US slammed on stealth IMF capital move
The row over the tough conditions imposed by the IMF on crisis-hit eastern European countries as part of their rescue plans boiled over yesterday after the US was accused of trying to push its $108 billion contribution to the Fund through Congress without a debate.
The Obama administration’s surprise decision to attach the IMF bill to an emergency spending bill to cover the costs of the wars in Iraq and Afghanistan going through Congress last night would deprive elected politicians of the opportunity to demand reform of the role and policies of the Fund, campaign groups said.
Joseph Stiglitz, former World Bank chief economist and Nobel laureate told Emerging Markets that dodging the issue of governance reform made it “more likely that [the IMF] will pursue policies that are pro-cyclical and therefore counterproductive,” thereby repeating the risks of the Asian crisis.
Such a move would increase the likelihood the IMF “will not be as effective an instrument for disbursement as one would have hoped” in regions including eastern Europe. He added that the fund continued to “push policies that are antithetical to the beliefs of many countries, both borrowers and potential creditors.”
The US contribution is part of a $500 billion global boost to IMF resources approved by the leaders of the G20 countries at an April summit in London, as part of a package of measures aiming at stemming the financial crisis.
JubileeUSA, a Washington-based advocacy group, said there was an urgent need for a debate over the policies the IMF was implementing in regions such as eastern Europe. “The IMF is continuing to push through contractionary policies on a number of countries at a time of depression or recession,” Neil Watkins, the group’s executive director, told Emerging Markets. “We are concerned by the double standards” where rich countries benefit from fiscal stimuli, he said.
The IMF withheld a E200 million payment to Latvia after it missed a target to cut its budget. The government wants to run a budget deficit of 7% of GDP but the IMF wants it to cut by a further 28% to 5%. Spending cuts imposed earlier this year triggered street riots which led to the fall of the government.
The IMF has announced a total package of E55bn that includes six other countries – Hungary, Ukraine, Belarus, Georgia, Armenia and Romania. Negotiations over a loan to Turkey have stalled over demands for spending cuts.
Peter Chowla, policy officer at the Bretton Woods Project, the advocacy group, said conditions imposed on countries such as Hungary, Romania and Latvia showed “the same old, same old, IMF” with demands for cuts in fiscal deficits.
But Marek Belka, director of the IMF’s European Department, said that at the start of the crisis the Fund was criticised for not being tough enough. “We think we are already quite flexible,” he told Emerging Markets. “As a matter of fact it sometimes happens that we are more lenient on fiscal targets than the authorities of these countries.”