TAKE ACTION! Tell the IMF to Stop Playing Games!

UPDATE to analysis of IMF Debt Plan circulated on December 9
(“IMF Publishes ‘Modalities’ for Debt Cancellation Under G8 Debt Plan - A License to Meddle (Further)?”)

Soren Ambrose – Solidarity Africa Network in Action / 50 Years Is Enough Network

In an analysis circulated on Friday regarding the IMF’s Thursday announcements about how it would administer its portion of the G8 debt deal, we indicated that we would provide further information and perspective when it became available. It has become available very soon (actually we overlooked some of it last week!), and the additional information has persuaded us that the IMF is planning to use the debt cancellation program to reassert its control over any countries that could begin to free themselves from the institution’s destructive influence.

This is, of course, something we have been concerned about since the debt cancellation plan was first broached. The IMF has a long history of watering down, even nullifying or reversing, anything that could loosen its grip on Southern countries’ economic policies. If our current information and assumptions are correct, the IMF’s use of the G8 debt plan -- which looked set to reduce the IMF’s power over some of the world’s most impoverished countries -- to instead expand its control over those countries could be a textbook example of malevolent bureaucratic triumph over a political process in which years of citizen activism finally forced the G8 to begin making significant concessions it had long resisted.

The advantage that civil society retains is that the G8’s debt deal was highly-publicized, and used by Northern governments to portray themselves as benevolent agents of poverty reduction in the global South. For the first time, the G8 acknowledged that its approach to the global debt crisis was unsustainable, and that 100% multilateral debt cancellation without new crippling conditions was not only possible but necessary. Those facts cannot be undone.

We can put pressure on the governments that make up the IMF to stop this subversion of their ostensible intentions in approving the G8 debt deal. But the IMF has come up with arguments which the Northern governments will likely use to make the decisions sound reasonable. The IMF’s “logic,” however, can be exposed. Activists in both the North and the South must act NOW. The IMF board is scheduled to meet on December 21 to approve the decisions that will likely establish the pattern for the implementation of the debt deal. (It would take a very cynical person indeed to imagine that the timing of this decision -- at the time when many activists will be focused on, or actually at, the Hong Kong WTO meeting -- was intentional. It is true, however, that the fact that many of our allies will be consumed by that event will make our task more challenging.)

Keeping the Structural Adjustment Machine Working, Even Without Debt?

We have long argued that the G8 debt plan – what is now being codified by the IMF as the Multilateral Debt Relief Initiative (MDRI) – had the potential to provide not only an unprecedented level of debt cancellation (100% of IMF, World Bank [IDA] and African Development Bank debt), but also a significant break from the IMF’s business-as-usual. It was for this reason, we felt, that IMF staff and some board members fought very hard against the proposal after it was endorsed by the G8 in July. At the time of the IMF’s annual meeting in September it appeared that the plan’s opponents had been defeated.

Now, in light of (1) last week’s announcement of the “modalities” for IMF debt cancellation, (2) the publication detailed IMF staff memos originally prepared for the annual meeting, and (3) strong rumors that the IMF board is poised to deny debt cancellation to one-third (six of 18) of the countries promised it, that judgment must be re-visited.

The significant break we anticipated with this deal was that the cancellation of 100% of the debts the IMF claims would allow governments declining to take up new IMF loans or programs to extricate themselves from a long cycle (up to 25 years) of increasing indebtedness to the IMF. This debt to the institution that acts as “gatekeeper” for all foreign aid (its approval of a country’s economic plans signals to other agencies and institutions that it is safe to offer loans and grants, while its rejection has the effect of cutting off nearly all non-trade resource flows) has forced governments throughout the global South to accept economic policies designed by the IMF and other international financial institutions. Those policies, known as “structural adjustment” -- including trade and investment deregulation, privatization, budget cuts and layoffs, withdrawal of subsidies and credit for smaller businesses and farms, and increased reliance on exports of commodities and labor -- have consistently put the interests of Northern countries and corporations ahead of those of people in impoverished countries.

We have long assumed that this control over Southern countries’ economic policies has been the main motivation behind the creation and maintenance of the longstanding debt crisis. The potential break in the IMF’s grip was therefore the most exciting thing about the G8 debt proposal. It was more exciting, in fact, than the impact of the actual cancellation, which could be substantial but would likely be nullified, at least in part, if the countries remained obliged to enact IMF economic policies.

