Excellent piece. One additional thing that isn't touched on much however is the real role of SAPs; these make a good deal more sense once you stop viewing them as external constraints for accessing funding, and instead see them as accountability sinks to enable the introduction of necessary but unpopular reforms. As you rightfully point out, because of these various poor quality governing practices, many developing economies end up in unsustainable situations for which the only way out is fairly painful austerity. This is usually very politically difficult to implement, to the point that any domestic government that tries is likely to face serious pressure (see ongoing protests surrounding Ruto). The role of the IMF in this situation is to essentially absorb the negative sentiment such reforms create - domestic leaders can point to the deficits and declare that they have no choice but to implement the reforms or else they will default on debt. Then, when popular sentiment turned bad, it allows them to turn around and point to an external bogeyman in the form of the IMF to blame it on. A common phrase in management cybernetics is ‘The Purpose of a System is What It Does (POSIWID) - in this case, what the IMF does is provide a relatively politically painless way for leaders to implement austerity reforms.
As a way of operating, I have mixed feelings about this. On the one hand, it’s a very effective accountability sink - those responsible for determining the reforms are sufficiently removed from those responsible for implementing them that it can very effectively protect the process of decision-making. On the flip side however, this distance between the IMF and country in question undermines the informational flow between them, as as an external body the IMF is likely to have a worse grasp on the situation, and thus promote worse proposals, than an actual on-the-ground governmental institution. Because of this, my personal preference in these situations is to instead find a way to sell the necessary reforms directly to the people - this is difficult but not impossible, as Milei in Argentina has shown.
The wider framework is based on management cybernetic theory - Dan Davies does an excellent job of elaborating on this in his blog https://backofmind.substack.com/ and I can highly recommend his book if you are interested in learning more.
The particular application of it is based on my own assessments - at some point I’m planning to go into the wider issue here of solving the African political culture problem on my own blog if you’re interested. https://backseatpolicycritic.substack.com/
Although you have some excellent context, the article largely misses mark because you ended up defaulting back to the major criticisms that most people have of the IMF like the austerity measures in addition to using the typical gatekeeping and patronizing language that’s so prevalent in academia. To make this more effective it would’ve been useful to cite actual publications not tweets from layman that make the arguments you claim to figuring against. Another criticism would be with point 4. With the cadre of PhDs and highly educated individuals from the best universities it seems extremely short sighted that they not only don’t recognize these “patronage” but continue to give loans with no accountability measures that’s a major deficiency. Kenya is an excellent example of the IMF continuing to loan to extremely corrupt regimes time and time again, so they are definitely culpable.
Haha, this comment sounds more diplomatic than your first version!
1) I don't understand how I am gatekeeping or using patronizing language. Are you saying I should have spelt it out more clearly that these countries continue to borrow from the IMF because they are inept?
I don't think I was patronizing language at all. I literally said "it’s driven by governments that continue mathematically innumerate practices, knowing they can rely on cheap IMF loans. Unproductive political patronage further compounds the issue."
I basically blame the government for doing things that are politically "good" which caters to their base, which is at the same time "bad" economically speaking. That was the whole point of my Sri Lanka example.
2) I used twitter posts rather than academia, because your average person really doesn't know how the IMF works. Most people get their knowledge of the IMF from the book "Economic Hitman" which is actually a terrible book for understand the IMF. When I look at some of the comments on my posts, twitter, or from my substack thread, people really think IMF loans have absurdly high interest rates, think the IMF tries to make countries poor, steals resources, or creates "debt traps".
Your average person really doesn't know that IMF loans are concessionary and near zero interest for poor countries, doesn't know that the IMF doesn't take resources,, and doesn't know that the IMF had provided mass debt relief to poor countries twice. Even when I was at MIT and I took classes at Harvard Kennedy School, I was surprised how people in economic development classes didn't know these basic facts and the professor didn't bother correcting them.
So I tried to explain to someone coming from zero knowledge. If my points seemed obvious to you its because you are at a higher level than the average reader. But this is no where close to my final article on the IMF, but I need my audience to build up their knowledge base as I continue writing so that's why I critiqued layman points.
