Debt relief on the agenda of IMF windfall talks
On Wednesday 6 April the IMF Board had an initial discussion of what to do with $2.8 billion of excess money from selling gold. The IMF is awash with money after selling gold at a high price and making a ‘profit’ from the financial crisis it helped to create. Meanwhile, developing countries are still seeing debts increase due to disasters and the global economic crisis.
Whilst the discussion was inconclusive, it suggested the Directors are more interested in protecting the interests of the rich, rather than helping countries which have seen their debts increase as a result of financial crisis or disaster. However, our campaign has forced the option of debt relief onto the agenda.
The IMF Board is made-up of 24 Directors, including Alex Gibbs from the UK. The Directors do not have equal power. The US Executive Director holds 17 per cent of the votes, the UK’s 4 per cent, whilst 22 African countries have just 1.5 per cent between them.
The IMF Directors discussed several options of how to use the $2.8 billion. Whilst debt relief was on the agenda, the IMF say this did not attract “significant support”.
The options on the table
The summary of the IMF Board’s discussion on 6 April says the Directors discussed various options of how to use the $2.8 billion windfall.
1) “Many Directors” want to use the money to subsidise IMF low interest loans to the poorest countries after 2014, when the current money to do so is projected to run out. The IMF is already committed to providing such loans, with the subsidy coming from rich countries.
Our response: This would effectively release countries such as the UK from their existing financial obligations; it would be a subsidy for the rich rather than the poor. Moreover, many of these loans are just used to pay old debts, maintaining the IMF’s power over the poorest countries.
2) “Many Directors” wanted to put the money in the IMF’s reserves, which currently stand at $12 billion. They want the money available to reimburse the IMF if several countries such as Greece or Ireland default on their loans.
Our response: The IMF’s outstanding loans have increased massively since the financial crisis, reaching $95 billion this year. Loans to countries such as Greece, Ireland and Portugal are to bail out irresponsible private lenders, such as German and British banks. The countries which run the IMF have already made the mistake of bailing out these lenders rather than cutting debt by making the reckless lenders take a hit. Such loans are currently making money for the IMF through the interest being paid..
3) “Many Directors” want the windfall money to be invested to provide income for the IMF.
Our response: $7 billion from selling gold has already been invested to provide the IMF with more income. With these investments, and the money the IMF makes from lending to countries such as Ireland, the Fund is expected to make a profit of $500 million this year. Even with its huge $1 billion costs, and if it stopped making money out of the loans it gives, the IMF projects it will continue to make a profit. There is no need for the IMF to get even more money.
4) There was “some interest” in reducing further the interest rates charged on loans to the poorest countries from 2011 to 2014.
Our response: With global interest rates already so low, this would cost just $110 million, and be of only small benefit to countries in debt to the IMF. It is repaying the original loans which is the biggest burden for impoverished countries.
5) There was also “some interest” in setting aside $160 million to put in the fund used to cancel debts for small very poor countries suffering from a gigantic disaster, such as Haiti.
Our response: The current fund is only expected to be used once or twice a decade. Putting additional money in the fund could be useful, but only if this is matched with a change of the criteria so that more countries suffering from huge disasters could benefit.
6) IMF staff say that “some observers” have suggested cancelling debts for the poorest countries in the wake of the financial crisis. Whilst this has put our demand on the agenda, the IMF reports that this “did not attract significant support” from the IMF Directors.
Our response: Whilst the Directors may not be on-side yet, there is growing international support for the campaign. It's up to us to push the fairest option to the top of the list.