The IMF sees its role in Latin America and the Caribbean as that of a “trusted advisor,” and welcomes the shift away from supervising loans and structural adjustment programmes, following recent debt prepayments by Argentina and Brazil, IMF deputy managing director Agustín Carstens told Emerging Markets yesterday.
“The Fund should provide advice and technical assistance and help countries strengthen their macroeconomic framework and enhance the power of resilience to less favourable external scenarios. This is where the Fund is at its best,” he said. “Our main role (in the region) is what we would call a trusted advisor.”
Moves by Brazil and Argentina to repay Fund loans ahead of schedule at the beginning of the year brought into sharp relief the question of whether the institution needs a new business model. The repayments of about $15.5 billion and $10 billion respectively wiped out significant chunk of IMF lending – the interest proceeds from which it uses to cover its operating expenses and add to its reserves.
“The Fund welcomes that countries pay because this usually is a sign of success of the [IMF adjustment] programme and a sign of strength of the economy,” Carstens said. “It is not as if we measure success on how many [lending] programmes we have,” he added.
The strong economic performance in the region - growth is at its highest rate in the last 30 years – is due in large part to “improvement in policy management” including control of inflation, central bank autonomy, improved public finances and fiscal discipline, Carstens said.
But it remains an open question how the region will fare without the favourable external environment with excess global liquidity and high commodity prices. “Our recommendation is not to take for granted this favourable scenario and to move forward on reforms, making economies more competitive and less dependent on a few commodities,” Carstens said.
Across Latin America, economic policy officials have welcomed the shift in the IMF’s role to that of adviser. But policy-makers also make clear that the Washington-based institution’s influence on policy should be tightly circumscribed.
“In fiscal responsibility legislation, we will welcome technical support from the IMF,” Panama’s economy and finance minister Ricaurte Vásquez, told Emerging Markets.
But, he said, “making a debt-to-GDP ratio of 25% in 10 years [as a condition] for a standby [programme] is out of the question.”
Nevertheless, countries across the region are now setting in motion policies that consistent with traditional IMF advice “We did tax and social security reform without a programme [with the IMF],” Vasquez said. The opening to trade implemented in the last 20 years in Latin America, builds into policy making a natural focus on maintaining economic stabilization, he said.
The chief economic advisor to Peru’s radical nationalist presidential candidate, Ollanta Humala, agrees that the IMF’s role should be that of a “cordial friend.” Gonzalo García, vice-presidential candidate on the Humala ticket, told Emerging Markets that the Humala economic team had a “stupendous, fluid” dialogue with the IMF mission to Peru one month ago. Peru does not have a lending programme with the Fund at this time.