3) Yes there is a lot of short sidedness in development economics. More than you can imagine. When I went to MIT and took some development economics courses and went to office hours, there were professors who know their math and history and have done great work in developing countries, but they can still be blinded by silly ideology. We also don't have a lot of examples of reformists who managed to blast through their patronage network to make good reforms. Frankly, in all the examples I can think of where someone fixed the system from ruin I can only think of is how Deng Xiaopeng had to remove the Gang of Four to execute his reforms.
Daron Acemoglu is a sharp guy, but he says some things I find silly about Africa (like he blames marketing boards that hinder agricultural development, when marketing boards were also used in Taiwan & SK & Japan in the late 1800s. He also says State owned enterprises are black boxes of corruption, when Singapore, Taiwan, SK, and 1800s Japan used them extensively for industries that entrepreneurs weren't going towards).
4) I actually don't think corruption itself is the problem. Every country that was industrializing was extremely corrupt. Corruption gets tackled usually after reaching a certain level of development. If you thought my patronizing language was using words like "unproductive patronage systems" instead of "corruption" that's because I don't think corruption is the problem but rather patronage systems that don't prioritize growth, building national champion companies, or building domestic savings is the problem. Getting that patronage alignment problem really has to be the solution, which is really hard.
If we define success as the number of countries that haven't borrowed from the IMF in 5, 10, 15, or 20 years then the IMF has seen notable successes—countries like China (1987), South Korea (1997), Brazil (2002), and others haven’t returned for loans (India, Philippines, South Africa, Vietnam, Turkey, Rwanda, Mauritius, and more). On the other hand, some countries repeatedly fall into financial traps due to their own mismanagement and reversal of reforms. Blaming the IMF for this ignores the root causes within the borrowing countries.
I'm Ghanaian. The history of Ghanaian economic history is doing the innumerate economic policies that placate interest groups, but then lead to bankruptcy and then need an IMF loan. Then start reforms, then get couped since they are unpopular. Then reverse reforms, then do innumerate economic policies again until bankruptcy, and then need an IMF loan. That has basically been the history of Ghana's economic history until the discovery of oil gave Ghana a brief reprieve.
However, if we define failure by looking at the number of countries that owe over 15 loans, that number has gone up including Argentina, Ghana, Egypt, Senegal, Ivory Coast and more. Again I would blame that on the governments from Ghana to Argentina to etc. they are driving their country to bankruptcy for the sake of placating the urban middle classes and other interest groups.
4) Canceling the IMF would be catastrophic—people would starve and there would be mass migration of the country, and countries wouldn’t be able to import basic goods like food, as in the case of Sri Lanka. The IMF often steps in as a last resort when reserves run dry. The IMF prevented more chaos in Sri Lanka.
Countries like Venezuela, which refuse IMF help, where 9M people migrated & people are suffering, is what happens when you refuse IMF help.
Venezuela has been in a mess since oil prices collapsed in 2014, before Trump cut Maduro from issuing eurobonds in 2017.
5 & Last post) The IMF is also a big carrot that America uses to get countries aligned with its foreign policy like Egypt, Ukraine, or Pakistan. If I have time in my critique next time, I'll do over that. But next time is more of a focus on IMF mishaps
I think you may have misunderstood my post, so I appreciate the chance to clarify a few points.
1) Patronage Networks: The unsustainable policies I referred to are driven by the country's own internal politics—designed to appease urban middle classes, military, and elites. Patronage systems exist everywhere; it's a matter of scale. The core argument was that these countries implement financially unsound policies (e.g., unprofitable state-owned enterprises, subsidies, foreign borrowing, propping up a currency to make it relatively strong) for political reasons, which eventually lead them to seek help from the IMF. The IMF doesn’t create the problem—it steps in when countries face the consequences of their own decisions, like in the case of Sri Lanka.
Here's my quote about this "The IMF isn’t deliberately "trapping" countries in debt. Rather, it’s often the country’s own elites who, in trying to maintain power and placate key domestic patrons, inadvertently lead their nation into unsustainable debt. The solution isn’t as simple as ending corruption—an impossible task in any country—but rather aligning the interests of the patronage networks with economic policies that promote stability and growth. This way, they can avoid having to return to the IMF for help.
The real challenge, and the million-dollar question, is how to achieve this alignment. There’s no one-size-fits-all answer, as each country’s political dynamics and patronage systems are unique."
