Did The International Monetary Fund Push Tunisia Into Revolution? Yes.

The IMF played  an important role in the Tunisian Revolution

This is from the International Monetary Funds Survey Magazine, an article entitled –

Tunisia Weathers Crisis Well, But Unemployment Persists.

(September 10th, 2010)

Maintaining a stable macroeconomic environment that promotes employment and growth also requires determined expenditure control, the IMF assessment said. Key for success in this area is the reform of the social security system. To this end, the authorities are in discussion with social partners on pension reforms to buttress the pension system’s financial sustainability. The government should also explore ways to contain subsidies of food and fuel products, the report noted.

The authorities are also undertaking reforms to make the tax regime more business friendly. International comparisons with other emerging market economies show that the tax burden on businesses is relatively high in Tunisia and that there is scope to increase the yield from consumption taxes. To promote private investment and employment, the authorities intend to reduce tax rates on businesses and to offset those reductions by increasing the standard VAT rate and expanding the tax base through the elimination of exemptions, the report noted.

Tunisia’s growth-enhancing strategy also includes a package of measures to strengthen the financial sector through consolidating the financial strength of banks, enhancing the role of banks in the economy, restructuring the public banking system, and bolstering the presence of Tunisian banks abroad. The aim, ultimately, is to transform Tunisia into a banking services hub and a regional financial market.

To strengthen the country’s ability to adapt to changes in the global economic environment, the authorities also intend to modernize the monetary policy framework by introducing inflation targeting and to implement convertibility of the dinar and capital account liberalization by 2014. The IMF assessment said that this strategy would require significant preparatory work, particularly further strengthening of the banking system and deepening of the foreign exchange, money, and capital markets. The report also noted that the authorities would need to take additional steps to ensure increased reliance on interest rates as the operational target of monetary policy.

The IMF had been recommending an austerity regime for Tunisia for many years. Being an exceptionally corrupt and kleptocratically ruled nation, the pain of these kinds of “austerity” measures fell on the poor. In Tunisia, the poor is virtually everybody.

The IMF was pushing for a decline in government spending particularly in the areas of food and fuel in a poor population that could rarely afford either. Per capita income is a little over $6,000 but the population is divided into a very small oligarchy of immense wealth and a very large population of the poor. So, I would suspect that income among the average Tunisian was probably far less than half. So, they were recommending cuts in food and fuel in a population just hanging on to the edge, hardly able to make it from day to day.

It could be said that the IMF at all times stands for cuts in social welfare spending, business tax cuts, consumption tax increases (a form of sales tax),  bank consolidation, and declines in government spending. But there is no issue upon which the IMF is more devoted than inflation control. It crops up again and again in report after report. Inflation damages capital because it makes debts less valuable to creditors. Since while inflation can exist by itself, it is also a characteristic of growing and prosperous economies, that kind of economic growth must be avoided. What is wanted instead is stable economic growth with little or no wage pressure. This removes inflationary pressure and assures those loaning money of a full return on their investment.

There is another thread you pick up when you read IMF reports, a fascination with data. They always want more data. Better reporting they call it.

The numbers are everything. People are not.

James Pilant