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Source: RKC News
The Failure of the IMF in Bolivia
March 12, 2021 | By Teresa Morales (Former Minister for Productive Development in the Bolivian government 2011-2015)
Source: RKC News
The Failure of the IMF in Bolivia
The IMF has always imposed its own way of doing things in all countries, in exchange for credits they demand control over the debtor, and during the history of neoliberalism, this has further impoverished those who are already poor and concentrated wealth in the hands of the few. In Bolivia, the IMF used to have an entire floor within the building of the Central Bank, they all worked speaking in English and it was there that Bolivia's economic policies were decided.
The model was thrown out at the start of Evo Morales' government, the IMF were told that this country would no longer agree to their conditions. So without these loans, how did we generate liquidity? By nationalising hydrocarbons, this brought revenue that allowed us to take back control of the economy and ensure that our spending came from our own pockets rather than from foreign loans.
However, 14 years later, a de facto coup government took power, violating the human rights of large parts of the population. They decided, at the height of the difficulties presented by the pandemic, to accept a loan offered by the IMF to the most desperate countries that needed a quick injection of resources to meet the challenges of Covid. The problem here is that it came with all kinds of strings attached, it offered Special Drawing Rights (SDRs, a reserve asset) that carries an incredibly high Maintenance Value, this means that the original cost of the loan goes up each day because the price of SDR rises. They don't lend directly in dollars, a value that can be easily calculated and monitored, they lend in this separate reserve asset (SDR), the value of which is constantly rising.
The other problem was the high-interest rates. No country should accept interest rates of nearly 8%, the CAF (Latin American Development Bank) was offering much cheaper loans, at about 2%. The coup regime took out a loan that had an interest rate of over 7% and which was valued in SDR.
Something important in Bolivia is that the people approved the current constitution by referendum and the constitution has two articles protecting the economy by putting checks and balances on the ability of governments to freely take out these sorts of loans. Any loan, by law, must be voted on and approved by the legislature. So at first, when Añez secured the loan, she put it to congress and it was rejected for not having good terms and conditions. So what she should've done is not accept the release of those funds from the IMF. However, she went ahead and accepted the money, as did the Central Bank, an amount of $US 324 Million.
This became more absurd because the government couldn’t actually spend the money because of the vote in congress, so the lump sum had to just sit in the accounts of the Central Bank, but while it did it the value of the SDR was going up and interest was being charged.
When Luis Arce takes power, he looks at this situation and can see that it’s illegal and immoral, he returns the loan to the IMF, including the high cost incurred by the rising value of the SDR and interest rate charges, so as to not have to apply the other conditions of the IMF. The conditions of the loan included the requirement to lift the exchange rate controls that Bolivia has, that would have caused instant devaluation of the currency and of people's incomes. The other condition was austerity, they wanted the state to restrict spending so as to reduce the fiscal deficit.
When we were in power we did exactly the opposite of all these policies. Bolivia had huge economic growth, we had the fastest growing economy in the region, even after the price of our hydrocarbon exports collapsed. That’s because we ignored the proposals of the IMF, because we nationalised hydrocarbons and that’s how we got the money to live and to have the ability to take sovereign decisions rather than have to take instructions from abroad.
Please go to RKC News to read more.
The model was thrown out at the start of Evo Morales' government, the IMF were told that this country would no longer agree to their conditions. So without these loans, how did we generate liquidity? By nationalising hydrocarbons, this brought revenue that allowed us to take back control of the economy and ensure that our spending came from our own pockets rather than from foreign loans.
However, 14 years later, a de facto coup government took power, violating the human rights of large parts of the population. They decided, at the height of the difficulties presented by the pandemic, to accept a loan offered by the IMF to the most desperate countries that needed a quick injection of resources to meet the challenges of Covid. The problem here is that it came with all kinds of strings attached, it offered Special Drawing Rights (SDRs, a reserve asset) that carries an incredibly high Maintenance Value, this means that the original cost of the loan goes up each day because the price of SDR rises. They don't lend directly in dollars, a value that can be easily calculated and monitored, they lend in this separate reserve asset (SDR), the value of which is constantly rising.
The other problem was the high-interest rates. No country should accept interest rates of nearly 8%, the CAF (Latin American Development Bank) was offering much cheaper loans, at about 2%. The coup regime took out a loan that had an interest rate of over 7% and which was valued in SDR.
Something important in Bolivia is that the people approved the current constitution by referendum and the constitution has two articles protecting the economy by putting checks and balances on the ability of governments to freely take out these sorts of loans. Any loan, by law, must be voted on and approved by the legislature. So at first, when Añez secured the loan, she put it to congress and it was rejected for not having good terms and conditions. So what she should've done is not accept the release of those funds from the IMF. However, she went ahead and accepted the money, as did the Central Bank, an amount of $US 324 Million.
This became more absurd because the government couldn’t actually spend the money because of the vote in congress, so the lump sum had to just sit in the accounts of the Central Bank, but while it did it the value of the SDR was going up and interest was being charged.
When Luis Arce takes power, he looks at this situation and can see that it’s illegal and immoral, he returns the loan to the IMF, including the high cost incurred by the rising value of the SDR and interest rate charges, so as to not have to apply the other conditions of the IMF. The conditions of the loan included the requirement to lift the exchange rate controls that Bolivia has, that would have caused instant devaluation of the currency and of people's incomes. The other condition was austerity, they wanted the state to restrict spending so as to reduce the fiscal deficit.
When we were in power we did exactly the opposite of all these policies. Bolivia had huge economic growth, we had the fastest growing economy in the region, even after the price of our hydrocarbon exports collapsed. That’s because we ignored the proposals of the IMF, because we nationalised hydrocarbons and that’s how we got the money to live and to have the ability to take sovereign decisions rather than have to take instructions from abroad.
Please go to RKC News to read more.
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