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Wednesday, 15 February 2017

Does IMF conditionality lead to political illiberalism? A comparative South East European perspective

Speaker(s): Merih Angin (Blavatnik School of Government, Oxford), Saliha Metinsoy (Wadham College, Oxford), Alex Kentikelenis (Trinity College, Oxford)
Chair: Charles Enoch (St Antony’s College, Oxford)

Political illiberalism, in South East Europe as well as across the world, is a topic of rising concern. However, is it possible we have overlooked an important driver – economic conditionality imposed by the IMF in crisis-hit countries? This was the provocative question posed to the three scholars who have focused their research on the IMF at this joint PEFM-SEESOX seminar. The picture that emerges does not provide for easy and clear cut answers, but these scholars argue that under particular conditions the IMF might inadvertently strengthen illiberal currents.

Merih Angin tackled the topic by looking at the role of the IMF in the AKP’s rise. In 2001, Turkey was hit by a financial crisis, leading to an agreement with the IMF. Shortly thereafter, the conservative AKP won parliamentary elections. However, during this period Dr. Angin describes the AKP as “in government but not in power”. Therefore, it had strong incentives to implement IMF conditionality given its need to overcome suspicions of its Islamist image in the West, as well as to generate economic growth, which was crucial to its domestic legitimation. Therefore, it ardently pursued the IMF program as it allowed it to accumulate power, gain external support, and undertake an extensive process of state transformation. Indeed, the AKP itself signed a new deal with the IMF in 2005, promising the privatization of the four largest state enterprises.
This second agreement allowed the AKP to consolidate a specific idea of the state. Its leader, Recep Erdogan, embraced privatization as a case of prestige and honoring promises, going as far as to market the sale of assets abroad. Thus, by behaving as a ‘merchant state’, Turkey used external commitments and globalization to legitimize actions that transformed state monopolies in telecoms, petrochemicals, oil refineries, and iron reserves into private ones, sometimes selling directly to its socio-political base. In this way, AKP used privatization as a neoliberal process to depoliticize the transformation of labor relations within the country. Eventually this allowed it to build up its power base, train its own bureaucrats and gain enough power to pay back the Fund and shift the blame for accumulated debt to previous governments.

Drawing on her research, Saliha Metinsoy examined the impact of IMF conditionality on unrest and the working class. Dr. Metinsoy argues that large-scale grievances can occur when IMF brings labor conditions into an immobile labor market. When the IMF opens up a labor market when it is hard to move to alternative jobs, this increases the risks for immobile workers that cannot move to another growing sector with similar income and rights, so they mobilize to react back. For example, when in Greece labor conditions made hiring and firing easier, decentralized collective bargaining, and decreased minimum wages, workers became trapped in jobs with lower income and rights, including part-time work, which in turn led them to organize large-scale protests. Meanwhile, Greek public sector workers had well-developed job and wage protection institutions that disincentivized them from developing transferable skills, in turn making it hard for them to find similar jobs.

Therefore, Dr. Metinsoy argues that whenever high levels of IMF labor conditionality are combined with low labor mobility, we would observe high levels of unrest. Thus, high mobility and less labor conditionality explain why Latvia and Ireland saw less protests than Portugal and especially Greece. She argues that these variations cannot be explained by alternative mechanisms. For example, stronger and more protected institutional rights actually reduce rather than incentivize protests as they channel the demands of workers. Meanwhile, whereas unemployment seems another plausible factor, it is people in jobs that are more likely to protest as they stand more to lose from cuts. Finally, political culture is a weak predictor of unrest as there are actually less protests from year to year under IMF programs due to fatigue.

The final speaker, Alexander Kentikelenis, examined if there was a link between structural adjustment and the dynamics of liberal backslide. Structural adjustment, or privatization, deregulation, stabilization and similar policies, often promoted by the IMF, affect society through both macroeconomic changes and social policy reforms. Thus in Greece, the focus of Dr. Kentikelenis talk, optimistic assumptions over fiscal multipliers and extensive labor conditionality led to a protracted crisis, peak unemployment, and dismantling of insurance mechanisms. This hit particularly hard the health system, where spending cuts and user fee increases led to a spike in unmet medical needs due to unaffordability and left over 2 million Greeks without health insurance. Such outcomes have contributed to the collapse of the party system and the emergence of new parties in explicit opposition to liberal principles. Thus structural conditionality could lead to a range of social outcomes, which in turn affect political-economic dynamics.

To buttress his argument, Dr. Kentikelenis draws on Polanyian theory and his own ethnographic study in the neighborhood of Parama near Athens. Left without welfare and income, society organizes and responds via counter-movements to combat the unmediated exposure of people to market mechanisms. Such movements can be progressive or populist and both were in evidence in Parama. On the illiberal side, Golden Dawn established a top-down local presence and sought to recuit people through providing some social services and food. On the liberal side, local residents endogenously self-organized in the Open Assembly of Parama, which also provided social services and an inclusive space for migrants. This demonstrates that local level dynamics might be different from national level shifts. Thus, Dr. Kentikelenis concludes, structural adjustment can lead to a liberal backlash but whether it will succeed at the national level depends on the mediating role of institutions.

Ivaylo Iaydjiev (St Antony’s College, Oxford)

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