2) Current Account Deficits: When the IMF advises a country to float its currency, this leads to a devaluation that discourages imports (making them costlier) and encourages exports (making them cheaper), which helps close the trade deficit. The issue is that many countries don’t implement the full suite of reforms due to internal resistance from their patronage networks. That’s why I referenced Deng Xiaoping, who realigned these power structures toward growth, removing the need for IMF assistance.
My whole point talking about Sri Lanka was showing the familiar pattern that countries do on their own which make them go to the IMF.
> Countries like Tanzania, Kenya, and Ivory Coast saw decreases in per capita education spending
I'd curious if this actual reduced the literacy rates for these countries. Even in comparatively better run countries like India public schools costs 3 times per student than private schools with worse education outcomes. So basically 2/3 of their education budget is literal waste.
The IMF should mandate shifting to a school voucher program otherwise corrupt countries will use the public education money as the prime patronage system since the IMF wouldn't be allowed to cut the spending for that.
I'm assuming a combination of local governments making up fake records for students to get more funding from the central government + illiterate people have a much higher fertility rate than literate people. But yeah 85+% literacy rate seems very high. That might be higher than the literacy rate in Bangladesh.
Would support an initiative to abolish the IMF? Has there been famous proposals for getting rid of it? Developing countries would virtue signal about getting rid of it but won't actual vote for it since they have no one to blame if it's gone. But why haven't rich countries pushed for it. It's a infinite money pit. If America really want to prop up Egypt and Pakistan it can do that directly. Why bother putting so much money in Argentina?
Honestly the West should just put out a resolution to abolish the IMF and call the developing world out on their bluff. It would take a lot of wind out off the sails of these neo-colonialist pundits.
Do you think it's at least possible to put in a three strike rule for the IMF? Like no more than three loan packages for 25 years etc. That should take out the worst actors from the system.
Do you think there will be another debt forgiveness round by the end of the decade because of the Covid debt and rise in energy prices due to the Russia Ukraine war? There will probably a bunch of green bullshit as part of the condition for the debt forgiveness. There're called debt for climate swaps or something. Unless they mean something else and if so I apologise.
There have been calls to make the IMF more "democratic". Whenever someone says that I immediately know not to take it seriously. Like the money the IMF gets is through voluntary contributions from rich countries who do it for global influence. If you make the fund democratic why would a country contribute more to the fund. The solution would be to force every country to contribute to the IMF. Even if you manage to put off something like that it would make the IMF a lot more anal about debt repayments because you would have convince, let's say, Indian taxpayers that they should be bailing out Argentina which is a country 5 times richer than theirs.
Why does China want to put more money into the IMF? To me it's a babysitter for basket case countries. Why would the Chinese want a stake into an infinite money pit? Is it just to flex?
Next time I'll go over how the IMF is basically a policy tool of America and Europe based on voting shares. If China gets more voting shares it gets more influence as well. China could use the imf to stabilize North Korea just like what America does with Egypt.
Well they have Asian infrastructure bank which they made in 2015, which their realm and have a toe in the international community realm too.
In addition, China already does bilateral debt restructure talks. But china isnt a fan of debt relief. That's why China isn't in the Paris Club which does both relief and debt restructuring.
Again if they put money in the IMF they would end up having to do relief anyways. I'm telling you if mostly about flexing. Or at best they would take part in a "western" institution, mess it up for everyone involved and then blame the West for its dysfunction.
> For instance, Tanzania avoided IMF loans after 2012 by increasing its savings rate from 23% to 37% of gross income($8.5B to $29B), even though Tanzanians earn half as much as Kenyans who have much lower domestic savings.
How was Tanzania able to increase its savings rate so quickly? Did the government run persistent budget surpluses? Increase consumption taxes? Put income from resource exports into a sovereign wealth fund?
Mainly fiscal discipline with higher consumption taxes, better tax collection, more fdi in mining, and increased gold & copper exports. They have a sovereign wealth fund because they have the third largest reserves of natural gas (30 trillion cubic feet, losing only to Russia and Iran) but they haven't exported it yet.
They have gas reserves comparable to Russia and Iran but they don't export it? Are too far away from major export markets? LNG prices remain elevated since the damned Europeans started hogging the thing after the Russia Ukraine war. Tanzanian gas will be very welcome in emerging Asia right now.
