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Who 'owns' the IMF program? 12

I thought I'd take a short break from blogging to focus on my core work.

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However, it's a bit hard to focus when the leaders of People's Party (TP) and First Party/Latvian Way (LPP/LC) announce that "the agreement with international donors is not in Latvia's interests… and, therefore , should be repudiated". "With each day that Prime Minister Dombrovskis spends at work public debt increases by 5 million lats, and the number of unemployed increased by 208" - said Mr. Škele. Both Mr. Škele and Mr. Šlesers want to refinance the loan in international financial markets and focus on "earning, and not cutting the budget".

Ok, it's not like I am totally surprised. In September last year I already argued that it is highly unlikely that People's Party would just sit through the whole 'internal devaluation' exercise and that pushing for devaluation was the only course of action that really made sense for them. By implication, any other course of action would not make much sense. And yet, the sheer degree of absurdity into which the People's Party (and LPP/LC) has opted is striking.

I am not even going to argue about the pros and cons of this stabilization program. At this stage, lets just establish who did what. Who signed the agreement in the first place? Was it not the government of Mr Godmanis? Is he still a member of LPP/LC? Was it not our bungling minister of finance at that time, Mr Slakteris, who went to the IMF in the very first place? A member of People's Party in good standing, wasn't he? Then, if my memory serves me right, in November 2008, prior to signing the agreement, IMF insisted on a parliamentarian vote about the program. ALL of the large parties voted FOR this agreement, including TP, LPP/LC, and even opposition Harmony Center (SC). Did they not understand what they voted for? Now, Mr Škele and Mr Šlesers seem to be unhappy about the rapidly escalating public debt, high unemployment, and long recession. Yet here is an excerpt from the IMF's Request for Stand-By Arrangment, dated January 2009 (p. 9):

"The authorities’ unequivocal commitment to the exchange rate peg has determined their choice of program strategy. Though this commitment augurs well for program ownership, the authorities also recognize that their choice brings difficult consequences, including the need for fiscal tightening and the possibility that recession could be protracted, perhaps more so than if an alternative strategy had been adopted." [emphasis mine].

That same document projected rapidly escalating public debt - after all, this is precisely what happens when the government borrows 6.5 billion euros. Further, opting for internal devaluation would clearly produce substantial unemployment and a recession that would be "protracted". Are these gentlemen now trying to say they didn't know any of this back in November 2008??!

The bottom line is this. Mr Šlesers and Mr Škele were among the ones who signed the agreement in the first place. At the time of signing, it was crystal clear that the program would entail substantial fiscal consolidation, high unemployment, escalation of public debt and, very likely, a rather long recession. All of the above would be mitigated if a different strategy (external devaluation) was chosen, but it would also imply a very different distribution of losses. And that, in my opinion, was the main reason why this option was ruled out. Still, it is the program jointly owned by LPP/LC and People's party (New Era and ZZS too, of course). Ironically, the government of Dombrovskis is merely sticking to the program launched by Mr. Šlesers and Mr. Škele, among other people. And now these gentlemen are trying to say it's not their program and that they want out of it.

And by the way, there really is no way out (apart from doing the D thing). Refinance the IMF/EU loan in the markets?! And what interest rate would you need to promise in order to convince the investors to sign up for the (AS)^2 plan to "earn money and not cut the budget"?? Actually, I nearly want this to happen because I am so curious as to what this debt auction would look like!

PS On a somewhat unrelated note. A year and a half after the start of this program, it's a bit funny reading how "this commitment augurs well for program ownership", isn't it? I mean, given that two 'owners' just announced they're no owners at all... and who knows, maybe half a year later we'd have a very hard time finding anyone who would admit 'ownership' of this program. Next time, maybe the IMF shouldn't be so naïve about what politicians say.

Correction:

It was kindly pointed to me that Mr. Šķele, technically, did not sign the agreement with IMF/EU because he was not in politics at that time. It is true, Mr. Šķele only returned to People's Party in the fall of 2009. I apologize for this factual error, largely borne out of, perhaps somewhat subconscious instinct to affiliate Mr. Šķele with People's Party, regardless of his official status.

Some observers opined Mr. Šķele has had substantial influence on People's Party even not being its member, but these are, of course, just opinions and not facts.

And yet, I also remember a very recent instance in which Mr. Mr. Šķele publicly vowed not to derail the IMF program. Calling for its termination just a few months later is clearly at odds this earlier vow.

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Komentāri (12) secība: augoša / dilstoša

Tmp author bdd174d29c18893f8040d1ca0cd30c40b76ac587432bcc3f16557adc2b366733
Gabriel Lorenzi

I agree with that great economics professor. In Brazil there is a page that shows more about that. www.dicasnewyork.com.br

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Miks K 25.05.2010 17:58
Very good blog. DaceA is completely right when she says that this just shows the utter disdain that AASS has for voters.
Their clear belief that changing the packaging is all that is necessary to win votes is cynical in the extreme. I hope and believe voters won't fall for their shabby little three-card trick yet again. If they do, they already know exactly what to expect.

