About tristanlearoyd

More info at: www.tristanlearoyd.com

The Tax Haven at the Heart of the IMF

Quote

The financial police turn to crime: the tax haven at the heart of the IMF.

By Dr. Tristan Learoyd

Last week the Financial Times reported that “Only the IMF can solve the Eurozone Crisis” (1).

The IMF’s stated mission

According to its website, the mission of the International Monetary Fund (IMF) as part of the World Bank group is “to fight poverty with passion and professionalism for lasting results”. Upon its creation, it was envisaged that the fund would serve to oversee the global economic system. The IMF would be the financial police, if you like, keeping countries in good economic health for the benefit of its citizens.

The conditions of the IMF in the Euro debt crisis

Throughout the past forty years, the IMF has become synonymous with providing loans at a steep cost to sovereign nations, the cost being the fire-sale of essential public utilities, the axing of public services and fiscal constraint. Such conditions are present in recent IMF led Euro bailouts.

Greece

The IMF offered a three-year €30 billion bailout to Greece “in support of the authorities’ economic adjustment and transformation program”. The Greek government’s IMF enforced program included reforms to tax administration, the labour market, the Greek health service, and the management of public finances.

The IMF tells us that the measures will make the Greek economy more competitive, transparent, and efficient. The fiscal measures include the much publicised reduction in public sector wages and pensions.

Transparency is raised time and time again by the IMF in its reporting of Greece (2).

Ireland

Ireland’s bailout included the usual IMF rhetoric of transferring the water service provision from local authorities to a water utility (read: privatisation), plus a Bill to increase the retirement age, measures to cut legal and medical costs, and significant cuts in social welfare payments.

“Independent assessment” of the electricity and gas sectors was recommended, which when complete, the authorities are instructed to set targets for their possible privatisation (3). Accordingly, electric is to be partially privatised in Eire in 2012 (4). The debate over the timing of the introduction of water charges in the Republic of Ireland roars on and looks likely for 2014.

Such privatisations provide an initial lump sum to indebted governments but severely hampers their abilities to hit strict inflation targets in the long term, targets set by the IMF (who else). For example, in the UK water privatisation led to price increases of up to 50% within four years with yearly increases since.

Disastrous economic conditions affecting consumption such as increasing and broadening the scope of VAT and means tested pensions are also common pieces of IMF ‘advice’ (3). It’s clear that the IMF, in its scrutiny-of-nations role, applies ideologically selective conditions to its loans. Other than privatisation, the main stipulation for a nation receiving an IMF loan is “fiscal control”, with a strong emphasis on inflation targeting via its obsession with fanciful laissez faire market equilibrium.

Inflation targeting is ideologically preferred by the IMF to employment and growth targeting. However, such inflation targeting becomes a lot more difficult for an indebted nation due to the conditions that the IMF applies to its bailouts.

The problem with IMF monetary policy

The problem with monetary policy is that you have to have a rough idea of how much money is in circulation in an economy for it to work. You also have to have a rough idea of market supply and demand to determine inflation. These crude neoclassical approximations become further obfuscated in a global financial environment that allows the unregulated and highly secretive stashing of capital in secrecy jurisdictions and tax havens, through which up to half of the world’s trade on paper passes (5).

Originally the IMF had developed a highly dubious anti-corruption agenda that focused on “the opacity of the offshore bank system, with the exception of the restrictive programmes that concern money laundering” (6). However, the reality is that as early as 2003 World Bank group members were championing tax havens:

“That does not mean that tax incentives have no effect on foreign direct investment. It is no coincidence that in 1985–94 foreign direct investment grew more than fivefold in tax havens in the Caribbean and South Pacific” (7).

As the financial crisis started to grip the World Bank Group reverted to back to the realm of reason: “The World Bank has announced a new programme of asset recovery, to be undertaken jointly with the UN. There should be no safe haven for those who steal from the poor” (8,9). However, as the crisis played out the World Bank reverted to arguments of tax competition, and of regulatory competition, in an attempt to legitimise the use of tax havens and secrecy jurisdictions: “to some degree, this tax competition can facilitate better resource allocation” (10).

The Tax haven at the heart of the IMF

Despite the IMF and its partner’s fluctuation over policy on tax havens, it is one thing for the IMF to champion the type of poverty creating investment centres used by drug dealers – and another entirely to stash public money in them (11).