> There’s no "dam" to break because the U.S. doesn't have to defend a fixed exchange rate, and interest payments take up only 19% of government revenue as of 2024.
19%? Holy shit. Do you either Harris or Trump is going to do anything about reducing the budget deficit?
Harris will probably win imo. But regardless of who wins, none of them care about that interest payment % because both voting constituencies don't really care.
Everything depends on whether Harris gets the senate as well.
If she wins both the house and senate she can probably raise income taxes and maybe remove stepped up basis and carried interest. The question is will her tax revenue increases also come with increases spending as well.
If Republicans win the senate, they be all about deficit reduction and force Harris to curb deficits like they did under Obama or win Gingrich mafe Clinton run budget surpluses.
If Trump wins, deficits will increase because he won't decrease spending while he'll decrease taxes. So the first year or two taxes will go down before the economy adjusts to the tax changes he makes.
When you say "reorganization of national credit" do you mean
1) Credit creation or the idea that countries can spur growth by expanding their domestic credit system—essentially reorganizing or increasing the amount of credit available for investments within the economy.
Excellent piece. One additional thing that isn't touched on much however is the real role of SAPs; these make a good deal more sense once you stop viewing them as external constraints for accessing funding, and instead see them as accountability sinks to enable the introduction of necessary but unpopular reforms. As you rightfully point out, because of these various poor quality governing practices, many developing economies end up in unsustainable situations for which the only way out is fairly painful austerity. This is usually very politically difficult to implement, to the point that any domestic government that tries is likely to face serious pressure (see ongoing protests surrounding Ruto). The role of the IMF in this situation is to essentially absorb the negative sentiment such reforms create - domestic leaders can point to the deficits and declare that they have no choice but to implement the reforms or else they will default on debt. Then, when popular sentiment turned bad, it allows them to turn around and point to an external bogeyman in the form of the IMF to blame it on. A common phrase in management cybernetics is ‘The Purpose of a System is What It Does (POSIWID) - in this case, what the IMF does is provide a relatively politically painless way for leaders to implement austerity reforms.
As a way of operating, I have mixed feelings about this. On the one hand, it’s a very effective accountability sink - those responsible for determining the reforms are sufficiently removed from those responsible for implementing them that it can very effectively protect the process of decision-making. On the flip side however, this distance between the IMF and country in question undermines the informational flow between them, as as an external body the IMF is likely to have a worse grasp on the situation, and thus promote worse proposals, than an actual on-the-ground governmental institution. Because of this, my personal preference in these situations is to instead find a way to sell the necessary reforms directly to the people - this is difficult but not impossible, as Milei in Argentina has shown.
This comment is platinum. I am curious of where you got your framework from.
The wider framework is based on management cybernetic theory - Dan Davies does an excellent job of elaborating on this in his blog https://backofmind.substack.com/ and I can highly recommend his book if you are interested in learning more.
The particular application of it is based on my own assessments - at some point I’m planning to go into the wider issue here of solving the African political culture problem on my own blog if you’re interested. https://backseatpolicycritic.substack.com/
An excellent overview of a complex topic.
Although you have some excellent context, the article largely misses mark because you ended up defaulting back to the major criticisms that most people have of the IMF like the austerity measures in addition to using the typical gatekeeping and patronizing language that’s so prevalent in academia. To make this more effective it would’ve been useful to cite actual publications not tweets from layman that make the arguments you claim to figuring against. Another criticism would be with point 4. With the cadre of PhDs and highly educated individuals from the best universities it seems extremely short sighted that they not only don’t recognize these “patronage” but continue to give loans with no accountability measures that’s a major deficiency. Kenya is an excellent example of the IMF continuing to loan to extremely corrupt regimes time and time again, so they are definitely culpable.
Haha, this comment sounds more diplomatic than your first version!
1) I don't understand how I am gatekeeping or using patronizing language. Are you saying I should have spelt it out more clearly that these countries continue to borrow from the IMF because they are inept?
I don't think I was patronizing language at all. I literally said "it’s driven by governments that continue mathematically innumerate practices, knowing they can rely on cheap IMF loans. Unproductive political patronage further compounds the issue."
