UNCTAD backs Jubilee call for an independent, transparent process for orderly debt workouts, and attacks IMF "bail outs" and bias towards creditors.

9th May 2001

In its latest Report, the United Nations Conference on Trade and Development backs the call of Jubilee 2000 campaigns around the world, for an independent process for managing debt crises, by allowing countries to unilaterally declare "standstills" in debt payments; and "to establish an independent panel for sanctioning such decisions".

UNTAD’s Report includes a comprehensive critique of the IMF’s approach to crises in Turkey, Argentina and South Korea, noting that IMF "surveillance has not been successful in ensuring stable and appropriately aligned exchange rates among the three major reserve currencies. Nor has it been able to protect weaker and smaller economies against adverse impulses originating from monetary and financial policies in the major industrial economies".

The Report analyses IMF policies in Asia, and notes that the response to the Asian crisis "was far from optimal, at least in the initial phase. An undue burden was placed on domestic policies; rather than restoring confidence and stabilizing markets, hikes in interest rates and fiscal austerity served to deepen the recession and aggravate the financial problems of private debtors. The international rescue packages were designed not so much to protect currencies against speculative attacks or to finance imports, as to meet the demands of creditors and maintain an open capital account. Rather than involving private creditors in the management and resolution of the crises, international intervention, co-ordinated by the IMF, in effect served to bail them out".

The Report notes that "there has been an intensification of IMF surveillance and conditionality…in debtor countries, in accordance with the diagnosis that this is where the main problem lies". Discussions about the reform of the international financial system "presume that the cause of crises rests primarily with policy and institutional weaknesses in the debtor countries. By contrast, little attention is given to the role played by institutions and policies in creditor countries in triggering international financial crises". These omissions reflect political, rather than technical constraints argues the Report, asserting that "the reform process has been driven by the interest of the major creditor countries".

UNCTAD proposes new mechanisms for dealing with financial crises and recommends:

• Amending the IMF’s Articles of Agreement to provide a member who is imposing unilateral standstill (of debt payments) with some protection against the risk of creditor legislation;
• Establishing an independent panel for crisis management, but improving access to emergency financing of the current account;
• Reappraising the IMF’s overall resource position, which has lagged far behind the growth of the global economy; and
• Focusing IMF conditionalities on core macroeconomic objectives, as recent experiences with bailouts in Turkey and Argentina suggest that the practice of attaching wide-ranging policy recommendations to offical loan packages persists.

For a more detailed analysis of the UNCTAD Trade and Development Report, 2001, (http://www.unctad.org) please go to Analysis.