Given the loathing many on the left of South African politics feel towards the IMF, this year’s Mapungubwe Institute for Strategic Reflection (Mistra) annual lecture should be an interesting spectacle.
The timing could not have been better: the IMF is releasing R9-trillion in emergency funding to help countries recover from the Covid-19 pandemic, of which South Africa will receive R65bn.
The presentation on August 31 will be by Jonathan Ostry, deputy director of the IMF’s Asia & Pacific department, who was part of the team in the aftermath of the financial crisis of 2008 that started questioning the principles of what the late British economist John Williamson termed the “Washington Consensus”.
Williamson consolidated the emerging consensus in the Bretton Woods institutions and US Treasury into 10 principles, which included fiscal discipline, reordering public expenditure priorities, liberalisation of inward foreign direct investment, privatisation, deregulation and property rights.
Former president Thabo Mbeki’s signature economic policy, the 1996 Growth, Employment & Redistribution (Gear) programme, has often been accused of being a voluntary structural adjustment package that would be looked upon favourably by the Bretton Woods institutions.
In several articles on finance and development, including “Neoliberalism: Oversold?”, Ostry and IMF colleagues Prakash Loungani and Davide Furceri began questioning some of those prescripts, which had been spouted as religious dogma for decades. The “New Washington Consensus” that has emerged since has been described by Martin Sandbu of the Financial Times as putting to shame the conversion of Saul of Tarsus from Judaism to Christianity when he became the Apostle Paul.
Beijing Consensus
However, they have not been entirely disapproving of the old Washington Consensus. They argue that financial openness, as in some capital flows, has been of some benefit, while short-term capital flows have increased the risks and possibility of crises. They do admit that the short-run costs of fiscal consolidation of the old policy in terms of lower output, welfare and higher unemployment had been underplayed. They have also argued that the old approach did not allow for countries with the required fiscal space to take on higher debt and thus allow debt ratios to decline through growth.
This is also an opportune moment to debate whether the “Beijing Consensus”, a phrase coined by Joshua Cooper Ramo of Kissinger Associates to describe China’s economic development model as an alternative to the Washington Consensus, is applicable to developing countries generally.
These developments in IMF thinking, largely through its research department, have helped position the fund handsomely to deal with the crises resulting from the Covid-19 pandemic. It has doubled access to its emergency facilities without the need to have a full package in place, having provided funding to almost 90 countries. It has recognised that combating Covid-19 would yield more than $1-trillion by 2025 in additional tax revenues in advanced economies. It has encouraged spending on education to make up for the disruptions in learning, as well as to upgrade skills for workers in emerging industries.
Heeded advice
It has also been targeting high net worth individuals for higher taxes, even suggesting that advanced economies consider net-wealth taxes — a move welcomed even by a number of US billionaires, among the many other acts of charity they engage in. But perhaps the most fundamental shift Ostry and his colleagues called for was that “policymakers, and institutions like the IMF that advise them, must be guided not by faith, but by evidence of what has worked”.
His talk at the Mistra event, “Will Covid-19 Raise Inequality? Evidence from Past Pandemics and Crises”, will be watched closely to assess the extent to which the IMF has heeded that advice. Of particular interest to the SA audience given the levels of anaemic growth even before 2020, inequality, extreme levels of poverty, hunger and unemployment, is whether we will be adopting a new orthodoxy (Beijing or Washington) under recently appointed finance minister Enoch Godongwana. Or will we emerge with a Tshwane version?
• Abba Omar is director of operations at the Mapungubwe Institute.
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