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Saturday, June 3, 2023
BOSTON, U.S., Oct 6 2009 (IPS) - While world leaders banter about International Monetary Fund and World Bank business in Istanbul, NGOs critical of the way the Bretton Woods institutions operate are not letting up pressure.
The IMF needs to change its policies, not just its rhetoric, said Conny Reuter, secretary general of SOLIDAR, a European civil society network working to advance social justice.
Along with Eurodad and the Global Network, which together represent more than 100 NGOs in Europe, SOLIDAR released a report Monday describing harm to El Salvador, Ethiopia and Latvia as a result of conditions the IMF imposed when it made emergency loans to these nations.
Meanwhile, an economic think tank in the U.S. says it has hard evidence that of IMF agreements in 42 nations, 31 have resulted in harm to those countries.
IMF loan terms represent “policy mistakes” that should be fixed, according to Mark Weisbrot, co-director of the Centre for Economic and Policy Research in Washington.
“More than a decade after the Asian economic crisis brought world attention to major IMF policy mistakes, the IMF is still making similar mistakes in many countries,” Weisbrot said.
“You have a double standard. Wealthy nations are saying, ‘We are in an economic crisis so we’re going to spend more, increase our deficits and stimulate the economy.’ But the IMF is telling poorer nations the opposite, to increase interest rates and cut spending,” Neil Watkins, executive director of Jubilee USA, told IPS.
“That means your health care, education and social spending is going to be impacted, and if interest rates are high, businesses can’t get credit,” he said. “Why is the IMF delivering assistance in the form of loans, when poor nations need debt relief and grants?”
The global recession has further stressed nations that are trying to meet their IMF loan terms, Reuter said.
“This crisis has just shown that world economic growth is based on rotten foundations. The recovery must be built on more solid foundations, with the IMF using its huge increase in financial resources in a way which allows countries to support decent work, reduce inequality and eradicate poverty,” Reuter said.
The IMF, which includes 186 member nations, is in the midst of some transformations. Recently, the G20 group of wealthiest nations announced it was moving into the role previously held by the G8, as the major international body that plans and funds global economic initiatives.
The G20 leaders have said they would funnel 750 billion dollars in new funds through the IMF to assist low- and middle-income nations. So far, there is no sign of change, the European NGOs say.
U.S. Treasury Secretary Timothy Geithner told IMF members in Istanbul: “The Obama administration is strongly committed to a renewed focus on multilateralism in the delivery of development assistance and will be working to ensure that the multilateral development banks have adequate resources, sound policies, and good governance, so that they are well positioned to meet current and future development needs.”
However, Reuter’s report notes that, “Experience so far indicates that the IMF is still imposing inappropriate, pro-cyclical conditions on many borrowers. These may unnecessarily exacerbate economic downturns in a number of countries.”
The CEPR agrees, and says the IMF’s overall fiscal policy toward developing nations should change to encourage long-term, stable growth, rather than continuing to focus on loans aimed at easing short-term, day-to-day operating funds.
According to CEPR, the IMF’s loan terms did not take into consideration the global fiscal slowdown which hit hard in 2007 and was foreseeable going back to 2002.
“IMF supports fiscal stimulus and expansionary policies in the rich countries, but has a much different attitude toward low-and-middle income countries,” Weisbrot said.
IMF chief Dominique Strauss-Kahn told reporters this week that global economic growth would likely reach a healthier 3.1 percent in 2010. While improving, the world economy is not robust and low-income nations will continue to be hit hard, he said.
According to the World Bank, private capital flowing into developing nations dropped from 1.2 trillion dollars in 2007 to 707 billion dollars by the end of 2008. The bank predicts that 2009 capital inflows will have plummeted further, to just 363 billion dollars.
CEPR praised the IMF’s new Flexible Credit Line as a step toward expansionary policies in low-income nations. But it said the loans have only been available to the middle-income nations of Colombia, Mexico and Poland.
“The next step should be to eliminate harmful conditions attached to other IMF lending facilities,” the report says.
The IMF has one of the largest, most sophisticated economic research centres in the world, so would have had all the necessary information to make accurate predictions about the global economy, the report says.
“The fund should have been more careful in its projections and should have anticipated a severe downturn that would have serious effects on low- and middle-income countries,” CEPR says.
In addition to decreased revenues, many nations saw a rapid increase in the price of basic commodities and oil in 2008, and the IMF did not adjust its loan terms for this added stress, the report says.
These IMF loans show “an underlying bias” by the IMF of making overly restrictive loan terms to developing nations, CEPR says.
After making the loans, the IMF reviewed its terms with 26 nations. The fund found that in 11 nations it had overestimated the gross domestic product (GDP) of those countries by three percentage points, a large amount in economic terms.
The GDP refers to all the goods and services produced within a country and is a conventional way of measuring the fiscal health of a nation. In three nations, the agency found it had overestimated GDP by a whopping seven percentage points, CEPR says.
The result is that the loan payments required of some nations are too high and the austerity measures so severe as to cause internal strife.
Romania, which recently borrowed 20 billion euros from the IMF and other institutions, was required as part of the loan term to cut spending and try and bring its budget into balance. The government has cut salaries and programmes and today there are widespread protests and unrest surrounding the austerity measures.
Similar protests in Haiti, Hungary, Latvia and Republic of Congo convinced IMF to ease its loan terms.
“It is time for the [IMF] to re-examine the criteria, assumptions and economic analysis it uses to prescribe macroeconomic policies in developing countries,” CEPR says.
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