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Borrowing into Submission
Creation of regional lending institutions provide new alternatives to the IMF
WASHINGTON - May 20 - The tides are changing for US-backed financing
institutions like the International Monetary Fund (IMF), as regional
lending organizations are offering options without the historical
conditionalities of IMF loans.
Economist Raul Moreno, from the University of El Salvador, is among the growing number of people who believe that the IMF does more harm than good through its loan-giving practices. "Through the loans, the international financial institutions, like the World Bank and the IMF, establish a mechanism of conditionality. Governments applied for loans and immediately their ability to spend was handcuffed by the conditions of the loan. Through which governments were forced to adopt neo-liberal policies," he says.
After receiving billions of dollars from G20 countries, Dominique Strauss-Kahn, Managing Director says that the IMF has rid itself of the controversial conditions it imposed in the past. The bank opened up a new condition-free option, known as the flexible line of credit.
Reza Moghadam, IMF Director of Strategy, Policy and Research, says that this option is "[for] those countries, the Fund is prepared to provide rapid, large financing, based on their track record, without the normal imposed conditionality during the programs."
The control that the IMF has historically exerted led to a massive backlash in recent years. Seventeen countries have made new arrangements with the Fund since the crisis hit. The new condition-free option has only been extended to Mexico, Poland, and Colombia - countries that are all staunch US allies with neo-liberal economic policies already in place. The other fourteen countries did not qualify for the flexible option.
"What I think you see is a tremendous double standard, when the International Monetary Fund is calling for a global stimulus, and they support stimulus policies, counter-cyclical policies in the United States, the European, and Japan," Weisbrot says. "And yet, if you look at their arrangements with other countries, middle income countries, they almost all provide for the opposite, to pursue what Congress calls pro-cyclical policies, which means cutting spending and tight monetary policy, often raising interest rates, things that slow the economy."
These new lending institutions are attractive because most offer condition-free loans and they are not tied to the United States. Moreno says that there is an advantage in having alternative lending options that are regionally based. "It's clear that in the current situation, with fresh winds rising from the South, there are other options. There's the Bank of the South project, which arose out of the ALBA [Alternativa Bolivariana para los Pueblos de Nuestra América] framework. I believe this is a possible way for the governments and peoples of the Latin American and Caribbean countries to access a kind of financing that isn't conditioned to impose the failed policies of the neo-liberal model."
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