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Al-Ahram Weekly 20 - 26 July 2000 Issue No. 491 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 20 - 26 July 2000 Issue No. 491
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Whose economy is it anyway?
By Hisham El-Naggar
Pity the International Monetary Fund. Latin America, and much of the world besides, has taken to hurling abuse at it. Latins (and that includes governments and those they govern) cry ruefully that they have been following the IMF's advice for years on end, and yet the same problems keep resurfacing with disheartening stubbornness. But the IMF continues to offer the same advice, whining that last time it had been followed with less than whole-hearted enthusiasm.
IMF programmes are designed for countries with "balance of payment" difficulties. In Latin America this generally means servicing foreign debt. Countries that cannot meet interest payments on their foreign debt find it difficult, if not impossible, to draw on international capital markets. For a country struggling to develop (as all Latin American countries are), that is very grievous indeed. With rare exceptions, one of the characteristics of being a developing country is the pressing need to supplement domestic savings in order to finance growth-inducing investment. Being socialist or capitalist has nothing to do with it; Cuba's Fidel Castro is no less eager to woo foreign investors than gung-ho free market advocates the continent over.
This is where the IMF comes in, closely followed by the World Bank. Though their mandates are different (the IMF attends to balance-of-payment difficulties; the WB finances development), both institutions provide funds to countries unable to get the financing on their own. The deals these institutions sign with borrower countries are interpreted as a clean bill of health, ensuring that foreign investors will muster up the courage to feed dollars, marks and yens into capital-hungry countries.
Sounds like a nice thing to do. But, alas, there is a catch. IMF accords, whether short-term (in which case they are standby agreements) or long-term (in which case they are called "extended facilities"), include that most unfortunate fly in the ointment: conditionality. In return for IMF money, countries have to pledge that they will trim fiscal deficits and correct "structural imbalances" in the balance of payments.
And pray, how does one "correct" structural imbalances in the balance of payments? Time was when the answer could be summarised in one word: devaluation. But devaluation is decidedly old hat; it upsets foreign investors (who often lose by it) and threatens to awaken the happily dormant bugaboo of Latin America: inflation. So countries are strongly advised to cut down on imports without tampering with the exchange rate. But this can only be done by adopting policies that cause domestic demand for goods and services to shrink, which brings us to the bite felt by the common man.
What ends up being required by the IMF is less government spending and higher taxes, which not only means a more modest budget shortfall, but also less money available to consumers to buy imports (or anything else). Add to this the pressure to lay off government workers, privatise public enterprises, rationalise (ie, greatly increase) charges for utilities and other public services, and one begins to understand why the supposed beneficiaries of the programmes advocated by the IMF have a marked tendency to demonstrate vociferously against it.
And vociferous they are indeed. From Caracas to Brasilia, Mexico City to Quito, walls are covered with graffiti calling the IMF names that decency prevents us from repeating. Demonstrations in which the IMF is painted as the unholy spokesman of foreign creditors demanding their pound of flesh are so common in Latin capitals that tourists can almost count on including them in their photo albums if they hang around the downtown area long enough.
The main criticism of the IMF in Latin America (and, on occasion, elsewhere) is that it assigns top priority to servicing a country's foreign debt. In other words, critics moan, the IMF puts financial considerations ahead of human ones. Which is to say that governments are asked to pay more attention to their standing with foreign bond-holders than to the social costs long-suffering citizens are asked to bear. It was none too surprising to see Buenos Aires erupting in protest against the IMF delegation that dropped in a couple of weeks ago -- and that included everyone from trade unions and the Catholic Church to the odd yuppie. Venezuela's Hugo Chavez won power in free elections largely by promising to send the IMF to the devil (he is, however, likely to invite it back).
Chavez is an example of a most perplexing phenomena among Latin American politicians. Leaders rise to power vowing to do away with IMF-inspired policies and claiming that international interventions have alienated the country's sovereignty, made paupers of the middle class, wreaked havoc on public education and health, etc. But once they are in power, they reverse course and start singing a different tune. Peru's Fujimori is a case in point.
If one looks to the past decade, perhaps the mystery begins to unravel. The 1990s were unusual in that there has been considerable capital looking for a place to go. Globalisation has meant it could as easily be Jakarta or Asuncion del Paraguay. Who gets the dough is a matter of who makes the most favourable impression on foreign investors awash in funds and looking for eye-catching signals. And a cosy relationship with the IMF, complete with a standby agreement and a pat on the back from the folks in Washington, is about as eye-catching as you can get.
Not a few Latins are, however, finding that things aren't so simple. True, IMF approval tends to lower "country risk" and thus reduce borrowing costs. But who has access to this foreign borrowing? Surely not the small entrepreneur, for whom a few thousand dollars could mean an opportunity to grow -- the kind of growth, by the way, that would actually create jobs. Instead, the usual beneficiaries are the mega-enterprises operating in the country. These enterprises are often partly or wholly owned by multinationals and their growth is often achieved by shedding redundant employees to increase efficiency.
The 1990s have been boom years in Latin America, but at the same time the last decade has seen unemployment climb, income inequality widen, public services get dearer and crime rates head for the stratosphere. The IMF has done well for a pretty small number of people: big businesses (often foreign-owned), a few corrupt politicians and its own employees, who get promoted for selling "successful" programmes to bereft countries, or so IMF-critics say. It has done little for the bulk of the population, which gets stuck with the bill of the wild party from which it is excluded.
Dissenting voices have grown so loud -- what with Seattle and all that has followed -- that the IMF is beginning to realise that something must be done about its image. There is talk of "social safety nets," "targetted subsidies" and a plethora of publications purporting to show that going on a diet needn't kill the patient, if the patient is a country. Koehler, the IMF's new director, zoomed through Latin America recently for an onsite inspection and mumbled something about the need to contain the social costs of adjustment ("adjustment" being what the IMF tries to get countries to do). This is sober talk, and it is likely that Koehler means well by it, but the question then becomes a different one: onto whom will the burden shift?