I basically blame the government for doing things that are politically "good" which caters to their base, which is at the same time "bad" economically speaking. That was the whole point of my Sri Lanka example.
2) I used twitter posts rather than academia, because your average person really doesn't know how the IMF works. Most people get their knowledge of the IMF from the book "Economic Hitman" which is actually a terrible book for understand the IMF. When I look at some of the comments on my posts, twitter, or from my substack thread, people really think IMF loans have absurdly high interest rates, think the IMF tries to make countries poor, steals resources, or creates "debt traps".
Your average person really doesn't know that IMF loans are concessionary and near zero interest for poor countries, doesn't know that the IMF doesn't take resources,, and doesn't know that the IMF had provided mass debt relief to poor countries twice. Even when I was at MIT and I took classes at Harvard Kennedy School, I was surprised how people in economic development classes didn't know these basic facts and the professor didn't bother correcting them.
So I tried to explain to someone coming from zero knowledge. If my points seemed obvious to you its because you are at a higher level than the average reader. But this is no where close to my final article on the IMF, but I need my audience to build up their knowledge base as I continue writing so that's why I critiqued layman points.
3) Yes there is a lot of short sidedness in development economics. More than you can imagine. When I went to MIT and took some development economics courses and went to office hours, there were professors who know their math and history and have done great work in developing countries, but they can still be blinded by silly ideology. We also don't have a lot of examples of reformists who managed to blast through their patronage network to make good reforms. Frankly, in all the examples I can think of where someone fixed the system from ruin I can only think of is how Deng Xiaopeng had to remove the Gang of Four to execute his reforms.
Daron Acemoglu is a sharp guy, but he says some things I find silly about Africa (like he blames marketing boards that hinder agricultural development, when marketing boards were also used in Taiwan & SK & Japan in the late 1800s. He also says State owned enterprises are black boxes of corruption, when Singapore, Taiwan, SK, and 1800s Japan used them extensively for industries that entrepreneurs weren't going towards).
4) I actually don't think corruption itself is the problem. Every country that was industrializing was extremely corrupt. Corruption gets tackled usually after reaching a certain level of development. If you thought my patronizing language was using words like "unproductive patronage systems" instead of "corruption" that's because I don't think corruption is the problem but rather patronage systems that don't prioritize growth, building national champion companies, or building domestic savings is the problem. Getting that patronage alignment problem really has to be the solution, which is really hard.
I wrote more about corruption here:
https://yawboadu.substack.com/p/thoughts-about-corruption-in-developing
South Korea was hella corrupt but they got their patronage system aligned towards growth and domestic savings wihile Kenya has not.
Great post! From your writing, it seems that IMF mostly failed, and is now supporting patronage network and propping impossible account deficits.
Why not just cancel the IMF?
3) Depends on how you define success or failure.
If we define success as the number of countries that haven't borrowed from the IMF in 5, 10, 15, or 20 years then the IMF has seen notable successes—countries like China (1987), South Korea (1997), Brazil (2002), and others haven’t returned for loans (India, Philippines, South Africa, Vietnam, Turkey, Rwanda, Mauritius, and more). On the other hand, some countries repeatedly fall into financial traps due to their own mismanagement and reversal of reforms. Blaming the IMF for this ignores the root causes within the borrowing countries.
I'm Ghanaian. The history of Ghanaian economic history is doing the innumerate economic policies that placate interest groups, but then lead to bankruptcy and then need an IMF loan. Then start reforms, then get couped since they are unpopular. Then reverse reforms, then do innumerate economic policies again until bankruptcy, and then need an IMF loan. That has basically been the history of Ghana's economic history until the discovery of oil gave Ghana a brief reprieve.
However, if we define failure by looking at the number of countries that owe over 15 loans, that number has gone up including Argentina, Ghana, Egypt, Senegal, Ivory Coast and more. Again I would blame that on the governments from Ghana to Argentina to etc. they are driving their country to bankruptcy for the sake of placating the urban middle classes and other interest groups.
4) Canceling the IMF would be catastrophic—people would starve and there would be mass migration of the country, and countries wouldn’t be able to import basic goods like food, as in the case of Sri Lanka. The IMF often steps in as a last resort when reserves run dry. The IMF prevented more chaos in Sri Lanka.
