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Authorities say there is no alternative to the IMF: Is it true?

Author : Pavlo Vernivsky

Although we like to call the IMF an anchor investor, in reality it is a lender of last resort
20:57, 4 July 2019

Open source

One of the first important promoses from Zelensky team is to continue working with the IMF. Moreover, almost every politician, trying to convince people of the need to work with the IMF, tells them: there is no other alternative. At one time, these words were repeated by “Iron lady” Margaret Thatcher, trying to justify her politics, which led the UK to the economic crisis in the early 80s. And the situation was saved only by the fact that Great Britain responded to Argentina with a harsh military force when it decided to make a claim to the Falkland Islands. Margaret went for it and won. At the same time, regained her rating and the chance to continue such a policy. It was probably at that moment that the British remembered the past glory of the greatest empire in the world.

Margaret was lying. There was an alternative. Literally close by, across the English Channel, another country was dynamically developing – it was France. If the British decided to take a course on reducing the influence of the state on the economy, the French, on the contrary, built the economy thanks to the state.

And there were the Scandinavian countries that built the welfare. There were dynamically developing South Korea, Japan, Taiwan, where the state was actively developing the export-oriented economy. And regarding all of this, Margaret was lying, as an inexperienced doctor lying, convincing the patient of the correctness of his method of treatment. However, here I do not blame Margaret. I condemn her lie.

And as Margaret had once lied, our politicians are now lying that there is no alternative to the IMF. After all, we can recall how Japan and China developed without these loans. You can even remember. Once, in 1997, South Korea applied for a loan, but quickly resolved its problems and after 1997, it no longer turned to this organization for help. However, these are very inconvenient examples that pose the question: what is wrong with us? Why we cannot get off the credit needles?

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The answer to this question lies is obvious. The IMF is an organization that helps countries with balance of payments problems. These problems arise when a country is heavily dependent on the dollar or other reserve currencies and, in fact, when a country has expenses in this currency that exceed revenues. Although we like to call the IMF an anchor investor, in reality it is a lender of last resort. When no one wants to lend the state, there remains hope for the IMF. Using its exceptional position, this lender can give money under certain conditions. The paradox of these conditions is that they do not eliminate the main problem - the balance of payments deficit. After all, they are well aware that the balance of payments deficit includes the trade balance. And if there is a huge trade deficit, it is clear that the problem with the payment will not disappear. And this particular problem needs to be solved. However, IMF reforms solve anything, but not this issue.

In fact, there is an alternative, and it is quite obvious. We can solve the problem with the balance of payments ourselves, but for this we need a will. The country should develop domestic production, reducing dependence on imports, and improve exports. That is how Asian countries achieved success without the IMF. I will say even more: the Federation of Employers and a number of politicians offer quite real reforms that could partially solve this problem. This is an export credit agency, industrial parks, restriction of exports of raw materials. But since this initiative comes from a small group of MPs, most people do not hear them. Instead, the ruling party is looking for a way to get an IMF loan. And people are told that there is no alternative. And the worst part is that both the previous government and the one present here are no different.

Related: Ukraine negotiates with IMF on long-term program, - Finance Minister

Related: Zelensky promised to deal with IMF, ask Ukrainians about NATO, but did a 180

 

 

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IMF
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