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Why do countries who take IMF bailouts end up worse then when they started?
Why do countries who take IMF bailouts end up worse then when they started?
The Greek government has promised to slash and then freeze public-sector wages, raise sin taxes, increase value-added taxes, impose a new levy on businesses, cut pension payments and raise retirement ages for some public-sector workers. The steps are expected to save the state €30 billion through 2013. Unions have vowed strikes to protest the deal.
"We have no other choices and no time," Greek Prime Minister George Papandreou said in a televised speech on Sunday. He vowed that his government won't "allow the country to become bankrupt."
IMF bailouts is not a form of decreased government spending.
It is merely a loan which must be paid back - and it come with stipulations and regulations that the receiving country has to abide by.
One of which is always severe cuts to government spending. While there are plenty of other posion pills in the medicine kit the IMF hands out, large government spending cuts is one of the main ones. If government spending cuts were so beneficial, why do IMF recipients generally end up significant worse then when they started?
Why do countries who take IMF bailouts end up worse then when they started?
Actually that is not entirely true.
Take Argentina. They took an IMF bailout after decades of political instability, dictatorships and so on, and so far have kept a stable democracy. They are now much better off than they were (over all) before the bail-out. Granted the social injustice in the country has increased considerably (more poor, bigger income inequality and so on) but the over all economy is better and more stable.
Cutting is GREAT when it's done *right*
Cutting = spending less on supplies for the office, technology upgrades, nipping petty cash, travel expenses, curbing the purchase of various things that's are essential.
Cut your non-essentials back and are just more careful WITH your budget - and you'll fair better.
(apply this to your home - if money is so tight you're living off of continuous loans and credit-card purchases then what you should do is let go of some non-essentials - like tv or electricity usage. NOT to just borrow more money and then hack into your kid's piggy bank)
So look at the types of 'government spending' that Greece cut:
Wages (people's pay for working)
Pension (for retirees)
Retirement age (thus - age for receiving said pensions)
This is hurtful because it will reduce people's spending money which they depend on - people will be forced to cut back on their living expenses.
If the government is raising taxes AND cutting people's wages then people will have less money *to* spend.
A government cannot sustain itself without economic fluidity.
It's not so much HOW MUCH you try to cut - or raise - it's WHAT you cut or raise and WHERE you get money from.
If a country is taking such big loans it's because they're making bad decisions - and have been for a very long time.
We're a stellar example.
If these bad decisions at the core (government spending, budgeting, programs, efforts, decisions) aren't addressed the problem will hang around - get worse - maybe improve every now and then - but overall it won't ever really *go away*
Like I said - the time to take action is before things fall apart.
It'll take a very long time for a country to recover when they've gone past that point of no return (this is our situation).
And in the process the economy hurts - which continues to hinder recovery.
Their only true hope is to bring in tourism or increase production and capitalize on exports.
But when you're a small, limited country like Greece you don't have very many options - which is why a tight budget and safety precautions is SO important.
Exactly - look - if your country goes into debt like that and your people end up WORSE OFF then it FAILED. . . it did not WORK right.
The point of a government is to govern and protect the rights of the people - not just screw them over, take all their money, and flush them down the crapper when the pot is full.
One of which is always severe cuts to government spending. While there are plenty of other posion pills in the medicine kit the IMF hands out, large government spending cuts is one of the main ones. If government spending cuts were so beneficial, why do IMF recipients generally end up significant worse then when they started?
Actually that is not entirely true.
Those countries that often take IMF bailouts often have a history of political instability.
Take Argentina. They took an IMF bailout after decades of political instability, dictatorships and so on, and so far have kept a stable democracy. They are now much better off than they were (over all) before the bail-out. Granted the social injustice in the country has increased considerably (more poor, bigger income inequality and so on) but the over all economy is better and more stable.
The people managing the various governments have poor budgetary skills.
From what I understand, a lot end up right back where they were.
Perhaps so, but some of that can be attributed to the speed of which the IMF wanted its stipulations enacted. Poland engaged in a very different path then the average IMF and they are doing well. The IMF was pretty stupid. Viewing all economic crisies as the same is basically like a doctor who's only drug prescribed to all of his patients is Tylenol.
Poland was and is still an emerging market.
They had/have a lot of potential and not as much brain drain, like Argentina.
True, but in many ways, so was Argentina. And Argentina was never crippled by the state planning of the USSR satellite system.
But on the flip side, Poland never had the raw material reserves that Argentina does.
I don't think Argentina is done.
I think they could, eventually, head right back into the crapper, especially with the corruption of the Kirchner's.
Poland was and is still an emerging market.
They had/have a lot of potential and not as much brain drain, like Argentina.
From what I understand, Argentina has experienced a lot of people leaving for sunnier shores like Spain and the rest of the EU.
You have to remember Argentina was one of the most prosperous states in the world prior to their collapse.
I think they were the 8th largest at one point.
For once I agree with Pete. The countries are already in bad shape. It's like blaming chemotherapy for the death of a cancer patient.
You have to remember Argentina was one of the most prosperous states in the world prior to their collapse.
I think they were the 8th largest at one point.
You got a link for that?
That really doesn't sound right.