The IMF in the front line to save countries from default

With rising energy and food prices, more and more countries with growing deficits are turning to the International Monetary Fund (IMF). After Ghana, Pakistan or even Sri Lanka, Bangladesh requested, at the end of July, aid of 4.5 billion dollars (4.4 billion euros) from the institution based in Washington. With the increase in its energy expenditure, of which it is an importer, its foreign currency reserves have shrunk by 5 billion dollars over twelve months. Those of Pakistan, sufficient to cover barely more than a month of imports, have also reached an alert threshold. As for Sri Lanka, it is plunged into a political, social and humanitarian crisis after defaulting on its foreign debt last May.

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With each crisis, its opportunities. The IMF, which finds itself on the front line to save these countries from bankruptcy, wants to erase the bad memories left by the so-called “structural adjustment” programs., in vogue in the 1990s and 2000s, which combined cuts in budget spending and privatizations. The fund has now banished the word “austerity” from its vocabulary and advocates more “targeted spending”.

high risk

“In its aid programs, the IMF continues to ask for higher taxes and lower subsidies, but it no longer touches on measures to fight poverty”, emphasizes Ganeshan Wignaraja, a researcher at the Overseas Development Institute, based in London. No doubt this is the consequence of the social movements of the Arab Spring of 2011. “These countries had good indicators and balanced accounts, but we have seen that excessive inequalities could lead to a social crisis and a collapse of the economy.observes the economist Hakim Ben Hammouda, former Tunisian Minister of Economy and Finance. Too often the IMF does not realize the political fragility of the countries with which it works. »

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The institution, which has 1,000 billion dollars in reserve, says it has helped 92 countries for a total amount of 237 billion dollars since the start of the pandemic, in 2020. An amount which could quickly increase, since 60% of low-income countries are at high risk of debt distress, up from 30% in 2015. “If several dozen countries default, then the IMF will lack the resources to help them because of the greed of the rich countries, deplores David Bradlow, professor of economics at the University of Pretoria, in South Africa. These have halved from 1944, in proportion to the size of the world economy. »

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