"Blaming the International Monetary Fund (IMF) for the difficulties faced by a country in times of crisis is like blaming the doctor for the patient’s disease". This statement and others like "the IMF does not represent the interests of the G7" are part of an outrageous manual that teaches the organization’s officers how to reply to the uncomfortable questions asked by the press. Perhaps, the text became effective after a reporter asked Anne Krueger – First Deputy Managing Director of the IMF – if her organization was responsible for the increasing poverty in Argentina, while he attempted to place before her eyes the photograph of a malnourished child, Krueger escaped like someone trying to avoid leprosy.
After the Second World War, the International Monetary Fund was created to promote international monetary cooperation, to foster economic growth and high levels of employment, and to provide temporary financial assistance for countries to help ease the balance of payments.
But, as Nobel Prize-winner economist Joseph Stiglitzs denounced in several journalistic interviews, the IMF acts as a usurer that disables the growth of emerging countries, and insists on using recipes that have failed.
According the World Bank’s data, the Committee for the Annulment of Third World Countries’ Debt and the Economic Conference for Latin America, the "Third World" as a whole, together with the countries of Eastern Europe, paid more than US$ 4 billion in the last 20 years. This means credit entities received resources for an amount six times higher than the original sum.
"These countries’ coffers sink through a significant black whole in their budgets, which every year allocate an important part of their funds to pay interest on their respective debts" says Eric Calcagno, an economist and consultant to the intergovernmental Latin American Economic System.
"Latin America has already paid 1.4 billion dollars since 1982, which represents almost five times its original debt, but it still owes three times more", he adds.
It is enough to X-ray the actions of the International Monetary Fund to understand the impact of the payment of poor countries’ foreign debt:
-In 1982, Mexico owed US$ 57 billion to credit entities. Two decades later it owes US$ 152 billion, an amount that triples what it has already paid. According to official data, this country has 55 million poor people, almost half of its total population.
-Colombia’s Finance Minister stated that the country’s national budget for the next year is 35, 361 million dollars, one third of which will be used to pay the principal interest on the debt. Meanwhile, 62 percent of the Colombian children are poor or indigent.
-Brazil, one of the most unequal countries on Earth in terms of income distribution, owes 223 billion dollars.
-Over half of African countries spend more of their budget to pay their foreign debt than their health care. As a direct consequence, Sub-Saharan Africa will have more than 18 million orphans in 2010 because of AIDS.
– Military dictatorships in Latin American countries received enormous loans from the IMF as well. Do they promote democracy?
Argentina: A Leading Case
During the 90s, Argentina’s government – by coincidence, the most corrupt in its history – decided to follow word for word each and every instruction issued by the IMF. State companies were privatized in exchange for a derisory amount; one of the main sources for public financing built by pension contributions was disrupted and sent to international banks; for 10 years an absurd foreign exchange policy based on convertibility was strictly maintained. This was a forced system establishing that one Argentine peso was equal to one US dollar.
This situation brought about the two basic pillars of poverty: the cheap dollar prevented Argentine companies from exporting, and in turn, the internal market purchased all kinds of imported goods whose price was lower than that of locally manufactured items. In the meantime, the foreign debt rose from 50 billion dollars to 150 billion dollars in only ten years.
The result is that in a country that in 1984 had an extremely low unemployment rate (below 6 percent), one of the highest literacy rates in the world, and an industrial and cultural project with no precedents in Latin America, 20 years later, more than half of its population is below the poverty line.
During neo-liberalism’s golden age, the IMF used to praise Argentina’s economic policies and highlighted the country as an example of the good results its recipes had.
When the Argentine crisis broke out in December 2001 (the banking system blew up and the government was ousted after a bloody clash in the streets, as a result of a paralyzed economy and an unprecedented crisis), the IMF "punished" the nation by depriving it of funds and demanding stronger belt tightening measures.
Apparently, during the 10 previous years, it had never noticed that unemployment and poverty advanced in giant steps, that foreign banks transferred funds abroad thereby emptying the financial system. Meanwhile private investors took advantage of the situation by purchasing Argentine debt bonds at a 10 percent monthly rate, which was obviously impossible to pay.
When Argentina took its first loan in the 60s, the state was able to finance itself. However, the establishment induced countries to fall into indebtedness as a gesture of "good will" towards the international community.
Nowadays, Argentinean President Néstor Kirchner’s government decided to openly confront the IMF and disobey some of its recommendations. Thanks to this, the Argentine economy experienced a record growth in the last 12 months.
Crime Without Punishment
The Center for Economic and Policy Research (CEPR) proposes establishing a criterion to monitor the performance of senior IMF officials in such a way that it is possible to determine when a dismissal is to be applied.
"The IMF does not have the solution. They are not experts. They are representatives of specific private interests", said Alan Freeman, the great economist who acts as an advisor to London’s mayor Ken Livingtone, and who supports Argentina in its quest for a fair solution to the debt problem.
Freeman has a good point: the IMF has such a degree of interference in internal policy that it issues opinions on the dollar exchange rate, public utility rates, and especially, it makes very "useful" forecasts. What actually happens is exactly the opposite of what they predict. For example, when Argentina left the 1 to 1 convertibility system, the IMF predicted the dollar exchange rate would soar to 10 Argentine pesos or more, and an unstoppable 10% annual inflation would lash the nation. None of this happened.
But the idea that spreads like wildfire in poor countries does not consider half measures. The external debt is irrecoverable. Today, there is no present in poor countries, and if debts are paid, there will be never be a future.
Elizabeth Levy Sad is a journalist based in Buenos Aires, the magical & mystery capital city of Argentina. Her writing has appeared in Underground Focus, In-Lan, Profile, 13 Minutes, Página/12 newspaper & Elle. She works with the translator David Epstein, a genius who always finds the right word at the right moment. She thinks that another world is possible.
Sources of Interviews:
Committee for the Annulment of Third World Countries Debt, journalist Alejandro Bercovich, and Canal Solidario.