika’s policies would have on them. Just across the Mediterranean lay an entire continent littered with examples of failed IMF policies. Greece has, in essence, become another African tragedy.

The IMF’s structural adjustment programme (or SAP) was introduced in the late 1970s in response to debt crises in Latin American and African states. In the case of Africa, the IMF imposed structural adjustment programmes on African states after they borrowed heavily from banks in the developed world during the mid-1970s onwards. These banks were trying to recycle the petrodollars that Opec members had deposited with them as a result of the oil crisis of 1973. The loans made to African states were typically at moderately low, but variable, interest rates.

When the US Federal Reserve started raising interest rates in the 1980s, in an attempt to wring inflation out of the US economy, the interest rates payable on the loads made by African states also began to rise. When African states were no longer able to meet their obligations to their creditors they turned to the IMF for “assistance”.

So what was the effect of the adjustment programmes on African states? Food riots were one widely reported consequence of SAPs. It’s also arguable that one of the consequences of the programme imposed on Rwanda in 1990 was the genocide of 1994. While economic reasons cannot explain on their own why the genocide occurred, the economic consequences of the SAP imposed on Rwanda did play a role in the tragedy that occurred.

While austerity and economic hardship were the order of the day for states implementing a SAP; for creditor banks, the programmes were nothing more than a bailout to prevent them going under.

In response to the bad press that SAPs were receiving, the IMF revamped the SAP process and introduced a mechanism known as Poverty Reduction Strategy Papers (or PRSPs) in 1999.

The primary difference between the two processes was that in terms of the PRSP process, the IMF shifted the emphasis of the programme away from only market-based solutions (eg privatisation) to one that emphasised the need for governance systems in addition to market-based solutions. However, the austerity measures that were at the core of the SAP process remained in place for the PRSP process.

Why the change in emphasis? The IMF realised, rather late in the SAP process, that without the necessary governance structures in place, markets would not function properly. To answer the age-old conundrum, which came first, the chicken or the egg? In this case, the answer is the state not the market.

When looking at the Euro crisis, while Ireland, Italy, Spain and Portugal have been lumped into the same group as Greece, the fact remains that Greece was the only state among the PIIGS to actually fudge their public accounts. In part, this fudging occurred when, as a result of its membership of the Eurozone, Greeks governments were able to lend money at lower rates than what they had traditionally been able to.

However, the ECB and the European Commission were not oblivious to what was happening in Greece. Indeed, prior to the 2004 Olympic Games hosted in Athens, the European Commission had raised concerns about the falsifying of Greek public accounts prior to Greece joining the Euro.

According to the IMF there is now, supposedly, some economic light at the end of the tunnel for Greece. Greek GDP will, according to the IMF, start increasing again in 2014 and reach 3% in 2015. These numbers, though, are highly contingent and can be revised up or down every quarter when the IMF releases its World Economic Outlook.

However, the social impact of the austerity programme imposed on Greece will be felt for years. Already HIV infection rates in Greece have jumped. In addition, drug abuse (particularly of cheap concoctions called “thai” and “sisa”) and prostitution have also increased. The use of foodbanks has also exploded.

What is also interesting for me though, is the manner in which Greece was (and is) treated by the troika. While Greece may not be considered a “core” country to the global economy, by virtue of its membership of the Euro, it has moved closer to the core of the global economy. Despite this proximity to the core (Germany, Japan, the US, and the UK), Greece has effectively been marginalised and treated no better than a “mere” developing country. Am I surprised? Not really.

While the austerity programme imposed on Greece will unlikely lead to a genocide, I often wonder at what point Greek civil society will reach a tipping point of “so much and no more”.

So what has the IMF learnt since it started imposing austerity on states around the globe since the late 1970s? Unfortunately, not much apparently. Interestingly, a recent report by the IMF claiming that austerity in Greece perhaps went too far too fast was roundly rejected by the European Commission. Denial, is apparently more than a river in Egypt.

