True to form, the IMF is quietly confident that capitalism will prosper, but their plan is for more austerity for the working class, while the crises keep coming, argues John Clarke

The prestigious yearly gathering of the IMF and World Bank has taken place over the course of this week. ‘The global lenders traditionally hold their annual gathering of finance ministers and central bank governors outside their Washington headquarters every three years.’ This time, they gathered in the southern Moroccan city of Marrakesh, so as to appear sensitive to ‘calls to reform in order to better help vulnerable nations deal with poverty and climate change.’

The IMF’s managing director, Kristalina Georgieva, was careful to stress that bringing ‘the meetings to Africa, again, is symbolically and substantively very important’ and she declared that many ‘countries are under a burden of debt that can crush them and we very, very much hope that the meetings would be a place to build more trust among nations. We all need each other.’

Despite these noble sentiments, the two leading Bretton Woods institutions are thoroughly committed to a response to the present conditions of global crisis that is anything but warm and fuzzy. The IMF has issued a World Economic Outlook report this month that is instructively entitled ‘Navigating Global Divergences.’ The organisation had Pierre-Olivier Gourinchas, its Economic Counsellor and Director of Research, write a blog post that captured the main considerations it would be taking into the Marrakesh meeting.

Economy limping

Gourinchas presents an assessment of the global economy that strikes the note of confidence tempered with concern that is standard for the IMF. However, what he writes is interesting and worth considering in light of the present extraordinary situation unfolding across the world.

Gourinchas tells us that the global economy has shown a ‘remarkable’ resilience in that it ‘has slowed but not stalled’. He further notes that ‘growth remains slow and uneven, with widening divergences’ and that the ‘global economy is limping along, not sprinting.’ He predicts that ‘world economic growth will slow from 3.5 percent in 2022 to 3 percent this year and 2.9 percent next year, a 0.1 percentage point downgrade for 2024 from July. This remains well below the historical average.’

He notes that some gains have been made in inflation reduction but that ‘most countries aren’t likely to return inflation to target until 2025.’ He insists that this points to ‘a soft landing scenario,’ that will get ‘inflation down without a major downturn in activity.’ He qualifies his restrained optimism in several ways, however.

The writer’s evaluation of the global situation includes a warning that ‘important divergences are appearing, leaving activity in some regions much below pre-pandemic projections’ and that the ‘slowdown is more pronounced in advanced economies than in their emerging market and developing counterparts.’

Gourinchas goes on to note that while ‘some of the extreme risks—such as severe banking instability—have moderated since April, the balance remains tilted to the downside.’ The potential pitfalls that lie ahead include the possibility that ‘commodity prices could become more volatile amid climate and geopolitical shocks.’ This includes the danger that ‘food prices remain elevated and could be further disrupted by an escalation of the war in Ukraine.’

The blog is very clear that much more harsh medicine will be needed to achieve stability for the global economy. It warns that ‘fiscal buffers have eroded in many countries, with elevated debt levels, rising funding costs, slowing growth, and an increasing mismatch between the growing demands on the state and available fiscal resources. This leaves many countries more vulnerable to crises and demands a renewed focus on managing fiscal risks.’

Of course, a focus on ‘managing fiscal risks’ means the imposition of even more drastic austerity measures, to complement the continuing hiking of interest rates. In conformity with the usual IMF line, we are told that ‘fiscal policy needs to rebuild buffers, including by removing energy subsidies, while still protecting the vulnerable.’ In the context of the Global South, this is a call for the removal of yet more protections that limit the cost of basic necessities and their replacement with meagre supports for the very poorest people.

Gourinchas looks beyond immediate predictions and points to some very grim prospects for the ‘medium-term outlook’. The ‘five year ahead growth projections’ are bleak and the ‘implications are profound: a much slower convergence toward the living standards of advanced economies, reduced fiscal space, increased debt vulnerabilities and exposure to shocks, and diminished opportunities to overcome the scarring from the pandemic and the war.’

Once again, however, the road to an alleged ‘shared prosperity’ at some point in the future will involve attacks on working-class living standards. These measures are circumspectly referred to as ‘structural reforms’ but that won’t make them any less painful, even if some low-cost buffers for ‘the most vulnerable’ are included in the package.

The blog concludes with a call to tackle ‘geoeconomic fragmentation’ by ensuring that global rivalry doesn’t get out of hand and that all parties ‘work to restore trust in rules-based multilateral frameworks that enhance transparency and policy certainty.’ Naturally, this effort will require a ‘robust global financial safety net with a well-resourced IMF at its center.’

Voice of opposition

The cynical play for legitimacy that the IMF and World Bank’s decision to meet in North Africa represented didn’t go unchallenged. The Arab Reform Initiative (ARI) used the occasion to raise a voice of opposition to the strategies being ironed out in Marrakesh. ‘The impact of International Financial institutions on social protection in the Arab Region’ was highlighted and ‘the effects of IMF’s loans on the region and alternative solutions to fix the damage’ were considered.

The destructive role of the IMF was drawn out and ‘according to Egyptian activist Shereen Talaat, the IMF’s conditions for loans have increased poverty and unemployment in indebted countries, leading them to a vicious circle of loans.’ Measures that have been reluctantly implemented to address the harsh impacts of these conditions were described as a ‘bandage on a bullet wound.’

The approach to conditions of global crisis that has been taken forward at the Marrakesh meeting is consistently to impose the burden on working-class populations so that profits can be increased and economies stabilised. Both high interest rates and intensified austerity measures are central to this, but it is also recognised that tactical shifts to temporary measures of stimulation may be needed to avert financial crises and economic slumps. The leading functionaries of the two institutions are keenly aware that a whole series of potential destabilising factors could upset their plans at any point. Ironically, just as they gathered in the MENA region, the Palestinian breakout from Gaza and the onset of brutal reprisals by Israel ushered in a new threat to stability that could be even more unsettling than the conflict in Ukraine.

In response to this momentous development, the IMF’s Gourinchas stated at the Marrakesh meeting that ‘the IMF was “monitoring the situation closely” and noted that oil prices have risen by about 4% in the past several days.’ He noted that ‘we’ve seen that in previous crises and previous conflicts. And of course, this reflects the potential risk that there could be disruption either in production or transport of oil in the region.’

That the incredible developments in Palestine cast their shadow over the Marrakesh gathering is highly telling and quite ominous. The IMF and World Bank hope that their strategies and interventions can restore and preserve stability for global capitalism. Yet, the shocks, disruptions and destabilising factors just keep coming. The cautious optimism of Pierre-Olivier Gourinchas and his colleagues is very likely to prove entirely unfounded.