"You don’t have to do this." Those are the near-last words of several victims in the Coen brothers’ classic, "No Country for Old Men," as they try to convince the movie’s unrelenting assassin that he should spare them. The assassin, played by Javier Bardem, finds this annoying, because in his mind these murders are pre-determined.
So it is with the IMF’s continuing confrontations with its borrowers, with one government after another pleading: "You don’t have to do this." Turkey and Latvia were in the news last week, having joined the roster of governments whose IMF disbursements are being withheld because they find it politically impossible to impose the required punishments on their citizens.
The IMF sees these measures as necessary and pre-determined – in most cases by the borrowing countries’ having run-up unsustainable external or budget imbalances. But in fact the Fund has a long track record – dating back decades – of imposing unnecessary and often harmful conditions on borrowing countries.
Latvia missed a 200 million euro disbursement from the IMF in March for not cutting its budget enough. According to press reports, the government wants to run a budget deficit of seven percent of GDP for this year, and the IMF wants five percent. Latvia is already cutting its budget by 40 percent, and is planning to close some public hospitals and schools in order to make the IMF’s targets, prompting street protests.
Latvia‘s GDP crashed by 18 percent in the first quarter of this year, after a 10.3 percent drop in the preceding quarter. These are among the worst declines in the world. This indicates that the IMF’s prescription is serious overkill. The purpose of IMF aid is supposedly to make any necessary adjustment easier, not worse.
In Pakistan, it would be surprising if the U.S. Treasury department, which is the principal overseer of the IMF, did not see a need to ease up on the contractionary IMF conditions there. The government of nuclear-armed Pakistan is facing serious political problems right now, having recently launched a major offensive against a growing Taliban insurgency. Slowing Pakistan‘s economy at a time when the global economic crisis is already doing that may not be the best policy from the point of view of political stability. The Fund has negotiated an increase in Pakistan‘s fiscal deficit from 3.4 percent to 4.6 percent of GDP, but is holding the line against lowering interest rates.
In almost all of its standby arrangements negotiated over the last year, the IMF has included conditions that will reduce output and employment in situations where economies are already shrinking.
Yet here in Washington there is a rush to get the IMF more money without any Congressional hearings or debate. We are told that poor countries will suffer if the Fund does not get a $108 billion appropriation from Congress immediately. But this is nonsense.
If we add up all of the IMF’s commitments under 16 Standby Arrangements negotiated since the crisis intensified last year, the total is less than $46 billion. The poorest countries will not be allowed to borrow anywhere near that amount. The IMF already has $215 billion on hand, plus more than $100 billion in gold reserves. It plans to create another $250 billion in SDR’s, i.e. the Fund’s currency. Even if we include the $67.5 billion that Mexico ($47 billion) and Poland ($20.5 billion) together can tap under the Fund’s Flexible Credit Line, it is clear the Fund is trying to get hundreds of billions of dollars more than it is likely to need. And it has at least ten times the money that the poor countries – whose needs are pocket change compared to IMF resources – will ever be allowed to borrow.
Yet the Obama administration, in a surprise move out of nowhere on Tuesday, decided to try and attach the $108 billion for the IMF to another spending bill in order to circumvent the normal legislative process. The reason for this stealth maneuver is that they might run into trouble in the House, where legislators are wary of voting for multi-billion blank checks after the backlash against the TARP financial bailout. They will try to convince Congress to approve this money without hearings or debate with the idea that it must be done in order to save poor people in poor countries.
Congress should be met with a chorus of opposition: "You don’t have to do this."