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.