The lesson that Greece has taught us is this: no matter your proximity to the core of the global economy, the IMF will wield its big austerity stick to protect the interests of the core. When necessary, you will be treated no better than an African country in the 1980s and 1990s.

You have been warned.

Tags: , , , , , , ,

  • Turning human suffering into refugee chic
  • Global poverty is worse than you think
  • Read Yanis Varoufakis’s “The Global Minotaur”!
  • The jewel of Africa needs to buff up its act
    • Bob

      Warren, what do you then suggest to do when a state is insolvent? Greece would have had hard times ahead, whether they were helped by the IMF or not. While austerity in more solvent countries of the EU is a debatable policy, Greece would have required more austerity, not less, if it were not for troika intervention.

      And a second issue: Germany, Japan, the US, and the UK may have been “the core” more than 60 years ago, but your list badly needs updating now.

    • michael

      Warren, what happens if you live beyond your means for years financed by the bank and suddenly you lose your job -austerity- and the bank is going to foreclose.The Greeks has a bloated and corrupt civil service including their politicians had huge social benefits and they are not the most productive people around, a recipe for disaster.You cannot consume more than you produce indefinitely.

    • Nick

      Thanks for some history on the IMF and its way of “helping” countries. The thing that gets me the most is that regardless if Greece is being treated like an African country of the 90’s by it rapacious creditors, the economic debacle of Athens should have been first looked at from within, and as we all now know it was not. This unfortunately is the true Greek tragedy. Any nation that does not do a thorough house cleaning, will ultimately end up paying the price. I was doing business in Greece from 2001-2009 and when I first stepped foot in Athens, I could tell anyone willing to listen, something was very wrong. Unaccountability, corruption, denial, living (way) beyond ones means was the norm. How could this lead to anything good longstanding? What Greece is going through is not the fault of Angela Merkel (as many Greeks like to believe) or the Troika’s or any other outside entity, but of the Greeks themselves. Sad but true.

    • bernpm

      You make an intersting observation at the beginning of your blog: “These banks were trying to recycle the petrodollars that Opec members had deposited with them as a result of the oil crisis of 1973. The loans made to African states were typically at moderately low, but variable, interest rates.”

      Then:…..”When the US Federal Reserve started raising interest rates in the 1980s, in an attempt to wring inflation out of the US economy,……..”

      There is currently a global movement, called “positive money”. This movement lays a direct responsibility of the financial crisis at the way money is being created.
      Money creation used to be in the hands of the state. Over the years this “money creation” has slipped into the hands of commercial banks. These banks create money for loans out of nothing, using money in their care as a source. A large quantity of this money is not used for production but for consumption. This is encouraged to keep production going to feed over-consumption. An extension of this money creating game are shops with their “shop card” creations.

      The variable interest rates cause surprises in the market place at any time. The financial crisis hit many (most) banks by surprise and governments bailed (had to??) them out at the expense of the local tax payers while many bank managers, responsible for the loans went home with a bonus. Most of the banks were in fact responsible for this crisis by not managing the money they had created.
      (see 2)

    • bernpm

      part 2: Money has become a row of numbers on a computer sheet with no connection to any real monetary value. The monetary values quoted in “financial instruments” traded by banks are of little controllable true and stable monetary values.

      The worldwide reported stock exchanges are proof that the papers respond to unrest here and crisis there. These events have mostly nothing to do with the value underlying the loan which is the security for the loan.

      We see currently some interesting developments in the banking sector Where banks are separating their financial manoeuvrings from their core banking services.

      My contribution is not more than a birds-eye view of a much more complicated global happening in the financial world were governments, international conglomerates and the general public play play a game of Russian roulette with the various economic units around the globe.

