In a statement characterised with pessimism, the International Monetary Fund deputy managing director stressed the necessity of joint action in order to prevent a global economic collapse in light of the risks that current economic policies incorporate, as well as the general feeling that nothing can be done in regard to the world’s economic crisis.
The solution, in his viewpoint, lies in increasing fiscal and monetary incentives, controlling public spending and lowering taxes, he said during the National Association for Business Economics Conference in Washington.
As a start, this pessimism contradicts the IMF statements issued last January in the update to its report titled “World Economic Outlook”.
The IMF data point out that the global economy’s real growth rate will reach about 3.4 percent in 2016, in comparison with 3.1 percent in 2015. It also mentioned that the growth rate will rise to be 3.6 percent in 2017.
As for the developing countries, the real growth rate of the Gross Domestic Product will reach 4.3 percent in the current year in comparison with 4 percent only last year. It pointed out that the pace of growth will rise in 2017 and the rate in the developing countries will be about 4.7 percent. As for the advanced industrialised countries, the real growth rate will rise from 1.9 percent in 2015 to 2.1 percent in 2016, and will remain at this level in 2017.
According to these estimations and expectations, the growth is improving and this contradicts the talk of global economic collapse and the necessary joint actions to prevent it, according to the deputy managing director.
As for the vision concerning the prevention of collapse, it does not transcend being merely a concentrated summary for the same policies that led to the world’s economic crisis that broke out in 2008, whose repercussions and spiral cycles are occurring until now.
The truth is that when the popular revolution broke out in Tunisia and then Egypt, both countries were executing the IMF and the World Bank’s prescriptions. It was undoubtedly a certificate of miserable failure of those solid ideological prescriptions. During the spring and autumn meetings of 2011, it seemed that both institutions were feeling responsible and guilty and were ready to hear voices outside their rigid ideological chorus.
With the disturbances in situations and options in both countries and the return of the same economic and social policies at the hands of successive governments, the WB and the IMF came back to ignore any ideas for reform. This happened particularly since their headquarters included some of the officials who contributed to the deterioration and sabotaging of the economies of their countries precisely through the privatisation programmes bloated with corruption.
These programmes were executed, through the complicity of the WB and the IMF, with the aim of extracting the developing countries’ best companies for the benefit of global capitalism in return for extremely low prices and wasting those countries’ public rights and funds.
Who will bear the brunt of austerity and who will pay the price for expansion?
There are fiscal and monetary decisions which favour the capitalist class – such as lowering taxes on the rich companies, lowering the interest rate and reducing the local currency exchange rate – and aim to pump new investments that drive economic growth and contribute to increasing competitiveness of exports.
The IMF demands the control of public spending, especially in aspects linked to wages, subsidies and social expenditure for regaining fiscal balance. This is the traditional policy of the IMF in its general outlines, which it does not tire of demanding it be applied in all countries of the world, whatever their economic circumstances and economic evolution stages.
In light of the decline in foreign reserves and the large deficit in external balances in Egypt, the WB and the IMF are repeating the same recipe and demand that Egypt apply it despite its negative effects on the poor and middle classes and on social justice.
Social justice constitutes a popular demand of the Egyptian people and one of the most important slogans of its greatest revolution, that of 25 January 2011 and its second wave of 30 June 2013.
Despite the importance of curbing public spending in order to control the imbalance in the state’s general budget, or the expansion in this spending in order to stimulate economic growth, the structure of this spending acquires the same degree of importance and clarifies one way or the other how the taxpayers’ money is spent.
It also shows whether those funds are used in refreshing the economy and providing job opportunities or in backing capitalism caught in a disadvantageous situation due to its selfishness and its resorting to speculation activities and fraud.
On the other hand, there is another way to spur growth relying on stimulating effective demand through measures of realising social justice, which increases the income quotas of the poor and the middle classes.
Thus, the effectiveness of demand is increased, which in turn creates real incentives in the market that raise investments in order to meet this demand, including creating job opportunities, moving investments and growth or generating investment multiplier, which constitutes an essential element in any economic growth and prosperity cycle.
During the world economic crisis, there were contradictory policies; for Europe tried indeed to curb spending, especially social expenditure in order to reduce the budget deficit, lowered the interest rate to its lowest known level and allowed the Euro to decline against other currencies. In general, Europe was compatible with the IMF demands, which were usually given to the developing countries.
Unfortunately, the middle class and the poor are the ones who bear the brunt of austerity instead of the capitalist class that caused the crisis, especially its parasitic segments.
In contrast, the USA behaved in a totally different way from the Europeans by refusing the European austerity plan. It warned that such a plan would lead to the return of recession, not only in Europe, but in a slow-moving global economy already in crisis and in a seemingly fragile state that cannot endure those European measures.
The American standpoint was based on the view that the European measures would lead to the stagnation or even the decline of European imports in the form of commodities and services from other countries. This in turn would result in the stagnation or decline in the exports of the trade and economic partners to Europe in general and contribute to the slowing down or the stagnation of the economies of these trade partners.
On the contrary, the USA expanded in its public spending and made the world carry its burden through exploiting the status of the dollar as an international reserve currency.
