The G20 have proposed substantial increases-up to $500 billion-in funding for the IMF to address the global financial downturn. While the financial crisis has given the IMF a new lease on life, the same cannot be said for developing countries that have struggled for years under the IMF's restrictive conditionalities.
While developing countries clearly need emergency funds to be able to cope with the global crisis, the G20 should resist calls to expand the purse of the IMF-unless those proposals require measurable, meaningful policy reforms that will eliminate IMF conditionalities that enforce fiscal belt-tightening and undermine social sector investments in developing countries, particularly in health and education, and guard against a new external debt crisis. Lessons must be learned from the recent multi-billion dollar failed no-strings-attached bailouts of financial institutions-the G20 must not grant the IMF a blank check.
"We cannot take the IMF's promises at face value," said Chee Yoke Ling, director of programmes for Third World Network. "We know from its nine most recent loan agreements that the IMF is using the same tight, restrictive policies-belt-tightening policies-which are opposite to the expansionary, stimulus policies being implemented everywhere else in order to deal with the crisis and fight of recession."
Prior to the global financial crisis, the IMF has been increasingly viewed as irrelevant as seen by its request for approval of a one-time sale of a portion of its gold for the sole purpose of shoring up its operating budget. Now, the IMF is taking this opportunity to once again seek relevance, while never mentioning poverty alleviation goals such as debt cancellation.
"Developing countries need help right now, but they do not need help from the same-old IMF," stated Ha-Joon Chang, a University of Cambridge economist. "Several countries that previously borrowed from the IMF have struggled to pay off their loans early to avoid the unforgiving policy prescriptions of the IMF. Developing countries need a guarantee from G20 that IMF operating policies have changed."
While the IMF managing director Dominique
Strauss-Kahn acknowledges the lack of African representation within the G20, he assures that he will attend the London meeting as the voice of African nations. "The IMF is forcing low- and middle-income countries to follow restrictive policies that clamp down on spending-just when it's needed most to respond to the downturn and safeguard human needs," said Dr. Bujari, executive director of the Human Development Trust.
"In Tanzania, IMF review of its policy support instrument in January 2009 requires the government to meet any decrease in revenue with spending restraint. I do not believe for one minute that the IMF can voice to the G20 what developing countries need right now.
African nations need a seat at the table if we are to get the help that we need-the help that will grow our economies."
While the IMF has yet to change its policies, the G20 meeting presents the perfect opportunity to move forward in a new direction. "In the past, financing through the IMF has strangled expansionary economic policies," said Mark Weisbrot, co-director of the Centre for Economic and Policy Research. "This need not be the case in the future. If the G20 places conditionalities on new funding, it is a win-win situation. The IMF will once again become a relevant financial institution, and developing nations will receive the help that they truly need."
Financing granted to the IMF must be conditioned on the following:
. The IMF must phase out those activities outside its areas of core competence such as the Poverty Reduction and Growth Facility (PRGF).
.The IMF must eliminate harmful conditions linked with its loan programmes and other instruments.
.Emergency financing from the IMF to address balance of payments challenges for low- income countries should be provided to the extent possible in the form of transfers, concessional assistance, and grants in order to avoid renewed build-up of external debt, and
.The G20 must increase transparency and broader participation in IMF policy-making in developing countries.