Countries like Venezuela, which refuse IMF help, where 9M people migrated & people are suffering, is what happens when you refuse IMF help.
Venezuela has been in a mess since oil prices collapsed in 2014, before Trump cut Maduro from issuing eurobonds in 2017.
5 & Last post) The IMF is also a big carrot that America uses to get countries aligned with its foreign policy like Egypt, Ukraine, or Pakistan. If I have time in my critique next time, I'll do over that. But next time is more of a focus on IMF mishaps
Hi Nir,
I think you may have misunderstood my post, so I appreciate the chance to clarify a few points.
1) Patronage Networks: The unsustainable policies I referred to are driven by the country's own internal politics—designed to appease urban middle classes, military, and elites. Patronage systems exist everywhere; it's a matter of scale. The core argument was that these countries implement financially unsound policies (e.g., unprofitable state-owned enterprises, subsidies, foreign borrowing, propping up a currency to make it relatively strong) for political reasons, which eventually lead them to seek help from the IMF. The IMF doesn’t create the problem—it steps in when countries face the consequences of their own decisions, like in the case of Sri Lanka.
Here's my quote about this "The IMF isn’t deliberately "trapping" countries in debt. Rather, it’s often the country’s own elites who, in trying to maintain power and placate key domestic patrons, inadvertently lead their nation into unsustainable debt. The solution isn’t as simple as ending corruption—an impossible task in any country—but rather aligning the interests of the patronage networks with economic policies that promote stability and growth. This way, they can avoid having to return to the IMF for help.
The real challenge, and the million-dollar question, is how to achieve this alignment. There’s no one-size-fits-all answer, as each country’s political dynamics and patronage systems are unique."
2) Current Account Deficits: When the IMF advises a country to float its currency, this leads to a devaluation that discourages imports (making them costlier) and encourages exports (making them cheaper), which helps close the trade deficit. The issue is that many countries don’t implement the full suite of reforms due to internal resistance from their patronage networks. That’s why I referenced Deng Xiaoping, who realigned these power structures toward growth, removing the need for IMF assistance.
My whole point talking about Sri Lanka was showing the familiar pattern that countries do on their own which make them go to the IMF.
Gonna add more in another post.
> Countries like Tanzania, Kenya, and Ivory Coast saw decreases in per capita education spending
I'd curious if this actual reduced the literacy rates for these countries. Even in comparatively better run countries like India public schools costs 3 times per student than private schools with worse education outcomes. So basically 2/3 of their education budget is literal waste.
The IMF should mandate shifting to a school voucher program otherwise corrupt countries will use the public education money as the prime patronage system since the IMF wouldn't be allowed to cut the spending for that.
literacy data is really weird:
https://data.worldbank.org/indicator/SE.ADT.1524.LT.ZS?end=2019&locations=CI-TZ-KE&most_recent_value_desc=false&skipRedirection=true&start=1988&view=chart
Tanzania had 82% literacy in 1988 and now its 88%
Ivory Coast had 49% literacy in 1988
Kenya didn't report literacy until the 2000s which was 93% and now its 89%
I'm assuming a combination of local governments making up fake records for students to get more funding from the central government + illiterate people have a much higher fertility rate than literate people. But yeah 85+% literacy rate seems very high. That might be higher than the literacy rate in Bangladesh.
Would support an initiative to abolish the IMF? Has there been famous proposals for getting rid of it? Developing countries would virtue signal about getting rid of it but won't actual vote for it since they have no one to blame if it's gone. But why haven't rich countries pushed for it. It's a infinite money pit. If America really want to prop up Egypt and Pakistan it can do that directly. Why bother putting so much money in Argentina?
Honestly the West should just put out a resolution to abolish the IMF and call the developing world out on their bluff. It would take a lot of wind out off the sails of these neo-colonialist pundits.
Do you think it's at least possible to put in a three strike rule for the IMF? Like no more than three loan packages for 25 years etc. That should take out the worst actors from the system.
Well I think America would like the IMF to exist as its an avenue to make sure terrorists like Islamic State from taking over the Sinai.
America and Europe basically broke IMF rules to fund Ukraine in a way, which hasn't been done.
Also if the imf didn't provide funds to Pakistan, I feel that country would be unstable.
