IMF conditions stoke controversy, prompt strikes

22 September 2009

Controversy continues in Iceland over the IMF rescue package (see Update 66), with the first programme review and a disbursement of additional money still on hold. At end August Iceland’s parliament passed the crucial ‘Icesave deal’, by which the Icelandic government guarantees repayment for assets lost by British and Dutch depositors when Icelandic banks failed (see Update 63).

Eva Joly, a European parliamentarian and advisor for the criminal investigation into the failed Icelandic banks, has been unimpressed. “The irresponsible attitude of certain countries, the EU and the IMF to the collapse of the Icelandic economy demonstrates their inability to learn from the dramatic undermining of the model that it embodied: one of excessive deregulation of markets, particularly financial markets, that the majority of those same key players contributed to shaping.”

Joly also criticised IMF conditionality such as the requirement of “bringing Iceland’s public deficit down to zero by 2013, a target that is impossible to achieve but that will nevertheless lead to huge cuts in the most essential areas of spending such as education, public health, social security.” These concerns were echoed by Nobel-prize winning economist Joseph Stiglitz. During an interview on Icelandic TV in early September. He said: “what I worry about is that [the IMF] will put too much pressure on you to do a couple of things. First, reduce your fiscal deficit, and … secondly, they may encourage you to remove the capital controls too rapidly.”

irresponsible attitude of the IMF demonstrates their inability to learn

Romanian trade unions have upped the pressure on their government over IMF conditions (see Update 66). More than 800,000 public sector workers will go on general strike on 5 October. Union Bloc leader Dumitru Costin said the proposal for a so-called unitary wage law, an element of the Fund programme, had two unacceptable provisions: a wage freeze for about 85 per cent of public-sector employees in 2010 and future wage cuts.

In early September, Ukrainian president Viktor Yushchenko accused the government, headed by a prime minister of a different party, Yulia Tymoshenko, of not fulfilling five of the six IMF conditions. Chief of these was a condition to raise the price of natural gas, a move which trade unions blocked in court. The IMF has also demanded that banks be recapitalized further, the state budget deficit lowered, and the National Bank become more transparent and independent. Ukraine’s next programme review is likely to be delayed.

In Lithuania, the government is resisting an IMF programme, despite pressure from various sources. “I’m really surprised that the government has not gone to the IMF yet and instead is borrowing money at a much higher interest rate from other sources,” wrote Rimvydas Valatka, an analyst at Lietuvos Rytas, Lithuania’s largest circulation newspaper. Latvia had its next disbursement of IMF funds approved at end August, six months late (see Update 66, 65).