IMF Report Reveals Financial Capital Dictatorship

Governments around the world must obey the dictates of finance capital, as transmitted through the bond markets that trade their debts, and mount an attack on the working class through deep cuts in spending on vital social services.

That is the message delivered at the International Monetary Fund Fiscal Monitor Report issued this week at its semi-annual meeting in Washington.

Of course, the directive did not express itself in such direct language. It was written in the characteristic style of such reports and with the aim of trying to obscure their essential class content. But it is clear nonetheless, as the financial press acknowledged.

the financial times summed up the report as follows: “Governments must put more weight into keeping their finances in shape, or risk undermining the confidence of bond market investors who buy their debt, the IMF warned.”

He noted that the decision was a reversal of the IMF’s earlier position when it called on governments to spend more in response to the economic devastation wrought by the COVID-19 pandemic. The change is the result of the high interest rate regime imposed by the US Federal Reserve and other central banks.

It was not so much a “warning” as a directive, as the report’s foreword, written by Vitor Gaspar, the IMF’s head of fiscal policy, explains.

Vitor Gaspar, director of the International Monetary Fund’s Fiscal Affairs Department, addresses a news conference in Washington on Wednesday, October 12, 2022. [AP Photo/Patrick Semansky]

“In the context of high inflation, high debt, rising interest rates and heightened uncertainty, consistency between monetary and fiscal policy is paramount. In most countries, this means keeping the budget on its adjustment course,” he said.

In other words, the government cannot provide a stimulus when central banks raise interest rates with the aim of inducing an economic contraction, and even a recession, to squash the rising wage movement of the working class in response to inflation. . In this class war, the two arms of the capitalist state must follow a unified strategy.

If they deviate, there will be big consequences as Gaspar made clear.

“With inflation elevated and financial conditions tightening, policymakers should prioritize macroeconomic and financial stability above all else,” he wrote.

“This is especially relevant as recent developments in bond markets show increased market sensitivity to deteriorating (or bad) fundamentals. That raised the possibility of more disruptive fiscal crises around the world.”

While Gaspar was not specific, he was referring to the financial crisis in Britain in response to the Truss Tory government’s September 23 mini-budget that promised £45 billion in tax cuts for corporations and the super-rich.

Sterling fell to record lows against the US dollar, falling almost to parity at one point, and the price of long-term Treasury bonds, called gilts, tumbled, rapidly pushing up their yields. (The two are moving in opposite directions.) The crisis, which is by no means resolved, threatened to drive pension funds into insolvency.

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