Stop the Austerity Craze! Massive Budget Slashing Can Lead to Economic Disaster, Violence and Repression
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WASHINGTON, March 8 — The International Monetary Fund's managing director, Michel Camdessus, asserts that economic stabilization measures in Venezuela ''are proving even more painful'' because they were ''too long postponed.'' He made the comment in a letter written on Monday, just days after unrest caused by tough economic measures led to up to 375 deaths in Venezuela. Mr. Camdessus praised the new Government of President Carlos Andres Perez for its ''courage'' in embracing an economic shock program that was designed to increase economic efficiency, and said the I.M.F. would support it ''with all the influence at its disposal.'' But he rejected charges from Mr. Perez that the I.M.F. was at least partly responsible for last week's disturbances because it had recommended some of the revamping measures.
Notice the same twisted rhetoric used then as we see today; the elites who impose austerity and slaughter civilians and declare states of emergency to protect IMF programs are labeled “courageous,” while the people who are killed don’t get so much as a column inch. Notice how President Perez blames Camdessus, and Camdessus blames an alternative history that could have been if only previous leaders been “courageous” too and enacted these insane price hikes and wage cuts earlier.
Venezuela’s austerity programs created greater poverty, richer oligarchs, worse corruption, and the inevitable backlash in the form of Hugo Chavez, who staged a coup in 1992 that almost succeeded…and later won the presidency through the ballot box. Perez had to flee to Miami with his family to avoid being put on trial for the massacre; he died just last month in shame.
Austerity programs in the ex-communist Soviet countries led to similar disastrous results: As I wrote about in the Nation, Larry Summers oversaw Lithuania’s austerity program in the early 1990s, sparking overnight the world’s highest suicide rate, economic misery and a backlash that made Lithuania the first country in the former communist bloc to vote the communists back into power -- anything to stop the pain.
In Russia, austerity measures dictated by the same Hayek groupies in the IMF led to a complete financial market meltdown, an over 50 percent collapse in the GDP, the untimely deaths of millions, and of course the requisite President Yeltsin ruling by decree, bombing his own parliament, then finally snuffing democracy by handing the Kremlin over to his crony, Vladimir Putin.
The Russian economists who helped design their austerity program spent a lot of time learning from Friedrich von Hayek’s favorite austerity-program-cured country on earth, the Chile of Generalissimo Augusto Pinochet (South Africa’s apartheid regime came a close second in Hayek’s austere Austrian heart). That austerity program, implemented in 1975 under the advice of von Hayek and Milton Friedman, was implemented after the brutal massacres and destruction of democracy, a clever reversal of the usual formula; Pinochet overthrew the democratically elected president, Salvadore Allende, in 1973, massacred roughly 3,000 opponents and locked up and tortured countless more, providing the perfect conditions for von Hayek’s austerity measures.
In 1975, those measures were implemented, and the results were, naturally, catastrophic. GDP collapsed almost 15 percent in just one quarter, while unemployment soared from 3 percent under Allende to 20 percent. The economy didn’t reach 1971 levels until the end of the 1970s—and then the whole house of Austrian-economics cards collapsed two years later. But the good thing for Chileans was, they didn’t have to go through the trauma of massacres and end-of-democracy, since that was already served up in advance. By the end of it all, Chile was left with a new class of massively enriched financial oligarchs, the public sector unions in tatters, and one of the world’s worst wealth inequalities.