[stop-imf] IMF Looks to Extend Domination (PSI and Nigeria)
Robert Weissman
rob@essential.org
Fri, 14 Oct 2005 18:17:18 -0400
2 stories:
1. IMF Adds a New Tool to its Bag of Tricks - PSI Looks Set to Extend
IMF Domination (Soren Ambrose)
2. Nigeria Ratifies IMF Policy on Debt Relief (making it the first
country to ratify a PSI policy)
http://www.50years.org/cms/ejn/story/275
Economic Justice News (50 Years Is Enough)
*Vol. 8, No. 3 <http://www.50years.org/cms/ejn/v8n3>* =09*September, 2005*
IMF Adds a New Tool to its Bag of Tricks
PSI Looks Set to Extend IMF Domination
by Soren Ambrose
Solidarity Africa Network in Action & 50 Years Is Enough Network
An announcement by International Monetary Fund (IMF) Managing Director
Rodrigo Rato at the annual meeting of the African Development Bank in
Abuja, Nigeria in May signaled the inauguration of a new tool for
ensuring IMF =96 and by extension, U.S. and G8 =96 control of national
economic policies in Global South countries. After going through several
low-key proposals and different names, a paper defining the Policy
Support Instrument (PSI) has been completed =96 and leaked to civil
society (=93Policy Support & Signaling in Low-Income Countries,=94 IMF
Policy Development and Review Department, June 10, 2005).
The New Facility and G8 Debt Cancellation
The idea of this new IMF device arose in the context of G8 negotiations
on multilateral debt cancellation, which culminated in the June 11th
announcement by G8 Finance Ministers and confirmed at the July G8
Summit. If the G8=92s debt plan is implemented as currently written =96
something that powerful forces in the IMF are trying to prevent =96 the
debt claimed by the IMF in 18 countries would be eliminated, with no new
conditions required.
That would mean that countries could move to free themselves from the
grasp of the IMF, and the treadmill of conditions and debt it has
overseen. If they chose to take no further loans from the IMF, countries
would, presumably, no longer have to accept its conditions. But if the
PSI=92s potential is realized, those countries could be required to enter
that program in order to qualify for new assistance, credit, or trade
deals. The PSI, in other words, could significantly limit the positive
impact of any G8 debt cancellation.
The PSI was first hinted at during the IMF/World Bank meetings in
October 2004. After the G8 failed to reach an agreement on debt at its
June 2004 summit, public statements from Canadian Finance Minister Ralph
Goodale and U.S. Treasury Secretary John Snow in September alluded to
the possible creation of a new IMF =93facility=94 that would serve the
ostensible =93 needs=94 of countries that neither want nor need a full-blow=
n
IMF program.
The communiqu=E9 of the IMF=92s oversight body at the April 2005 meetings
put the institution and its most powerful members on record for the
first time as supporting such a facility, though its definition was left
vague. Goodale and Snow =96 and Rato in Nigeria =96 made it sound like a
staff monitoring program (SMP), in which a country submits to IMF
supervision without getting any new loans; in April it was described
more as a new program to =93pre-qualify=94 countries for IMF loans if they
were hit by a currency crisis. This sort of =93pre-qualification=94 failed
to attract even one country to the IMF=92s Contingent Credit Line, which
was recently terminated for lack of interest, so it is unlikely that
this will be viewed as the PSI=92s primary function, though it is a major
concern of the IMF=92s paper.
Whichever way it is framed, it is likely to serve the same purpose: a
formal method for continuing to impose IMF conditions on countries even
if they are no longer officially indebted to the IMF or taking loans
from it.
IMF: Still in the Driver=92s Seat
Until now the IMF has relied on a very effective =93unwritten agreement=94
whereby donors and creditors =96 including the World Bank =96 all defer to
the IMF in determining which countries are creditworthy. When the IMF
cuts off its loan program to a country for non-compliance with its
policies, the World Bank, regional development banks, and bilateral
agencies generally follow suit. With the prospect of 100% cancellation
with no additional conditions, the IMF=92s relationship with low-income
countries, under current practices, is threatened. It seems no
coincidence that the PSI has now been invented. Just when liberation
seems possible, the IMF will find a new way to control and determine
countries=92 economic policy choices.
