Logo of the Alternative Platform to the World Bank-IMF Annual Meetings in Lima. Image: Alternative Platform
- The story of the World Bank and the IMF are trying to tell is pure fiction.
By José De Echave C.*
Servindi, 25 September, 2015.- The World Bank and the IMF have decided to bring their annual party to Lima: the Annual Meetings of the Board of Governors, the highest decision-making body of these financial institutions, made up of representatives of each of the 188 member countries.
Peru's representative on the Board of Governors is the Minister of Economy and Finance, Alfonso Segura, and to the IMF is represented by the president of the Central Bank, Julio Velarde.
The date is from 5 to 12 October and preparations are already underway. The Annual Meeting is organized in South America again after 48 years.
But the World Bank and the IMF not only aim to make their party here, but apparently they also come to tell us the recent history of the Peruvian economy. World Bank Secretary, Mahmoud Mohieldin, said that the appointment in Lima "is certainly a reflection of what Peru has achieved in recent years in terms of political stability, institutional framework, economic strength, attracting investment and integration into the global economy."
In sum, another promoter of the so called "Peruvian miracle".
The big problem is that this comes precisely when the party it's over in Peru and much of the world, as explained by a recent article by The Economist. The supposed strength of the Peruvian economy began to fade as soon as the global economy showed the first signs of having a cold.
And for Peru this is not new; in fact it is something that have repeated each time the external prices of raw materials fell. The effect is immediate: our economy slowdown and goes into recession.
To speak only of the latest crisis: the one occurred from 1997-1998 after the Asian crash (do not forget that the fujimorato left the country in recession), in 2008/2009 with the financial collapse and also since 2012/2013 with the decline in commodities prices.
Therefore, the story of the World Bank and the IMF are trying to tell is pure fiction. The supposed strength never existed nor is it real that the Peruvian economy has grown as a result of the policies promoted by these financial institutions: the determining factor behind the growth was the commodities super cycle, for Peru, mainly minerals. And the beginning of the current debacle coincides with the end of the cycle: a repeated story that we know from the times of the guano.
Worse yet, there are clear indications that this was not a decade won, as they say, but rather a new decade lost.
And precisely the policies of the World Bank and the IMF have been a factor that prevented us from taking advantage of the external momentum with favorable terms of trade. Examples: IMF policies sought to "favor taxes that do not distort relative prices that determine the market, in detriment of those who gradually affect the distribution of income" (1). Put simply, they raised consumption taxes and reduced all income taxes.
It is clear that we have lost nearly a decade of a mineral super cycle without applying the oft-mentioned tax on mining profits, which would have generated resources to cope with the low seasons.
The World Bank also played along and became a key player of the so-called structural reforms and sectorial adjustments, while discouraging any attempt to diversify the national productive matrix.
The structural adjustment loans became crucial instruments for the imposition of liberal reforms. Thus, the World Bank not only supported the policy changes of key productive sectors, privatizations, trade liberalization and foreign investments, but also became a rigorous evaluator of the country's commitment to the neoliberal policies.
The truth is that the story of the "Peruvian miracle" is over; super cycle passed away and the "islands of excellence", the MEF and the BCR, long showed their limitations.
This is a good time to remember some quotes by those who became seasick in the period of growth: "Peru is shielded against an international crisis"; said a former president before the economy tumbled into recession; "Peru is on track to the first world," said another minister; Alan Garcia´s preferred Economy Minister, Luis Carranza, predicted more than once that "the mineral super cycle will last for 30 years".
Let us be alert of those who say that the slowdown is just a "temporary setback" and that the recovery of mineral prices is around the corner. Beware of those who insist on an exhausted model.
The truth is that there is nothing to celebrate and also that very difficult times are coming. Neither the World Bank nor the IMF qualifies as impartial historians of our economy.
Taking stock of everything that happened in the last two decades and start thinking about measures to be implemented is a pending task. Let’s start the debate now in October and demand the presidential candidates to come forward; the electoral process should be a good opportunity to generate this discussion.
(1) Alfredo Iñiguez: Estado y tributos en América Latina. Revista Nueva Sociedad 258. Julio-Agosto 2015.
* Economist at Cooperaccion, former Deputy Minister of Environmental Management.
English version by Servindi.