We have been concerned, therefore, that with any real debt cancellation, the IMF (and, following it, the World Bank) would devise a way, perhaps subtle, to ensure that this control was not sacrificed. It now appears that they have done exactly this.
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IF REPORTS FROM WITHIN THE IMF HOLD TRUE, IT WILL ON DECEMBER 21 ENSURE THAT NO COUNTRY GETS DEBT CANCELLED UNLESS IT IS COMMITTED TO AN IMF PROGRAM. We need activists around the world to act now to prevent this from happening!

The Policy Support Instrument (PSI)

We have been tracking the development and introduction of the Policy Support Instrument (PSI), a formalized version of the IMF’s “staff monitoring programs,” which provide supervision and approval of a country’s economic policies without the commitment of any IMF funding. The publicity accorded this program together with the timing of its introduction (plus some telling comments from the US and Canadian finance ministers) suggested that it would be the IMF’s answer to the threat of losing control over the economies of countries receiving debt cancellation. If the governments could be pressured to take out a PSI – with the assertion that they still need to demonstrate IMF approval in order to remain credit- (and grant-) worthy -- their subservience would be guaranteed without the IMF having to put up any money.

It now appears that the IMF will not be satisfied with the PSI alone as its insurance that governments will not attempt to assert economic policy independence.

“Conditionality” Under the Radar

In our December 9 analysis, we used the IMF’s MDRI factsheet and public information notice to try to understand the procedure the IMF would use for assessing whether those countries that qualify for debt cancellation under the G8 proposal should receive it, and how it would treat those countries it determines should have their cancellation postponed. The second question is easier to answer: “corrective” or “remedial” action, says the IMF, will be required for those countries. In other words, they would be required to meet a new series of economic policy conditions. It now appears that they will not only have to do so, but that they will have to agree to a new IMF program to get any cancellation.

Before composing our December 9 analysis, we failed to read everything the IMF provided on its website to explain its approach to the so-called MDRI. In addition to the two documents analyzed, the IMF posted two longer papers, one from July and one from September, developing the MDRI approach. Although at first glance the September paper appeared to be a revision of the July one (which we had already read), it turns out to have a significantly expanded section on “conditionality.” While it does not offer more definitive answers than the other documents, its value lies in exposing the thought process that went into this approach, and makes it more plausible that the IMF’s apparent ambivalence on the conditionality question is neither accidental nor incidental.

Board debate on the conditionality issue was hot in August, with several European board members, led by Willy Kiekens of Belgium, calling for the fully-conditioned approach, and others, including the US and the board members representing African countries, insisting that the immediate and irrevocable approach was the one mandated by the G8 proposal (which had not yet been formally approved by the board) and the only appropriate one to use.

While memos from some of the board members were leaked in a very timely fashion, and caused an outcry from civil society, no resolution ever became clear. The debate apparently remained active going into the period of the annual meeting (Sept. 20-22), at which a decision was due to be made.

Useful Ambivalences

Viewed from the outside, the debate appeared to fizzle out – rather abruptly given the heated tone of the August memos. The day before the beginning of the annual meeting, an announcement was made that the G8 governments had signed a new pledge ensuring they would deliver the funding required to prevent the financial position of either the World Bank or the IMF from diminishing because of the debt cancellation, and that with this step, there was consensus on the board to approve the G8 plan. Financing was indeed one of the issues causing great concern at the two institutions, and is the second of two main topics (after conditionality) taken up in the IMF’s long paper dated that same day (September 19).

The apparent resolution was puzzling for many observers, however. Leaving aside the observation that this pledge had nothing obvious about it that made it more binding than previous such promises, nothing was said about the conditionality debate at the IMF (which was mirrored in some respects at the World Bank). Because no announcement was made about any decisions to depart from the G8 proposal, which was formally approved at the annual meeting, the impression was given that the position of the G8 plan’s two main sponsors, the US and the UK, had prevailed.

