[stop-imf] Bolivia set to end ties with IMF, plus analysis from CEPR

[robert weissman]

CEPR paper:
http://www.cepr.net/publications/bolivia_challenges_2006_03.pdf

Reuters story:

Bolivia seen likely to end IMF financing ties

Tue Mar 7, 2006 7:39 PM ET

By Mike Dolan, Economics Correspondent

WASHINGTON (Reuters) - Bolivia will this month likely
become the latest Latin American country to end formal
financing ties with the International Monetary Fund,
officials and experts said on Tuesday.

The country's current three-year IMF stand-by facility, a
lending plan linked to structural and economic performance
criteria, expires on March 31.

IMF sources say the program will probably lapse without
any new arrangement and that it will be several months at
least before any decision is made on future financing of
the impoverished Andean country.

"A new agreement involving financing is not necessary
right now, because the international reserves are very
high," said an IMF official.

"A PRGF (the IMF's "Poverty Reduction and Growth Facility"
for poor countries) is a possibility, but it depends on
outcome of the new government's national development
program," the official said, adding such a decision was
unlikely until much later this year.

Normal monitoring, including the fund's annual economic
reviews, will likely continue with an IMF mission expected
to visit South America's poorest country as early as next
month.

Experts say, however, the government of new President Evo
Morales may want to avoid funding with IMF conditions at
least until his own development program is in place.

Without any major balance of payments problems at the
moment and sizeable international reserves, Bolivia has no
urgent need of IMF aid.

"On evaluating how much we need, we will see if we can --
via the IMF -- open any financing channels," Economy
Minister Luis Alberto Arce was quoted as saying in
Bolivian daily La Razon on Tuesday.

"But if the amount of financing we require is low, it will
not justify an agreement with the fund. That must be
evaluated," he added.

Some economists said if Bolivia allows the agreement to
lapse, it will mark a further sidelining of the IMF in
Latin America. Brazil and Argentina cleared debts to the
fund in December, putting a further squeeze on the IMF's
finances.

Unlike Brazil and Argentina, Bolivia was freed of its IMF
obligations under last year's global agreement to cancel
the world's 19 poorest countries' debts to the fund.

Bolivia's relative poverty would make a decision to end
ties with the fund more significant, leading to questions
over the IMF's role in low-income countries as well as
highlighting a growing desire in the region for
development independence.

RISING INDEPENDENCE

Even before Brazil and Argentina paid their debts to the
IMF, middle-income countries across Asia had been building
international reserves to avoid having to turn to the
lender, a result of widespread regional mistrust over the
fund's handling of the crises that swept over Asia in
1997-98.

Mark Weisbrot, Co-Director at the Center for Economic
Policy Research in Washington, said Bolivia's long
experience under IMF programs has not always been a happy
one, adding that key sticking points remain with the new
government.

The IMF opposes a hydrocarbons law, passed by Bolivia last
year, which boosted royalty payments by foreign gas
companies to the government and provided for renegotiation
of some contracts and which Weisbrot said might be
critical to government finances.

A longer-running issue has been the IMF-backed social
security privatization in 1998, which still weighs heavily
on the government's budget deficit.

"The need for new economic policies can be seen from the
severe economic failure over the last quarter of a
century," Weisbrot said in a report this week, adding
Bolivia's per capita income is lower now than it was in
1978.

"It would not be surprising if the new government of
Bolivia were to allow the current agreement with the IMF
to expire at the end of March and not seek any renewal,"
he said.

The big question, Weisbrot said, is whether an agreement
with the IMF will be a condition for other sources of
funding -- especially the World Bank, Inter-American
Development Bank and high-income governments.

"In the past, this would almost certainly have been true.
This may not be true today," he said. "The power of the
fund has declined drastically since the late 1990s."

Another senior IMF official played down the significance
of any hiatus in agreements between Bolivia and the IMF.

"It's just that Bolivia does not have any kind of balance
of payments problem that would require financial support
and the new authorities would rather take some time to see
whether they want (it)," he said.

However, he added: "If you put it into the Latin American
context, certainly the fund is having a problem with
keeping clients and has not been very popular in Latin
America."

Credit ratings agencies seemed sanguine about the
situation, but were monitoring developments. Both Fitch
and Standard & Poor's rate Bolivia's at a sub-investment
grade "B-minus" rating with a negative outlook.

"Right now the two key credit issues for Bolivia are the
hydrocarbon sector and the policy the new government
pursues in that area and also relations with the United
States," said Morgan Harting, Fitch sovereign analyst in
New York.

"If it gets those two policies right, the credit will
improve -- that's what we're watching most," he added.
"We've not identified a new IMF program as a critical
credit driver."