It Pays to Get Tough with the IMF

In late January, the government of Argentina stood up to the
International Monetary Fund. And, for the second time in less than
six months, the IMF backed down. Does this unprecedented move
presage a major shift in the balance of power between multilateral
lenders and Third World debtors? It sure looks that way to Mark
Weisbrot, a liberal economist at the Washington-based Center for
Economic and Policy Research, writing recently in his syndicated
newspaper column.

After a recent meeting of heads of state in Monterrey, Mexico ‘.
. . the Fund approved the latest installment of its lending to
Argentina, after having failed in its efforts to get a better deal
for Argentina’s private creditors,’ Weisbrot reports. The Bush
administration, stung by criticism of its foreign policies at the
Monterrey Summit, decided it was not the right time for a face-off
with Argentina, and prevailed upon the IMF, the most powerful
lending institution in the world, to back down. This is no small
feat, considering that the Fund is used to getting its way with
smaller debt-ridden countries like Argentina, which at $88 billion
has racked up the biggest sovereign debt default in history.

‘The case of Argentina has enormous implications for our
understanding of what the Fund actually does and does not do,’
Weisbrot says. ‘Not only does it pay its clients to take
economically destructive advice — as it also did in Asia, Russia,
Brazil, during the 1990s. It also fails to act as a ‘lender of last
resort’ — the common understanding among policy makers of what the
Fund’s purpose is — when such a lender is most urgently
needed.’

‘Furthermore,’ Weisbrot continues, ‘we can see more clearly than
ever in the IMF’s 60-year history its role as organizer of a
creditors’ cartel, as it openly tries to use its muscle on behalf
of the private foreign creditors.’ Which makes it all the more
ironic that the US government, the dominant voice within the Fund,
decided that the IMF should back down this time.

Weisbrot predicts we’ll see more confrontations like this in
coming months, as Argentina’s example emboldens other poor
countries to challenge the IMF’s harsh loan terms. And rightly so,
he says. Even some free market fundamentalists ‘are now questioning
why the IMF (and the World Bank and other multi-lateral lenders)
shouldn’t share the losses of the private sector and take a haircut
on their own loans. Now that would truly mark the end of an
era.’
— Leif Utne

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It Pays to Get Tough with IMF