IMF Loans: The Money We Do Not Need?
A controversial event took place next to the International Monetary Fund (IMF) office in the middle of the summer in Washington, DC.
Dozens of Belarusians stretched eye-catching posters encouraging the IMF to assist Belarus. The protesters wore the masks of the Belarusian leader Alexander Lukashenka and explained their reasoning, for instance, with phrases like “The dictatorship is very expensive” or “I need money for the KGB!”.
The protest’s appeal was its irony. Despite a very attractive and media-wise approach, however, the purpose of it remained quite ambiguous. The strikers protested against IMF and similar institutions, which, as they claim, support the current regime in Belarus. The question remains, whether the IMF actually strengthens the current administration or is simply helping Belarusians not to die out.
Why the IMF is ready to support empty-handed countries?
International altruism rarely happens. The IMF, as is true with most of international organisations, cannot stay politically neutral, while it pursues the interests of its member states. Otherwise, no other reason exists to create such an organisation.
What do rich countries expect from the IMF? They simply want the entire financial system in the world running smoothly, because once it stumbles in one country, the domino effect might influence others. If something goes wrong in a developing country, it affects its neighbours, its partners and, in the long run, even the most developed and wealthiest countries. None of the countries in the world lives in a complete vacuum. Even North Korea, who is heavily dependent on China with its exports and imports, still has other trading partners.
The IMF usually supports low-income and developing countries to fix the trade balances by covering the gaps between exports and imports. Developing countries become special links in the chain to worry about, particularly if they are more prone to the breakdowns than other countries. For instance, Greece’s default could cause a financial crisis that could spread on the entire Eurozone.
As a developing country, Belarus draws its loans from a special IMF fund called the Poverty Reduction and Growth Trust (PRGT). Its money covers the difference, when a country buys more than it actually sells. The Belarusian government cannot “buy votes” with the IMF, since it can neither cash in on these funds, nor use it to increase the salaries of public sector employees and or boost retirement plans. Belarus, however, has other opportunities to abuse the money it receives from the fund.
How could the IMF money be misused?
Recipient countries can misapply IMF funds by using the borrowed money for even more imports. Instead of improving the situation with trade balances, a country can increase the gap by importing even more with the IMF’s funds and simply postponing payments back. Despite breaking the rules, the recipient country stands to receive significant benefits. IMF loans can create additional positive effects like when financial and monetary reforms take place in the recipient country. Basically, while postponing the debt to be paid later on, Belarus would still have to conduct necessary reforms requested by the IMF.
Inappropriate application of funds also occur when a recipient country reinvests IMF money elsewhere while gaining even more money from outside. The IMF lends with very favourable conditions for the borrower in terms of the interest rate. Let’s say the Belarusian government receives its money from the IMF and uses it to buy the U.S. state bonds, euros, British pounds or Japanese yen. This reinvestment has very low interest rates, but the profit gained still exceeds the interest that a recipient country has to pay back to the IMF. With the current political situation, however, the scenario of American or European governments letting Belarus reinvest seems unlikely.
More realistically, the Belarusian government may exploit the IMF funds by indeed using it to cover any excess imports, but it should be noted that only the political elite makes foreign purchases. This happens when the political elite buys from outside exclusively for its own consumption. In this case, the products bought with the IMF money benefit a very closed group.
Let’s say this happens in our country and, thus, we say a firm “no” to the IMF. Belarus would have to limit its import transactions of larger pro-governmental enterprises. But remember the domino effect? Rejecting the IMF funds will negatively affect everybody in Belarus. Larger organisations taken out of the game will block the imports of all the small and medium enterprises (SME). The SME sector mainly consists of private little businesses not related to the government that behave independently from it as much as they can in a very centralised country.