It now appears that the Sept. 19 IMF staff paper (“The G-8 Debt Cancellation Proposal and Its Implications for the Fund — Further Considerations,” www.imf.org/external/np/ppeng/2005/091905d.htm), with its inconclusive delineation of the thinking behind the administration of the debt cancellation, is the solution that allowed the IMF board to agree on approving the G8 proposal. It offers a logic, of sorts, for the conditions qualifying countries should meet in order to pass the IMF’s final assessment before cancellation is effected. In doing so, it portrays those conditions as minimal and reasonable, unlikely to be applied unless a country’s economic management has taken an unquestionable nosedive. Because it resists making any clear statement on the application of conditions, governments asked to approve both the G8 plan and this approach in September could do so by choosing to see only what they wanted to see in it.

But the document itself, read closely, and the recent reports of calls for six countries to be denied immediate debt cancellation, expose the IMF’s intention to restrict its debt cancellation to countries that have already made commitments to IMF programs.

Twisting the Truth

How does it manage to do all this? Let’s see:

QUOTE 1: “For HIPCs that have already reached the completion point, the G-8 propose that to qualify for debt cancellation, these countries must be current with their payment obligations to the IFIs and not have experienced serious lapses, including in governance, such that their Fund-supported programs would be at risk.”

COMMENT: The first part is accurate. But the G8 proposal makes no explicit reference to “serious lapses,” nor to IMF programs. What it does say is: “We ask the World Bank and IMF to report to us on improvements on transparency on all sides and on the drive against corruption so as to ensure that all resources are used for poverty reduction. We believe that good governance, accountability and transparency are crucial to releasing the benefits of the debt cancellation.” The phrase “on all sides” suggests that the G8 was taking a more systemic approach – acknowledging that transparency, governance, and accountability are as much issues for the IMF, World Bank, and donor countries as they are for borrowing countries. That interpretation does not seem to have occurred to the IMF. Instead it inserts its own assumptions: for the IMF, references to “all resources are used for poverty reduction” and “the benefits of debt cancellation” should be seen as code for “Fund-supported programs.” In addition to facilitating this lie, the assumptions on display help establish the sense that any country involved in the debt cancellation program must inevitably also have an “IMF-supported program.”

QUOTE 2 (continuing from where we left off): “The G-8 recognize that implementation of this proposal would require that the eligibility criteria be clarified precisely, particularly for countries that do not currently have a Fund-supported program or whose program is currently off-track, and they have asked staff to suggest modalities to this end. While the G-8 do not see a case for conditionality beyond that of the HIPC Initiative, good governance, accountability and transparency are seen as crucial to releasing the benefits of debt cancellation.”

COMMENT: The last sentence is accurate, even quoting the G8 Finance Ministers’ communiqué. But unless there are G8 documents we have not seen which change the tone and meaning of those we have seen, the first sentence appears to be a complete fabrication (that is, another lie).

We then come to the core of the matter: determining what the criteria for the IMF’s assessment should be. The logic is remarkably flimsy:

QUOTE 3: “Against what standard should existing post-completion-point HIPCs be assessed in determining their qualification for additional debt relief under the G-8 proposal? […] In broad terms, experience shows that countries reaching the completion point have satisfied three criteria: satisfactory macroeconomic performance under PRGF arrangements; satisfactory progress in implementing a poverty reduction strategy (PRS); and improvements in public expenditure management (PEM) systems with a view to enhance [sic] governance and transparency in the use of resources. Thus, staff could assess whether post-completion-point HIPCs continue to meet these three criteria.”

COMMENT: The argument, such as it is, seems to be: Here are three things we can justify saying about countries that complete the HIPC program; let’s turn them into yardsticks by which to measure the countries whose debt we have been told to cancel. Nothing about why these criteria are important, or why there should even be a gauge for determining whether the countries promised debt cancellation should actually get it. But the argument – and this is the entire argument -- apparently slides by without setting off too many alarm bells. Unburdened by reasoning or reference to any outside authority, the IMF has now created a rationale for imposing new conditions on countries that have already completed the HIPC program.

A supplement to the September 19 paper (The Multilateral Debt Relief Initiative [G-8 Proposal] and Its Implications for the Fund—Further Considerations: Supplemental Information,” dated November 1), following suggestions in the previous paper, opens up a large loophole for the IMF to exploit. While the factsheet and public information notice on the MDRI leave open the possibility that the second criterion, on poverty reduction strategies, could refer to plans developed independently of the IMF and World Bank by the country, it becomes clear in the more technical documents that the reference is to an IMF/World Bank-approved Poverty Reduction Strategy Paper (a prerequisite for low-income countries to get loans or grants from those institutions).

