IMF accused of reckless lending to ‘troubled’ countries
BUENOS AIRES: Debt campaigners have accused the International Monetary Fund of encouraging reckless lending by extending $93 billion (£75 billion) of loans to 18 financially troubled countries without a debt restructuring programme first.
In advance of the IMF’s annual meeting in Washington next week, the Jubilee Debt Campaign (JDC) said the the Fund was breaking its own rules by providing financial support without ensuring that the debt burden was sustainable.
The JDC said the IMF was creating a moral hazard because lenders knew that they would be bailed out no matter how risky their loans might be.
Debt sustainability has come into the spotlight over the past year after the IMF controversially lent a record $56 billion to Argentina even though its annual debt repayments far exceeded the Fund’s own limit. The IMF said Argentina, the second biggest economy in South America, was a special case.
But the JDC said Argentina was merely the most acute example of a wider problem, with the IMF also encouraging reckless lending in 17 other countries: Afghanistan; Angola; Cameroon; Central African Republic; Chad; Ecuador; Egypt; Ghana; Jordan; Mauritania; Mongolia; Pakistan; São Tomé and Príncipe; Sierra Leone; Sri Lanka; Tunisia; and Ukraine. The campaign group said that credit agencies had rated Egypt, Pakistan and Ecuador to be high risk. Sarah-Jayne Clifton, director of Jubilee Debt Campaign, said: “The IMF has a policy not to lend into an unsustainable debt situation, but we are seeing it breach this policy far too often, bailing out reckless lenders. This creates a moral hazard in the sovereign debt system. Lenders and borrowers are jointly responsible for ensuring debt crises are prevented.
“By constantly bailing out countries in debt crisis without requiring debt restructuring, the IMF is placing the burden of a crisis squarely on the shoulders of the citizens of a debtor country, letting lenders off the hook and ensuring the cycle of debt crises continues.”