IMF $2.7 billion gold windfall to subsidise lending
The IMF has decided to spend a $2.7 billion windfall from selling gold at a high price by subsidising lending to low income countries. The decision was taken at a meeting of the IMF Board in Washington DC on Friday 28 September.
The money will be used to subsidise lower interest rates on loans to low income countries, from 2014 on. The IMF is this year expecting to lend $3.1 billion to 36 low income countries, such as Bangladesh, Burkina Faso and Kenya.(1) The IMF is responsible for 15 per cent of all loans to low income countries, with the World Bank accounting for a further 30 per cent.(2)
In theory IMF lending is supposed to be temporary for countries in short-term difficulties, but several developing countries have been borrowing from the institution for many years. Countries such as Burkina Faso, Malawi and Sierra Leone have been borrowing from the IMF for over a decade.
Tim Jones, Policy Officer at Jubilee Debt Campaign said:
“The IMF should be working out how to get low income countries off its lending, not entrenching loans for another decade or more. The IMF has a history of bailing out reckless lenders through its loans, and extending debt crises for many years, from Latin American and Africa in the 1980s and 1990s, to Europe today. This money would have been better spent cancelling debts, than helping to create new ones.”
In March 2011, 58 civil society organisations signed a statement calling for the $2.7 billion be used to cancel debts, including Jubilee South - Asia/Pacific Movement on Debt and Development, African Forum and Network on Debt and Development, Third World Network, Oxfam International, Action Aid International and the International Trade Union Confederation.(3)
IMF loans come with economic policy conditions attached. For example, Bangladesh is due to receive loans of almost $1 billion over 2012-2014, which are simply being used to help meet the South Asian country’s debt payments of $2 billion a year. In return, Bangladesh is having to liberalise trade and increase VAT on essential items such as rice, lentils and cooking oil.
The gold sales windfall is not the only way the IMF is awash with money. The Fund is expected to make $2.2 billion in profit in 2012, and $2.3 billion in 2013,(4) owing to the interest it charges on loans to middle and high income countries such as Pakistan, Jamaica, Ireland and Greece.
The IMF Board is made-up of 24 Executive Directors with different voting powers. The US has one Executive Director with 17 per cent of the votes, whilst the UK has its own Executive Director with 5 per cent of votes. In contrast, 43 African countries have just two Directors who share 5 per cent of the votes between them.(5)
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Notes
1. IMF. (2012). Update on the financing of the Fund’s concessional assistance and debt relief to low income member countries. 30/04/12.
2. Calculated from World Bank. Global Development Finance database.
3. Joint statement
4. IMF. (2012). The Fund’s net income position for FY 2012 – Actual Outcome. 30/08/12.
5. http://www.imf.org/external/np/sec/memdir/eds.aspx
6. The IMF makes money by charging interest and charges on the loans it gives to high and middle income countries. Low income countries are exempt from such charges so d not make a net contribution to the IMF’s income.