The IMF

Chris2685

I hear talks of people saying if the IMF has to step in such and such might happen...

I would just be interested to hear some thoughts on when or why the IMF might step in? How drastically in debt does the country have to be?

Generali

Chris2685 wrote: »

I hear talks of people saying if the IMF has to step in such and such might happen...

I would just be interested to hear some thoughts on when or why the IMF might step in? How drastically in debt does the country have to be?

The most likely mechanism would be thus for the UK:

- Government runs a large deficit, looking to borrow the money in pounds from UK and internationally based investors
- At the same time, as the economy is doing badly the UK Government/BoE want to keep interest rates low to help businesses invest and consumers consume
- Investors decide that the return they are getting on their UK Government bond investments (Gilts) isn't high enough compared to other investments available to them
- The Government then must either raise interest rates or reduce borrowing. If neither is possible then the Lender of Last Resort for them is the IMF.

If the IMF comes in, they will lend enough money to the UK Government to tide them over for a while and pay their immediate bills. This assistance comes at a price however: the Government will have to cut spending, probably quite severely, where it can. This may well mean cutting spending on health, education and welfare. If inflation is high then the Govrenment will also be forced to raise interest rates, regardless of the state of the rest of the economy.

Despite what some on here will have you believe, this is far from being a likely outcome for the UK right now. It is possible however and becoming more possible, the more the Government gets the country into debt without any clear route out or even of returning the finances to their previous state.

Chris2685

Would the IMF have the power then to do pretty much anything they want to 'force' the country to raise the finances? Such as raise interest rates, cut public spending, increase taxes, etc....?

Generali

Chris2685 wrote: »

Would the IMF have the power then to do pretty much anything they want to 'force' the country to raise the finances? Such as raise interest rates, cut public spending, increase taxes, etc....?

Yeah, they insist on certain policy measures being taken as a condition of providing assistance.

The last (only) time they provided loans in the UK in 1976 they insisted that the then Labour Government follow 'monetarism', that is reducing inflation by reducing the growth in the money supply primarily by increasing interest rates. Labour were forced to comply despite this being (I believe) directly contrary to their manefesto and to motions passed at their conference.

It is normal also for them to insist upon cuts in spending although they don't normally (ever?) dictate where cuts should be made.

Chris2685

Thanks Generali, I feel a bit wiser now

Generali

Chris2685 wrote: »

Thanks Generali, I feel a bit wiser now

Good.

TBH, it's not the end of the world if the IMF are called in. It would be massively embarassing though for one of the biggest economies in the world.

el_gringo_3

The IMF 'step in' whenever they feel like it to give commentary on what they believe is the best way to run a country, which was supposedly based on communism/ protectionism = bad and freemarket = good. However, its pretty much panned out to serve large commercial/ neoliberal interests. In fact, when the Bretton Woods twins (IMF + World Bank) were originally planned, the Yanks didn't expect the Europeans to sign up to it as they had planned it - but our leaders barely changed a thing.

If they provide moneys (loans) they introduce conditionality ties, which is what I assume you mean. This can mean anything from limits on public spending, shrinking government, banning subsidies,or even protectionist measures (tighter drug laws, for example). Some of the South American countries have asked China for support ahead of the IMF, which has mightly pee'd off the U.S Government, as IMF conditionality has been generally accepted as the precursor to what is known in academic circles as 'the lost decade' on that continent, and as a reason as to why BRICS countries have not shown the predicted economic growth expected. Generally it is accepted that with IMF support comes loss of Government control over the sale of resources.

Essentially, no country 'has' to have the IMF step in with assistance at any point. As the British have been heavy supporters of U.S foreign policy over the decades its more than likely that Britain will ask early, as it would expect looser conditionality ties on a small loan due to its past IMF support, and as we don't really have a major resource that we've been keeping for ourselves (North Sea oil extraction gives the British people less 'returns' than any other oil producing country in the world iirc).

There are other options available, although most of them would raise heavy opposition in some circles - for example, Chinese support would likely see Chinese companies doing infrastructure upgrades (as opposed to US/ Eurozone companies, which it is easy for us to invest in), Venezuelan Oil support would lead to accusations of socialism and a deal with another OPEC country would likely by some to be pandering to the Islamic system.

