Jesse Griffiths, Guest Blogger

Jesse Griffiths is Director of the European Network on Debt and Development (Eurodad). The Eurodad report “Conditionally Yours: An Analysis of the Policy Conditions on IMF Loans,” co-authored by Griffiths and Konstantinos Todoulos, was released today.

Ukraine is the latest country faced by a debt crisis to be forced into the arms of the International Monetary Fund (IMF). The reality of the situation was pithily expressed by the Ukrainian Prime Minister, Arseniy Yatseniuk, who recently said he “will meet all IMF conditions… for a simple reason… we don’t have any other options.”

The European Network on Debt and Development (Eurodad) has, over the past decade, produced several reports criticising the excessive and often harmful conditions that the IMF attaches to its loans. The IMF claims to have seen the light and limited its conditions to critical reforms agreed by recipient governments. We decided to put that claim to the test in our latest report, published on Wednesday (April 2), and examined all the policy conditions attached to 23 of the IMF’s most recent loans. What we found was truly shocking. The IMF is going backwards—increasing the number of policy conditions per loan, and remaining heavily engaged in highly sensitive and political policy areas.

Here’s what we found:

  • The number of policy conditions per loan has risen in recent years, despite IMF efforts to ‘streamline’ their conditionality. Eurodad counted an average of 19.5 conditions per programme: a sharp increase compared to the average of 13.7 structural conditions per programme we found in 2005-07.
  • Almost all the countries were repeat borrowers from the IMF, suggesting that the IMF is propping up governments with unsustainable debt levels, not lending for temporary balance of payments problems—its true mandate.
  • Widespread and increasing use of controversial conditions in politically sensitive economic policy areas, particularly tax and spending, including increases in value added tax (VAT) and other taxes, freezes or reductions in public sector wages, and cutbacks in welfare programmes including pensions. Other sensitive topics include requirements to reduce trade union rights, restructure and privatise public enterprises, and reduce minimum wage levels.

Recent studies on related topics by the Center for Economic Policy Research (CEPR) and Development Finance International (DFI) have found similar findings.

What is to be done? Trying to cajole the IMF to improve itself is not what’s needed. Instead, we advocate for the IMF to go back to basics and fulfill the role that’s really required. It should focus on its true mandate as a lender of last resort to countries that are facing temporary balance of payments crises. Such countries need rapid support to shore up their public finances, not lengthy programmes that require major policy changes. Why not extend the example of the IMF’s new but little used Flexible Credit Line to all IMF facilities—requiring no conditionality other than the repayment of the loans on the terms agreed?

If countries are genuinely facing protracted and serious debt problems, then IMF lending only makes the situation worse. Instead, let’s prioritise developing fair and transparent debt work-out procedures to assess and cancel unpayable and illegitimate debt. However, the IMF should not be the venue for such debt work-out mechanisms: as a major creditor, they would face an impossible conflict of interest. Of course, this revamped role for the IMF is only possible if it addresses its crisis of legitimacy, and radically overhauls its governance structure to give developing countries a fair voice and vote, and to improve transparency and accountability.

Partners we work with who live under the grim cloud of an IMF programme learn to hate the institution. A conditionality-free IMF with a democractic makeover could be an institution the world could learn to love.

Triple Crisis welcomes your comments. Please share your thoughts below.

Sunita Narain

Australia is a coal country. It is big business—miners are important in politics and black gold exports dominate the country’s finances. But dirty and polluting coal evokes emotions in environmentally concerned people. Coal-based power provides 40 per cent of the world’s electricity and emits one-third of global carbon dioxide, which is pushing the world to climate change.

Given this, on my recent visit to Australia, it was obvious I would be asked about my opinion on Australian coal exports to India. My answer, at the end of a discussion on the environmental challenges the world faces, was that as long as Australia was addicted to coal for energy it would be hypocritical for it to ask countries like India to give up coal. It is also important to note that Australia’s per capita carbon dioxide emissions are the highest—18 tonnes per person per year, compared to India’s 1.5 tonnes per person per year.

Read the rest of this entry »

Gerald Epstein

Anton Woronczuk of the Real News Network interviews Triple Crisis blogger Gerald Epstein about the borrowing advantages enjoyed by “Too Big to Fail” banks, due to creditors’ confidence that the banks will be bailed out if they are in danger of failing. Little has changed, Epstein, warns–in terms of the big banks’ advantages or their risk taking–due to the financial crisis or subsequent regulation.

Read the rest of this entry »

Martin Khor

The tide is turning against investment treaties that allow foreign investors to take up cases against host governments and claim compensation of up to billions of dollars.

Indonesia has given notice it will terminate its bilateral investment treaty (BIT) with the Netherlands, according to a statement issued by the Dutch embassy in Jakarta last week.

“The Indonesian Government has also mentioned it intends to terminate all of its 67 bilateral investment treaties,” according to the statement.

It has not been confirmed by Indonesia. But if this is correct, Indonesia joins South Africa, which last year announced it is ending all its BITS.

Several other countries are also reviewing their investment treaties.

This is prompted by increasing numbers of cases being brought against governments by foreign companies who claim that changes in government policies or contracts affect their future profits.

Many countries have been asked to pay large compensations to companies under the treaties.

The biggest claim was against Ecuador, which has to compensate an American oil company US$2.3bil (RM7.6bil) for cancelling a contract.

