I’ve written a few times in the past few weeks about the potential reentry of the IMF—that most notorious of international financial institutions (at least in Latin America)—into the region. It began at the G-20 Summit where the Fund was injected with new capital and where some developing nations began to seek an increased role in the institution’s decision making (but also where the Washington Consensus, which the IMF once preached, was pronounced “dead”). News about the IMF spread to Mexico and Colombia, both of whom accepted a new “rainy day” credit line under an IMF program for countries with strong economic fundamentals. And, most recently, the story entered the pages of the Washington Post, who reported Tuesday that “hush-hush” negotiations between the IMF and nearly every country of the region (even those most hostile to the Fund, like Ecuador) are once more taking place.
It seems assured that, as Latin America attempts to prevent a deepening economic crisis from spiraling out of control into a social and political crisis, giving it a chance to bounce back when the global economy begins to grow again, the IMF will either be there at the table once again. Or, at the very least, hiding underneath it.
However, many questions still remain.
No significant reforms have yet been implemented, at least that I am aware of, although, yes, no politician in Latin America would likely survive very long on an economic platform consisting of privatization, trade liberalization, and deregulation, those core prescriptions of the so-called “Washington Consensus” or “market fundamentalism.” Indeed, it was such a package that is largely responsible for the fact that IMF loans to Latin America dropped from $48 billion in 2003 to less than $1 billion last year, as Juan Forero writes in an NPR report.
But, that said, there are new signs that those who very recently led the IMF are subscribers to a very different economic philosophy than that adhered to during the 1980s and 1990s. In a new piece in The Atlantic Monthly, Simon Johnson, the chief economist for the Fund from 2007 to 2008 writes that the deregulation of the financial sector is the principal factor that has caused current economic crisis. “Elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis,” Johnson maintains, adding that “many IMF programs “go off track” precisely because the government can’t stay tough on erstwhile cronies” [emphasis added].
That, to me, sounds like a significant shift in philosophy at the IMF.
But will it be enough? Does the IMF have any popular credibility in Latin America to be given a second chance? As a new report from the Center for Economic and Policy Research argues, the IMF has consistently underestimated economic growth in Argentina and Venezuela—the two countries it predicts to have the worst growth in 2009 and 2010. Such revelations do not seem likely to help the Fund’s credibility problem. And even while countries like Bolivia and Ecuador apparently hold quiet talks with the Fund, the definitive victory of both country’s leaders in recent votes makes it difficult to imagine that the IMF could once again have the same political relevance it had one or two decades ago. Indeed, one of the most interesting proposals of late—and one adopted in the Cumaná Declaration that was signed by Bolivia, Venezuela, Ecuador, Honduras, Dominica, and Nicaragua before the Summit of the Americas—is that the remaking of the international financial architecture occur, not within the G-20, but rather in the UN General Assembly, beginning at the UN Conference on the International Financial Crisis. These meetings will be held in early June and will reportedly include Nobel-prize winning economist Joseph Stiglitz, among others.
The IMF may be back in Latin America. But it’s no longer alone.
Image: Elbag.org
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