Borrowing into Submission

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Borrowing into Submission

Creation of regional lending institutions provide new alternatives to the IMF

WASHINGTON - 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.

President Barack Obama recently wrote a letter in support of
a bill to give $108 billion to boost IMF resources. On Sunday, the
Senate agreed to add it to the military spending bill.

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."

 

New lending options have emerged out of the growing global
dissatisfaction with the IMF. Countries like Russia, Iran, and China
have offered crisis-time lending around the world, and there has also
been a rise of regional lending banks in Asia and South America.

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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