Latin America wary of crisis-led IMF revival

Latin American governments haven't yet turned to one traditional source of aid as they combat the global economic crisis: the widely vilified International Monetary Fund.

The IMF became the target of popular contempt across the region for conditioning billions of dollars in much-needed loans on a so-called Washington consensus of policy dictates, including privatization, deregulation and balanced budgets.

Many Latin American leaders blame those requirements for worsening economic hardships in the 1980s and 1990s rather than easing them, and pan what they consider the IMF's continued heavy-handedness.

"The fund is not giving the world what it needs," Argentine Economy Minister Carlos Fernandez said on behalf of six South American countries at an annual IMF meeting this month. "Its financial assistance fails to provide the services members seek, as it continues to send immediate negative signals (and) comes with too many conditionalities."

Raw memories of their experiences with the fund's tight lending terms make it unlikely that Latin Americans will run for IMF help again.

"There's definitely a feeling that the solution that was imposed on them often exacerbated the economic illness rather than helped with the cure," said Shannon O'Neil, a Latin America expert at the Council on Foreign Relations in New York. "There's a real hesitation to borrow from the IMF, because there were so many strings attached."

These days, Brazil, Mexico, Argentina, Venezuela, Uruguay and others have paid off their debts to the fund, winning greater independence in policy-making.

Even as global turmoil spreads, Latin American economies are now healthier than before. And should they need help, they have a greater variety of multinational lenders to choose from.

The Washington-based Inter-American Development Bank, the Bogota-based Latin American Reserves Fund and the Caracas-based Andean Development Corp. pledged US$9.3 billion in emergency loans last week to ease regional cash-supply problems.

"We're putting everything we've got on the grill," IDB President Luis Alberto Moreno said.

The governments of Brazil, Venezuela, Argentina, Uruguay, Paraguay and Bolivia have meanwhile formed a new Bank of the South to finance development themselves.

Elsewhere, countries such as Iceland, Hungary and Ukraine have suggested they might seek IMF financing to ease the current crisis. But the IMF says it has received no formal request for help from any Latin American nation, though it's ready to assist as soon as it does.

Created in 1944 to rebuild the world financial system after World War II, the IMF initially helped developed nations lend to one another. By the 1990s, it had evolved into a rescue fund for troubled emerging economies -- but gave them little say on the terms of their loans.

"In the mind of countries that were taking money, it became an almost imperialist group, because the IMF lent with a lot of one-size-fits-all conditions," O'Neil said.

In Argentina, those tight fiscal requirements ignored the need for anti-poverty measures and prevented the government from spending its way out of a recession, contributing to the country's 2001 economic meltdown, O'Neil said.

An IMF spokesman declined to be quoted for this article.

The current crisis is challenging the old balance of power: As the U.S. and European economies shudder, other regions of the world have growth rates and fiscal accounts that appear comparatively strong.

The Washington consensus wasn't all bad for Latin America. Many countries continued balancing budgets in recent years as commodity export income soared, helping them build foreign currency reserves and lower debt burdens. Those resources are now helping them combat the global downturn.

Still, some Latin American leaders claim the crisis has exposed a double standard at the IMF, whose rich-country backers have managed their economies in ways that poorer borrowing nations were never allowed.

"When Brazil had problems, every day the IMF was giving us tips, saying, 'Do this' or 'Do that,'" Brazilian President Luiz Inacio Lula da Silva said this month. "Where are the tips they're giving now on the American crisis? Where is the IMF? Why aren't they in Europe giving tips? It's because this is their crisis."

Brazil and other developing nations are calling for an IMF overhaul that puts less weight on what they consider failed U.S. and European policies. They want increased oversight of advanced economies and are demanding that emerging nations have a greater say in IMF decisions so that those most likely to borrow can help set lending terms.

Now that economic crisis is rattling wealthier parts of the world that haven't felt the pinch in years, O'Neil said, "I think we could soon see some of those rules changing."