- New research by the Jubilee Debt Campaign indicates a major breach by the IMF of its own policies, with $93 billion of lending to highly indebted countries, without any debt restructurings
- The campaign group argues this approach is incentivizing reckless lending, as lenders do not need to take risk into account if they know the IMF will enable them to be repaid
The International Monetary Fund (IMF) are spending $93 billion bailing out reckless lenders to 18 countries, in new analysis released by Jubilee Debt Campaign ahead of the IMF Annual Meetings (14-20 October 2019).
According to the debt campaign group, the issuing of loans by the IMF to high debt countries, without any debt restructuring taking place, are effectively bailing out previous lenders, incentivizing them to act recklessly and creating moral hazard. The 18 countries include Argentina, Cameroon, Ecuador, Egypt, Pakistan and Tunisia.
Sarah-Jayne Clifton, Director of Jubilee Debt Campaign, said:
“The IMF has a policy not to lend into an unsustainable debt situation, but we are seeing it breach this policy far too often, bailing out reckless lenders. This creates a moral hazard in the sovereign debt system. Lenders and borrowers are jointly responsible for ensuring debt crises are prevented. By constantly bailing out countries in debt crisis without requiring debt restructuring, the IMF is placing the burden of a crisis squarely on the shoulders of the citizens of a debtor country, letting lenders off the hook and ensuring the cycle of debt crises continues.”
The IMF has a policy of not lending to governments with an unsustainable debt unless lenders reduce the size of the debt to make it sustainable. However, the new analysis identifies 18 current cases where the IMF has lent to governments with debt payments over IMF sustainability thresholds, without restructurings making the debt sustainable. This practise mirrors the experience in Greece where IMF loans bailed out banks while maintaining the debt crisis in the country.
In Argentina, the IMF committed $56 billion of loans in June 2018, which have been used to pay interest and debt for the last year. At the time the IMF bailout began, the IMF expected the government of Argentina’s external debt payments to be 50% of exports, well over the IMF threshold of 21% of exports. Despite this, the IMF claimed Argentina’s debt was “sustainable but not with high probability”. Last month, the government finally announced plans to restructure the debt.
In July 2019 the IMF agreed $6 billion of loans to Pakistan, again with no debt restructuring. This is despite the IMF at the same time predicting that in 2020 the government of Pakistan’s external debt payments will be 54% of exports.
Recent IMF research has found that its programmes in highly indebted countries are much more successful if there is a debt restructuring at the start. In highly indebted countries where there was a restructuring as part of the IMF programme, 45% were successful, 40% partially successful and 15% unsuccessful. In contrast, in programmes in high debt countries without a restructuring, just 5% were successful, 45% partially successful and 50% unsuccessful.
Jubilee Debt Campaign, along with 33 other civil society organisations, are calling for the IMF to implement its policy of only lending to highly indebted countries if there is a debt restructuring which makes the debt sustainable, or if a country defaults on its debt. In the position paper released ahead of the IMF meetings they argue this is needed so that:
- Fewer self-defeating public spending cuts are introduced.
- IMF resources are no longer used to pay off previous lenders, incentivizing them to continue to act recklessly in the future.
- Debt relief from the IMF is not needed in the future, as was required under the Heavily Indebted Poor Countries (HIPC) debt relief process in the 2000s.
Jubilee Debt Campaign has previously warned that debt crises and risks are increasing across developing countries. In April 2019 the campaign released figures showing that developing country debt payments have increased by 85% between 2010 and 2018 and are at the highest level since 2004.