With all the regime constraints in place, small and medium enterprises face difficulties in launching and keeping their private businesses open in Belarus, though strongest have managed to keep their doors open. Half legally and half illegally, they do exist. The protesters in front of the IMF building do not seem concerned about what is going to happen to these businesses if Belarus will not receive IMF loans. Do the 9.5 million people residing in Belarus deserve the suffering caused by punishing a couple of bad guys in pro-governmental enterprises?
Pursuing similar goals
In truth, the IMF only resembles a charitable organisation. The developed member states stop investing in a country, if, instead of improving the country’s poor state, it keeps on asking for more financial assistance. The rich countries support others to develop trustworthy partners that they can work with. Thus, any loan from IMF comes with the conditions to make the government more transparent and to open up to the global economy.
Recent IMF recommendations include limiting wage increases to target the inflation, maintaining exchange rate flexibility and curbing high foreign exchange lending growth, tighten liquidity, and adopting comprehensive and ambitious structural reforms. In order to free up liquidity, the IMF policy invites such measures as selling off state assets and cuts in vital government spending, which in Belarus’ case might mean the privatisation of state enterprises and cuts in major governmental expenses such as the police force, for instance. In striking against the IMF, Belarusians are at the same time protesting against these improvements in Belarus.
The protesters gathered in front of the IMF building this summer would support these reforms. That is exactly what the IMF wants from Belarus as well. Even if the IMF does not act as if it is Belarus’ best friend, it remains a good partner that is pursuing the same changes consistently in Belarus. Right now, the interests of the IMF and the interests of the majority of Belarusian people coincide.
Before going continuing to protest against the IMF, we should understand what the IMF expects from Belarus. Those Belarusians who advocate for democratisation through reforms should understand that the IMF, led by its main donors, has the same vision for change in Belarus. Belarusians would benefit more if civil society organisations would protest for as the lowest possible interest rates on IMF loans rather than struggling against the receiving the funds in the first place.
Palina is a PhD Candidate in Public Affairs at Florida International University
Lukashenka’s Prize, $100 Exit Fee Contested, Belarusian Programmers – Western Press Digest
Belarusian programmers are a hot commodity on the international market. Belarusian ruler Alexandr Lukashenka and the state police of Belarus were awarded the Ig Noble Peace Prize for 2013. A Belarusian physician who criticised the government on youtube says that he is receiving psychotropic drug treatments against his will.
The fall out over the Uralkali-Belaruskali split continued to dominate western press coverage. Russian authorities ordered its oil firms to reduce exports to Belarus in response to Minsk’s actions in the dispute. In response Belarusian authorities report that an international warrant for the arrest of Uralkali’s leading shareholder have been issued, while Interpol denies the existence of any warrants being issued in connection. All this and more in the Western Press Digest.
$100 Exit Fee for Belarusian Citizens Contested by Activists – A petition against the recently announced presidential decision to introduce a $100 fee for Belarusians traveling abroad is circulating online according to RFE/RL. The Belarusian ruler announced the new fee as a means to have Belarusians buying domestic products, and not bringing back foreign products that are already being made in Belarus. RFE/RL reports that the activists principle argument is that such a fee violates their constitutional right to free movement.
Lukashenka Awarded 2013 Ig Noble Peace Prize – The annual Ig Noble prize ceremony recently took place at Harvard University. Ig Noble prizes are annual awards given to individuals or groups who have achieved unusual results and their honour achievements. According to the BBC’s coverage the president and state police of Belarus got it for “making public applause illegal and having arrested a one-armed man for the offence.”
Belarusian Programmers Competitive with India – Belarusian and other eastern European may have an edge in the programming world, as companies continue to look to outsource. Bloomberg’s coverage focuses on how companies like Belarusian founded Epam Systems Inc. and Ukrainian-based Ciklum as part of a new generation of creative programming companies growing thanks to their focus on innovation and strong programming culture. Programmers from the region are also doing very well in a large number of international competitions sponsored by industry giants such as Google and IBM, taking a majority of the prizes.
