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November-December 2010

Vol. 35, No. 6

Debt: Has the IMF really changed?

In the wake of the 2008 financial crisis, the International Monetary Fund (IMF) increased its lending capacity from $250 billion to $750 billion to help meet needs of low-income countries, according to Jubilee USA's recent report Unmasking the IMF: The Post-Financial Crisis Imperative for Reform. By 2014, the fund's lending capacity will be 10 times higher than it was before the crisis. However a greater lending capacity often leads to further debt for poor countries. The following article was written by Nina Bosken, the Discipleship Year intern with the Maryknoll Office for Global Concerns.

Created by the world's wealthy nations during the Great Depression in the 1930s to stabilize the global economy, in the years since 2000 the IMF had started to downsize and was much less active than in earlier decades. Yet the financial crisis changed this. According to a Eurodad report, an additional 90 million people will be living in extreme poverty by the end of 2010 as a result of the dire situation, and countries have approached the IMF for assistance.

In 1997-98, the IMF's lending practices in the wake of the East Asian crisis, rather than helping countries, drove them further into recession, the Jubilee report said. The Fund claims it has learned from this mistake.
The IMF is setting conditions for countries to get Stand-By Arrangements and Extended Credit Facilities, two of its major loan programs. But, for example, in Maldives, a 14 percent wage cut was a requirement for a Stand-By Arrangement, according to the Jubilee report. In Jamaica, the Stand-By Arrangement requires a public sector salary freeze, a wage bill reduction, consumption taxes and fees for public services.

In January 2009, the Flexible Credit Line (FCL) was created so that countries could quickly access aid when facing a liquidity crisis. However, in reality, only countries that have completed requirements similar to those in Jamaica or Maldives are eligible. According to the Jubilee report, only Colombia, Mexico and Poland have used the FCL. The less-austere Precautionary Credit Line was also created, with most of the same strict criteria as the FCL but maybe a few areas where the country "needs improvement." Currently, the IMF has not identified any countries that are eligible for the PCL so it remains a concept and not an implemented program.

Jubilee USA questions whether or not the IMF has made substantial changes. The network advocates for practices that keep the interests of those in poverty in mind:

  • Ensure that low-income countries using IMF aid can actively use the aid to support public investment, build infrastructure, promote development and fight climate change.
  • Encourage better monetary options that allow domestic firms and consumers to access affordable credit to expand production and employment.
  • Lower the requirements to allow for more aid and concessional loan money.
  • Safeguard public sector wage and subsidies that help the poor.
  • Use the IMF gold sales to provide assistance through grants for countries facing shock, such as a natural disaster or a financial crisis.
  • Undertake reforms of the Debt Sustainability Framework to help countries achieve the Millennium Development Goals rather than further debt.
  • Reform the governance of the IMF so that more low-income countries are represented.
  • Improve IMF transparency. Publish minutes and transcripts from board meetings, circulating draft documents in a variety of languages to encourage constituency input and stop the use of "side letters" to stipulate policy conditions.
  • Require parliamentary approval of new IMF loans to promote transparency, democratic governance and country-developed strategies to avoid irresponsible borrowing.
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