Speaking to an audience at Columbia Business School in February, Rodrigo de Rato, Managing Director of the International Monetary Fund, sketched out his vision for Latin America. Optimistically titled "The Way Forward," Mr. de Rato called on the countries of the region to stay the course laid out by the IMF – structural adjustments, trade liberalization and privatization.
He dismissed the shift to the left in Chile, Argentina and Bolivia as an "apparent inconsistency of economic and political developments," suggesting that voter dissatisfaction has more to do with a lack of recognition of economic progress to date. When he did admit to high poverty levels, he advised that "the problem is often that reforms have not gone far enough."
But even as Mr. de Rato spoke, the IMF’s influence in the region is on the decline. In 2005, the Fund placed 80 per cent of its loans in Latin America but this year that amount is down to a mere one per cent, or $50 million. While there has been no economic miracle, enabling countries like Bolivia and Ecuador, which owe $5.9 billion and $10 billion respectively, to pay off their foreign debts, a new lender has entered the picture – Hugo Chavez and the Venezuelan petro-economy.
So far, Chavez has loaned $2.5 billion to Argentina and is close to providing $500 million to ease the Ecuadorian debt crunch and $1.5 billion to help Evo Morales stabilize the situation in Bolivia. Venezuela is also floating a bond offering jointly with Argentina, following last November’s successful $1 billion issue. Chavez has proposed institutionalizing this lending with a regional organization he calls the Banco del Sur.
This is bad news for the IMF, which has been forced to consider selling off part of its gold reserves to cover losses from its lending operations. More fundamentally, it is bad news for the United States, whose Treasury is the largest shareholder in the IMF. Historically, the IMF and the World Bank have been effective in promoting the ‘Washington Consensus’ – a sort of economic shock treatment intended to put countries like Argentina on the path to economic growth. Typically, countries would have to submit to structural adjustments, privatization and austerity measures to obtain a loan from the IMF.
Chavez’ disdain for the IMF was clear in remarks he made at the Non-Aligned Movement summit in Havana last year, arguing "we don’t accept the kind of development the World Bank and the International Monetary Fund want to push on us." The IMF after all, oversaw the wholesale privatizations and adjustments made in the early 1990’s in Venezuela that prompted Chavez’ first rebellion in 1992.
Pundits argue whether Venezuela has enough oil revenue to fuel socialist alternative lending in Latin America in the long-term and whether Venezuela and its partners will be able to challenge the US even when, as Chavez remarked in Havana last year, it is a "US empire experiencing decline." But the bigger question is what the US will do now that it has lost a lever of influence in the region. As Bill Blum (author of ‘Killing Hope: US Military and CIA Interventions Since World War II’) argues, "the simple numbers don’t begin to tell the full story because the US can and probably will undermine Venezuela in various ways which have more to do with covert operations and psychology."
But for now Latin American leaders are happy to borrow from Venezuela and emerge from under the shadow of the IMF. As Argentine president, Nestor Kirchner commented during a 2005 state visit to Germany, "there is life after the IMF and it’s a very good life."
Paul McIvor is the founder of Rosetta Public Relations, a communications firm in Toronto, Canada. He has worked for clients in Latin America.