IMF: Stop Funding Honduras

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The Guardian/UK

IMF: Stop Funding Honduras

By giving millions of dollars to Honduras, the IMF is supporting an illegitimate coup government the world doesn't recognise

The IMF is undergoing an unprecedented expansion of its access to resources, possibly reaching a trillion dollars. This week the EU committed $175bn, $67bn more than even the $108bn that Washington agreed to fork over after a tense stand-off between the US Congress and the Obama administration earlier this summer.

The Fund and its advocates argue that the IMF has changed. The IMF is "back in a new guise", says the Economist. This time, we are told, it's really going to act as a multilateral organisation that looks out for the countries and people of the world, and not just for Washington, Wall Street or European banks.

But it's looking more and more like the same old IMF on steroids. Last week the IMF disbursed $150m to the de facto government of Honduras, and it plans to disburse another $13.8m on 9 September. The de facto government has no legitimacy in the world. It took power on 28 June in a military coup, in which the elected President Manuel Zelaya was taken from his home at gunpoint and flown out of the country.

The Organisation of American States suspended Honduras until democracy is restored, and the UN also called for the "immediate and unconditional return" of the elected president.

No country in the world recognises the coup government of Honduras. From the western hemisphere and the EU, only the US retains an ambassador there. The World Bank paused lending to Honduras two days after the coup, and the Inter-American Development Bank did the same the next day. More recently the Central American Bank of Economic Integration suspended credit to Honduras. The EU has suspended over $90m in aid as well, and is considering further sanctions.

But the IMF has gone ahead and dumped a large amount of money on Honduras - the equivalent would be more than $160bn in the US - as though everything is OK there.

This is in keeping with US policy, which is not surprising since the US has been - since the IMF's creation in 1944 - the Fund's principal overseer. Washington made a symbolic gesture earlier this year by cutting off about $18.5m to Honduras, and the state department announced on Thursday that it is terminating other assistance.

But more than two months after the Honduran military overthrew the elected president of Honduras, the US government has yet to determine that a military coup has actually occurred. This is because such a determination would require, under the US Foreign Appropriations Act, a complete cutoff of aid.

One of the largest sources of US aid is the Millennium Challenge Corporation (MCC), a government entity whose board is chaired by Hillary Clinton, the US secretary of state.

Interestingly, there were two military coups in the last year in countries that were receiving MCC money: Madagascar and Mauritania. In both of those cases MCC aid was suspended within three days of the coup.

The IMF's decision to give money to the Honduran government is reminiscent of its reaction to the 2002 coup that temporarily overthrew President Hugo Chávez of Venezuela. Just a few hours after that coup, the IMF's spokesperson announced: "We stand ready to assist the new administration in whatever manner they find suitable."

This immediate pledge of support by the IMF to a military-installed government was at the time unprecedented. Given the resources and power of the IMF, it was an important source of international legitimacy for the coup government. Members of the US Congress later wrote to the IMF to inquire how this happened. How did the IMF decide so quickly to support this illegitimate government?

The Fund responded that no decision was made, that this was just an off-the-cuff remark by its spokesperson. But this seems very unlikely, and in the video on the IMF's website, the spokesperson appears to be reading from a prepared statement when talking about money for the coup government.

In the Honduran case, the IMF would likely say that the current funds are part of a $250bn package in which all member countries are receiving a share proportional to their IMF quota, regardless of governance. This is true, but it doesn't resolve the question as to whom the funds should be disbursed to, in the case of a non-recognised, illegitimate government that has seized power by force. The Fund could very easily postpone disbursing this money until some kind of determination could be made, rather than simply acting as though there were no question about the legitimacy of the coup government.

Interestingly, the IMF had no problem cutting off funds under its standby arrangement with the democratically elected government of President Zelaya in November of last year, when the Fund did not agree with his economic policies.

We're still a long way from a reformed IMF.

Mark Weisbrot

Mark Weisbrot is Co-Director of the Center for Economic and Policy Research (CEPR), in Washington, DC. He is also president of Just Foreign Policy. He is co-author, with Dean Baker, of Social Security: The Phony Crisis. E-mail Mark: weisbrot@cepr.net

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