    • Voter

      Warren people need to realise the IMF’s policy in Greece would have worked but the laws in Greece make it impossible to work.
      1.Greece has permanent employment laws for public servants so they cannot be fired even if they do not turn up…
      2.Greece has no land titles office so there is no way of checking who owns what..
      3. People in Greece have never paid land tax on second and third homes. In fact they have never paid any council rates either and do not know what that is..
      4. They have no centralised licencing government for qualifications..I.e.tradesmen, solicitors, or for professionals..
      5.Would you believe that they have 50 legal bodies in Greece operating in every region..not a single body for the whole of Greece..
      6. The tax office in Greece processes tax returns manually and only started electronic lodgement last year…yes in the year 2012.
      7. Greece is like a third world country unfortunately…
      8.Paying taxes in Greece is something that foreigners and Greeks who live abroad not locals…Not paying is national sport..
      9. Minimum wages need to come down to be at the same level as neighbouring countries…as well as the company tax rate..
      It is set up to fail and until major changes occur nothing will change in Greece..

    • Warren Weertman

      Thanks for your comment Bob.

      Whether austerity is ever appropriate in an economic downturn is debatable.

      On the point of the countries that form the economic core, if you’re suggesting that China be included in the core, I would respectfully beg to differ for the following reasons:

      Whilst China has built significant economic reserves for itself, the litmus test (for me) is: to what degree is China able to influence the policies of the IMF, World Bank and WTO to its advantage. These three institutions continue to set the agenda for the global economy, more so than the G8, G20 or BRICS. China can wield significant clout, but it still can’t wield the clout that the core countries I identified in the posting can.

    • http://maravi.blogspot.com/ MrK

      The problem is that the World Bank, IMF and similar have an agenda of their own. For instance, Stanley Fischer, seen in the documentary Life And Debt, seemed more interested in defrauding Jamaica from their beachfront property, than in developing their economy. Stanley Fischer is now Governer of the Bank Of Israel. World Bank head James Wolfensohn was named James after his father’s employer, James Arnaud de Rothschild.

      The fact is that these debts weren’t taken on because they were irresponsible adolescents, but through trickery and double dealing.

      So for instance in Greece, Goldman Sachs helped Greece hide the size of their existing debt so they could join the EU.

      From the Bloomberg article:

      ” Goldman Secret Greece Loan Shows Two Sinners as Client Unravels ”

      ” On the day the 2001 deal was struck, the government owed the bank about 600 million euros ($793 million) more than the 2.8 billion euros it borrowed, said Spyros Papanicolaou, who took over the country’s debt-management agency in 2005. By then, the price of the transaction, a derivative that disguised the loan and that Goldman Sachs persuaded Greece not to test with competitors, had almost doubled to 5.1 billion euros, he said. ”

      Google: goldman sachs greek debt bloomberg

      Of course there is collusion, as there is a revolving door with so many finance ministries and the World Bank, IMF and nowadays increasingly Goldman Sachs.

    • Juan José

      Thanks Warren.
      After all the cutbacks, privatisation rounds, and overall impovershment of Spaniards in the last 4 years (and yes, this involves both ‘conservatives’ from PP and ‘socialists’ from PSOE), IMF ‘advices’ us to have our wages cutback a 10 per cent as the next step to improve our economic prospects. That may be our contribution to hardening the core?
      JJ (Tenerife, Canary Islands)

    • bernpm

      The Mediterranean countries have always had a reputation in the Northern European countries of being “flexible” when it relates to corruption and related practices.
      Tender were often loaded with “special fees” for “events” to oil the transaction.

    • Bob

      Warren, and any others opposing austerity in Greece, I feel I must repeat the point of my previous comment: a state that has no cash has no option but to reduce spending.

      The people of Greece can be grateful for loans from the EU and IMF, because without them they would have had to either cut spending more dramatically, or default.

    • Tonto

      Why was Greece admitted to the Euro Zone? One cannot compare Greece to highly industrialized European countries such as Germany, France Italy and Spain.

      The whole idea of the Euro was faulty and so was Dominic Strauss Kahn, the former manager of the IMF

    • http://www.aspo.org.za Yaj

      Very good article.

      Please also note that the infamous Goldman Sachs Bank sometimes referred to as the vampire squid was instrumental in cooking the books and fudging the public accounts of the Greek government through means of billions of euros in currency swaps and thus facilitiating EU membership.