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V Dombrovsky -> AS 19.05.2010 09:46
You're technically right. See correction above.
I still don't quite recall Mr Šķēle prostesting this program in November 2008, or soon thereafter. I could miss it, of course.

I presume you could be so kind as to provide some evidence as to how Mr. Šķēle "never approved it" at that time?

Thank you.

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Janis Ozols 18.05.2010 10:47
to----> A.S
It dosen't change the fact that his party signed this agreement. As far as i know he never lost his influence in People's Party commitee. Even when he was retired from politics his wife still was a member in commitee.

However author is writing about responsibility of parties and not so much of particular individuals.

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A.S. 17.05.2010 22:53
"Mr Šlesers and Mr Škele were among the ones who signed the agreement in the first place."
---
Wrong. Check the facts. Šķēle has never approved it.
What I am surprised is exactly how this smart reasoning may include so ovious mistake, which other commentators do not notice.

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MartinsK 13.05.2010 05:13
Lielisks raksts, atgādinot politiķu īso atmiņu :). Vienīgi vēlos piemināt to, ka Šķēles kungs aktīvajā politikā atgriezās tikai 2009. gada beigās, tāpēc noteikti viņam pašam būtu lielisks attaisnojums sevi nevainot un turpināt sludināt lielās pārmaiņas. Tomēr jāņem vērā Šķēles ietekme politikā arī laikā, kamēr bija pagājis malā no aktīvās politikas, un arī tas, ka tāpat tā ir un paliek Tautas Partija, atbildība par lēmumiem ir jānes!

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Ugis Gruntmanis 12.05.2010 20:09
Es pilnigi piekritu, sie cilveki, vienigais ko vini grib, izvairities no atbildibas un "aizmalet" cilvekiem acis ar pseido aktivitatem.
Runajot vel par citiem Slesera kunga merkiem, kapiemram merkis Latvijai klut par Singapuru tiesam ir labs, tacu lai to izdaritu Singapuras premjerministrs 50 gados pateica, lai mes to izdaritu "we must get rid of corruption, be as transparent as possible and speak English well", kas tika ari izdarits un tapec Singapura ir tur kur ta ir, Singapura nesaka ar kazino celsanu, kuri Slesera kungs ir iecerejis ka glabsanu Latvijai.
Vel vairak, bijusais Singapuras premjerministrs uzsvera, ka lai gan vinu ieredni un policija ir gruti korumpejami, vins baidas par narkotiku, prostitucijas, dazadu bandu ienaksanu Singapura un ko tas viniem reali dos. Par cik Latvija korupcija nav izkausta, tad man liekas ka sie Slesera kunga ieteikumi Latvijai var atnest milzu problemas.

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Kārlis Streips 11.05.2010 11:21
Paldies autoram par rakstu. Diesel -- kad Jaunais laiks veidojās, man ar maniem ārvalstu tulkošanas klientiem tieši par šo jautājumu bija diskusijas. Sekta sanāktu, ja mēs partiju sauktu New Age -- tas būtu tāds hipijisks variants. Es piedāvāju arī New Weather, bet šī doma tika noraidīta. :)

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rb 11.05.2010 05:18
Slava,I envy your patience to write 8 paragraphs explaining how absurd their claims are. When I first saw it, my only reaction was to promise myself to stop reading news from Latvia... at least until October.

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Kalvis 10.05.2010 22:03
Ir jau no šī spārna politiķiem vēl citas interesantas idejas. Teiksim, kustības "Par labu Latviju!" padomes priekšsēdētājs, uzņēmējs Guntis Belēvičs piedāvā ieviest maksas izglītību jau no 7-8.klases, toties attiecīgi samazināt nodokļus. Principā interesants plāns - vecāki, kuriem ir 14-18 gadus veci bērni, atdos pēdējo, lai bērniem būtu izglītība. Un tikmēr lielie onkuļi izmantos nodokļu atlaides un varēs pacelt mūsu valsts ekonomiku.

Ja A+Š un visa viņu svīta oktobrī tiktu pie teikšanas, tad mēs vēl redzētu interesantas lietas. Diemžēl vēlētāji šos šokējošos uzņēmējus laikam nesapratīs.

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DaceA 10.05.2010 19:23
Thanks for the great read - I totally agree and hope IMF does read your bloggs, too!
It is outrageous to see these statements made by political parties largely responsible for the depth of the crisis and the conditions set to the international loan. It is sad to see them playing these tunes hoping for the short (evidence-based) memory of the voter. Clearly, this also shows what a high opinion they have about the electorate (stupid, without a memory longer than 3 months, unable to put A+B together...). For my part I've decided to stop focusing on TP and LPP/LC - let them give their interpretation of the situation to their 3% electorate (for each party), with enough of other voices (like yours) reminding them of the truth.

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Diesel 10.05.2010 18:35
Kā parasti, ļoti trāpīgi. Paldies autoram. Tikai - vai Jaunais Laiks tiešām ir New Era? Varbūt tā arī sanāk tulkojot, taču izklausās mazliet pēc sektas:)

Bet tas tikai tā - sīkums ar humoru.

Citi autora darbi