IMF 'risks presiding over new debt crisis'

IMF AND WORLD BANK ANNUAL MEETINGS, 6-7 OCTOBER 2009

IMF and World Bank face international protest in Turkey

Fears that Bank and Fund will ignore threat of New Debt Crisis and revert to old ways after G20 funding boost

Protest from around the world will greet the International Monetary Fund and World Bank when they open their annual meetings in Istanbul next week (1).

Campaign groups are concerned that the international institutions - bolstered with hundreds of billions of dollars by recent G20 summits - have changed little from the dark days of the Third World Debt Crisis. Indeed Jubilee Debt Campaign and the European Network on Debt and Development (EURODAD) warn that, with vast new loans to developing countries being the primary solution offered in response to the global economic downturn, the IMF risks presiding over a new debt crisis (2).

The IMF is viewed with particular hostility by many in Turkey for the role of that institution in dictating free market policies to the country, especially through the 2001 economic crisis. Last year Turkish Prime Minister Recep Tayyip Erdogan disagreed with business leaders saying: "We will not cast our tomorrows into darkness by bowing to IMF demands in such a time of crisis" (4). The Annual Meetings are taking place in a new purpose-built, US$220 million conference centre in Istanbul which is mainly underground (4). Meanwhile, demonstrations under the banner 'Resistanbul' have been called throughout the week (5).

Key issues that debt campaigners are calling for action on during the meetings include:

Impact of the crisis on poorest countries
Poor countries are suffering greatly from the current global economic downturn, as their export markets have shrunk, investment in their economies has fallen, and servicing their debts has become more expensive. And yet the 'solutions' set out by the G20 and implemented via the international financial institutions, boil down to massive new lending on often expensive terms, with harsh conditions attached. This will serve to increase countries' debt burdens at a time when they instead need relief on their debt obligations.

Ballooning debts
The debt-to-GDP ratios of 28 low-income countries already exceed 60%. This is more than double the number in this situation before the outbreak of the global recession. UNCTAD points to serious concerns over the debt burden in 49 least developed countries. Many countries may shortly face a renewed debt crisis. Developing county leaders have already called for at least temporary debt relief, for example financed by the IMF gold sales. Meanwhile, the World Bank's latest figures indicate an $11.6 billion shortfall in core spending in these countries in 2009 alone, and predicts deteriorating debt sustainability indicators going forward. The need for debt relief is all the more urgent.

Weakening of Debt Sustainability Framework
At the same time, the IMF and World Bank will announce measures in Turkey that will actually make it more likely that assistance comes in the form of expensive loans. They have reviewed the 'Debt Sustainability Framework' which sets out how much countries should receive in terms of grants and cheaper lending, in order not to get into trouble with their debts. But in the context of the crisis, when rich lenders are reluctant to offer this kind of finance, the IFIs will announce a more 'flexible' approach. It seems that debt thresholds are no longer important: the situation has changed so the goal posts have been moved. The new 'flexibility' may well mean that lenders across the world reduce how much money they give poor countries as grants or cheaper loans, so increasing the debt burdens of poor countries. This is at a time when these countries need more debt relief and grant-based finance, not less.

Debt service moratorium
UNCTAD has estimated that a short-term freeze in debt service payments would free up $26 billion for 49 low income countries in 2009 and 2010. EURODAD has calculated that a two year moratorium on external debt service payments for 64 of the world's poorest countries would release over US$30.5 billion in extra finance. Poor countries must not be forced to bear the cost of a crisis they did not create. Debt relief is urgently needed to help these countries not only weather the storm, but fund essential services as they seek to meet the Millennium Development Goals and ultimately eliminate poverty. At the very least, leaders meeting in Istanbul should agree a short-term freeze in debt repayments for the poorest countries.

Reform the institutions
The decisions being made at the annual meetings reflect the dominance of the rich lender nations in these institutions. Poor countries' voices must be heard loud and clear if genuine solutions to their plight are to be found. This means radical reform of the Bank and the Fund to make them truly democratic, transparent and accountable.

ENDS

Notes

1. The annual meetings of the International Monetary Fund and World Bank will take place in Istanbul on 6 and 7 October. See http://www.imf.org/external/am/2009/index.htm
2. See Eurodad, 'Debt in the Downturn', 1 October 2009, http://www.eurodad.org/whatsnew/reports.aspx?id=3844
3. See http://www.bloomberg.com/apps/news?pid=20601110&sid=a.Xr1ajJU15A
4. See http://www.hurriyetdailynews.com/n.php?n=new-congress-center-opens-today-2009-09-16
5. See http://resistanbul.wordpress.com/