In 2010, there were calls for a department of the IMF, the International Finance Corporation (IFC), not to invest in companies operating out of tax havens (12). The IFC supposedly promotes “economic development in countries where private enterprises are encouraged to operate efficiently and grow. It helps the private sector in emerging markets.” In short, the IFC helps to get foreign multinational companies into developing countries (13). The IFC, as the private sector arm of the World Bank Group, shares the Group’s mission and among those statements is, of course, the eradication of poverty (13).

For an organisation that constantly refers to “transparency” and “eradicating poverty” in its reports, the IMF may want to answer questions over IFC’s Asset Management Company (AMC). It appears that the IFC isn’t just dealing with companies that ‘operate’ out of tax havens – but it has also created one. The AMC’s dubious purpose of “allowing foreign investors to help themselves to any company they might have in their sights, bearing little or no risk, courtesy of IFC-provided public money” [Aldo Caliari, Center of Concern], is fortunately – for the IMF – somewhat camouflaged by its chosen business address (14).

The AMC is a wholly owned private subsidiary of the IFC, and is headquartered in Delaware, United States. Delaware is the number one destination for financial secrecy, tax avoidance and tax evasion on the globe according to the Tax Justice Network’s financial secrecy index (15).

The AMC is a growing part of the IFC portfolio, it manages a $3 billion IFC ‘capitalisation fund’, a $200 million Africa Fund, and huge funds from public institutions: including $2 billion from the Japanese Bank for International Cooperation, and investments form the Africa Fund of the UK’s Department for International Development (DFID) and the European Investment Bank (EIB) (16).

It is a cruel and covert hypocrisy that the IMF calls for greater government transparency from European Governments when evidence suggests the IMF is stashing public money in tax havens where it can’t be traced. Furthermore, the IFC, which aims to reduce poverty in Africa, is sponsoring the kind of jurisdiction which is responsible for poverty through capital flight and money laundering out of Africa, through its own subsidiary’s activities (17).

In light of this evidence, perhaps the IMF isn’t the solution to the Eurozone crisis the Financial Times article suggested it was; perhaps it was a principle cause of the crisis: by permitting – and now partaking in – financial secrecy.

Bibliography:

Bretton Woods Project

Tax Research UK

References:

(1) The A LIst Blog: Only the IMF can save the Eurozone Crisis

(2)  The IMF Greece FAQs

(3)  The Irish Times: Front Page

(4)  BBC Northern Ireland: Electricity Owner to be partially sold off

(5) The Guardian: Truth about Tax Havens

(6)  SGIR Stockholm Conference Sept 2010: Tax Havens

(7)  World Bank Group Public Policy for Private Sector Journal

(8) NY Times: World Bank and UN to help poor nations recover stolen assets

(9)  Tax Research UK: World Bank Targets Corruption in Tax Havens

(10) Tax Research UK: IMF says Tax Havens danger to society

(11) Reporting Project: Delaware – The Onshore Offshore

(12)  Financial Tax Force: Clampdown on Tax Havens  

(13)  IFC: Vision, Values and Purpose  

(14)  Bretton Woods Project IFC : Opportunist Expansion

(15)  Bretton Woods Project:  IFC: Intermediary Lending: Cause for Complaint

(16) IFC: What we do – Assets Management Company  

(17) Real Instituto Elcano: Africa’s Bane

Libya: into economic tyranny

Libya: into economic tyranny

by Dr Tristan Learoyd

Western Neoliberals have a problem. Libya has dispatched with its tyrant and its new government doesn’t want to play ball. The Libyans are being defiant, they don’t want foreign loans and they have the means to make their nation a success.

The IMF and World Bank have indebted the globe through their loan conditions of privatisation, slashed public spending, fiscal control and free trade. They have decimated economies from Indonesia to Nicaragua with their loans, conditions and dogma. Why would the Libyans want to take on IMF relations of that kind when it has high quality crude in abundant supply, a per capita GDP that resembles Eastern Europe, and minimal national debt? [1,2] Thus, the Libyans have been stating they do not need loans from the West: “we don’t need loans”, defiant former Libyan central bank governor Farhat Bengdara told the World shortly after the Rebels captured central Tripoli. [3]

But write off the Neoliberals at your peril, as post-conflict/post-disaster confusion is the realm of the Neoliberal. How he thrives on it: from hurricanes to tsunamis, peaceful succession to war, if there’s the green glimmer of a dollar note the neoliberal will come to town. [4]

Libya’s frozen assets

There are two huge domestic problems that face Libya: one, it has startling inequality with pre-war employment of 30% in a unvaried economy, history suggests it will need central planning from a social government with a domestic plan to solve such problems; and two, the country’s infrastructure will require significant investment following the civil war. [1] Oil exportation will be required to raise the revenues to build such infrastructure, but the problem is that the oil industry will also require post-war investment.