Generali

el_gringo wrote: »

The IMF 'step in' whenever they feel like it to give commentary on what they believe is the best way to run a country, which was supposedly based on communism/ protectionism = bad and freemarket = good. However, its pretty much panned out to serve large commercial/ neoliberal interests. In fact, when the Bretton Woods twins (IMF + World Bank) were originally planned, the Yanks didn't expect the Europeans to sign up to it as they had planned it - but our leaders barely changed a thing.

If they provide moneys (loans) they introduce conditionality ties, which is what I assume you mean. This can mean anything from limits on public spending, shrinking government, banning subsidies,or even protectionist measures (tighter drug laws, for example). Some of the South American countries have asked China for support ahead of the IMF, which has mightly pee'd off the U.S Government, as IMF conditionality has been generally accepted as the precursor to what is known in academic circles as 'the lost decade' on that continent, and as a reason as to why BRICS countries have not shown the predicted economic growth expected. Generally it is accepted that with IMF support comes loss of Government control over the sale of resources.

Essentially, no country 'has' to have the IMF step in with assistance at any point. As the British have been heavy supporters of U.S foreign policy over the decades its more than likely that Britain will ask early, as it would expect looser conditionality ties on a small loan due to its past IMF support, and as we don't really have a major resource that we've been keeping for ourselves (North Sea oil extraction gives the British people less 'returns' than any other oil producing country in the world iirc).

There are other options available, although most of them would raise heavy opposition in some circles - for example, Chinese support would likely see Chinese companies doing infrastructure upgrades (as opposed to US/ Eurozone companies, which it is easy for us to invest in), Venezuelan Oil support would lead to accusations of socialism and a deal with another OPEC country would likely by some to be pandering to the Islamic system.

I'd like to give a detailed response to why this is twaddle but I've got a meeting in the morning so don't have the time.

For a start the Venezualans are pretty much bust and if the UK had to call in the IMF to lend them money it would be because the Chinese Government (among other foreign investors) were no longer buying Gilts.

el_gringo_3

Venezuela have offered several countries oil support in the past and recently, 'bust' or not. Britain is one of them. A better realationship with the UK would ease much of the tensions which are causing economic issues.
As an aside any increase in oil price makes their economy a damn sight better, ours a damn sight worse and I suspect it won't be long before the commercial media pressure topples Chavez, the oil industry is re-liberalised and Western speculators suddenly start saying how rich the country is. I'll also remind you that even anti-Chavez media reported the Venezuelan economy as growing (albeit at a very low rate) for the first quarter of this year.

I haven't speculated on why the UK govt would call in the IMF, purely mentioning that I wouldn't expect them to be one of the countries which hawks itself around to every other possible source of loan, as (for example) the Jamaicans did under the Manley government. As such they'd go sooner rather than later, and the conditionality would not be as we've seen in many of the other countries. As for gilts, its no surprise that the Chinese aren't interested if theres a better offer available elsewhere - hence why they have tied up other forms of investment in Latin America.

I suppose I should leave speculation to the failed mortgage brokers and bankers of this world, they seem to have done such a good job in the past. My qualifications and research interests are based around South American Political Economy (Particularly around food supply following IMF loans), and as such I wouldn't know a damn thing about what happens to countries forced to go cap in hand to the IMF.:rolleyes:

Degenerate

el_gringo wrote: »

Venezuela have offered several countries oil support in the past and recently, 'bust' or not. Britain is one of them. A better realationship with the UK would ease much of the tensions which are causing economic issues.

But that wasn't just typical political posturing from Chavez, oh no.

nearlynew

Chris2685 wrote: »

I hear talks of people saying if the IMF has to step in such and such might happen...

I would just be interested to hear some thoughts on when or why the IMF might step in? How drastically in debt does the country have to be?

The IMF is nothing but another arm of the international banking cartel.

"They" step in when the !!!!!! hits the fan to give an air of respectability to a nation's economy and to confuse the issue of what the real problem is.

This allows the thieves to keep on stealing your money but blame someone else.