This may answer some of the suspicions that arose when the Bush
Administration, somewhat out of character, declared its support for 100%
debt cancellation with no new conditions. After all, if one accepts the
premise that the primary function of debt in the global economy is to
allow powerful countries to maintain control of weaker countries=92
economies =96 with the IMF and World Bank serving as the tools for doing
that =96 an obvious question when a 100% debt cancellation program is
proposed would be =93how will they continue to maintain that control?=94
Nigeria: Testing Ground for the PSI
It is fitting that Rato made his announcement in Abuja because Nigeria
is to be the =93pilot=94 for the PSI, as part of its agreement with the
Paris Club (bilateral creditors) for an unprecedented debt deal. The
Paris Club requires that countries applying for relief be under an IMF
program, but the prospect of agreeing to one is political dynamite in
Nigeria. The Paris Club was however under great pressure to complete a
landmark deal with Nigeria, where the legislature had threatened to
simply repudiate the debts, so the PSI was deemed an acceptable
alternative. Nigerian Finance Minister Ngozi Okonjo-Iweala told Reuters
on May 18 that =93the IMF makes sure it is as stringent as an upper credit
tranche program and then monitors it like a regular program, but the
difference is that you develop it and you own it." This sort of
=93ownership=94 does not sound very promising to observers familiar with th=
e
IMF=92s and World Bank=92s manipulations of that term, but apparently it wa=
s
considered sufficient to sell the deal to the Nigerian public.
A deal with the Paris Club was announced in early June, writing off 67%
of Nigeria=92s bilateral debt. Nigeria will then =93buy back=94 the remaind=
er
over the next two years with about $12 billion in windfall profits from
its recent oil sales. Commentators are now asking whether the multi-
billion dollar outlay required for the buy-back won=92t negate many of the
potential benefits, especially since the country will also have to stay
in good standing with the IMF =96 i.e. continue taking economic policy
orders from the institution.
IMF Goes High-Profile with the PSI
In Abuja, Rato indicated that while the PSI has not yet been formally
created, =93it would be formally defined, but it will not require any
changes in our relationship with Nigeria.=94 (=93Nigeria Set to Christen Ne=
w
IMF Agreement =96 Finance Minister=94, Reuters, May 18, 2005) In fact, the
IMF has monitoring programs with a number of countries that are not
borrowing money. So why create a new name and make new announcements as
if something new were happening?
The IMF paper is silent on this matter =96 it never even mentions the
existence of staff-monitoring programs. It does compare the PSI to the
standard =93Article IV=94 surveillance the IMF regularly carries out on
every member country, acknowledging that =93while Article IV consultations
provide policy advice, support, and an assessment, these may not be
frequent or specific enough.=94 What is needed, argues the paper, is =93a
new instrument allowing closer engagement than under Article IV
consultations while sending clear signals on the strength of a member=92s
policies.=94 Unpacked, this means that although the scope of the PSI will
not differ much from standard IMF surveillance, Article IV is not enough
because the IMF does not customarily use those reports as its
instruments of coercion, and they are not looked to by other donors and
creditors as =93signals=94 on whether a country should be considered
creditworthy.
For countries like Nigeria that already had staff-monitored programs,
the PSI is a change of form more than substance; the difference lies
precisely in the arrangement being =93formally defined.=94 It is the
spotlight thrown on the process that makes it news. By giving these
programs a formal name and definition, and by publicizing them with
press conferences and a new study (drafts of which are now being
leaked), the IMF is assigning this function a new status, a new
political profile. It is saying more straightforwardly than before that
it will be " available" to impose its views on Southern countries even
if they manage to extricate themselves from both multilateral debt and
IMF programs. The staff monitoring programs have often grown out of a
series of interactions between the IMF and the client-country, and are
grudgingly accepted in order to demonstrate that the country does not
need a formal program, or to reassure other creditors. As a consequence
of the formalization of this process, a wider range of countries can
presumably more easily be pressured into accepting a PSI.
The PSI in Detail
The official description in the IMF paper frames the PSI as the answer
to =93how the Fund=92s instruments and practices might be adapted to suppor=
t
sound policies in low-income members, in particular those that do not
have a need or want to use Fund resources.=94 Its outline of the main
elements of the PSI includes:
- The PSI would be based on the country=92s PRSP, thus =93ensuring
ownership.=94
- It would =93consist of a policy framework normally focused on
consolidating macroeconomic stability and debt sustainability, while
deepening structural reform in key areas that constrain growth.=94
This is the standard code for the standard set of IMF conditions.