Unfortunately, for the West, Libya doesn’t have to turn to the World Bank or IMF to find the money to kick-start its oil exports (if there is any money left in either institution), as the country has £168bn of its own stashed in foreign banks. However, the problem Libyan’s have is that those assets were frozen when the civil war started, and assets worth at least £90bn of the £168bn are located in European banks and in US and European government bonds. The Rebels will have to form an interim government which is considered reliable before such funds are released. [3]

Stuart Levey, a former US Treasury undersecretary, describes Libya’s predicament: having the assets remain frozen could be used “as a point of leverage for the US and its allies to ensure that they have a legitimate government they can trust in Libya they can give this money to”. [3]

Of course ‘legitimate government’ to the US and its allies means a government that opens up its markets to foreign investment – in other words to multinationals – eliminates tariffs and enters into a cycle of bargain-bonanza cheap state sell-offs in oligarch wallet-swelling cycles of privatisation. Therein lies Libya’s dilemma, the foreign firms want in and the assets are frozen by their respective governments.

It is no surprise that British businesses are lining themselves up for a slice of the action in post-war Libya with firms such as BP, Weir Construction and G4S private security ready for entry. [5]

Professor Paul Sullivan of the National Defence University in Washington states that “Libya may have the toughest transition of all of them in north Africa… there really seems to be almost no understanding among many there about how to transition to a vibrant economy and democracy. Platitudes and hopes are not policies that can be implemented.” [3]

One can only presume that the other Arab Spring nations will have a ‘smoother transition’ because they don’t have oil reserves, and will just have to take foreign loans with conditions attached and then be dictated to by the West. It is likely that the ‘transition’ referred to above means the kind of “shock therapy” economics of privatisation and austerity unleashed with such devastating results on the Southern Cone in the 1970s and 1980s and on the European Eastern Block and Russia in the 1990s.

What constitutes a ‘vibrant economy and democracy’ in the eyes of the West is likely to mean ‘laissez faire’ economics combined with a heavily subdued political democracy; such as in Western Europe and the US, where we vote for a personality who will have little control over the economics of the country – if elected – in a largely futile and meaningless process known as a general election.

Into economic tyranny

This is the faceless economic tyranny of neoliberalism. Neoliberalism pretends to be “laissez faire” but in fact there is more “do” than “leave” in neoliberalism. The legal constructs of contract and property rights required to enable “laissez faire” are immense, and coercion by corporates in and outside of the complex legal framework makes neoliberalism the mirror of its results, a barbaric undemocratic economic doctrine often on a par with those employed by tyrannical leaders – such as Moammar Gaddafi. [6,7]

Since the overthrow of Allende’s Chilean Government in 1973, new regimes have to have their economics nailed-on to defeat the neoliberal agenda and its Western cheerleaders, and thus deal effectively with their own domestic economy and inequities. If the Rebels don’t want to go the way of the many emerging nations before them, and want the nation they have fought – and are still dying – for, they need to work out an economic plan, and fast. At least there is hope for the Libyan people in reports that the damage to their oil fields has been less than expected. [8]

[1] http://www.albawaba.com/business/many-challenges-ahead-libya-post-gaddafi-economy-390087 Accessed 28/08/11

[2] http://www.nytimes.com/2011/02/24/business/energy-environment/24oil.html?pagewanted=all Accessed 28/08/11

[3] http://www.iol.co.za/business/international/oil-rich-libya-not-looking-for-a-loan-1.1126333 Accessed 28/08/11

[4] Examples of neoliberalism involvement in the aftermath of disaster/confusion, for example: Hurricane Katrina, the 2005 Tsunami, Chile’s 1973 Coup and Poland’s 1990 failed succession from communism to social democracy.

[5] http://www.guardian.co.uk/world/2011/aug/28/as-gaddafi-topples-big-british-companies-queue-to-get-back-into-libya Accessed 28/08/11

[6] The immense legal constructs that enable “laissez faire’ dogma was examined in depth in the aftermath of the last Great crash by, amongst others, John Hale.

[7] The inequality of neoliberal nations can be seen in both Injustice by Dorling (2009) and The Spirit Level, by Wilkinson and Pickett (2010).

[8] http://www.reuters.com/article/2011/08/25/libya-imf-idUSN1E77O1T820110825 Accessed 28/08/11

Britain under Siege

Quote

Britain under siege: the bankers of Westminster.

