As the IMF reviews low-income countries (LICs) lending facilities, it has decided to commit windfall profits to financing such lending, raising concerns that this may prolong poor nations’ indebtedness.
In September the IMF finished the first phase of its review of lending facilities (see Update 81) for LICs, concluding that the 2009 reforms (see Update 67) have “clos[ed] gaps and creat[ed] a streamlined architecture of facilities better tailored to the diverse needs of LICs.” It found that “longer-term IMF programme support has helped LICs support economic growth and build macroeconomic buffers, while short-term financing during the recent crisis helped preserve vital spending and facilitated a rapid recovery.”The review also noted that “creating a sustainable concessional financing framework will require securing additional resources – either through use of gold windfall profits or regular fundraising.” However, the Board concluded that the “central challenge ahead will be to preserve the Fund’s ability to provide financial support to LICs in the face of a sharp prospective drop in the Fund’s concessional lending capacity after 2014.”
The board responded to the fundraising challenge set out by the review in late September by committing the remaining $2.7 billion of windfall profits from prior sales of gold reserves (see Update 80) to the Poverty Reduction and Growth Trust (PRGT). The PRGT subsidises the lending offered at concessional terms to LICs. This commitment includes an extension of the IMF’s original decision, arrived at after considerable board deliberation and some disagreement (see Update 78, 75) to commit $1.1 billion of gold sales profits to the PRGT, offering additional concessional lending at 0 per cent interest to LIC borrowers.
Tim Jones, Policy Officer at Jubilee Debt Campaign, said: “The IMF should be working out how to get low-income countries off its lending, not entrenching loans for another decade or more. The IMF has a history of bailing out reckless lenders through its loans, and extending debt crises for many years, from Latin America and Africa in the 1980s and 1990s to Europe today. This money would have been better spent cancelling debts, than helping to create new ones.”
In the next phase of the lending facilities review, the priorities will be to consider first how to create a sustainable concessional financing framework, “with a view to preserving the Fund’s ability to provide effective policy and financing support to LICs.” The review will seek to analyse how best to use resources through “better tailoring access and financing terms to countries’ individual needs and capacities.” It will also consider how to maintain its ability to support LICs and meet their “increased demand for contingent financing and policy support” in the face of “protracted global risks.”