NEW DEVELOPMENTS AT THE INTERNATIONAL MONETARY FUND

Note: The information in the following passage is taken from Business Week, July 27, 1981

The International Monetary Fund (IMF) seems to be developing two types of credit for the economies of Third World countries. Although the IMF is lending more money than ever before, bankers are worried that credit standards of the IMF will be lowered. If this happens, then it will no longer be true that a loan from the IMF guarantees a country's creditworthiness.

It is essential that the commercial banks maintain" their confidence in the programs of the IMF. These commercial banks will be financing, during 1981 and 1982, most of the projected $182 billion deficit of those developing nations that do not have their own oil. The IMF expects to lend $24 billion to those countries during this two-year period. The managing director of the Fund, Jacques de Larosiere, has said that the IMF can supply only a small part of the funds that are needed by the member countries. He says that for these countries to get additional financing they must have successful programs of economic reform. The directions their programs of reform take are determined in large part by conditionality. Conditionality means changes in economic policy that the IMF imposes on borrowing nations before granting them a loan. Banks are sometimes able to persuade borrowers to adopt corrective programs in order to make it more probable that a debt will be repaid, but traditionally, the IMF has been much more powerful than individual banks in this area. Bankers, however, are now suspicious that IMF conditionality is weakening. They accept the increases in the volume of lending by the IMF, but are disturbed by the less demanding terms of IMF loans and the increasing percentage of IMF funds lent to nations with little or no commercial bank credit.

There are four developments at the IMF that worry bankers the most.

1.They do not like new IMF policies that allow countries to borrow up to six times their basic

shares in the fund.

2.They are not pleased that loan commitments have been extended from one year to three.

3.The share of IMF debt held by industrial countries fell from 49% to 9% while the share of

outstanding loans to oil-poor developing countries has risen from 51% to 91%.

4.53% of the Fund's outstanding loans are to nations with gross national products of less than

$700 per capita.

Here are some examples of conditions imposed on recent IMF loans. Before Uganda was given a $182 million credit in June, it had to raise its gasoline prices and the prices of basic goods. The prices of basic goods had been fixed at low levels by the Ugandan government. Zaire had to devalue its currency by 40 % before being granted $1 billion in the same month. And Jamaica had to make important economic changes before getting a $619 million loan in April.

However, many bankers feel that in spite of IMF conditionality, many of the loans to the poorest countries stand very little chance of being repaid. In their opinion, the IMF should not concentrate most of its funds in loans to nations that cannot meet their loan commitments. They would like to see conditionality become stricter.

Date: 2014-12-28; view: 916