On the occasion of the meeting of heads of State and Government of the Union of South American Nations (UNASUR) in Quito (February 9-11), finance ministers and directors of central banks of member countries held a meeting aimed at taking steps on policy and technical issues related to the financial integration of the region. This was a breakthrough in itself, because the meeting had not been carried out since October 2009 when it was first planned, leaving serious doubts about the real willingness of countries to advance the regional integration process.
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Less than 10 days from José Mujica's inauguration as the second leftist president in Uruguayan history, the International Monetary Fund (IMF) attempts to discipline the next government with orthodox recommendations: to reduce public expenditure and lower fiscal deficit. According to the agency’s representatives, in the five-year budget to be adopted next year Uruguay should "return to more ambitious [fiscal] targets". To that end, it should "restrict" the rise in spending, as strong public wages increases are not sustainable.
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The International Monetary Fund experts have historically advocated for the free movement of capital. However, the international pressure caused by the crisis has led to a change in tone from the IMF technicians. A report by an IMF working group entitled "Capital inflows: The role of controls", claims that in certain circumstances, "capital controls are a legitimate component of the policy response to surges in capital inflows", a way to curb investments that can destabilize the economy through excessive currency appreciation or the formation of asset bubbles.
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According to the World Bank, in January 2010 there were 1.5 billion people living in extreme poverty. Thus, the goal of reducing poverty and hunger to half by 2015 — the first of the Millennium Development Goals (MDGs) — will be impossible. Furthermore, the lack of significant progress on trade, debt, aid and technology transfer (goal 8) prevents the creation of an adequate environment to achieve the objectives 1 to 6. In this context, the UN report "Rethinking Poverty", published in January, is an important contribution to the discussions toward the MDG Summit that will be hold in New York in September 2010.
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In a paper published this week, "Rethinking Macroeconomic Policy", the International Monetary Fund chief economist Olivier Blanchard recognises that the Fund was wrong in some of the macroeconomic policies advised in the last three decades. Stringent macroeconomic policies – such as very low inflation, neglecting the crucial role of fiscal policy, and financial sector deregulation – often attached as conditions to IMF loans for developing countries, are now listed among the old sins that made a bad crisis worse.
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This week, more than 100 civil society organizations from 18 countries stepped up pressure on Inter-American Development Bank (IDB), sending a letter urging its governors to explain how the Bank’s failing grades in transparency, sustainability, and accountability will be repaired before approving management’s request for a significant capital increase.
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