The IMF Has Lost Its Influence

When the financial contagion spread to Russia and Brazil, the IMF followed, brokering the multibillion dollar loans that - however unsuccessfully - were intended to prop up overvalued currencies on the brink of collapse. Those days are over. After their nightmarish experience with the fund in 1997-1998, Asian countries began to pile up huge international foreign exchange reserves - partly so they would never have to go begging to the IMF again. But the final blow to the fund came from the country that Anne Krueger, first deputy managing director of the fund, reportedly calls "the A-word": Argentina. Argentina suffered through a terrible four-year depression, beginning in 1998. A country that had recently ranked among the highest for living standards in Latin America soon had the majority of the country falling below the poverty line. Many Argentines blamed the IMF, which had played a major role in designing the policies that led to the collapse, and seemed to prescribe just the wrong medicine during the crisis: high interest rates, budget tightening and maintaining the Argentine peso's unsustainable link to the U.S. dollar. In December 2001, the government defaulted on $100 billion of debt, the largest sovereign debt default in history. The currency and the banking system collapsed, and the country sank further into depression - but only for about three more months. Then, to most people's surprise, the economy began to recover. The recovery began and continued without any help from the IMF. On the contrary: In 2002, the fund and other official creditors (including the World Bank), actually took a net $4.1 billion - more than 4 percent of gross domestic product - out of Argentina. But the government was able to chart more of its own economic course, rejecting IMF demands for higher interest rates, increased budget austerity and utility price increases. Argentina also took a hard line with foreign creditors holding defaulted debt, despite repeated threats from the fund. When push came to shove in September 2003, Argentina did the unthinkable: a temporary default to the IMF itself, until the fund backed down. http://www.commondreams.org/views05/0923-33.htm [Proofreader's note: this article was edited for spelling and typos on September 27, 2005]

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