Great Lakes Article:

Going Backwards
IMF Strong-Arming Debtors Despite New Lending Guidelines
Emad Mekay
International Press Service
12/27/2002

WASHINGTON - Three months ago the International Monetary Fund (IMF) said it had adopted a new set of lending guidelines that would permit borrowing countries to take control of their economies like never before.

But over the past week, the Fund flexed its muscles over two of the world's poorest countries and imposed conditions that critics predict will be disastrous for the poor in those nations - and that signified business as usual for the Washington-based institution.

The IMF told Zambia - an African country ravaged by debt, mismanagement, and disease - that it will delay one billion dollars in debt relief until the poor nation sells its state-owned commercial bank, the Zambia National Commercial Bank.

Earlier in the week, the Fund attached conditions to a loan to Nicaragua - another poor nation impoverished by dictatorships, civil war and natural disasters - demanding that it privatize its vital water resources, despite domestic legislation suspending all water privatization plans.

The Nicaragua water facilities include the country's major hydroelectric dams and state-owned Hidrogesa.

The Fund's demands on Zambia and Nicaragua have drawn the fury of officials, opposition leaders and advocacy groups in the countries and beyond.

They also fly in the face of the IMF's public avowals that it was reforming itself into a hands-off institution.

Early in October, the Fund released the lending guidelines to replace those dating back to 1979, often accused of being numerous, intrusive, counter-productive and restricting for borrowers.

Fund officials ceremoniously talked of emphasizing fewer conditions and of giving borrowing countries a greater say in determining their economic programs.

The officials, including Managing Director Horst Kohler, who gambled his name on the new promises, said the Fund was moving away from imposing many detailed structural conditions and renewing emphasis on its original mandate of dealing with fiscal and monetary policies.

But activists say the Zambia and Nicaragua cases show that squeezing poor nations is a hard habit for the Fund to give up, and that the needs of the people affected in those countries is of minimal relevance.

Zambia is negotiating debt relief for part or all of its external debts of more than 6.5 billion dollars, via the joint World Bank and IMF plan to cancel debts to the world's poorest countries.

To obtain such relief under the so-called Heavily Indebted Poor Countries (HIPC) initiative, the country, says the Fund, must first conform to a number of requirements.

The demands include selling its state assets - a move that could cut thousands of jobs in the country of 10 million. Opposition and union leaders in the African nation are outraged and say they will vehemently resist the Fund's pressure.

In Nicaragua, a country whose president, businessman Enrique Bolaos, enjoys U.S. support, there were no reports of official opposition to the conditions but civil society groups are incensed at the demanded privatization

Anti-corporate globalization activists, including U.S.-based Public Citizen, Centro Humboldt, Centro de Estudios Internacionales, and Centro Nicaraguense de Derechos Humanos in Nicaragua, say the Fund conditions spell disaster for the 4.8 million Nicaraguans.

They could result in bulk water exports and higher consumer water prices, enriching corporations at the expense of the Nicaraguan people, they say.

By forging ahead with these loan requirements, argue the groups, the Fund is disregarding a law passed unanimously in August by the Nicaraguan National Assembly that suspended all private concessions involving water uses until a national debate about the issue takes place.

"Again, you have the IMF rolling over democracy in a democratic country and I think that's of critical concern," said Sara Grusky, policy advocate with Public Citizen.

Ruth Herrera, a representative of Nicaragua's National Network in Defense of the Consumer, says the IMF demands have the groups wondering about Nicaragua's sovereignty.

"The IMF is taking an Olympic leap over the laws of our country including our Supreme Court, the Comptroller General's Office, the National Assembly and our constitution," she said in a statement. "One has to ask if any of our democratic institutions will be respected."

The Fund counters that it said it would streamline its loan conditions, not abolish them.

Its economist say that Nicaragua must establish "a satisfactory track record" before it reaches the HIPC completion point - when the IMF actually writes off the debt.

The Fund's specialists on Zambia were not available for comment.

Activists say they have grown used to the IMF and its sister institution, the World Bank, not following through on their public statements.

"This is not the only instance where they have continued the practice of structural conditionalities," said Grusky. "The international financial institution are not willing to even consider a serious change (to imposing conditions)."

