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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Britain has built a national myth on winning the Second World War, but it’s distorting our politics

The impending humiliation of Brexit is going to have a lot more in common with Suez.

The Crown, Peter Morgan’s epic drama covering the reign of Elizabeth II, ended its first series with a nemesis waiting just off-stage to shake up its court politics. In the final episode, Egyptian president Gamal Nasser gives a rip-roaringly anti-imperialist – and anti-British – speech. The scene is set for the Suez Crisis to be a big plot point in Season 2.

Suez has gone down in history as the great foreign policy debacle of postwar Britain. The 1956 crisis – which saw Israel, France and Britain jointly invade Egypt to take control of the Suez Canal, only to slink off again, nine days later, once it became clear the US wasn’t having any of it – is seen as the point at which it became clear that even the bigger states of Europe were no longer great powers in the world. “President Eisenhower’s humiliation of Britain,” Jack Straw wrote in his 2012 memoir, “had been total.”

This was, though, a fairly limited sort of humiliation. Britain was not invaded or occupied; there was no sudden collapse in living standards, let alone a significant body count. Our greatest national debacle is nothing more than the realisation that Britain could no longer do whatever it wanted without fear of reprisal. As humiliations go, this one’s up there with the loss of status men have faced from the rise of feminism: suddenly, Britain could do what it wanted a mere 80 per cent of the time.

The Crown begins in 1947, when Prince Philip gives up his Greek and Danish royal titles and becomes a British subject, so that he can marry Princess Elizabeth. That year saw another British foreign policy debacle, one on which the show remains oddly silent. In the partition which followed India’s independence from the British Empire, 70 years ago this week, upwards of a million people died; in the decades since, the borders drawn up at that time have been the site of numerous wars, and Kashmir remains a flashpoint.

All this, one might think, might count as a far bigger regret than Suez – yet it doesn’t feature in the national narrative in the same way. Perhaps because partition was about the withdrawal of British forces, rather than their deployment; perhaps it’s simply that it all happened a very long way away. Or perhaps we just care less about a body count than we do about looking bad in front of the Americans.

I think, though, there’s another reason we don’t talk about this stuff: the end of empire is hidden behind a much bigger part of our national myth. In the Second World War, Britain is undeniably one of the good guys; for 12 months, indeed, Britain was the only good guy. Never mind that it still had the largest empire the world had ever seen to fall back on: Britain stood alone.

The centrality of the Second World War to the national myth warps our view of history and our place in the world in all sorts of ways. For starters, it means we’ve never had to take an honest account of the consequences of empire. In a tale about British heroes defeating Nazi villains, British mistakes or British atrocities just don’t fit. (Winston Churchill’s role in the 1943 Bengal famine – death toll: three million – by ordering the export of Indian grain to Britain rarely comes up in biopics.) In this dominant version of the national story, the end of empire is just the price we pay to defeat fascism.

More than that, our obsession with the Second World War creates the bizarre impression that failure is not just heroic, but a necessary precursor to success. Two of the most discussed elements of Britain’s war – the evacuation of Dunkirk, and the Blitz – are not about victory at all, but about survival against the odds. The lesson we take is that, with a touch of British grit and an ability to improvise, we can accomplish anything. It’s hard not to see this reflected in Brexit secretary David Davis’s lack of notes, but it’s nonsense: had the Russians and Americans not arrived to bail us out, Britain would have been stuffed.

Most obviously, being one of the winners of the Second World War infects our attitude to Europe. It’s probably not a coincidence that Britain has always been both one of the most eurosceptic EU countries, and one of the tiny number not to have been trampled by a foreign army at some point in recent history: we don’t instinctively grasp why European unity matters.

Once again, Suez is instructive. The lesson postwar France took from the discovery that the imperial age was over was that it should lead a strong and unified Europe. The lesson Britain took was that, so long as we cosied up to the US – Athens to their Rome, to quote Harold Macmillan – we could still bask in reflected superpower.

Until recently, Britain’s Second World War obsession and national ignorance about empire didn’t really seem to affect contemporary politics. They were embarrassing; but they were also irrelevant, so we could cope. Brexit, though, means that hubris is about to run headlong into nemesis, and the widespread assumption that Britain is a rich, powerful and much-loved country is unlikely to survive contact with reality. India will not offer a trade deal for sentimental reasons; Ireland is not a junior partner that will meekly follow us out of the door or police its borders on our behalf. The discovery that Britain is now a mid-ranking power that – excepting the over-heated south-east of England – isn’t even that rich is likely to mean a loss of status to rival Suez.

Morgan says he has planned six seasons of The Crown. (This looks entertainingly like a bet the Queen will be dead by 2021; if not, like Game of Thrones before it, he might well run out of text to adapt.) It’ll be interesting to see how the show handles Brexit. It began with the royal family facing up to a vertiginous decline in British power. As things stand, it may have to end the same way. 

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Brexit. You can find him on Twitter or Facebook.

This article first appeared in the 17 August 2017 issue of the New Statesman, Trump goes nuclear