IMF: Light Up Its Darker Crannies

(The writer is Antigua and Barbuda’s Ambassador to the US and the OAS. He is a Senior Fellow at the Institute of Commonwealth Studies, University of London and Massey College in the University of Toronto. The views expressed are his own)

THE International Monetary Fund (IMF), which has tormented small Caribbean economies for five decades with austerity measures and fierce conditionalities, has been exposed as adopting utterly different standards towards Europe, especially the countries of the European Currency Union. That is except for Greece which, throughout its economic crisis, the IMF treated like a third-world country.

According to a report, published on 28th July by the IMF’s watchdog, the Independent Evaluation Office (IEO), the Fund’s top staff worked in cahoots with the European Commission and the European Central Bank to misrepresent the situation in Greece to their own Executive Board; laboured diligently to protect the Eurozone in the interests of its larger members, such as France and Germany (which, incidentally, are also the main controllers of the IMF); and punished Greece with the burden of alone carrying the cost of a bailout – something that had not been done to any other European Union country.

In a revealing and telling sentence in the executive summary of its report, the IEO declared that: “In general, the IMF shared the widely-held “Europe is different” mindset that encouraged the view that large imbalances in national current accounts were little cause for concern and that sudden stops could not happen within the euro area”. The report, “The IMF and the crises in Greece, Ireland, and Portugal: an evaluation by the independent evaluation office” can be read at: http://www.ieo-imf.org/ieo/files/completedevaluations/EAC__REPORT%20v5.PDF and it is strongly recommended that officers of all Finance Ministries and Central Banks in the Caribbean should read it.

The authors of the report stated unequivocally that: “The IMF’s handling of the euro area crisis raised issues of accountability and transparency, which helped create the perception that the IMF treated Europe differently. Conducting this evaluation proved challenging. Some documents on sensitive issues were prepared outside the regular, established channels” and either disappeared or were not made available to the Evaluation Team.

The principal reason for handling the financial crisis in Greece differently was primarily to protect the Eurozone at the insistence of the European Commission which negotiated on behalf of the Eurogroup, subjecting IMF staff’s technical judgments “to political pressure from an early stage”. As a result of this, in May 2010, the IMF Executive Board approved a decision to provide exceptional access financing to Greece “without seeking pre-emptive debt restructuring, even though its sovereign debt was not deemed sustainable with a high probability”. The truth is that the actions in relation to Greece (hidden from the Executive Board by the management) were designed to make French and German banks ‘whole’; never mind what Greece was forced to endure. In other words, Greece was ‘sucker punched’ or, ‘fiscally water-boarded’ to use the more emotive description of the former Greek Finance Minister YanisVaroufakis (now Professor of Economics at the University of Athens).

In a robust response to the IEO report, Varoufakis observed that: “The establishment press were claiming that a finance minister of a small, bankrupt nation which is being water-boarded by the high and mighty troika functionaries cannot afford to say, in public or in private, that his small, bankrupt nation was being water-boarded”. But, he said Greece had “tried silence and obedience from 2010 to 2014. The result? A loss of 28% of national income and grapes of wrath that were “…filling and growing heavy, growing heavy for the vintage”.

Of course, Greece, though a small European economy, is significantly larger than the small economies of the Caribbean. When Finance Ministers of small Caribbean countries complain about the conditionalites of IMF programmes that hurt more than help, as Antigua and Barbuda’s Prime Minister Gaston Browne did in August 2014, they are roundly criticised for their audacity. Browne had remarked about the IMF strait-jacket that his government inherited when it was voted into office: “The fiscal problems have not been resolved, but yet still we are being asked to pay back US$119 million over the next four years. We have to pay back even before the problem is solved”. And, small economies have no capacity to stand-up to the IMF and those who control it. Greece proved that point and is now struggling as a result.

Varoufakis feels that Greece is owed an apology and officials of the IMF should be fired now that the IEO has exposed duplicity – even conspiracy – in the way the country was treated by the IMF, including – and especially – not being granted any significant debt relief, through a debt write-down or a reduction in the sum of the debt, while having an austerity programme stuffed down its throat. But, he is realistic enough to say: Is any of this going to happen? Or will the IMF’s IEO report light up the sky fleetingly, to be forgotten soon? The omens are pointing to the latter”.

Concern about the findings of the IEO report, particularly the obvious political interference in the IMF’s processes by the European Union and the European Central Bank, has evoked editorial comment from leading financial publications. For instance, the UK Financial Times newspaper editorialised on 28 July about “Europe’s outsized influence over the governance of the IMF” and expressed the view that such influence “must continue to decline if the institution is to retain credibility”.

But, the reality is that recent reforms in the voting power of the IMF still leave the European governments with enormous and undeserved power. As the Financial Times observed, rather belatedly (and perhaps with an eye to yet another unthought-of consequence of Brexit): “The EU has also yet to demonstrate that it has abandoned the traditional stitch-up by which it, in effect, appoints the head of the IMF”. The United States of America (US) aids and abets the EU in its imposition of the IMF chief in return for the right to name the President of the World Bank. Between them, they operate a cabal of control of the international financial system.

The IEO report is a valuable document. Developing countries, including those in the Caribbean, should not allow its findings “to run through our leaders’ fingers like thin, white sand” as the former Greek Finance Minister vividly put it. Instead, it should be used as a beacon to shine a bright light on the dark crannies of an organisation that was created to help countries out of dire fiscal straits, but whose prescriptions result in hurting more than it helps, except when the interests of its controllers are affected.

At the World Bank/IMF meeting this autumn, the IEO report should be prominent among the items that Finance Ministers emphasize. It should become a tool for the re-examination of IMF policies and more considered discussion of the many governance issues, highlighted in the report and which, in the interests of all, have to be addressed effectively.

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