      Furthermore the economic woes of our northerly neighbour and the hyperinflation can also be largely placed at the door of the IMF’s structural adjustment policies.

      As you rightly say the IMF will do all in its power to protect and support the insolvent bankers at the expense of the common good and the general public. It is all about privatising profits and socialising the losses.Or socialism for the rich and capitalsim for the poor.
      The Greek situation is tragic. Suicide rates have soared and health services are in dire straits.

      This is why we need 100% reserve banking OR public banks and an honest money system.
      http://www.positivemoney.org.uk
      http://www.newera.org.za
      http://www.moneyasdebt.net

    • Zenthia

      Look at what happened to Zimababwe after ESAP imposed by the IMF. We lost our business to the Chinese and among others the largest fabric manufacturer. supporting a whole town shut down and the rest is history. Thanks IMF.

    • nguni

      I agree with Bob, but ultimately it was the EU’s fault by letting Greece into the Eurozone. Due diligence was not practiced by those dreamers who wanted one big happy European family of nations – after all we are all the same, aren’t we? :-) Now the hard-working northern neighbours must all pay the price of letting a nation of lazy cheats into their hallowed club. Billions of Euros in debt had to be written off. Turkey, which contributed significantly to the Greek gene pool over the centuries (they are essentially the same nation, just separated by the Moslem/Orthodox Christian divide) is having a much harder time convincing the commissars to let them in.

    • VT

      It seems that the IMF employs people to comment on your blog. Lucky you! What utter rubbish… “Greeks have never paid any council rates either and do not know what that is.” Lies. Who are you people?! Twisted myths about the Greeks who deserve to be punished for their sins?! Sounds like what the Nazis were saying about the Jews. “Minimum wages need to come down to be at the same level as neighboring countries…”. Let’s turn Greece into another ‘paradise’ like Romania, Bulgaria, Serbia and all the countries ‘benefiting’ from transitioning to a mafia state supported by Brussels. How many governments has the poster girl of IMF, Bulgaria, had in the last couple of years?! Heard of the 0hrs contracts for people in the UK? The ‘mini job’ contracts in rich Germany?! Work is becoming a privilege across Europe! We’ll soon have to pay employers to work at this rate! “The people of Greece can be grateful for loans from the EU and IMF, because without them they would have had to either cut spending more dramatically, or default.” German banks are grateful for the loans to Greece that transfer tax payer money to their coffers.Greeks get none. Greece is a humanitarian disaster and all those who sit at home writing bullsh.t should get a flight and go and check out the human tragedy in the streets of Athens. If it is too far for them, they should go around the streets of the northern cities of the UK or the devastated industrial cities of the US to see what these policies do…

    • Bob

      @ VT, you write “German banks are grateful for the loans to Greece that transfer tax payer money to their coffers.”
      Maybe you are not familiar with the Greek debt writeoff, which resulted in banks that lent Greece money losing billions.

      No sensible person is suggesting that the Greek people deserve the hardship that resulted from their state running out of cash. But there is no easy solution to the problem. Loans from the EU and IMF came after the crisis. It should not be necessary to point out that they are not the cause of the problem, since time does not run backwards.

    • Nguni

      VT you cannot deny that Greece packed over-paid and under-worked people into govt since it joined the Eurozone. By EU standards it was an absolute joke, the bloated bureaucracy enjoyed long siestas* and still demand retirement at 50! No rich Greeks pay tax, see the shipping magnates as a particularly crass example. Now the poorer Greeks have to carry the can. Not happy with the EU? Then they should go back to the Drachma, it will devalue 300% within months.

    • Sterling Ferguson

      @Warren, the problem with the European zone is each one of these countries all have their own central bank and operates independently of each others. Unlike in the US where there are fifty states and one central bank that controlled all of these states. This was the flaw in the system when the union was formed because none of these countries wanted to give up their independence.

