South American Resistance to IMF and World Bank
By Odeen Ishmael
Guyana Journal June 2007
CARACAS, 25 May 2007: When they formed the opposition in their countries, Latin American and Caribbean leftist political parties vehemently opposed the imposition of IMF and World Bank prescriptions for their nations development programs. However, from the 1990s, many of these parties succeeded to governments and found that, by way of continuity, they had to adopt these very IMF and World Bank prescriptions, generally referred to as the Washington consensus, even though they managed to re-negotiate some of the terms from time to time.
But recently, some of these leftist leaders have been voicing new condemnation of the two multilateral financial institutions. Since both institutions demand certain conditions from governments to which they lend money, these leaders accuse them of imposing policies that are stifling development and damaging to their economies.
The Venezuela government has taken the lead in this opposition and at the end of April 2007 President Hugo Chavez announced that Venezuela would withdraw from both the World Bank and the IMF. Some political analysts feel that this is purely a symbolic move because the nation already paid off its debts to the lending institutions shortly after Chavez first took office in 1999. Actually, the IMF closed its offices in Venezuela late last year.
As a counter to both institutions, Venezuela and Argentina initiated the establishment of the Bank of the South with deposits of $1.4 billion and $350 million, respectively. Brazil recently decided to join, and this will greatly expand the financial capacity of the proposed development fund to be managed by the new financial institution. This new institution is intended to help finance social and economic development across the region without political conditions. Among the first projects that it will fund is an 8,000-kilometre gas pipeline across South America.
Meanwhile, other regional leaders are registering complaints against the two US-based institutions. Bolivian President Evo Morales said governments never seem to win their disputes against trans-national companies at the World Bank's International Centre for Settlement of Investment Disputes. Over in Ecuador, President, Rafael Correa recently asked the World Bank's representative there to leave and said his country already paid off its debt to the IMF. And Nicaraguan President Daniel Ortega expressed hopes of removing his country from the debt prison and announced his government would be negotiating to leave the IMF.
In a more recent clash with the IMF, these regional opponents of the IMF/World Bank rejected the latest report by the IMF which predicted that Latin America will not grow as much in 2007 as it did in 2006. Leaders of the region insisted that the multilateral organization continued to make skewed predictions on Latin America.
The report projected that regional economic growth will drop to 4.9 percent this year from 5.5 percent in 2006. Venezuela's growth, which was 10.3 percent last year, would drop to 6.2 percent in 2007, and inflation was predicted to be 21.6 percent.
But Venezuela's Minister of Finance, Rodrigo Cabezas, responded that for three consecutive years the IMF made wrong predications about his county. He added that the report, which also insisted that Venezuela should control its public spending, had a political commitment to discredit the success of the Venezuelan economy in the last few years.
Cabezas argument has strong footing. In 2005, the IMF predicted a 1.1 percent growth rate for Venezuela, when the real actual growth rate ended at 10.3 percent. In 2006 the IMF projected 3.8 percent, when Venezuelas economy actual grew by 10.2 percent.
The Minister assured that the growth rate for 2007 would be above 7 percent, and could pass 8 percent. The government's goal for inflation is 12 percent.
Argentinas President Nestor Kirchner also rejected the IMF recommendations, saying we already saw what happened to us when it told us what we had to do." Argentina also has paid back billions of dollars to the IMF since 2005, after recovering from its own financial crisis of a few years ago.
Recently, too, the Ecuadorian president was very critical saying that the IMF and World Bank want to put us on our knees in order to provide funding for his country.
The IMF also recommended that Latin America further open their economies, and create a better environment for investment. It claimed that Latin America's growth is behind that of other regions because its markets are not open or competitive enough.
And in a veiled call for privatization, the Fund said that the nations of the region should also reduce the role of state-owned companies in the economy. This conflicts with the policies of the Venezuelan government which has recently increased state participation in the economy.
But apparently, the IMF also gave some commendations. For instance, Guyana earned praises for reversing some of the recent large increases in government spending and implementing sound macroeconomic policies, resulting in a better growth and inflation performance. The Fund was also impressed with the introduction of the value-added tax and urged the government not to expand exemptions demands currently made in the country by critics of the new tax. However, it noted that domestic and external imbalances remain large, and that the economy continues to be vulnerable to shocks.
As the IMF pronouncements are assessed, it is obvious that there is an established strong determination by some countries to extricate themselves from IMF and World Bank controls. Long before this latest confrontation, President Kirchner had cautioned the IMF of its policies. Addressing the UN General Assembly on 21 September 2004, he stated that the intent of the original Bretton Woods system was to encourage economic development, and warned that the IMF must change that direction which took it from being a lender for development to a creditor demanding privileges. It may not be too late for the multilateral financial institutions to heed this timely advice.
The writer is Guyanas Ambassador to Venezuela. The views expressed are solely those of the writer.