Responses: Peter Bakvis - Director, International Trade Union Confederation (IMF)

1. a) The IMF responded quickly to the current global economic and financial crisis by providing emergency loans to approximately twenty countries to date, starting in October 2008.  However most of these loans, some of which exceed US$10 billion, consist of non-concessionary lending to middle income countries, with a particularly strong concentration in Central and Eastern Europe and the former Soviet republics.  Emergency assistance to low-income countries (LICs) peaked in 2008, coinciding with the highest levels reached by international food and oil prices in mid-2008.  According to data published by the IMF in September 2008, the Fund had agreed to loan augmentations for balance-of-payments support to twelve LICs most severely affected by the food and fuel price crisis.  The average loan augmentation from the IMF to the LICs was $19 million, spread out for up to three years.  This is dwarfed by the size of the additional balance-of-payment financing needs for the LICs, which the IMF evaluated in March 2009 for a group of 48 LICs to be a total of $138 billion, or an average of $2.9 billion per country.
   
   b) The IMF announced in July 2009 that it would “boost the Fund’s concessional lending capacity by up to $17 billion through 2014, including up to $8 billion in the first two years [2009-2010]”.  While needed, it is still far below the IMF’s assessment of developing countries’ special financing needs because of the crisis.  Furthermore, even the amount announced by the IMF relies on additional contributions from donor countries that have not yet been committed.  The ITUC has supported an increase in the IMF’s financial resources if they are used for counter-cyclical policies focussed on employment creation and assistance to the vulnerable.  Our affiliates in donor countries have lobbied for additional government funds for those purposes.  The ITUC has also supported the $250-billion general allocation of special drawing rights (SDRs) for the same purpose.  However, noting that only some $18 billion – about 7 per cent of the SDR allocation – will go to the 78 LICs, the ITUC urges the establishment by the IMF of a mechanism whereby the countries that do not need their SDR allocation can transfer or reallocate them to LICs that do need and intend to use them.

1. a) The IMF claims to have been engaged in processes to “streamline” and otherwise reduce its loan conditionality for at least a decade.  Progress in actually achieving a substantial decrease in conditions at the IMF has actually been very slow, as many analyses, including from the Fund’s own programme evaluations, have shown (see for example:  Independent Evaluation Office of the IMF, An IEO Evaluation of Structural Conditionality in IMF-Supported Programs, 2008).  The ITUC, which has two-thirds of its 170-million membership in developing and emerging-economy countries, has frequently pointed out the inconsistencies in policy advice dispensed by the IMF, whereby rich countries and some middle-income countries are encouraged to implement counter-cyclical stimulus policies, but most developing countries are encouraged to practice pro-cyclical “fiscal discipline” policies. 
   
   b) In borrowing countries, the Fund’s advice to engage in pro-cyclical policies is reinforced through loan conditionality.  For example, in the case of a $50-million loan to Ethiopia granted in February 2009 under the Exogenous Shocks Facility, we note that the IMF programme requires the government to tighten monetary and fiscal policy; the government’s deficit is to be brought down from 2.7 per cent of GDP to zero.  Furthermore, domestic fuel prices must be maintained above the world price so as to reimburse the country’s oil stabilization fund for earlier price subsidies.  These measures are likely to accentuate the impact in Ethiopia of the global recession, and of continued high food prices and recently increased oil prices.  The ITUC believes that all countries must be encouraged to contribute to a global economic recovery effort through appropriate stimulus policies and that the additional resources granted to the IMF must be used, as the G20 leaders made clear in their London statement, “to support growth in emerging market and developing countries by helping to finance counter-cyclical spending”.

1. a) The IMF announced in March 2009 that it would discontinue the use of structural performance criteria in all of its loans but in July, when announcing new measures for LICs, the Fund explained that this did not entail an end to structural conditionality.  Instead, structural conditions “will become more flexible and focused on core goals tailored to each country”, according to the July statement.  It may also be noted that the IMF has not announced the discontinuation of quantitative performance criteria, which have been used to establish many of the austerity conditions in current emergency loans.  At this writing, no details about the new “more flexible conditionality” were available. 
   
   b ) A clear explanation of the new conditionality rules and the demonstration of their application in practice will be the only way to ascertain whether the new policy constitutes a genuine reduction in the intrusive and counter-productive IMF structural adjustment conditionality that trade unions, other civil society organizations and many governments have long criticized.  This will be especially important for the new short-term lending facilities for LICs – the Standby Credit Facility and the Rapid Credit Facility – that the IMF has announced.  The ITUC has proposed an end to all economic policy conditions and instead, the limitation of obligations to fiduciary controls and to those concerning respect for internationally agreed standards, include core labour standards.