Read the rest of this entry »

Yilmaz Akyuz

Reposted from South-North Development Monitor SUNS.

The United Nations Post-2015 Development Agenda should not simply extend the Millennium Development Goals (MDGs), or reformulate the goals, but focus instead on global systemic reforms and secure an accommodating international environment for sustainable development.

The MDGs are based on a donor-centric view of development with a focus on poverty and aid. They do not embrace a large segment of the population in the developing world, notably in middle-income countries, which fall outside the thresholds set in MDGs but still have their development aspirations unfulfilled.

It would be agreed that development is much more than the sum total of MDGs or any such arbitrary collection of a limited number of specific targets. But it is not possible to reach an international agreement on all important dimensions of economic and social development and environmental protection.

Any international agreement on such specific development targets would naturally be selective, leaving out many dimensions to which several countries may attach particular importance.

Thus, instead of focusing on selective specific targets in the areas of economic and social development and environmental protection, we should aim at creating an enabling international environment to allow each and every country to pursue developmental objectives according to their own priorities with policies of their own choice. Read the rest of this entry »

Philip Arestis and Malcolm Sawyer

The announcement by the European Central Bank (ECB) of its Outright Monetary Transactions (OMT) programme in July 2012, along with the prior statement by the ECB’s president that the bank would do “whatever it takes” to save the euro, restored the confidence of the markets. The interest rates on Italian and Spanish sovereign debt, for example, fell to more tolerable levels.

Further details of the OMT programme have emerged since September 2012, when it was announced that relevant candidate countries would receive help and be allowed access to OMT if they only had complete market access—that is, the ability to get credit from private sources. (The ECB, instead of publishing OMT’s legal documentation “soon” after September 2012, shifted its stance to “only publish when a country applies.”) The ECB shifted to the stricter condition of complete market access from the one of July 2012, under which the programme might help those countries that were simply regaining market access.

The German central bank, the Bundesbank, though, opposes OMT on the grounds that it is close to the monetary financing of budget deficits. In other words, OMT implies clear and direct borrowing by governments from their own central banks, which, it is stressed, is banned by the Maastricht Treaty. It is clear, though, that the treaty permits the ECB to buy public debt in the secondary markets.

Read the rest of this entry »

Sara Hsu

Recently, I gave a private talk on the risks of shadow banking and included the following table in a handout. I include a somewhat abbreviated version on this blog post for readers to use as well. I rate and provide and brief explanation for the level of liquidity, solvency, and market risk contained in these shadow banking sectors. This is elaborated on to some extent in my recent blog post here.

Read the rest of this entry »

Timothy A. Wise, republished from Global Post

International food prices have fallen since 2008, when agricultural commodity prices doubled, pushing millions around the world from bare subsistence to hunger and raising the number of food insecure people to nearly one billion.

Is the crisis over, then? Far from it, according to Olivier De Schutter, the UN Special Rapporteur on the Right to Food. As he told the UN Human Rights Council earlier this month, global policymakers have yet to address the structural causes of the crisis. In particular, they have failed to recognize that industrial agriculture is not the ultimate solution to global hunger — and that it is, instead, part of the problem.

In part, De Schutter drew his conclusions from his official mission to Malawi last year. As I toured the country last month, it was easy to see what he saw: the promise and allure of hybrid seeds and synthetic fertilizer, as well as their limits.

De Schutter took over as Special Rapporteur on the Right to Food six years ago, as the global food crisis was breaking. His UN mandate is to advance the “progressive realization of the right to food,” and he has been a tireless advocate at a critical juncture for global agricultural and food policy. He will hand over his mandate to an as-yet-unnamed successor in April, and he used his final report to the UN Human Rights Council in Geneva to deliver a sweeping assessment of the progress to date and the daunting challenges ahead.

His message was upbeat but firm: “The eradication of hunger and malnutrition is an achievable goal. Reaching it requires, however, that we move away from business as usual.”

Read the rest of this entry »

Leonce Ndikumana

Jessica Desvarieux of The Real News Network interviews Triple Crisis contributor Leonce Ndikumana about the role of economic development in creating lasting peace in the Great Lakes Region of Africa.

Read the rest of this entry »

James K. Boyce

What’s rent got to do with climate change? More than you might think.

Rent isn’t just the monthly check that tenants write to landlords. Economists use the term “rent seeking” to mean “using political and economic power to get a larger share of the national pie, rather than to grow the national pie,” in the words of Nobel laureate Joseph Stiglitz, who maintains that such dysfunctional activity has metastasized in the United States alongside deepening inequality.

When rent inspires investment in useful things like housing, it’s productive. The economic pie grows, and the people who pay rent get something in return. When rent leads to investment in unproductive activities, like lobbying to capture wealth without creating it, it’s parasitic. Those who pay get nothing in return.

Two other types of rent originate in nature rather than in human investment. Extractive rent comes from nature as a source of raw materials. The difference between the selling price of crude oil and the cost of pumping it from the ground is an example.

Protective rent comes from nature as a sink for our wastes. In the northeastern states of the U.S., for example, the Regional Greenhouse Gas Initiative requires power plants to buy carbon permits at quarterly auctions. In this way, power companies pay rent to park CO2 emissions in the atmosphere. Similarly, green taxes on pollution now account for more than 5% of government revenue in a number of European countries. When polluters pay to use nature’s sinks, they use them less than when they’re free. Read the rest of this entry »