Debt campaigners have accused the IMF of encouraging reckless lending by extending US$93 billion in loans to 18 financially troubled countries without a debt restructuring program first.
In advance of the IMF’s annual meeting in Washington next week, the Jubilee Debt Campaign (JDC) said that the fund was breaking its own rules by providing financial support without ensuring that the debt burden was sustainable.
The JDC said the IMF was creating a moral hazard, because lenders knew that they would be bailed out no matter how risky their loans might be.
Debt sustainability has come into the spotlight over the past year after the IMF controversially lent a record US$56 billion to Argentina even though its annual debt repayments far exceeded the fund’s own limit. The IMF said Argentina was a special case.
The JDC said Argentina was merely the most acute example of a wider problem, with the IMF also encouraging reckless lending in Afghanistan; Angola; Cameroon; the Central African Republic; Chad; Ecuador; Egypt; Ghana; Jordan; Mauritania; Mongolia; Pakistan; Sao Tome and Principe; Sierra Leone; Sri Lanka; Tunisia and Ukraine.
“The IMF has a policy not to lend into an unsustainable debt situation, but we are seeing it breach this policy far too often, bailing out reckless lenders. This creates a moral hazard in the sovereign debt system. Lenders and borrowers are jointly responsible for ensuring debt crises are prevented,” Jubilee Debt Campaign director Sarah-Jayne Clifton said.
“By constantly bailing out countries in debt crisis without requiring debt restructuring, the IMF is placing the burden of a crisis squarely on the shoulders of the citizens of a debtor country,” she said.
The IMF defended its approach.
“The methodology used in the Jubilee report is flawed, starting with the misleading headline number of US$93 billion,” a spokesman said.
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