FINANCE: New IMF Lending Conditions Will Change Nothing – Critics

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Oct 25 2002 (IPS) - Critics say recent moves by the International Monetary Fund (IMF) to adjust the controversial conditions attached to its lending will do nothing to give back to borrowing countries control of their economic futures.

The Fund, under heat for years for pushing policies believed to exacerbate world poverty, inequality and world financial crises – like those in Russia and Asia in the late 1990 – has said it is now adopting a new set of lending guidelines.

Early in October, the Washington-based organisation released the new guidelines to replace those dating back to 1979.

Critics have charged that IMF conditions were numerous, intrusive and undermined homegrown policies, often becoming counter-productive.

But Fund officials told IPS that there will now be fewer conditions and that they will emphasise – unlike before – giving borrowing countries a greater say in determining their own economic programmes.

"We are moving away from having many detailed structural conditions," Sunil Sharma, an economist with the Fund said in an interview. "There is a sense that only if structural conditions are relevant to macro-economic performance of a programme, then that should be part of the essential conditions."

The Fund’s Managing Director Horst Kohler has described three key principles behind the changes: country ‘ownership’ of reform programmes; streamlined and focused programme-related conditions; and effective coordination with other multilateral institutions, in particular the World Bank.

Sharma said the conditionalities now focus on core areas of expertise at the fund, such as macroeconomic advice on items like exchange rates, monetary and fiscal policies and financial-sector and capital-market issues.

Typical conditions imposed by the Fund in the past included countries balancing their fiscal budget, devaluating their currency, implementing anti-inflation monetary measure – such as high interest rates – tighter lending policies and across-the-board financial shake-up of corporations and banks.

But the just-released guidelines appear to come with strings attached, in the form of pre-qualification criteria.

Sharma said the IMF prefers to work with countries ”where you think there’s a policy framework and there are reasonable institutions in place (and) you can rely on them to choose the right policies towards the objectives".

Despite insisting that the new guidelines will not foster structural reforms and will give countries more flexibility, the change may still leave open a backdoor for further interference by the institution.

"Yes, there are maybe other structural conditions that are important for growth," Sharma said. "We can separate them and have them on flexible trenches. Say if they involve privatisation, we could say (to a borrower) that ‘when and if you do it, we’ll give you additional money’."

That possibility has already undermined trust in the guidelines. Critics of the Fund and the Bank are quick to label the changes sheer propaganda.

"What’s happening here is that instead of being overtly ‘impositionist’, the Bank and the Fund are intervening with heavy-handed technical assistance and implicit conditionality," said Doug Hellinger, executive director of Development GAP, a Washington-based research and advocacy group.

Hellinger says that countries will be still expected to toe the line of the Fund and that both it and the Bank are providing technical assistance to developing countries, particularly in Africa, that will guarantee that future policy choices conform with their neo-liberal agenda.

On Thursday, for example, The East African Regional Technical Assistance Centre (East AFRITAC) was inaugurated in Dar es Salaam, Tanzania as part of the IMF’s new Africa Capacity-Building Initiative, launched this year.

East AFRITAC, the first of the planned regional centres, will provide assistance through a team of resident experts specialising in the core areas of the IMF’s expertise.

These include macroeconomic policy, monetary and exchange rate policies, financial sector policies, tax policy and revenue administration, public expenditure management, and macroeconomic statistics – exactly the same policies the Fund advises on from Washington.

Hellinger also charges that the Bank and the Fund are not actually adopting a hands-off approach on conditionalities, citing recent extensive lobbying by the two bodies for trade liberalisation in developing countries and towards a greater private sector role in their local economies.

To the Fund’s critics, a true change in the controversial conditionalities would mean a complete hands-off approach.

"I’d like to ask the officials from the Fund and the Bank, ‘if one of you could explicitly say to borrowing governments that you are free to change your tariff system, your quota system, your labour policies in terms of standards, to privatise or not, etcetera, and to explicitly say we are not going to stand in the way, even if you do this or that’, then I think we can start believing," Hellinger said.

But Fund officials counter that this would be going too far because the conditions, in most cases, serve as collateral for their loans.

Countries in need of IMF money generally do not possess internationally valuable collateral. If they did, they could use it to borrow from private lenders and would not require IMF funding.

The Fund says that attaching conditions to loans is business as usual in the world of borrowing and lending.

FINANCE: New IMF Lending Conditions Will Change Nothing – Critics

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Oct 25 2002 (IPS) - Critics say recent moves by the International Monetary Fund (IMF) to adjust the controversial conditions attached to its lending will do nothing to give back to borrowing countries control of their economic futures.
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