Demand for a Globally Negotiated and Increased SDR Funding Without Conditionalities
June 3rd, 2009
Stop increased funding to the IMF which only makes it a stronger enforcer of developed country restrictions through conditionalities.
NGOs Oppose Nearly 100-Billion-Dollar Pledge to IMF
WASHINGTON, May 31 (IPS) – A broad coalition of civil society groups, as well as some U.S. lawmakers, are fighting what they call a “blank cheque” from the U.S. to expand funding for the International Monetary Fund (IMF).
On May 22, the Senate passed a 91.3 billion-dollar-wartime spending bill that included 108 billion dollars for the Washington-based Fund. The bill will now have to be reconciled in a conference committee between the Senate and the House of Representatives whose own version omitted any IMF funding. The funding was the U.S. part of a larger package agreed by the G20 leaders at their April meeting in London, where they pledged to provide 1.1 trillion dollars in additional funding to the IMF.
The goal is to boost lending to cash-strapped developing countries during the current economic crisis, which has drastically reduced the flow of private investment to emerging markets and the earnings of many poor countries that depend on their commodity exports.
Opponents of the funding are concerned about the conditions the IMF usually imposes upon low-income countries when they accept these funds, conditions which, according to many NGOs, actually do more harm than good, particularly for the most vulnerable sectors of the recipients’ populations.
Typically, the IMF requires recipient countries to reduce their budget deficits and increase interest rates, both of which can produce the opposite effect of the economic stimulus the funds are meant to provide. As a result, countries have been forced to cut essential social programmes, like unemployment insurance and other safety-net mechanisms.
“It makes no sense to provide money intended to support global stimulus spending to the IMF when the IMF is demanding developing countries employ recessionary policies,” says Robert Weissman, director of Essential Action, a non-profit organisation that advocates, among other things, change in what it considers to be harmful IMF and World Bank practices.
“The point of giving these crisis loans is to help countries avert those kind of contractionary policies, not to demand them as a condition on the loans,” according to Weissman. “So the conditionality undermines the logical purposes of giving the loans.”
Mark Weisbrot, co-director of the Centre for Economic and Policy Research (CEPR), also notes that U.S. lawmakers may not understand the broader implications of IMF policy. “A lot of them are looking at it in straight power terms. They’re not looking at it as ‘Does the IMF do good or harm?’ but rather, ‘This is a potentially powerful organisation.'”
Still, there is a push in Congress to amend the bill so that the requested funds can be used to ensure that more vulnerable groups in low-income countries will benefit. Rep. Maxine Waters of California has circulated a letter opposing the funding and currently has over 33 signatures from fellow House members.
The letter calls for Congress to attach its own conditions to Washington’s commitment to provide the funding committed to the IMF: ensuring that the IMF’s new loans are stimulatory and not contractionary; using some of the planned IMF gold sales to finance the rescue packages for at least five billion dollars in debt relief and/or grants to the poorest countries; requiring parliamentary approval in the recipient countries before loans are extended; and boosting the transparency of the borrowing countries’ dialogue with the IMF so as to better inform local publics about the conditions under which the loans are to be extended.
Above all, the letter requests that U.S. leadership work “to ensure that the [IMF] becomes more transparent and accountable to all member countries, including the poorest.”
In recent months, the IMF has been touting policy changes to more efficiently supply assistance to needy countries with only a minimum of conditions. What conditions it would apply, IMF officials promised in March, would be to help any loan-seeking country “to overcome the problems that led it to seek financial aid in the first place.”
The IMF has introduced the Flexible Credit Line (FCL), a new facility that has fewer restrictions on it. However, only select countries that meet certain conditions – for example, eligible countries must have low inflation, “the absence of bank solvency problems,” and minimal public debt – can qualify for FCL, according to the activists.
They complained that the IMF’s executive board, which is dominated by the western powers, may also be guided by political or strategic considerations. Paradoxically, this means that the countries most in need of freer funding may be the least likely to qualify for them.
The IMF has so far approved Mexico, Colombia, and Poland for FCL loans.
JoAnn Carter, executive director of RESULTS, an advocacy group concerned with ending hunger, called the FCL and other IMF lending policy changes “more rhetoric than reality.” She said that since the IMF implemented reform of its lending restrictions, “There still have been very austere conditions imposed upon some of these countries.”
Asia Russell, international policy director of Health GAP, a group that works for broader provision of AIDS and HIV medicines worldwide, concurred: “The proof is really in the pudding. Despite declarations from [IMF] headquarters in Washington, the same sort of policies are being used – contractionary policies, slashing deficits.”
For now, groups mainly await the results of the conference committee’s deliberation and hope that lawmakers see the issue from their point of view.
“We’re astonished, really, that the Senate could pass this measure,” said Russell. “Now, it’s important for Congress to take its oversight role seriously, instead of putting blind faith in the IMF.”
This article was written by Danielle Kurtzleben