By Dr. Tristan Learoyd

It is apparent to almost everyone outside of the ‘political class’ that banking regulation is needed, so why is it the government is failing to recognise this fact? Furthermore, why, when bankers’ bonuses are so unpopular and the nation is experiencing great hardship, would a government allow a nationalised bank to give away £950m in bonuses despite a £ 1.1bn loss? [1]

The bankers behind the Coalition

More than half of donations to the Conservative Party last year came from the City of London, according to the Bureau of Investigative Journalism.[2] Firms and individuals from finance donated £11.4m in 2010, bringing the total from the City since David Cameron became leader to more than £42m.[2] The bureau said that 57 individuals from the financial sector gave more than £50,000 last year, entitling them to membership of the Conservative Leader’s Club, where you get tea with David Cameron.[2]

The government, naturally, rejects any claims that donors influence policy. However, such claims gather momentum when individual funding streams are followed. In one of the clearest demonstrations of the potential practicalities of funding individual politicians, last year Bloomberg Tradebook Europe made a donation to Andrew Tyrie, the Conservative MP who chairs the Treasury Select Committee.[3] Shortly after the spending review, which was taking place around the time of the donation, Tyrie appeared on Bloomberg’s website as a “lawmaker” and used the following terms: “bank of England independence”; “bring the public sector under control”; all three parties, the IMF, world bank and EU “point in the same direction”.[4] Such a position may be Tyrie’s own confused perspective on national finance, alternatively donations could have had a role in his remarks on the website.

The bankers in Whitehall

There are cash donations and then there’s meeting with ministers to push your own agenda. Last year, the industry with the most ministerial meetings was the financial services industry, with 87.[5] But then there’s lobbying from the outside and there’s lobbying from the inside by loaning back office staff to a political party.

In 2009, PriceWaterhouseCoopers (PWC) gave non-cash donations worth £344,452 to the Tories, compared with £118,000 to the Labour party and £57,000 to the Liberal Democrats over the same period.[6] A non-cash donation is typically the cost incurred to a firm for lending out staff and project work to a political party. Such a project could be on, say, banking regulation – or lack of – at a time of crisis. In the first year of the crash (2008) PWC generated $28 billion in revenues.[7] It is the world’s largest professional services firm. Notionally, it has a lot to lose through tighter regulation and a lot to gain from promoting laissez fair minimal regulation in the financial sector.

It has also been reported that Britain’s biggest consultancy firms — which include PWC, Deloitte, Ernst & Young and KPMG — seconded some of their staff to Tory MPs in 2010 as the Conservatives worked toward government and attempted to work out how to cut Britain’s £178 billion budget deficit and decide on a new tax framework.[6] One doubts seconded staff were proposing the return of regulated finance.

Missing what was going on under his nose and probably with one eye on the funds to the Tories, a confused Liberal Democrat Treasury spokesman, Lord Oakeshott of Seagrove Bay, said of PWC’s contributions: “Expert advice is welcome in opposition parties’ policymaking. But the sheer scale of these contributions to the Tories’ private offices risks looking like consultants keeping their foot in the door for contracts.”[6]

It’s more likely that the people who caused the crash are conveniently advising all sides how to get out of recession with minimal impact on the culprit.

The bankers on the benches

The Telegraph reported recently that Britain’s biggest companies are to be paired with ministers, and will be copying bankers.[8]  A statement that could be read in many ways – including bankers pairing themselves with ministers? Bankers don’t need to pair themselves with Coalition MPs – they are the Coalition’s MPs.

During the 2010 election, there a lot was at stake, who would gain power, the Tories, Labour, or the Bankers? The Association of Independent Financial Advisors (AIFA) summed up the final result:

It can only be a positive thing to have a more commercially aware political audience that has worked in the financial services industry…. This will hopefully be a reality check on the reform of regulation…[9]

With British banks in danger of facing a regulatory shake-up, no less than three former directors of Barclays Bank are sitting in Westminster: Stephen Barclay, Andrea Leadsom and Jessie Norman. Apparently, some of the new MPs have already proved ‘crucial’ to David Cameron and George Osborne. [10] However, Gideon has no shortage of allies with financial service links.