Detained Physician Receiving Psychiatric Treatment Against his Will – Belarusian Physician Ihar Pasnou was detained and forcibly admitted to a psychiatric hospital in August where they are administering psychotropic shots to him without his consent. According to RFE/RL, Pasnou attracted the attention of the authorities after posting videos on YouTube that were critical of local officials for not doing anything to better health care in the area. An opposition activist recently visited the physician and managed to smuggle out an audio recording of Pasnou describing his situation. In the audio recording, the physician recounts how he is receiving the shots with increasingly large dosages.
Disputed 2010 Presidential Elections the Subject of New Pro-Government Film – The BBC covered a recent dispute that arose in Belarus over a controversial new film about the 2010 Presidential Elections. Nonstop Media is reportedly developing the new film. The company had previously produced the UNDP-funded “Above the Sky”, who received a grant from the Belarusian Ministry Culture. According to the BBC, the film will tell the history of events in accordance with the official version. The news service described the events based on a recent article written by a former colleague of Nonstop Media’s producer (Sergei Zhdanovich), who had previously had a dispute with Zhdanovich while working on the “Above the Sky” series.
Russian Trade Dispute with Belarus part of a Growing Trend – The Financial Times reports on Russia’s efforts to dissuade republics of the former Soviet Union from getting any closer to non-Russian led economic and political entities. The publication cites the recent trade conflicts with Ukrainian chocolate and Moldovan wine as Russia’s approach to those countries whom are strengthening their economic and political ties with the EU. Belarus, a long-time ally of Russia, is being punished for its open attempts to secure financial support and investment from China, something that the Kremlin sees as an affront. The Financial Times also commented that the hard-ball politics that Moscow is using against its neighbours may backfire in November, where Ukraine and Moldova expect to sign an Association Agreement with the European Union.
Belarus Imprison Uralkali CEO and Seeks Largest Shareholder Next – The Washington Post reports that the arrest of Uralkali CEO Vladislav Baumgertner by Belarusian authorities was only the first step. Official Minsk is pursuing Russian billionaire Suleyman Kerimov of abuse of power in the aftermath of the joint Russian-Belarusian company’s split. The move to pursue Kerimov is seen as a response to Russia’s blocking of Belarusian exports and reduced level of oil imports into the country. While the Belarusian authorities stated that a warrant had been issued for Kerimov’s arrest by Interpol, but a statement issued by the organisation said that no warrants have been issued. The rift between two of the leading potash producers in the world is seen as part of a growing divide between Russia and Belarus.
Souring Russian-Belarusian Relations – RFE/RL reports that the recent rift in relations between Belarus and Russia over the detention of Uralkali’s CEO has significantly elevated tensions between the two nations. According to the publication, not only were the actions of the Belarusian authorities unexpected, but they have come as a genuine shock to both the Kremlin and Russian society. Russia’s response to the detention was quick and calculated: ban the import of any pork products from Belarus, cut discounted oil exports to the country, and threaten to block other key Belarusian exports from reaching Russia.
The move to detain Baumgertner may work out in Belarus’ favour, according to Andrei Suzdaltsev of the Higher School of Economics. According to the expert, Putin will be reluctant to have the Russian-led Customs Union be seen as weak or struggling, particularly while it tries to use it to bring countries like Ukraine, Moldova and Armenia back under Russian influence.
Despite Potash Row, Russia’s Rosneft Moving Forward with Projects – Reuters reported that Rosneft has no plans to abandon its energy projects in Belarus. Igor Sechin, a close Putin ally and Rosneft CEO, met with Lukashenka recently to discuss the plans of Belarus’ largest supplier of oil. While cuts in the amount of oil that is exported to Belarus will see a decline, the reasons are not due to the current political situation, but rather due to infrastructure issues. According to Reuters, Sechin also remarked that the current rift around Belaruskali and Uralkali will not affect Rosneft’s work in Belarus, since they have stable relations.