The International Monetary Fund (IMF) has publicly responded to our research, launched yesterday with 34 other civil society organisations, that $93 billion of IMF loans are being used to bail out reckless lenders.
Below we respond to each of the IMF’s responses in turn.
1) The IMF say: “More than half that amount is accounted for by one program—Argentina, which has unique circumstances.”
We say: Yes half is, but the Argentina programme is a case where the IMF lent at the start knowing that debt payment burdens were extremely high and double the IMF threshold for external debt payments as a proportion of exports. Our argument that the IMF should have required a debt restructuring at the start has been proven by the fact a year later Argentina is now having to restructure the debt. All country’s circumstances are unique, but Argentina is one of 18 countries we have identified where the IMF is lending to countries with very high debt payments, without requiring previous lenders to share in the costs of the debt crisis and get the debt down to a sustainable level.
2) The IMF say: “The report simply adds up commitments in all major recent program cases, including where most observers would not fundamentally question their debt sustainability.”
We say: No it does not. The report adds up commitments in all recent programme cases where the IMF itself has assessed the risk of debt default is high, or where debt payment burdens are over IMF thresholds for when default starts to occur in PRGA countries, and where a debt restructuring has not reduced the debt risk. We have used IMF methodology alone to question their debt sustainability.
The IMF provide no evidence to backup their claim that “most observers would not fundamentally question their debt sustainability”.
Looking at the countries with the largest IMF programmes in our research:
Argentina: Has itself now admitted a debt restructuring is needed. Moody’s credit rating Caa2, ie, poor quality and very high credit risk
Egypt: Moody’s credit rating B2, ie, judged as being speculative and high credit risk
Pakistan: Moody’s credit rating B3, ie, judged as being speculative and high credit risk
Ecuador: Moody’s credit rating B3, ie, judged as being speculative and high credit risk. Ecuador has just announced it is pulling out of OPEC to try to increase oil revenues in order to pay the debt.
3) The IMF say: “Many IMF programs have contributed to a reduction of external debt burdens over time.”
We say: The briefing presents the IMF’s own evidence that IMF programmes in high debt countries are more successful if they include a debt restructuring at the start of the programme. And it quotes the IMF’s own research that significant debt burden reductions are unusual in high debt countries without a debt restructuring. The IMF’s own research shows that in the rare cases it does happen it is due to positive external shocks.
4) The IMF say: “There are of course instances where debt may become unsustainable as the situation evolves and may require debt restructuring at a later stage.”
We say: Of course. But the IMF’s own research has shown that debt restructurings usually happen too late. IMF bailout loans without requiring debt restructurings are one of the reasons for this. IMF loans enable interest and debt to be paid, delaying a debt default or restructuring. This allows previous lenders to profit form the crisis, while doing nothing to help the people of the country concerned.
5) The IMF say: “The methodology used in the Jubilee report is flawed”
We say: Given all of the responses above, the IMF have not provided any evidence to back-up this very provocative statement. Our briefing presents detailed evidence largely based on the IMF’s own research. It is undignified behaviour for a public institution to response with such an unsubstantiated claim.
6) The IMF say: “The claim that the IMF’s own rules are being breached is not true. We have clear guidelines about not lending into unsustainable debt situations and all programs require approval by the IMF’s Executive Board, representing 189 countries. Our analysis is always transparent and published.“
We say: Our point is that they have a policy not to lend into unsustainable debt situations, and we have presented 18 cases where they are doing exactly that. The reason why is that they have no clear guidelines as to what is an unsustainable debt. Of course they require approval by the Executive Board (though it primarily represents a small group of richer countries in terms of voting power). The IMF’s analyses are published but:
1) in a group of countries the IMF refers to as GRA (which is all high income countries and many middle income) they do not make clear how they have reached a judgement that a debt is sustainable even when debt payment burdens are extremely high and over thresholds of payments to revenue and exports that exist for low income countries.
2) in a group of countries the IMF refers to as PRGA (which is all low income countries and many middle income) they produce a debt risk rating, yet still lend to countries at high risk or in debt distress without requiring debt restructurings which get the debt risk down to moderate.
7) The IMF say: “The Jubilee report also shows a lack of understanding the IMF’s lending policies. Our decisions to lend to countries are not simply based on numerical thresholds, but on comprehensive debt sustainability analyses and policies needed to address economic imbalances and debt burdens. Every country circumstance is different and there is no magic number where debt becomes unsustainable. The report also misleads by using some of the debt thresholds we use for the poorest (PRGA) countries for middle-income (GRA) cases.”
We say: The IMF do not have comprehensive debt sustainability analyses for GRA cases. We are calling for them to adopt these, including thresholds across multiple indicators which allow debt sustainability to be addressed. We agree there is no one magic number where debt becomes unsustainable. But a set of thresholds can be used to evaluate the extent of debt sustainability.
In PRGA countries the IMF uses a set of thresholds to evaluate debt sustainability. But it does not then use these risk ratings to guide whether a debt restructuring is needed, and how much previous lenders need to reduce the debt by when it is.
Because the IMF has no thresholds for GRA cases we have used their thresholds for PRGA cases to identify cases where they are lending to high debt countries. ie, in Argentina the IMF agreed a lending programme without a debt restructuring despite government external debt payments as a proportion of exports being more than double the PRGA threshold. We make clear in the report that because the IMF has no thresholds for GRA cases we have had to resort to using those for PRGA cases. Because the IMF does not define debt sustainability for GRA cases or have comprehensive debt sustainability analyses for GRA cases, this is all an external observer can do to evaluate whether the IMF are breaking their own rule of not lending into unsustainable debt situations without a debt restructuring taking place.
Elsewhere the IMF acknowledge that their approach to assessing debt sustainability in GRA cases is not good enough. In the IMF review of conditionality, published earlier this year, the IMF say their loosely defined framework for GRA countries may be changed through “the ongoing review of the MAC [Market Access Countries] DSA framework” which “is exploring improvements to analytical tools to inform staff’s bottom-line judgement on debt sustainability.” Our report is an input to that review.