Good cop, bad cop?

IMF in Honduras, Sri Lanka

22 September 2009

There have been significant concerns about IMF programmes in Honduras, where the IMF has not made clear whether it will deal with coup leaders who seized power from the elected president, and in Sri Lanka over allegations that the government is abusing the human rights of hundreds of thousands of Tamils.

At end June Roberto Micheletti siezed power in Honduras in a military-supported coup, and the president Manuel Zelaya was flown out of the country. In response to the coup, the World Bank, Inter-American Development Bank and the Central American Bank for Economic Integration all suspended lending to Honduras. The EU has suspended $90 million in aid and the US has suspended all but humanitarian aid.

There has been widespread controversy over the IMF disbursing Honduras’ share of special drawing rights (SDRs), an IMF-created reserve asset. The IMF allocated $164 million worth of SDRs to the Honduran Central Bank at the end of August and in early September. On 6 September the IMF issued a statement clarifying that “the present de facto regime may not use the funds until a decision on whether the Fund deals with this regime or the government of Honduras.” That decision is yet to be made, a seeming improvement over handling of the 2002 coup in Venezuela (see Update 28), but there was no clarity over how the decision will be taken and on what criteria it will be based.

Civil society organisations appear to be divided over whether the IMF should allow the funds to be used. Jubilee South has stated that “the disbursement of these resources would constitute prima facie illegitimate debt that neither the Honduran people nor any legitimate future government would have cause to pay.” Whereas according to the Social Forum of External Debt and Development in Honduras (FOSDEH), “the disbursement of 164 million dollars made by the IMF, is a good sign for the national economy.”

Sri Lanka controversy

At the end of July, after four months of discussions with the Sri Lankan government, the IMF approved a loan of $2.6 billion despite opposition from countries including the United States, Britain, Germany, France and Argentina. The US and the UK were said to have abstained in the final board vote due to concerns over the government’s alleged slaughter of Tamil civilians and abuse of the human rights of Tamils held in internment camps. Over the summer Tamil diaspora groups launched a wave of petitions against the IMF loan.

Nearly 300,000 Tamils are still being held in internment camps set up by the Sri Lankan government months after the end of the civil war. US-based NGO Human Rights Watch alleges that the government holds these people in violation of their rights to freedom of movement. They also allege that the government is preventing aid agencies from speaking out about the poor conditions in the camps, while testimonies smuggled out have reported shortages of medical supplies and water. The director of its Asian division called the IMF loan “a reward for bad behaviour, not an incentive to improve.”

Human rights group’s worries that the IMF loan will be seen as an endorsement of the Sri Lankan government seem well founded. Nick Nicolaou, chief executive officer of HSBC Sri Lanka, said that “Sri Lanka has an excellent story to tell … the IMF endorsement provides confidence to overseas investors.” The government has now also announced a plan to raise $500 million in sovereign debt.