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The items on the IMF agenda for the next few months (the revision of the surveillance framework, a new formula for assigning quotas and the revision of the income model) also worry Latin American countries. However, given the low incidence of these countries in the institution and the minimum chances they have of putting through their own reform, the search for a substitute for the IMF becomes stronger.

At the last meeting of the International Monetary Fund (IMF) in Singapore the South American countries rejected the project to reform the system for the distribution of quotas and representation, since developing nations had no guarantees that they could obtain greater participation once the second phase of the reform was completed.

One of the main demands is that the new formula to calculate quotas should consider the GDP in terms of purchasing power instead of comparing nominal values, reduce the weight assigned to economic opening and that there is a correlation with the number of inhabitants when it comes to voting.

These demands were made mainly by the ministers of the Group of Twenty-Four (G-24), formed by the major developing countries, among them Argentina, Brazil, Mexico, India and South Africa. With this group, South American countries seek to lobby in favour of a thorough reform of the IMF, yet meeting after meeting their increasing demands only meet with failure.

The G-24 ministers meet regularly during the annual and spring meetings of the Bretton Woods Institutions. At the last meeting held in Washington in April, the G-24 communiqué emphasized the group’s importance in the international arena and asked for its correlation in the government structure of these institutions.

From the now chair of the G-24, Felisa Miceli, Finance Minister of Argentina, conducted and negotiated with her peers the content and tone of the group’s message. “Developing countries account for more than half of the world’s GDP measured in terms of purchasing power parity, they represent more than eighty percent of the world population, they make up three quarters of the member countries of the Bretton Woods Institutions and are currently the only potential borrowers of the resources of those institutions. (...) If we take this into account the number of votes of developing countries must increase significantly,” the communiqué said.

Representing Argentina, Bolivia, Chile, Paraguay, Peru and Uruguay, Miceli also spoke before the International Monetary and Financial Committee, where she referred to the topics that currently worry the IMF. In her statement the Argentine minister underscored the lack of effectiveness and of legitimacy that the institution agency is suffering. “The IMF must ensure a greater participation of the countries that need the institution; otherwise multilateralism will be weakened and the institution will become irrelevant, while bilateralism and regionalism will become more attractive. That is the real option that Argentina faces,” said Miceli.

The bilateral option was first explored by Argentina, with Venezuela as regional creditor, while Miceli’s second option was in clear reference to the Southern Bank as a regional alternative.

As to the surveillance revision, the IMF’s latest decisions aim at controlling the way in which member countries manage their exchange policies. In the face of this, Latin American countries fear a greater interference of the agency in their domestic policy decisions.

Indirectly, this measure affects the policy currently carried out by Argentina. Néstor Kirschner’s government has kept a high exchange rate as a mid- to long-term policy, through the intervention of the Central Bank. This is a way to increase exports and reduce imports. So far, results have been as expected, although its Aquiles’ heel is that domestic prices shoot up, a tendency the government has kept at bay through the price control it has frequently applied since early 2006.

But for the IMF any policies that imply some type of intervention are defined as “populist”. According to its managing director, Rodrigo de Rato, “to adopt policies of this kind worsens fiscal deficits and inflation rockets.” The latter occurred in Argentina, not the former, since for years now there has been a fiscal surplus. In fact, this year tax collection could reach around 65 billion US dollars.

Argentina and the other Latin American countries have suffered under the surveillance of the IMF. Among its recommendations, the balance of fiscal accounts and adjustments always appear in the first place. However, early payment on the part of many of its debtors has produced an imbalance in its own budget. The Fund’s critics affirm that it has received “a taste of its own medicine”.

Related Information:

* IMF agenda to focus on surveillance and new quota allocation by Celine Tan (SUNS)

This article was published in Agenda Global, a weekly supplement issued every Thursday with the newspaper La Diaria (Montevideo, Uruguay).

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