Note to George: the IMF doesn't always get it right

Ireland and Indonesia should make Osborne think again.

Samuel Longhorn Clemens, advised the young to "be respectful to your superiors, if you have any". The phrase comes to mind following the nice pat on the head and doggy discuit following the release of the International Monetary Fund's annual summary report on the UK economy:

The UK economy is on the mend. Economic recovery is underway, unemployment has stabilized, and financial sector health has improved. The government's strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability. The plan greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery.

The Chancellor, and the right-leaning press junket, has been duly respectful. But does the IMF's exercise the kind of superior judgment Twain would have us respect? Let's examine two recent cases.

Ireland, 2007 - 2010

BEFORE

As late as 25 September 2007 (ten days after the run on Northern Rock, a micro model of the entire Irish economy of the time) , the IMF:

commended Ireland's continued impressive economic performance, characterized by one of the highest growth rates of GNP per capita among advanced countries and one of the lowest unemployment rates. This performance has been underpinned by outward-oriented policies, prudent fiscal policy, low taxes, and labor market flexibility.

and congratulated Ireland on her "very strong" growth, "supported by sound policies". They branded the country's ruinuously overleveraged banking system "well-capitalized, profitable, and liquid".

AFTER

The IMF's 2009 report on the Irish government's subsequent swingeing cuts was nicely summarised here:

Our main message to the Irish authorities is not on the course which they are taking, which support and we agree with, but on the need to sustain this over an extended period of time.

The goverment has indeed sustained the IMF-endorsed approach. The result is government bond yields are exploding, and will continue to do so now government debt has been downgraded to one notch above junk. Unemployment has been consistently rising to 13.8 percent, and is still

In July this year, the IMF recommended Ireland stay the course.

Indonesia, 1996 - 1998

BEFORE

The IMF was at the head of the pack in lauding the Asian Miracle of the 1990's. Michel Camdessus, the then managing director of the IMF, speaking in Jakarta on November 7, 1996 welcomed:

high and sustainable rates of growth and, equally important, the kind of "high-quality growth" that also fosters human development, promotes equity, safeguards the environment, and allows an enhancement of the cultural values of your countries.

However, as predicted by some, the ASEAN area and Indonesia in particular were in dire economic straits by July 2007.

AFTER

In August the IMF heartily recommended Indonesia float the rupiah:

The management of the IMF welcomes the timely decision of the Indonesian authorities. The floating of the rupiah, in combination with Indonesia's strong fundamentals, supported by prudent fiscal and monetary policies, will allow its economy to continue its impressive economic performance of the last several years.

The promise of continued impressive performance was what Huck Finn would call a "stretcher". Indonesia, under Suharto was intimate with the IMF for years, and so the rupiah floated. Suharto also took the recommended fiscal tightening measures, including the cancelation of food subsidies to the poor.

As a result, the rupiah fell by 83.2 percent against the dollar. Indonesia's national debt rose from 3 per cent in 1968 to 129 per cent. The regime collapsed after widespread and deadly food riots. Suharto was forced to resign on 21 May. The recovery since then has been slow, and chiefly centered around the profusion of manufacturing in textiles and other low-paid industries with the attendant sweat-shop suffering and indignities.

Notably, in a recent interview with Charlie Rose, George Osborne cited Indonesia as one of the economic success stories of the last 30 years.

Back to Blighty

So, is the IMF's endorsement a prescient, objective, reassuring one? I think not, and I'm in good company. Back to Twain:

In religion and politics, people's beliefs and convictions are in almost every case gotten at second-hand, and without examination, from authorities who have not themselves examined the questions at issue, but have taken them at second-hand from other non-examiners, whose opinions about them were not worth a brass farthing.

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John Prescott on Labour: “This must be the worst operation I’ve ever seen”

The Labour peer and former deputy prime minister laments his party’s “civil war status”, saying “I wish Momentum would go away”.

I’ve attended a thousand PLP meetings. This must be the worst operation I’ve ever seen. It is more about personality politics than in the past.

The [last] Labour government was successful in most of the issues that we always thought was important to Labour: in the growth of the hospitals, the education system, the economy, people at work. All that was a successful record.

Not that it’s ever mentioned now. It was soured largely by Iraq. That period is almost obliterated by that. So you find present government, or even present leadership, in no way refers to that period of the Labour government. So the real problem is, if you’re disowning the most successful three periods of a Labour government, then you’re in some difficulty as to what you’re replacing it with.

It’s never happened before – it’s open war, civil war, inside the PLP. Some members in the PLP sit there with their social media, already typing out the fight going on to the mass of reporters who are amassed outside and told to come along and report because there’s going to be a big row. All that means we can’t really have unity. The division now is the attack on the leadership. A core who sit in the same places, make the same accusations against the leadership, right or wrong, every bloody week. They do it by a death of a thousand cuts – keep on making the same complaints.

I just think that the PLP is in civil war status. It’s not carrying out what it should do – that is, project Labour’s policies and be supportive of our people in the field.

All this criticism is about removing him. And then what adds to that is when Tom Watson comes along and joins in with this criticism. He’s entitled to do so, but he is the Deputy Leader, for God’s sake – quite different from the way I saw the role as defined; to support the party in a positive way, right. Get out and increase his membership, etc.

And the Leader, he's faced with a really difficult position, because he was elected and had never been a minister before. My heart went out to him when he had to deal with PMQs. Even with my 50 years, I found it impossible and fell on my face a few times.

We have a shadow cabinet now – cor blimey, you can be in the shadow cabinet in 12 months! You do need to have a bit of experience. So that does affect it, without a doubt. Then you get people on one side who refuse to serve in the shadow cabinet criticising the shadow cabinet. If you join the shadow cabinet, you’re a traitor to one cause or the other.

It's how you manage that division. The leadership is critical – for Jeremy to go out and do all of these things when he’s not been a minister is difficult. I think he’s been improving in doing the job. But frankly, it gets into people’s minds in a very short period of time, whether they think you’re the leader or not. And we do have a dilemma. It’s difficult for him – he’s reaching out a bit now, but almost the list has been drawn. I can’t see these people coming across now and uniting in the name of the party, supporting our people out in the elections. If you can’t unite the party, how the hell can you carry the country?

There are problems on the left and problems on the right, but we’ve always managed them – especially in the PLP. Robust arguments. But now it’s the battlefield, and all that comes out is a divided party.

I’m an old Labour man, right, I’m Labour to the core. To sit and watch it waste away its great reputation, what it’s done for our people in the country, and then when our people start stopping to vote for us, you’ve got to ask what’s bloody going wrong.

What Jeremy does is his decision. But he’s made clear he wants to stay. Now, if that stays the same, and the others stay the same, we’re going to have a stalemate divided Labour party – it’s disastrous.

So on the one hand, the PLP could try to be a little bit more supportive, and to recognise the party’s elected a leader, or they can go through the same process come June and call for another election, put it to the vote. They’re the options given to us by our party.

Our bloody country is decimated and we’re talking about the fucking sponsorship rules for the election of leader! I wish Momentum would go away, they’ve given us the same problems we had with Militant. I don’t think they’re as powerful as Militant, but they’re dedicated to the same cause. Their debate is how you change the Labour party.

By Christ, we can't win like this! I’m an old-fashioned type, and I’m proud to have belonged to a team that did win three elections. There was no other leader who did that before. But I don’t put it down to leaders, I put it down to the nature of the party. We’re responsible, not the leaders.

John Prescott is a Labour peer and former deputy leader of the Labour Party.

As told to Anoosh Chakelian.

This article first appeared in the 30 March 2017 issue of the New Statesman, Wanted: an opposition