    • http://maravi.blogspot.com/ MrK

      The problem is that the IMF’s prescriptions are agenda driven and exploitative. In other words, they work for the biggest banks, and have no interest in actual development of the local economy, because it does not benefit them. This is how they go about things, from Naomi Klein’s “The Shock Doctrine”, chapter “The Capitalist Id”, from dr. Budhoo “a Grenadain born, LSE trained economist:

      ” Budhoo accused the fund of using statistics as “lethal” weapons. He exhaustively documented how, as a fund employee in the mid-eighties, he was involved in elaborate “statistical malpractices” to exaggerate the numbers in IMF reports on oil-rich Trinidad and Tobago in order to make the country look far less stable than it actually was. Budhoo contended that the IMF had more than doubled a crucial statistic measuring labour costs in the country, making it appear highly unproductive – even though, as he said, the fund ha d the correct information on hand. In another instance, he claimed that the fund “invented, literally out of the blue,” huge unpaid government debts. 22

      ” Those “gross irregularities,” which Budhoo claims were deliberate and not “sloppy calculations”, were taken as fact by the financial markets, which promptly classified Trinidad as a bad risk and cut off its financing. The country’s economic problems-triggered by a drop in the price of oil, it’s primary export-quickly became calamitous, and it was forced to beg the IMF for a bailout. “

    • http://maravi.blogspot.com/ MrK

      Continued…

      The fund then demanded that it accept what Budhoo described as the IMF’s “deadliest medicine”: layoffs, wage cuts and the “whole gamut” of structural adjustment policies. He described the process as “the deliberate blocking of an economic lifeline to the country through subterfuge” in order to see “Trinidad and Tobego destroyed economically first, and converted thereafter.”

      In his letter, Budhoo who died in 2001, made it clear that his dispute was over more than the treatment of one ocuntry by a handful of officials. He characterized the IMF’s entire program of structural adjustment as a form of mass torture in which “screaming-in-pain governments and peoples [are] forced to bend on their knees before us, broken and terrified and disintegrating, and begging for a sliver of reasonableness and decency on our part. But we laugh cruelly in their face, and the torture goes on unabated.”

      For Greece, you can fill in Swaziland, Zimbabwe, Argentina, Chile, Indonesia, Russia, Jamaica, etc.

      If you want to read what went on in Zimbabwe’s ESAP, from 1991 to 1996,

      Google: tragic imf zimbabwe juhasz

    • http://maravi.blogspot.com/ MrK

      If you want to read dr. Davison Budhoo’s open letter of resignation to the IMF, check out:

      http://www.naomiklein.org/files/resources/pdfs/budhoo.pdf

    • ian shaw

      The only hero in thesedebacles was tiny Island, that bravely told the iMF to get lost. Yes, they suffered a few years but have since then totally recovered and without debt.

    • ΥΠΕΡΠΑΣΟΥΡΤΗΣ

      “Already HIV infection rates in Greece have jumped. In addition, drug
      abuse (particularly of cheap concoctions called “thai” and “sisa”) and
      prostitution have also increased. The use of foodbanks has also exploded”

      Although I agree with the spirit of this article, I have to say, the sentence above creates a wrong impression about the real situation in Greece. Allow me to illuminate you a little.

      Prostitutes in greece are as many as before the crisis and 75% or more of them are from eastern europe or africa as salaries in greece are still 4 times bigger than that of Bulgaria, the poorest EU country.

      There are currently 11.000 people with hiv infection in Greece. No big deal. Belgium, a 11 million country (like greece) has 20.000 people with hiv, portugal 48.000….
      http://www.avert.org/european-hiv-aids-statistics.htm

      It is something like urban myth that greece is facing a huge prostitution, hiv infection, drug or suicide problem. Maybe there is a small increase but nothing more. Especially about suicides, there is a certain increase, however greece’s suicide rate is stil among the lowest in the world. Take a look at the suicide rates for 2014:
      http://en.wikipedia.org/wiki/List_of_countries_by_suicide_rate