Aid to Brazil, Uruguay fails to dampen criticism of IMF
The IMF’s bailout of Brazil and Uruguay has not spared it from criticism for its delayed response to the problem of contagion of the Argentinian crisis and for its treatment of the Southern Cone nation as a whipping boy for its own misguided policy advice.
NEW international loans to Brazil and Uruguay have granted a respite to the faltering economies of Latin America, but have not dampened criticism of the IMF’s sluggishness in reacting to the contagion of the Argentine crisis and of the strings it has attached to aid.
The London stock exchange opened on 8 August with a strong upward trend, after Wall Street closed on 7 August on the rise, in response to the IMF agreement to help Brazil with an emergency aid package of $30 billion.
The bailout will keep Brazil from defaulting on its foreign debt as Argentina did early this year, said analyst Gonzalo Sanhueza with the Finis Terrae University in Santiago, Chile.
Meanwhile, the Inter-American Development Bank (IDB) approved a $500 million loan for Uruguay on 7 August, part of a $1.55 billion aid package being cobbled together by the IDB, IMF and World Bank.
The announcements of the loan packages coincided with a swing through Brazil, Uruguay and Argentina by US Treasury Secretary Paul O’Neill, who spoke out in Buenos Aires in favour of reaching an agreement between the caretaker government of Eduardo Duhalde and the IMF.
Although Washington transferred funds to the multilateral lending institutions to finance the emergency aid to Uruguay, to judge by the signals given off by O’Neill, the administration of George W. Bush is not prepared to come to Argentina’s rescue with the same alacrity.
As the IMF’s largest contributor, the US has an undeniable influence over the decisions and policies of the institution’s board, which apparently intends to punish the ‘misconduct’ of Argentina’s governments.
Nobel Prize winner in Economics Joseph Stiglitz, a former World Bank chief economist, was one of the first to upbraid the IMF, accusing it of contributing to bringing on the crisis in Argentina and of using that Southern Cone nation to send a lesson or warning to other developing countries.
‘The IMF did not aggravate the situation in Argentina; it was responsible for it,’ economist Hugo Fazio, director of the Centre for National Studies of Alternative Development (CENDA), told IPS.
‘For years, it demanded that Argentina apply policies that had an extremely negative impact. We must recall that in 1998, (the IMF) held up Argentina as an example for the world.’
The IMF’s support for Argentina’s currency board, which pegged the peso to the dollar for over a decade, was a decisive factor, added Fazio, who served as vice-president of Chile’s Central Bank under the leftist government of Salvador Allende (1970-1973).
‘That policy led the Argentine economy to a crossroads: it deteriorated the external competitiveness of its products, and facilitated the inflow of imports,’ said the economist.
Fazio also said that the IMF’s requirements that the government of Fernando de la Rua - which collapsed in December - cut public spending led to a contraction of the economy and had huge social costs.
‘At the present time, Duhalde’s policies are still those prescribed by the Fund, which is making it difficult for Argentina to pull out of its crisis,’ he added.
‘The IMF acted erroneously with respect to Argentina. At one point it had an idealised view of Argentina, it was soft, and did not recognise the problems that were there - problems that it is now accentuating,’ Chilean economist Ricardo Ffrench-Davis, with the Economic Commission for Latin America and the Caribbean (ECLAC), commented to IPS.
‘Argentina should have been more efficient with its fiscal spending, but the main problem was the exchange rate policy, and the IMF was wrong to grant it more funds without correcting that,’ said Ffrench-Davis, an expert in financial markets and capital flows.
In the view of the ECLAC economist, the IMF is insisting that Argentina make public spending cuts as a condition for providing further aid, although it failed to put a similar emphasis on correcting the exchange rate policy. Ffrench-Davis also criticised the IMF’s orthodoxy, which leads it to lay down the same requirements for all economies.
‘The Fund should take a more pragmatic approach. It should recognise the differences between developing and developed countries, and between an Asian and a Central American or South American nation. Its prescriptions are overly simplified,’ he argued.
Fazio pointed out that in Argentina, the IMF has played a role that has gone far beyond the economy, acting as a co-lawmaker and even, in the last analysis, as a lawmaker.
‘There are laws that have been amended at the behest of the IMF, like the bankruptcy law; the IMF has demanded that the budget be revised; and it has played a key role in getting the presidential elections moved forward to March 2003,’ he added.
But at a meeting with foreign correspondents, Chilean businessman and former senator Sebastian Pinera said that the IMF’s recommendations are generally correct, and that the Argentine crisis is principally the result of the poor application of the Fund’s prescriptions.
The skyrocketing of the fiscal deficit, which he said was largely due to corruption, was the factor that played the greatest role in triggering that country’s economic collapse, said Pinera, the president of the right-wing opposition National Renovation Party.
‘The problem is that the IMF is seen as an emergency physician. Whenever a doctor makes a house call, it is because there are problems, but that doesn’t mean that the illness is the doctor’s fault, or that doctors should be eliminated,’ said Pinera. - IPS