Development & Aid, Economy & Trade, Global, Global Geopolitics, Headlines, Latin America & the Caribbean

FINANCE: Another Client Forsakes the IMF

Emad Mekay

WASHINGTON, Nov 9 2006 (IPS) - Uruguay has joined a growing list of developing nations that are shunning new loans from the International Monetary Fund and paying their debts in full well before their due dates.

Uruguay’s decision came Wednesday after Finance Minister Danilo Astori said his country will repay 1.08 billion dollars in debt due to the Washington-based public lender. The move cancels a standby agreement with the fund that was due to expire in 2008.

Brazil, Argentina and Indonesia have taken similar decisions, prompting concern in rich nations that dominate the board of the IMF that their one of their tools for political and economic influence is losing its shine.

The borrowing nations have given different reasons for unloading their IMF debt stocks, but they mostly emphasise that IMF loans have become a vehicle for intrusive dictates from the Fund’s economists. They say the advice they were getting did not help their own people but were designed to facilitate global trade and business for corporations based in developed countries.

On Wednesday, IMF Managing Director Rodrigo de Rato put a happy spin on the news.

“I welcome Uruguay’s decision to repay its outstanding obligations to the Fund. This decision reflects the quick recovery of Uruguay from crisis, supported by the international community and the Fund, and its renewed access to international capital markets,” he said in a statement.


The statement complimented Uruguay’s economic policy in a tacit message that the IMF had played a role in the economic upturn. It said the Latin American nation’s track record of sound macroeconomic policy management has provided the basis for the consolidation of market confidence, strong economic outcomes, and an improved profile of public debt.

Uruguay made three early repayments between September 2005 and August 2006 amounting to 1.69 billion dollars. Under the original schedule, the final repayment of outstanding loans from the IMF would have taken place in 2010.

Analysts and development campaigners blamed the IMF for the trend of deserting nations.

“Fundamentally, it comes down to two issues: onerous IMF conditionalities and a complete loss of confidence in IMF policy advice,” said Gail Hurley of the international anti-debt group Eurodad.

Hurley noted that in the case of Argentina, the IMF’s own internal evaluation office admitted serious failures in the handling of the country’s economic meltdown and that “the Fund had no plan B”.

The IMF’s advice to Buenos Aires of liberalisation, currency devaluation, removal of crucial state subsidies and dismantling of social services proved so damaging that even at the time, when Argentina said it would repay its debts, many campaigners faulted the decision as too lenient towards the Fund.

Many had said that the IMF should shoulder some of the responsibility for the failed advice that led to the economic collapse in Argentina five years ago. They viewed Argentina’s debt as “illegitimate”.

“IMF policy advice over the past 25 years has a disastrous record and has not served to alleviate poverty but instead has done quite the opposite and has aggravated the situation,” Hurley told IPS in an email message.

“Instead, the countries that can (i.e. middle income countries) have decided that they want to make their own domestic economic policy choices and we are supportive of this.”

The mass desertion by some of its biggest clients has alarmed some top officials of the IMF. In May, the Fund tuned to some of the world’s leading economic luminaries to solve a budget crunch that threatens its role as a key architect of the global economy.

Paying up debts early diminishes the Fund’s income and deprives the institution of clients, eroding its raison d’etre in the eyes of its richest patrons – the United States, European countries and Japan.

During the joint annual meetings with its sister institution, the World Bank, in September in Singapore, the IMF addressed calls for changes in its governance structure to include a greater voice for some developing nations.

IMF Managing Director de Rato announced plans to increase the voting shares of key emerging market countries, particularly China, Mexico, Turkey and South Korea. Dozens of low-income nations, however, protested being excluded from the arrangement.

The IMF is now looking into ways it can maintain its sway over low-income countries which, without much access to international capital markets, still need IMF financing.

But observers say that despite the IMF’s feverish attempts to maintain its relevance, more countries may opt to take the route of Uruguay.

“The IMF is the victim of its own misfortune. Rather than use this as an opportunity to reassess its onerous conditionalities and comprehensively reform governance of the IMF to give developing countries more voice – and therefore the institution more legitimacy in the eyes of poor countries – it seems like its business as usual,” Hurley said.

“Recent moves on IMF governance reform failed miserably to increase the voice of low-income countries where the impact of Fund policy advice and conditionalities is felt hardest,” she said.

 
Republish | | Print |

Related Tags



phenomenology books