The IMF is making a comeback under pressure from China

Ukraine, Ghana, Tunisia, Egypt, Tanzania, Cameroon, Pakistan… IMF teams have donned their firefighting costumes again in recent months. The fund is currently lending $250 billion. ” Outstanding IMF loans are increasing sharply. Almost half of the IMF’s member states, namely 93 out of 190, borrow money from it »notes economist Patrick Lenain, author of the textbook The IMF.

His return to the top of the stage comes as a surprise given the criticism that has plagued the institution over the past two decades. In Mediterranean Europe, of course, where the funds prescribed by the IMF to the Greeks, Portuguese and Spanish to consolidate their public finances have left a bitter taste in the populace and the political class. Even in the countries of the South, for which the institution is a scarecrow. So much so that then-President Cristina Kirchner promised Argentina where in 2007 Children would not know what the IMF is ».

In fact, no country decides to contact the IMF lightly. This last resort is experienced as an admission of powerlessness when public coffers are empty. ” Among these states there are failed states » (failed states) like some countries in sub-Saharan Africa. But also countries that are doing well and hit by a shock like the Covid or the surge in raw materials », analyzes Gérard-Marie Henry, scientific teacher at the University of Reims Champagne-Ardenne and former adviser to the World Bank. The economist sees the main explanation for the comeback of the IMF in the context of crises that add up to crises.

Less credit terms

If the fund is ubiquitous, that’s also because it’s lowered its requirements. Now it’s easier to lend faster. Established in 1944 during the Bretton Woods Conference, the organization functions as a common fund. Member countries contribute according to their level of prosperity, and struggling nations borrow. Under certain circumstances. For a long time, access to these funds was linked to good economic policy commitments to the deficit, inflation or the elimination of public subsidies.

The IMF has gradually abandoned its logic of aid conditionality. Previously, he paid the aid installment after installment to ensure states’ pledges were met. », remembers Georges-Marie Henry. Today, the IMF favors the speed of lending to avoid default. That would have been unthinkable twenty years ago. Since the Greek crisis in 2011, there has been a big change »he confirms.

The economic catastrophe suffered by Athens after the austerity measures demanded by the “troika” (IMF-ECB-European Commission) leaves an indelible stain on the IMF’s reputation, which successive governors are trying to erase. Extremely rare, in 2013 CEO Christine Lagarde had admitted that ” The impact of austerity plans on growth is stronger than we expected 3-4 years ago. It was a misjudgment ». Miscellaneous my fault 2014 in an internal audit by the IMF. The published document was very critical of the cocktail of measures imposed on Greece, in particular the brutality of the budget cuts that had hurt growth, public services… and the renewed decline in the deficit.

The Failure of the Washington Consensus

The case of Greece had emerged as a symbol of the accusations that leading economists such as Joseph Stiglitz had long accused the IMF of. In 2003, the 2001 Nobel Prize winner in Economics listed the fund’s recurring errors in his essay The big disappointment ». The famous Stiglitz attacked the “Structural Adjustment Programs” (SAP), those liberal-inspired reforms (privatization, deregulation, public spending cuts) demanded of countries in exchange for a loan.

Indeed, the dogmatic application of these measures, so fashionable among economists and American leaders in the 1980s that we came to speak of the “Washington consensus,” has often proved inadequate and counterproductive in the economies concerned. As happened in Greece. The dubious effectiveness of its prescriptions has forced the IMF to show a kind of humility and, above all, to moderate its demands.

The Sino-US rivalry is also closely related to the IMF’s sudden generosity. Far from stopping at the institution’s economic failures, Stiglitz had already denounced how the IMF was being used as a geopolitical weapon by the American government (a few hundred yards from the IMF in central Washington DC) by the end of the 20th century and early of the 21st century. As the first contributor, the United States has a de facto veto right over fund decisions.

China is sitting on the IMF and the competition

Recent voting rights reforms in 2008 and 2010 kept America’s voting power at the IMF from 16.7% to 16.5%… and only increased China’s voting power from 3.8% to 6.1%. These crumbs have not satiated Beijing’s thirst for power, which is now developing its own lines of credit for poor countries.

While sitting in the IMF, China invests in other international financial organizations where it is unhindered by its American rival. Like the Asian Infrastructure Investment Bank (AIIB), which was founded in 2014 on a Chinese initiative and has already become a competitor to the IMF. Apparently, Beijing does not lend for charity, and the loans given can end up strangling the debtor countries. Sri Lanka is experiencing this, strangled by Chinese loans it cannot accept.

What has changed today is the ability to borrow from China. The IMF is less demanding and more generous in preventing poor countries from turning to China », observes the economist Gérard-Marie Henry. Gone are the days when the IMF was the world’s sole lender of last resort.