For decades the International Monetary Fund (IMF) served as one of the key pillars of the “Washington Consensus.” Dominated by the White House, the Fund allowed successive administrations to control the economic policy of poorer countries in this hemisphere and beyond. Those nations wishing to buck a U.S. agenda of corporate globalization risked having their access to international loans cut off. The brutish IMF not only handled its own funds but also played gatekeeper for money from other creditors, such as the regional development banks. This power made the institution as hated throughout the global South as it was celebrated inside the Beltway.
Maybe it’s not surprising, then, that an increasingly progressive Latin America is starting to say good riddance.
In recent months, major countries in the region have moved to pay off their loans to the IMF ahead of schedule and free themselves of direct oversight from the institution. Announcements in December from Argentina and Brazil, which are paying off $9.8 billion and $15.5 billion respectively, inaugurated the trend in the region. In addition, Bolivia was relieved of its outstanding obligations to the IMF by last year’s debt relief agreement at the G8. The country’s newly elected president, Evo Morales, has indicated that he may let his standby agreement with the IMF expire at the end of the month.
The motivation for cutting ties has been explicitly political. The Latin American electorate is fed up with policies like privatization and curtailed social spending; these policies, hallmarks of IMF “neoliberalism,” have hit the countries’ poor majorities hardest.
It would be one thing if the Fund’s prescriptions worked in creating economies that served their people. But in country after country, neoliberal economic mandates have produced lackluster growth at best and often have resulted in catastrophe. Argentina was once a poster child of IMF economics; that is, until its economy collapsed in 2001. As voters throughout the region demand change and put left-of-center governments into power, leaders like Argentinean President Néstor Kirchner proclaim that throwing off the chains of IMF debt constitutes an overdue victory–a move toward “political sovereignty and economic independence.”
Interestingly, within the domestic political debates of Argentina and Brazil, the left has been critical of the decision to repay. Social movement activists argue that the debts, some of which had been accumulated by past military governments, were unjust and should be renounced outright. In Argentina, critics contend that the IMF should have to pay for a crisis it was largely responsible for creating. Instead, billions of dollars that could have been used for needed social programs are going back into the Fund’s coffers.
The activists may have had a solid argument. But now that the deals are going forward, it’s time to assess their impact: Will freedom from the IMF lead to a truly independent economic path?
On face, distance from the IMF will provide poor and middle-income countries with room to chart a more autonomous course. Still, there are complicating factors. Remaining debts to institutions like the Inter-American Development Bank and the World Bank can be used to leverage governments to impose neoliberal policies. In Brazil, where Lula da Silva’s ostensibly progressive government has mostly adhered to the orthodox economic prescriptions of corporate globalization, political will to change may be lacking. Finally, the IMF will be able to continue giving its recommendations to other creditors.
The power of such advice, however, is not what it once was. The IMF has lost a lot of clout in recent years, due in no small part to Argentina. Since taking power in the wake of the country’s economic crisis, Kirchner has played hardball in negotiations with the IMF and private creditors. The strategy worked, allowing his government to negotiate a very favorable restructuring of its loans. Argentina standing up to the IMF was like an underdog knocking down the schoolyard bully. The aura of invincibility surrounding the Fund was dispelled, and the institution will likely never again inspire the same begrudging awe. Furthermore, as the failures of neoliberalism grow increasingly evident, creditors like the World Bank have been compelled to moderate their once-stringent conditions on loans.
In a final critical development, the oil-rich government of Hugo Chávez in Venezuela has stepped forward to provide other Latin American leaders with financing they might otherwise have needed to beg from Washington. Venezuela already bought up $2.4 billion worth of Argentina’s debt to help the country break free of the IMF, and Chávez has expressed a willingness to do more. This source of backup funds makes the governments of the Latin American New Left considerably less susceptible than before to threats of capital flight.
Cutting ties with the IMF is not just a regional phenomenon. Russia and Thailand have pursued strategies of early debt repayment, and Indonesia and Pakistan are among those now contemplating the move. Asian countries that were burned by the region’s neoliberal financial crisis in 1997 are building up large cash reserves so that they will not have to go back to the Fund in times of economic downturn.
These policy trends are producing funding shortfalls for the IMF. Since Argentina, Brazil, and Indonesia represent three of the Fund’s four largest clients, a lack of interest payments from these countries will make a serious dent in the institution’s operating budget. Currently, the IMF expects to be $116 million short in fiscal 2006. Not that the Fund is going broke. Among other assets, the institution sits on more than $56 billion worth of gold. Nevertheless, Managing Director Rodrigo de Rato has initiated a strategic review of the IMF’s activity, and the institution is contemplating a future of reduced global influence.
The bigger trial may be for the United States. As the administration’s command over its Southern neighbors declines, its rhetoric will be put to the test. The White House has long proclaimed that promoting democracy and reducing poverty are key foreign policy goals, even while it has limited its support to governments willing to follow the neoliberal line. Democratically elected leaders in Latin America are calling the bluff. They are refusing to defer to self-serving U.S. prerogatives, and instead they are seeking economic policies that can reverse the failures of corporate globalization.
Washington now has a choice: It can redefine its sense of national interest, cheer democratic renewal in the region, and acknowledge that the rigid economic program once forced into place by the IMF cannot fit all countries. Or it can become an ever-more-despised adversary for citizens throughout the Americas.