- It would =93provide the basis for rapid access to concessional Fund
resources in the event of shocks.=94 Again, this is unlikely to be the
main function of the PSI.
- Each PSI would be approved by the IMF Board, thus delivering
=93clear signals to donors, creditors, and the general public on the
strength of these policies.=94 This will enable the IMF to maintain
its signaling role even if the debt it claims is cancelled.
- It would run for between one and three years, though the paper
adds that =93The duration of a PSI could be extended up to a maximum
of 4 years. Members could request a successor PSI.=94 Although the
pretense is that this should appeal to the client governments, it is
probably more comforting to the IMF itself and the G8 countries that
control it. Ironically the paper discusses whether the PSI threatens
to become a =93longer-term program engagement=94 =96 something the IMF,
buffeted by charges that repeated structural adjustment programs are
a sign of the failure of the policies, has been forced to identify
as a problem (so much so that it=92s referred to by acronym =96 LTPE).
=93On balance,=94 says the paper, =93staff does not recommend that PSIs=
be
included in the LTPE policy, but the Board may wish to consider
whether such inclusion is warranted.=94
Who Will Be PSI=92d?
The IMF and G8 have been sending mixed signals about which countries are
targeted for the PSI. Over the last year, however, what has become the
PSI was usually discussed in conjunction with the plans for extensive
debt cancellation by the G8. Though the two were never explicitly
linked, it did not require a great deal of ingenuity to see how the PSI
would become useful to the G8 and IMF in the wake of a sweeping
cancellation of IMF debt.
But with the unofficial roll-out of the program in Nigeria, it appeared
that it was designed for countries that had to display the IMF seal of
approval but needed or wanted to keep some distance, however illusory,
from the institution. If so, the PSI can be seen as a high-octane
version of staff-monitoring programs.
The staff-monitoring programs have been more commonly associated with
middle-income countries, such as the large economies of East Asia or
South America, than with the African and Central American beneficiaries
of the G8 debt cancellation plan. This brings up the possibility that
middle- income countries could be an intended target of the PSI. Indeed,
the same logic that makes the PSI a seemingly innocuous way of keeping
Nigeria and the beneficiaries of the G8 plan in the clutches of the IMF
could very easily apply to countries like the Philippines or Brazil.
These are countries that have mostly left the IMF behind and do not want
to be seen as submitting to it again, but because of debt or the need to
attract other creditors remain vulnerable to its coercion. The IMF=92s
paper repeatedly emphasizes that the PSI is designed for low-income
countries, but in a footnote adds, =93Should middle- income (emerging
market) members express interest in this type of instrument, the PSI=92s
eligibility criteria could be revisited or a different instrument
developed tailored to their needs.=94
Disingenuously enough, the IMF paper describes the first group of
countries expected to make use of the PSI as =93 mature stabilizers that
currently have low-access PRGF [Poverty Reduction Growth Facility, the
IMF low-income loan] arrangements=94 and would like to =93graduate=94 from =
the
PRGF =96 which is to say the better-off low-income countries. This is a
category that describes neither countries like the Philippines
(middle-income), nor countries like Nigeria (no IMF loans), nor many of
the projected beneficiaries of the G8 debt cancellation plan (which are
often only recently =93stabilized,=94 if at all, and usually quite
aid-dependent). The category described by the IMF in the PSI paper would
include countries like Armenia, Vietnam, and Kenya.
If the IMF paper is sincere, the PSI will probably not be very
controversial in practice. But this has the look of a program that will
not serve the stated function, but entirely different purposes. As the
IMF presents the PSI, it is unclear what great need it would be filling
for its ostensible target countries. The origins of the PSI, the timing
of its launch, and its debut client, Nigeria, all suggest that the IMF=92s
rhetoric is calculated to conceal the true intent of the program. If so,
the PSI should itself become a target =96 for those who want to limit, or
eliminate, the continuing imposition of neo-liberal economic programs.
Nigeria Ratifies IMF Policy on Debt Relief
Daily Trust
<http://allafrica.com/publishers.html?passed_name=3DDaily%20Trust&passed_lo=
cation=3DAbuja>
(Abuja)
October 14, 2005
Posted to the web October 14, 2005
Ahmed I. Shekarau
With the ratification of the Policy Support Instrument (PSI), a new
reform policy of the International Monetary Fund (IMF), Nigeria has
taken a major step to concretise the debt cancellation approved for it
in principle.
