The Internalisation of Austerity: Market Power & Economic Sovereignty

Overview of austerity

Austerity is a political project and economic regime that dominates the current international financial architecture. It is rooted in the idea of fiscal discipline and macroprudence—i.e., minimal public spending and the promotion of private investment with the purpose of maximising profit respectively. It was born amongst the Western powers in a series of conferences held by financing officials in the inter-war period. Austerity is labelled by the international financing community (bankers, treasury officials, financial institutions…) as “sound finance”, and is justified by these powers as being an economic approach—and “the only possible policy”—that maintains balanced state budgets and low deficits, inflation, and debt.

While imperial financial powers attempt to justify these measures as beneficial to global and local economies, there is no empirical evidence to validate this. In reality, these systems dissolve public services, reduce incomes and consumption, and increase individual and state dependency—all of which deepen social injustice, reduce living standards, and reproduce generational poverty. These policies also seep into intersectional embodied experiences, where women and racialised communities may absorb the shock of these effects particularly harshly due to existing inequalities.

Austerity as an ideology

Austerity helped shape neoliberalism (defined by deregulation, liberalisation, and privatisation) as a dominant belief system. In her analysis, Prof. Muchhala demonstrates how these systems replicate colonial global dynamics through economic and financial imperialism:austerity is a neoliberal regime created by western powers but adopted globally, reproducing a cycle of unequal economic exchange and dependency rooted in colonial legacies.

The ideological strategies that perpetuate austerity include both consensus and coercion. International financial institutions such as the IMF attempt to convince the public of this system’s validity through “scientific neutrality” (presenting these economic rules as objective) and establishing consolidation norms (targets for states’ deficits, GDPs, or inflation rates). These target numbers are set arbitrarily, but are widely accepted and followed as determinants of good economic practices. Meanwhile, they also ensure that there is no policy choice, set loan conditions for states to engage in debt restructuring, and implement austerity measures into local legislation and frameworks. As such, even in absence of consensus, compliance is secured through widespread normalisation, preconditions for economic sovereignty, and even binding laws—shifting accountability away from the population towards international financing powers.

Finally, austerity is sustained as an ideology through a depoliticised, moralising discourse that gives credit and reputational legitimacy to states that are macroprudential and practice fiscal restraint. This is upheld by credit rating agencies, whose assessments are based on “credit positivity” that assigns national credibility to states accordingly.

Internalised austerity

Prof. Muchhala discusses how these global power dynamics lead countries that are subordinated by financial imperialism to internalise austerity, using Indonesia post 1997 (the year of the Asian financial crisis) as a case study. She shows how internalisation happens through coercive measures, norms, and laws, but also through the desire to uphold a narrative of stability and risk aversion that brings with it a positive reputation.

In 1997, Indonesia took out an IMF loan for about 8 years. As the loan period ended, the state implemented legislation for fiscal management, which meant that fiscal rules became binding norms that are internally managed. These rules were embedded in domestic politics, prevailing regardless of who is in power and weakening democratic processes such as public discourse and citizen participation. Prof. Bhumika argues that this legislation plays a critical role in driving austerity bias. While recent studies have shown that Indonesia meets the IMF’s target standards, the state continues to take austerity measures, with very low public expenditure in health and education, for example. This is considered a “macroprudential success”, even though it is affecting people’s access to resources, and, as a result, how productive they can be in this economy. This austerity bias is underpinned by a belief system that frames fiscal scarcity as an approach that can ensure economic stability and security, and that abiding by these rules will promote credibility, investment, and market access. Muchhala however explains that this is a false exchange because this form of subordination does not promise long-term security. Instead, it is a loss of economic sovereignty that ultimately plays into the ideology of economic coloniality that keeps the current imperial international financial architecture in place.

Dual delinking

To conclude, Professor Bhumika proposes structural and epistemic delinking as an approach to dismantling this architecture. Taking from political scientist Samir Amin, she defines delinking as a strategy that can reorient economically subordinated states from extraversion to introversion—i.e., to prioritising internal social and economic needs and wellbeing over global or external relations and reputation. This strategy would allow states to reclaim economic sovereignty and foster self-sufficiency, encourage the public to self-organise, and allow producers to have autonomy and agency.

In practice, structural delinking would mean refusing to be financially subordinated, which would require:

  • Building resilience through strategic investments and partnerships
  • Finding alternative financing sources, and going to alternative or local lenders (as a last resort)
  • Forming regional and cross-border alliances, where costs and risks can be mitigated or shared
  • Creating communal and solidaristic economies that facilitate wealth redistribution

On an epistemic level, delinking requires an engagement with theory that challenges hegemonic colonial and imperial ideologies, in order to produce alternative knowledge frameworks that can inform practical strategies. Muchhala specifically takes from decolonial and feminist thought to propose that delinking should:

  • Nurture pluriversality
  • Bring together economics with social disciplines such as anthropology, sociology, or pedagogy
  • Understand embodied experiences, especially those of women and racialised individuals, as a form of knowledge

In essence, she argues that delinking is a reparative, decolonial, and sovereignty project that is at the core of how the linkages between the structures and beliefs of financial imperialism need to be confronted.

Summary by: Talah Hassan