There are nearly 100 coalition MPs with connections to the financial service industries through past employment. Here are a few of them, don’t expect banking reforms anytime soon:

Richard Shepherd – Lloyd’s of London; Nigel Mills – PWC; Richard Fuller – Invest Corp; Don Foster – Pannell Kerr Foster; John Baron – Henderson Global Investors/Rothchild Asset Management; David Evennett – Lloyd’s insurance; Nick Gibb – KPMG; Conor Burns – Zurich Advice Network; Brooks Newmark – Apollo Management; Sajid Javid – Deutsche Bank; Andrew Griffiths – Halifax; Julian Brazer – Accenture plc; Jonathan Evans – Eversheds (City of London); Tracy Crouch – Aviva; Greg hands – former City of London trader; Cheryl Gillian – Ernst & Young; Andrew Tyrie – European Bank for Reconstruction and Development; Duncan Hames – Deloitte; Douglas Carswell – INVESCO; Claire Perry – Bank of America, Credit Suisse; Hugo Swire – Streets Financial Ltd; Sam Gyimah – Goldman Sachs; Tim Laughton – Fleming Private Asset Management; Chris Huhne – Fitch Ratings; Michael Crockart – Standard Life; Mark Hoban – PWC; Hugh Robertson – Schroders; Michael Freer – Barclays; Mark Harper – KPMG; Bernard Jenkin – Legal & General; Amber Rudd – “major US bank”; John Howell – Ernst & Young; Jesse Norman – Barclays/Policy Exchange; Peter Lilley – W. Greenwell Stockbrokers; Angela Watkinson – WestPac banking Corporation; Francis Maude – Morgan Stanley/Policy Exchange; Jonathan Djanogly – S J Berwin; Philip Hollobone – former investment banker; Karl McCartney – various non-specified roles in the City of London; Nicky Morgan – corporate lawyer; Philip Dunne – S.G. Warburg, Donaldson Luftkin & Jenrette, Pheonix Securities; David Rutley – Halifax, Barclays; Theresa May – Bank of England; John Whittingdale – NM Rothschild; George Hollingbery – Former stockbroker; Nicholas Soames – Lloyd’s Brokers, Sedgwick Group; Iain Stewart – Coopers & Lybrand; Desmond Swayne – RBS; Robert Walter – Aubrey G Lanston & Co Inc; Stephen Barclay – the Enterprise forum; Jacob Rees-Mogg – Somerset Capital Management; Bill Wiggin – Commerzbank; George Young – Hill Samuel; Chloe Smith – Deloitte; James Brokenshire – Corporate advisor inc. Standard Bank London; Stephen Crabb – London Chamber of Commerce; Richard Graham – Barings Asset Management; Justine Greening – PWC; James Duddridge – Barclays; Andrew Rosindel – European Foundation; Nick Hurd – non-specified British Bank; Philip Hammond – World Bank; John Glen – World Economic Forum; Mark Reckless – Bearings and Warburg bank; Jo Johnson – Deutsche Bank; Heather Wheeler – City of London; Richard working – worked in investment banking; Andrea Leadsom – Barclays; Tim Yeo – Bankers Trust Company; Elizabeth Truss – Reform; Davis Amess – Accountancy Group; Kwasi Kwarteng – Odey Asset Management; Karen Bradley – KPMG; Stephen McPartland – British American Business; Andrew Mitchell – Lazard; Jeremy Browne – Dewe Rogerson; Jackie Doyle-Price – City of London; Alun Cairns – Lloyds; David Mowat – Accenture; Matthew Hancock – Bank of England; Harriet Baldwin – JP Morgan Chase; Jon Penrose – JP Morgan/Bow Group; Stephen Hammond – Commerzbank Securities; John Redwood – N H Rothschild; Robin Walker – Finsbury Group; Steve Baker – Lehman brothers; Mark Garnier – Fund manager, CharterHouse; David Laws – JP Morgan.

[1] http://www.guardian.co.uk/business/2011/feb/24/rbs-bankers-bonuses-despite-loss Accessed 03/06/11

[2] http://thebureauinvestigates.com/2011/05/24/tory-party-funding/ Accessed 03/06/11

[3] http://www.electoralcommission.org.uk/party-finance/uk-general-election-donations-and-borrowings

Accessed 31/05/11

[4] http://www.bloomberg.com/video/63866272/ Accessed 03/06/11

[5] http://whoslobbying.com/ Accessed 03/06/11

[6] http://www.timesonline.co.uk/tol/news/politics/article7025819.ece Accessed 03/06/11

[7] http://bigfouralumni.blogspot.com/2008/10/pricewaterhousecoopers-2008-revenue-up.html Accessed 03/06/11

[8] http://www.telegraph.co.uk/finance/yourbusiness/8314364/Government-ministers-copy-bankers-to-boost-UK-trade.html Accessed 03/06/11

[9] http://www.aifa.net/news/blog-post.php?post_id=209 Accessed 03/06/11

[10] http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7707352/General-Election-2010-bankers-become-MPs-in-new-Parliament.html Accessed 03/06/11