IMF accused of “reckless lending” to indebted states | International Monetary Fund (IMF)
Debt campaigners have accused the International Monetary Fund of encouraging reckless lending by providing $93billion (£75billion) in loans to 18 financially troubled countries without a debt restructuring program first.
Ahead of the IMF’s annual meeting in Washington next week, the Jubilee Debt Campaign (JDC) said the Fund was breaking its own rules by providing financial support without ensuring the debt burden was bearable.
The JDC said the IMF created moral hazard because lenders knew they would be bailed out, no matter how risky their loans were.
Debt sustainability has moved into the spotlight over the past year after the IMF controversially lent a record $56 billion to Argentina even though its annual debt repayments far exceeded the IMF’s own limit. The IMF said Argentina, South America’s second-largest economy, was a special case.
But the JDC said Argentina was just the most acute example of a larger problem, with the IMF also encouraging reckless lending in 17 other countries: Afghanistan; Angola; Cameroon; Central African Republic; Chad; Ecuador; Egypt; Ghana; Jordan; Mauritania; Mongolia; Pakistan; Sao Tome and Principe; Sierra Leone; Sri Lanka; Tunisia; and Ukraine. The campaign group said credit agencies had rated Egypt, Pakistan and Ecuador as high risk.
Sarah-Jayne Clifton, director of the Jubilee Debt Campaign, said: “The IMF has a policy of not lending into unsustainable debt, but too often we see it breaching that policy, bailing out unwary lenders. This creates moral hazard in the sovereign debt system. Lenders and borrowers are jointly responsible for preventing debt crises.
“By constantly bailing out countries in debt crisis without requiring debt restructuring, the IMF places the burden of a crisis on the shoulders of the citizens of a debtor country, freeing up lenders and ensuring that the cycle of crises continues. debt”.
The IMF defended its approach. A spokesperson said: “The methodology used in the Jubilee report is flawed, starting with the misleading figure of $93 billion. More than half of this amount is accounted for by one program – Argentina, which has unique circumstances.
“The claim that the IMF’s own rules are being violated is not true. We have clear guidelines on not lending in unsustainable debt situations and all programs must be approved by the IMF Executive Board, which represents 189 countries.
“The Jubilee report also shows a lack of understanding of IMF lending policies. Our decisions to lend to countries are not simply based on numerical thresholds, but on comprehensive debt sustainability analyzes and the policies needed to address economic imbalances and debt burdens.
The JDC said its argument that the IMF should have required debt restructuring before accepting the loan was supported by the fact that Argentina now had to restructure the debt a year later. “[The IMF] have a policy of not lending in unsustainable debt situations, and we’ve featured 18 cases where they do just that.
Last year’s IMF loan came only two years after Argentina agreed to repay some of the remaining loans from its bankruptcy in 2002which left $82 billion in debt unpaid.
The deal with a group of “vulture” hedge funds led by Elliott Management by Paul Singer landed in Argentina with a $4.6 billion note. The move was expected to pave the way for Argentina to access global debt markets after being sidelined for 14 years, but a recovery in the country’s finances failed to materialize and it was soon on the verge of collapse again. bankruptcy.
As part of the agreement with the IMF, Argentina agreed to reduce its budget deficit to 1.3% of GDP this year, against 2.2% previously and a balanced budget next year. However, fears that a general election later this month could oust incumbent President Mauricio Macri in favor of populist Alberto Fernández and his running mate, former President Cristina de Kirchner, have sparked a leak investors, a run on the currency and sent the interest rate on the country’s publicly traded debt skyrocketing.