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Wednesday, September 28, 2022

The IMF again

Those of us who are old enough will remember the 1970s when the IMF was asked to provide a huge loan to rescue the country from a balance of payments crisis, an intervention that wrecked the Labour Government's reputation for economic competence and helped pave the way for a Thatcher victory in 1979.

The conditions on which that money was lent to the UK included the sort of austerity measures later introduced by the Cameron Government in an effort to get borrowing under control. It sealed the reputation of the IMF as a right wing facing organisation, whose remedies for emerging countries are closer to Milton Friedman than John Maynard Keynes. Umder the circumstances one would expect them to back Truss's trickle down solution to Britain's economic woes rather than oppose them.

Unfortunately for Truss that is not the case. The Guardian reports that the International Monetary Fund has launched a stinging attack on the UK’s tax-cutting plans and called on Liz Truss’s government to reconsider them to prevent stoking inequality:

In rare public criticism of a leading global economy, the Washington-based fund said Kwasi Kwarteng’s mini-budget risked undermining the efforts of the Bank of England to tackle rampant inflation amid the cost of living emergency.

It said a statement planned by Kwarteng for 23 November presented an “opportunity for the UK government to consider ways to provide support that is more targeted and reevaluate the tax measures, especially those that benefit high income earners”.

The rebuke comes amid a growing international backlash over the chancellor’s £45bn of unfunded tax cuts, with the intervention from the IMF swiftly followed by sharp criticism from the credit rating agency Moody’s late on Tuesday. The US treasury secretary, Janet Yellen, also said the US was “monitoring developments very closely” in the UK.

As one of the most influential adjudicators in global financial markets, which rates the creditworthiness of governments and corporations on behalf of large investors, Moody’s said the UK’s “large unfunded tax cuts are credit negative”.

“A sustained confidence shock arising from market concerns over the credibility of the government’s fiscal strategy that resulted in structurally higher funding costs could more permanently weaken the UK’s debt affordability.”

The intervention from the IMF is rare given the influence of the UK in the global economy, and as one of the organisation’s largest shareholders.

Larry Summers, the former US treasury secretary, said such a warning shot from the IMF would be more usual for an emerging market economy than a country like Britain. He told the BBC’s Newsnight: “It is early days and things could change and economics is not an exact science, but I would certainly say that this has the look right now of a number of unforced errors.”

The paper adds that the IMF has consistently warned countries to avoid universal bailouts in response to the energy price shock. It has argued that only the poorest households should be protected from higher energy bills and the extra costs from rising inflation to limit the impact on public borrowing.

If the IMF are critical of this government's right wing policies then we know we are in trouble.
In 1977/78 the Liberals restored international faith in the UK economy. In 2010 it was the turn of the Liberal Democrats. Things started to go downhill after the leader of the majority party (Callaghan and Cameron respectively) decided he could do without the support and advice of the third party. Sadly, with their huge majorities, there has been no check on the irresponsibility of Johnson and Truss.

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