QUOTE 4: “The objective would be to ensure that […] the country has in place a poverty reduction strategy in the form of an interim or a full PRSP and has satisfactorily implemented this strategy for at least six months.”

This requirement for a PRSP goes far beyond anything stated in the G8 proposal, and is close to a “smoking gun” regarding the IMF’s intentions. Just a page before Quote 4, the supplementary paper states, “Having a Fund arrangement would not be required to benefit from the MDRI.” The question, apparently, comes down to whether the PRSP counts as an “arrangement” with the IMF. The PRSP does not by itself create obligations between a country and the IMF, and is not generally treated as an occasion for the IMF to send signals on whether a country should be considered creditworthy. But the PRSP does invariably contain commitments to IMF-style macroeconomic programs, which are designed specifically to win the approval of the IMF and World Bank boards.

The IMF papers, then, allow readers to reach different conclusions and create an ambivalence useful to an institution which wants to duck criticism while still keeping its options – and its control – intact. This strategy (which may by now simply be standard operating procedure at the IMF) can be seen in the contradictory statements, or ones relying on specious legalistic distinctions, regarding the PRSP requirement. It is also evident in the paper’s subsequent distinction between “entry conditionality,” and “ongoing conditionality” – the latter’s application, concludes the paper, “could well outweigh its potential benefits.” The casual reader could see in the IMF paper a rejection of conditionality and continued ties to the IMF. Deft use is made of the more extreme position – those like the Belgian board member who advocate full-scale IMF oversight programs and phased delivery of cancellation (“ongoing conditionality”) -- to make the IMF appear more moderate, even as it devises new conditionalities and new rationales for imposing them.

The Real-Life Hit List Confirms the Concerns

The concerns raised by the broad hints and deliberate ambivalences in the IMF documents have received a measure of confirmation in the recent rumors emanating from the IMF. These rumors, from several highly-reliable sources, suggest that the IMF staff and board are poised to announce after the December 21 board meeting that six of the 18 countries eligible for immediate debt cancellation will have it delayed by the IMF. The six are Ethiopia, Madagascar, Mauritania, Nicaragua, Rwanda, and Senegal.

The rumors do not include the logic for the exclusion, nor do they go into details of what conditions they will be asked to meet in order to eventually merit cancellation. But an interesting pattern emerges, one that largely supports the view that the overriding motivation for the IMF is to avoid losing any control over these countries’ economic policies.

In a footnote to the September 19, paper – the same one that says there is no compelling reason to insist that benefiting countries have an IMF program – we learn the following: “Currently, three post-completion-point HIPCs (Ethiopia, Madagascar and Mauritania) do not have an arrangement with the Fund, while two (Nicaragua and Uganda) have arrangements that expire before January 1, 2006.”
Four of the six countries which may be denied immediate cancellation fall on the list of five countries that would emerge from the cancellation without an IMF program. The fifth country is Uganda, which recently publicly announced its interest in becoming the second country (and the first in the HIPC program) to commit to a PSI. This would mean that no country would get debt cancellation from the IMF without having an IMF program, or at least being in the process of securing one.

Is it stretching matters to assert that this arrangement is too perfect – from the IMF’s point of view – to be mere coincidence? With the IMF assuming the role of police force, prosecutor, judge and jury, it is hard not to believe that the results of its assessments have been shaped to ensure uninterrupted dominion for the IMF over the countries’ economic policy-making.

The IMF would, no doubt, suggest that these countries may be deficient in meeting the “entry conditionality” *because* they do not have a current IMF program.

(We have not explained the presence of Senegal and Rwanda on the list of countries to be excluded. We understand that the Senegalese government has recently been embroiled in a quarrel with the IMF over its plans to build a new airport. We will be looking further into both cases.)

ACT NOW!!

Activists need to exercise their leverage to enact the 100% multilateral debt cancellation promised by the G8, and to ensure that countries taking their first steps away from the IMF are not denied that option.

Make no mistake: this is the culmination of a power struggle. For the first time the G8, responding to legitimate political pressure from millions around the world, used its disproportional influence to force a policy change at the IMF and World Bank which the staff and some board members found distasteful. Those forces have attempted to re-assert IMF power through a wholly undemocratic, secretive, and deceitful back door process. They are close to subverting the core aspects of the deal. But we do have the power to expose this maneuver and to reverse it.