Nigeria is the first country to ratify the PSI policy, which is said to
be a new tool designed to "formalise a certain level of multilateral
surveillance" in low income countries that do not want to use the Fund's
resources but still require a "signal" of good policies by the IMF to
gain access to donor resources.
The ratification of the PSI by Nigeria was ahead of the expected
formalisation of its $18 billion debt waiver by members of the Paris
Club at the French capital on Tuesday, October 18, 2005.
Daily Trust has reliably gathered that a strong delega-tion to be led by
Finance Minister, Dr. Ngozi Okonjo-Iweala, will represent Nigeria at the
Paris Club meeting scheduled to hold between Monday and Wednesday,
October 17-19, 2005.
A report made available to Daily Trust in Abuja, which was excerpted
from IMF documents, indicated that Nigeria ratified the Fund's reform
policy on the 5th of this month, on the same day that the Board of the
Monetary Fund approved the PSI.
According to the IMF documents, the PSI would "consist of a policy
framework normally focused on consolidating macro-economic stability and
debt sustainability while deepening structural reforms in key areas that
constrain growth."
The ultimate goal of the policy, according to the documents, is to help
countries, particularly developing nations that ratify it, to achieve
their objectives of reducing poverty.
The documents disclosed further that ratifying the PSI will have the
standard of "upper credit tranche conditionality," clearly signalling
that the IMF's must endorse the members' policies.
This endorsement will be based on semi-annual reviews of countries'
"good performance" in implementing the reform policy.
With this ratification it is expected that Nigeria's implementation of
the reform policy will be closely monitored by the IMF.
A report on IFI News said that these aspects of the instrument (PSI)
have led some non-governmental organisations such as the "Solidarity
Africa Network in Action" and "50 Years is Enough" networks to comment
that the PSI amounts to "a formal method of continuing to impose IMF
conditions on countries, even if they are no longer officially indebted
to the IMF or taking loans from it."
The groups have argued that it is no coincidence that the PSI emerged at
exactly the same time as G8 debt cancellation plan.
While the 18 other poor nations that benefited from the G8 debt
cancellation deal would now be solvent and may choose not to access IMF
resources, the NGOs fear that the PSI will ensure that those countries,
including Nigeria, continue to be closely monitored and follow the
Fund's approved policy frameworks.
It is expected that the IMF Board of Directors will discuss and approve
Nigeria's ratification of the two-year policy support instrument on
Monday, ahead of the country's final negotiation for the major reduction
of its foreign debt with members of the Paris Club on Tuesday. ments,
the PSI would "consist of a policy framework normally focused on
consolidating macro-economic stability and debt sustainability while
deepening structural reforms in key areas that constrain growth."
The ultimate goal of the policy, according to the documents, is to help
coun-tries, particularly developing nations that ratify it, to achieve
their objectives of reducing poverty.
The documents disclosed further that ratifying the PSI will have the
standard of "upper credit tranche conditionality," clearly signalling
that the IMF must endorse the members' policies.
This endorsement will be based on semi-annual reviews of countries'
"good performance" in implementing the reform policy.
With this ratification it is expected that Nigeria's implementation of
the reform policy will be closely monitored by the IMF.
A report on IFI News said that these aspects of the instrument (PSI)
have led some non-governmental organisations such as the "Solidarity
Africa Network in Action" and "50 Years is Enough" networks to comment
that the PSI amounts to "a formal method of continuing to impose IMF
conditions on countries, even if they are no longer officially indebted
to the IMF or taking loans from it."
The groups have argued that it is no coincidence that the PSI emerged at
exactly the same time as G8 debt cancellation plan.
While the 18 other poor nations that benefited from the G8 debt
cancellation deal would now be solvent and may choose not to access IMF
resources, the NGOs fear that the PSI will ensure that those countries,
including Nigeria, continue to be closely monitored and follow the
Fund's approved policy frameworks.
It is expected that the IMF Board of Directors will discuss and approve
Nigeria's ratification of the two-year policy support instrument on
Monday, ahead of the country's final negotiation for the major reduction
of its foreign debt with members of the Paris Club on Tuesday.