Usury:
How the IMF Contributes to Poverty in Developing Nations
by Elizabeth Levy Sad, Buenos Aires, Argentina
Translated by David Epstein
Financing the Third World is an excellent business. Poor countries become increasingly poorer, and the resources that should be channeled into development policies are allocated to pay interest on the loans granted by the International Monetary Fund.
"Blaming the International Monetary Fund for the difficulties faced by a country in times of crisis is blaming the doctor for the patient's disease." This statement, and others, such as "the IMF does not represent the interests of the G7" (the G7 is a coalition of the major industrialized nations: the United Kingdom, France, Germany, Italy, Japan, the United States and Canada) are part of an outrageous manual that teaches IMF officers how to reply to the uncomfortable questions asked by the press.
Perhaps the text of this manual was created after a reporter asked Anne Krueger -- First Deputy Managing Director -- if the IMF was responsible for the increasing poverty in Argentina, while he attempted to place before her eyes the photograph of a malnourished child, and the officer escaped like someone who flees 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 for loans.
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 persist with economic development 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, dependent on the UN, the "Third World" as 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 time 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.
Double-Crossed with Loans
Analyzing some particular cases is a good way to x-ray the actions of the International Monetary Fund and 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 informed the country's national budget for the next year is 35,361 million dollars, one third of which will be used to pay principal and interest on the debt. 62 percent of the Colombian children are poor or indigent, if it is necessary to make clear what kind of economy this refers to.
- Brazil, one of the most unfair countries on Earth in terms of income distribution, owes 223 billion dollars.
- More than half the African countries spend more budget to pay their foreign debt than in 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; and in particular, 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 prices were 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 infrastructure with no precedents in Latin America, today, 20 years later, is a country in which more than half of the population is below the poverty line.
During the neo-liberalism's golden age, the IMF used to praise Argentina's economic policies and placed the country on a pedestal as an example of the good results its economic plans reaped. 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 unprecedented problems), the IMF "punished" the nation, 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 with giant steps, that foreign banks transferred funds abroad thereby emptying the financial system, while private investors took advantage to purchase Argentine debt bonds at a 10 percent monthly rate, which was obviously impossible to pay.
An interesting detail is that 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 disobeyed 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 criteria to monitor the performance of senior IMF officials, in such a way that it is possible to determine when a dismissal should be applied.
"The IMF does not have the solution. They are not experts. They
are representatives of specific private interests," stated 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.
Mr. Freeman is not wrong. The IMF has such a degree of interference in internal policy that it issues opinions on the dollar exchange rate, and public utility rates. The IMF also makes suspicious economic forecasts: frequently what actually happens is exactly the opposite of what they presage. For example, when Argentina finally abandoned the currency convertibility system, the IMF presaged 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 has happened.
More Information
The Heavily-In-Debt Poor Countries Initiative is Not Working, at Globalissues.org
Debt: Undermining Development, at Globalissues.org
50 years is Enough: US Network for Global Economic Justice
Asian Problems and the IMF The Cato Journal, 1998.
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Elizabeth Levy Sad is a journalist living in Buenos Aires, Argentina. Her writing has appeared in Elle, In-Lan, Today's Latino, Toward Freedom, and Llewellyn Books. Ms. Sad is also a copyeditor for ivillage.com.
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