The IMF Protection Racket
There seems to be strong consensus – at least in the streets of Europe – that the IMF (International Monetary Fund) is a protection racket. Here is the Wikipedia definition of protection racket:
An extortion scheme whereby a criminal group or individual coerces other less powerful entities to pay money, allegedly for protection services against external threats (usually violence or property damage). Many racketeers will coerce potential clients into buying protection through property damage or other harassment. In some cases, the racketeers do little to protect the client from other predators, and their “protection” is little more than extortion.
Another way to think of it is an offer you can’t refuse. Although I didn’t realize it at the time, the Mafia and protection rackets were an integral part of my childhood in Milwaukee. Back then I thought it was normal for disk jockeys to get free meals at fancy Italian restaurants (someone with Mafia credentials was repaying my father for promoting an Italian accordion player on his show). I also assumed it was normal for Italians to bury their dead in lye in back alleys and abandoned warehouses.
This is how the IMF protection scam works:
Step 1: The IMF offers you a loan (as they did Hungary in July and Ireland in November).
IMF loans come with draconian conditions – structural adjustment programs, intended to open your country to foreign corporations. There is an immediate demand for your government to slash public spending – on education, health care, social services and basic needs, such as clean drinking water. Forcing a country to privatize their public water services immediately creates a market for multinational water monopoly to move in. Likewise forcing them to privatize health services (all industrialized countries, except for the US, have national health systems) creates more favorable markets for drug and health insurance companies.
Step 2: If you refuse the loan, the ratings agencies waltz in and bankrupt your country by downgrading your credit rating.
Since the 2008 economic collapse, all industrialized countries have been running large deficits. And because it’s political suicide to raise taxes on the rich, they borrow the money they need to run government services from Wall Street investment banks. With a low credit rating, Goldman Sachs can jack your interest rate as high as 8%, and your country goes broke trying to make the interest payments.
Economic Blackmail vs CIA/Military Intervention
Apparently the IMF has greatly refined their technique since the seventies and eighties – relying more on economic pressure than brute force. As John Perkins describes in his 2004 Confessions of an Economic Hit Man, third world countries that refused IMF loans used to be threatened with covert CIA destabilization and regime change – or even political assassination. Obviously economic blackmail is a less expensive and more predictable approach.
The Case of New Zealand
Sometimes it’s sufficient for the IMF to merely threaten to loan you money. New Zealand is a case in point. The IMF came knocking on our door in April 2010, issuing a warning that our public debt was too high and that we needed to (further) reduce public spending on education, health care and social services. The Mafia always did this to. If you were new to the neighborhood, the first visit was a friendly chat. They always waited till the second visit to put the squeeze on.
What I found interesting is that 1) New Zealand has a very low public debt compared to other industrialized countries and 2) the IMF warning played right into the hands of our current National (conservative) government which has the same agenda as the IMF – of slashing public services and privatizing government-owned utilities and other services.
To be continued.