Neoliberalism and selective memories

Since the financial crisis I can't make new memories.... everything fades....

OK – here we go again. Deborah Doane writes on the Guardian Poverty Matters blog about how we should uniformly reject all neoliberal policies. One of her examples?

In fact, four of the five fastest growing developing countries in the late 1990s were those that rejected neoliberalism. After a severe famine in 2005, Malawi rejected IMF and World Bank prescriptions and subsidised fertiliser for poor farmers. As a result, during the 2007/08 food price crisis, Malawi was not only able to feed its population, but became a bread basket to the region.

A seemingly simple story about a developing countries throwing off the shackles of structural adjustment in order to do the right thing? Maybe not – Ms. Doah has failed to do her homework on Malawi’s recent history with the IMF.

Let’s rewind a bit to the beginning of multi-party democracy in Malawi, which also introduce a surge in inflation. The two-term presidency of the first democratic president, Bakili Maluzi, was marked by excessive government spending, poor macroeconomic management and a surge in corruption and theft of public funds.

Inflation is sometimes seen as a bit of a boogeyman, but there is very little that is pro-poor about a 40% annual inflation rate. It was only through the hard work of the Malawian government and the IMF (under the PRGF) that inflation was brought under manageable level, as was government spending. There were probably some negative consequences to this imposed austerity (many assert that the IMF’s pressure to keep the wage bill down hurt social programs in the country, although the evidence of this is mixed), but I think few people would consider Malawi’s position before the introduction of the PRGF to be sustainable.

In 2006 Malawi finally reach its HIPC completion point, resulting in a slashing of its debt burden by nearly $3 billion dollars. The amount that Malawi saved on immediate debt from this relief nearly equaled the amount they chose to spend on fertilizer in the subsequent budget year, so the benefits of the relief are quite clear. Aside from the immedite benefits, being nearly debt-free gave the country the wiggle-room necessary to pursue more expansionist fiscal policy, and it is highly doubtful that they could safely be spending so much on fertiliser today if they hadn’t behaved a little beforehand.

What’s the lesson here? Sometimes `neoliberal’ policies are beneficial and sometimes they aren’t. Blanket policies are not very useful in the post-crisis world, but neither are blanket condemnations.