MB Civic

go to article “Dean Baker: The IMF – A Sandbox to Play In”

On thing that happened…

The basic story is that the IMF overplayed its hand. In a series of financial crises, beginning with the East Asian financial crisis in 1997, the IMF sought to impose excessively harsh conditions. The response of the affected nations has been progressively more determined resistance, culminating with the Argentine financial crisis in 2002.

Argentina had been an IMF poster child in the mid-nineties, receiving public praise from the IMF for its ambitious privatization programs, its low inflation rate and its progress in controlling its budget deficit. However, its economy took a turn for the worse in the late nineties. Its budget deficit grew because of higher interest rates on its debt, and its overvalued currency led to a rapidly rising trade deficit. Meanwhile, high interest rates were strangling its economy. The IMF prescription was to have ever-higher interest rates, eventually pushing real interest rates over 20 percent by late 2001.

Finally, facing an untenable situation, the Argentine government relented. It devalued its currency and temporarily stopped payments on its debt. The IMF came in to play its usual enforcer role and demanded that Argentina agree to a tough repayment schedule with its creditors. The IMF’s harsh terms proved impossible for a democratically elected government to accept. They basically told the IMF to get lost. And, in spite of the IMF’s best efforts to strangle Argentina’s economy, it has grown by an extraordinary 45 percent in the last five years. Argentina no longer needs the IMF for anything.