It is well known that when the USA suffers from state’s general budget deficit, it does not suffer in the same amount as the European countries suffering from the same deficit. The USA exploits the special status of the dollar as an international reserve currency, as international commitments are settled through it in the biggest part of international economic dealings. It exceeds in issuing money without a standard of gold or production and uses paper money, which costs no more than its printing, in order to preserve its capacity to fulfil its commitments. This again raises the debate concerning the merit of the dollar in having such a status as an international reserve currency.
Capitalist values most needed to be changed and reformed
Away from the ideological prescription of the WB and the IMF, there are a number of values that were entrenched in the global economy and in Egypt and were responsible for economic crisis and deserve to be changed and reformed.
At the top of these values comes unbridled economic freedom without any regulations, restrictions or effective supervision from the state, using the justification that the market forces are able to correct themselves and portraying the state’s interference and supervision as corrupting the simultaneous mechanisms for capitalism to reform itself.
This resulted in a massive wave of corruption hitting American corporations between 2001 and 2002 and causing total collapse of the oil company Enron, which was the sixth biggest American company and the 16th biggest company in the world.
It also caused the total collapse of the WorldCom company and resulted in final losses in the form of bad debts amounting to $460 billion in the years 2001 and 2002.
In July 2008, it caused the collapse of real estate giants Fannie Mae and Freddie Mac, which were making insurances on mortgages valued at $5.2 trillion.
Then the huge financial collapse came in September 2008, sparking the world’s financial and economic crisis whose repercussions are occurring until now in the form of financial and economic disturbances and spiral cycles of fragile ups and foreboding decline.
The absence of real supervision helped companies in falsifying their activities so as to lessen the amount of taxes they should pay, despite the fact that the taxes imposed on the upper classes were low. This also helped the companies justify any decisions concerning wages when it concerned limited increases or even freezing these wages and creating a state of lack of transparency in the world of business in general.
What worsened the lack of transparency was the expansion of the secret bank accounts that were a perfect cover for money gained via corruption and the illegal black economy.
The increase of safe tax havens, where tax rates are zero or at very low levels, has also helped big capitalist corporations in many countries in evading paying taxes through founding their business in these havens, even if they were working within other economies. This has resulted in the increase in the state general budget’s deficit in many countries.
The culture of “profit without working” became widespread, which is the second element in the world, Egyptian and Arab economic culture hampering growth and effective and permanent economic rise. This bad culture is the mother of all parasitic activities such speculation on currencies, stocks, precious and non-precious metals and food commodities. It is also the source of all quiz shows and telephone calls that manipulate people’s dreams of getting out of the poverty abyss or financial hard times through winning large amounts of money in this way.
It gave birth to the futures markets in raw materials such as oil, natural gas, metals and agricultural commodities, which became so widespread that it comprised all saleable things. These included loans, which afterwards formed in its turn the derivatives market that expanded and enlarged in a cancerous way.
Such a culture expands at the expense of profit through science and work, which has changed the face of the earth, individuals’ and nations’ destiny and constantly shaped the future and the economic-social development of any nation.
There is also the culture of the next strike emanating from the black economy that seeped into the ordinary economy and became widespread following the entrance of a big wave of the black economy figures into the ordinary economy after laundering their money. These figures have formed their wealth from parasitic activities, corruption and illegal activities such as drug trafficking, selling arms, stolen monuments or prostitution and casinos.
They came from their black economy with a culture based on the monopoly of the individual or of the few. These are the prevalent patterns in such illegal markets. It is also based on extremely high profit rates as a main mechanism for rapid enrichment and to compensate any losses that may occur due to prosecution for illegal activities and those dealing in it. This is what we call the “strike” culture.
There is also the culture of monopoly, acquisitions and control among big capitalist corporations everywhere and in the Arab region and in Egypt. It is the main reason in exaggerating profit rates and putting prices far from the production or import cost and produces price rises and stagnation in the long run.
If the IMF really wants to invigorate global economic growth, it must respect the value of social justice, which was never one of the important values on its agenda. It was always seen as a relic of eras linked to socialist systems or the social welfare state connected to Keynesian capitalism or independent states.
Those states had the determination to develop their societies and build their national integration based on consensus of social justice. At this point, social justice transcends being a social demand to being a motivation for growth and investment and a major engine for investment multiplier.
As for justice between the nations, the IMF has to adopt a fair standing towards the undeserved dollar status as an international governing reserve currency; allowing the USA to be enriched at the expense of the world by issuing money without having production or gold cover. There is a historical necessity in relying on a wide basket of currencies as an international monetary constituent against which all currencies can be measured by applying the principle of fairness in international relations.
Entrenching economic integration of countries in the global economy on fair bases in all the international financial institutions and in international exchange rates, which is in its essence commodity exchange rates, seems to be an important matter for global economic development.
Committing the rich countries in practice to what they have been committed to in theory – in the form of giving poor and developing countries aid worth 0.7 percent of its Gross National Product – can drive stagnant economies, make them effective partners in the global economy and contribute in pumping a strong gush of blood in this beleaguered economy’s arteries due to injustice among and within its nations.
The writer is chairman of the board of Al-Ahram Establishment.