Problem

Enforced curtailment of living standards in borrower nations

Background:

Non-oil exporting countries in the Third World and some socialist countries have increasingly turned to the private international capital markets to cover growing deficits; these have re-cycled some of the OPEC surplus funds to them and have additionally lent them other funds at high rates of interest that found no borrowers in the industrial countries where investment has been low The extension of these loans and particularly their roll-over rescheduling to finance the growing debt service when the borrowers are unable to pay have become the basis of stringent economic and political conditions that the private banks and/or the International Monetary Fund (IMF) acting as their intermediary have imposed on Third World (and some socialist and developed) countries The standard 'conditionality' to the IMF package that governments are obliged to accept in their 'letter of intent' before being certified to receive further loans always includes devaluation of the currency, reduction of government expenditures especially on consumer subsidies and popular welfare, the reduction of the wage rate through various devices, and more favourable treatment for private and especially foreign capital These conditions have sometimes led to 'IMF riots' as the people sought to resist the enforced curtailment of their standards of living It has been said that the IMF has overthrown more governments than Marx and Lenin put together.

 An important political economic consequence, if not rationale, of these IMF promoted government policies in the Third World is to promote 'export led growth' by cheapening Third World labour and its fruits for international capital and foreign importers (by lowering the price of Third World wages and currencies) and to lend support to the domestic forces in these Third World countries that have an economic interest in export promotion. Thus, the international financial system and the financing of the Third World debt serves to fuel and oil the mechanism of the emerging international division of labour based on Third World export promotion. The political consequences of all these economic policies are that it is necessary to repress the labour force in order to keep wages low or reduce wages.

Incidence:

In the case of Brazil, which after Mexico has been the principal example of this process in Latin America since the military coup in 1964, wages were reduced by over 40%. In Argentina since the military coup in 1976, wages were reduced by over 50%. But already before the coup real wages were going down as a result of the economic policy of the right wing of the Peronist government in 1974-75. In Chile, real wages since the coup were reduced by two thirds, that is to say, from an index of 100 to an index of just over 30, and unemployment increased from 4% to 20% before levelling off at 12-15%. To be able to do this it was necessary first to destroy or to control the unions, to eliminate, often physically, the leadership, to repress all political opposition and to throw people in gaol, torture them, murder them, exile them etc. Secondly, it has been necessary to distort the economy from producing for the internal market through so-called import substitution, to producing for exports.

Related UN Sustainable Development Goals:
GOAL 11: Sustainable Cities and CommunitiesGOAL 16: Peace and Justice Strong Institutions
Problem Type:
E: Emanations of other problems
Date of last update
06.05.2019 – 19:38 CEST