Initiatives by the International Monetary Fund (IMF) to shore up its unwholesome reputation with developing countries appear to have restored some measure of belief in the much-maligned Bretton Woods lending institution among some developing countries including Caricom members.
Last week the Stabroek Business reported that the Fund which, along with the World Bank, was set up during the post-war period of economic reconstruction in war-torn Europe, was ‘doing business’ with several member states of the Organization of Eastern Caribbean States (OECS) that had been hard hit by the global economic and financial crisis despite the enduring apprehension of sections of the populace in at least one of those countries. Jamaica, another Caricom member state, is also seeking support financing from the Fund.
What would have changed if not entirely shifted the outlook of the region towards the Fund is the issuance in May of a Brief titled A Changing IMF – Responding To the Crisis in which it outlined several initiatives designed to overhaul several of its widely reviled lending practices and conditionalities “by offering higher amounts and tailoring loan terms to countries varying strengths and circumstances.”
In the past the Fund has been accused by very poor countries, including Caricom member countries, of applying one-size-fits-all conditionalities that placed unacceptable restraints on the ability of borrower countries to spend on key issues like public sector salary increases and financing social projects that impact directly on the poor and which, in some cases, have led to popular discontent, civil disturbances and even changes in government.
With effect from May 1 the Fund has discontinued what, for many countries, had become the dreaded “structural performance criteria” for accessing lending. These have been discontinued for all IMF loans including loans to low-income countries. The IMF brief says that while structural reforms will continue to be part of Fund-supported programmes these will be applied “only when they are seen as critical to a country’s recovery.”
Critically, the IMF’s overhaul programme also seeks to remove its once highly controversial “monitoring” role which has been criticised by borrowing countries as a mechanism that places key decisions on economic management in the hands of the Fund’s Washington bureaucrats and compromises the sovereignty of borrower states. The Fund says that its reformed monitoring arrangements will now proceed “in a way that reduces stigma because countries will no longer need formal waivers if they fail to implement an agreed measure by a special date.”
Another key shift in the Fund’s lending posture that will be welcomed in poor countries is its now greater focus on the needs of the most vulnerable sections of populations. It says that its ‘new look’ structural reforms are “designed in a way to protect the most vulnerable, citing its October 2008 programme with Hungary which was subsequently modified in order to allow low-income pensioners to be excluded from benefit reduction.
Meanwhile the Fund says that it expects to double its concessional assistance under its 2008-2009 programme to US$3 billion annually to assist low-income countries in their response to the current global economic crisis. As part of this modified approach the Fund says that country limits on access to Concessional Fund financing have been doubled. So far, 24 low-income countries have received debt relief from the Fund totalling around US$6 billion.
Meanwhile, several countries in the region can expect to access funding from a new US$18 billion allocation, part of a US$250 billion secured by the Fund earlier this month to provide liquidity to the global economic system by supplementing the foreign exchange reserves of its 186 member countries. The Special Drawing Rights (SDR) allocation was approved as part of a US$1.1 trillion plan agreed at the April Group of Twenty (G20) summit of industrialised and emerging market countries in London.
Caribbean countries, while possessing little real clout in the global financial arena will doubtless take some measure of credit for the emergence of a ‘born again’ IMF given the region’s sustained lobby for a complete overhaul of the multilateral financial architecture, chiefly the IMF. In the past, Guyana, among other countries in the region, have witnessed public protests against Fund conditionalities which have had the effect of adding to the economic woes of the poorer sections of the people of the region.
