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.
v
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.