Do you think there will be another debt forgiveness round by the end of the decade because of the Covid debt and rise in energy prices due to the Russia Ukraine war? There will probably a bunch of green bullshit as part of the condition for the debt forgiveness. There're called debt for climate swaps or something. Unless they mean something else and if so I apologise.
Debt relief will continue as long as people forget the previous debt relief efforts. Probably will be a perpetual thing that happens every 10-15 years
There have been calls to make the IMF more "democratic". Whenever someone says that I immediately know not to take it seriously. Like the money the IMF gets is through voluntary contributions from rich countries who do it for global influence. If you make the fund democratic why would a country contribute more to the fund. The solution would be to force every country to contribute to the IMF. Even if you manage to put off something like that it would make the IMF a lot more anal about debt repayments because you would have convince, let's say, Indian taxpayers that they should be bailing out Argentina which is a country 5 times richer than theirs.
To me you have to always "Russell conjugate" a word to see the down sides. The downside of democratization is more politicalization as well.
But right now China is lobbying to get its quota contribution up. China's quota is lower than Japan's which makes no sense.
Why does China want to put more money into the IMF? To me it's a babysitter for basket case countries. Why would the Chinese want a stake into an infinite money pit? Is it just to flex?
Next time I'll go over how the IMF is basically a policy tool of America and Europe based on voting shares. If China gets more voting shares it gets more influence as well. China could use the imf to stabilize North Korea just like what America does with Egypt.
They can do that already. If they join the IMF most of their new money will go towards being a personal credit card for the Argentinean president.
If countries want influence won't it make more sense to do bilateral debt restructure agreements?
Well they have Asian infrastructure bank which they made in 2015, which their realm and have a toe in the international community realm too.
In addition, China already does bilateral debt restructure talks. But china isnt a fan of debt relief. That's why China isn't in the Paris Club which does both relief and debt restructuring.
Again if they put money in the IMF they would end up having to do relief anyways. I'm telling you if mostly about flexing. Or at best they would take part in a "western" institution, mess it up for everyone involved and then blame the West for its dysfunction.
> For instance, Tanzania avoided IMF loans after 2012 by increasing its savings rate from 23% to 37% of gross income($8.5B to $29B), even though Tanzanians earn half as much as Kenyans who have much lower domestic savings.
How was Tanzania able to increase its savings rate so quickly? Did the government run persistent budget surpluses? Increase consumption taxes? Put income from resource exports into a sovereign wealth fund?
Mainly fiscal discipline with higher consumption taxes, better tax collection, more fdi in mining, and increased gold & copper exports. They have a sovereign wealth fund because they have the third largest reserves of natural gas (30 trillion cubic feet, losing only to Russia and Iran) but they haven't exported it yet.
They have gas reserves comparable to Russia and Iran but they don't export it? Are too far away from major export markets? LNG prices remain elevated since the damned Europeans started hogging the thing after the Russia Ukraine war. Tanzanian gas will be very welcome in emerging Asia right now.
They got investors building it and they have exported a little gas but they are still renegotiating royalty and contract terms:
https://www.marinelink.com/news/tanzanian-lng-project-delayed-government-513493
> There’s no "dam" to break because the U.S. doesn't have to defend a fixed exchange rate, and interest payments take up only 19% of government revenue as of 2024.
19%? Holy shit. Do you either Harris or Trump is going to do anything about reducing the budget deficit?
Harris will probably win imo. But regardless of who wins, none of them care about that interest payment % because both voting constituencies don't really care.
Everything depends on whether Harris gets the senate as well.
If she wins both the house and senate she can probably raise income taxes and maybe remove stepped up basis and carried interest. The question is will her tax revenue increases also come with increases spending as well.
If Republicans win the senate, they be all about deficit reduction and force Harris to curb deficits like they did under Obama or win Gingrich mafe Clinton run budget surpluses.
If Trump wins, deficits will increase because he won't decrease spending while he'll decrease taxes. So the first year or two taxes will go down before the economy adjusts to the tax changes he makes.
The idea that savings are required is wrong. What is required is reorganisation of the national credit
When you say "reorganization of national credit" do you mean
1) Credit creation or the idea that countries can spur growth by expanding their domestic credit system—essentially reorganizing or increasing the amount of credit available for investments within the economy.
2) MMT?