"They sometimes deny that they have conditions. It's sort of an Orwellian situation, where they say they don't do it, when everybody else knows they do do it," she said. Three months ago, the International Monetary Fund (IMF) said it had adopted a new set of lending guidelines that would permit borrowing countries to take control of their economies like never before.

But over the past week, the Fund flexed its muscles over two of the world's poorest countries and imposed conditions that critics predict will be disastrous for the poor in those nations - and that signified business as usual for the Washington-based institution.

The IMF told Zambia - an African country ravaged by debt, mismanagement, and disease - that it will delay one billion dollars in debt relief until the poor nation sells its state-owned commercial bank, the Zambia National Commercial Bank.

Earlier in the week, the Fund attached conditions to a loan to Nicaragua - another poor nation impoverished by dictatorships, civil war and natural disasters - demanding that it privatize its vital water resources, despite domestic legislation suspending all water privatization plans.

The Nicaragua water facilities include the country's major hydroelectric dams and state-owned Hidrogesa.

The Fund's demands on Zambia and Nicaragua have drawn the fury of officials, opposition leaders and advocacy groups in the countries and beyond.

They also fly in the face of the IMF's public avowals that it was reforming itself into a hands-off institution.

Early in October, the Fund released the lending guidelines to replace those dating back to 1979, often accused of being numerous, intrusive, counterproductive and restricting for borrowers.

Fund officials ceremoniously talked of emphasizing fewer conditions and of giving borrowing countries a greater say in determining their economic programs.

The officials, including Managing Director Horst Kohler, who gambled his name on the new promises, said the Fund was moving away from imposing many detailed structural conditions and renewing emphasis on its original mandate of dealing with fiscal and monetary policies.

But activists say the Zambia and Nicaragua cases show that squeezing poor nations is a hard habit for the Fund to give up, and that the needs of the people affected in those countries is of minimal relevance.

Zambia is negotiating debt relief for part or all of its external debts of more than 6.5 billion dollars, via the joint World Bank and IMF plan to cancel debts to the world's poorest countries.

To obtain such relief under the so-called Heavily Indebted Poor Countries (HIPC) initiative, the country, says the Fund, must first conform to a number of requirements.

The demands include selling its state assets - a move that could cut thousands of jobs in the country of 10 million. Opposition and union leaders in the African nation are outraged and say they will vehemently resist the Fund's pressure.

In Nicaragua, a country whose president, businessman Enrique Bolaos, enjoys U.S. Support, there were no reports of official opposition to the conditions but civil society groups are incensed at the demanded privatization

Anticorporate globalization activists, including U.S.-based Public Citizen, Centro Humboldt, Centro de Estudios Internacionales, and Centro Nicaraguense de Derechos Humanos in Nicaragua, say the Fund conditions spell disaster for the 4.8 million Nicaraguans.

They could result in bulk water exports and higher consumer water prices, enriching corporations at the expense of the Nicaraguan people, they say.

By forging ahead with these loan requirements, argue the groups, the Fund is disregarding a law passed unanimously in August by the Nicaraguan National Assembly that suspended all private concessions involving water uses until a national debate about the issue takes place.

"Again, you have the IMF rolling over democracy in a democratic country and I think that's of critical concern," said Sara Grusky, policy advocate with Public Citizen.

Ruth Herrera, a representative of Nicaragua's National Network in Defense of the Consumer, says the IMF demands have the groups wondering about Nicaragua's sovereignty.

"The IMF is taking an Olympic leap over the laws of our country including our Supreme Court, the Comptroller General's Office, the National Assembly and our constitution," she said in a statement. "One has to ask if any of our democratic institutions will be respected."

The Fund counters that it said it would streamline its loan conditions, not abolish them.

Its economist say that Nicaragua must establish "a satisfactory track record" before it reaches the HIPC completion point - when the IMF actually writes off the debt.

The Fund's specialists on Zambia were not available for comment.

Activists say they have grown used to the IMF and its sister institution, the World Bank, not following through on their public statements.

"This is not the only instance where they have continued the practice of structural conditionalities," said Grusky. "The international financial institution are not willing to even consider a serious change (to imposing conditions)."

"They sometimes deny that they have conditions. It's sort of an Orwellian situation, where they say they don't do it, when everybody else knows they do do it," she said.