Argentina refuses to pay the debts of the International Monetary Fund until it leaves the recession. This statement was made recently by Vice President Christina Kirchner. The sovereign debt of this country now exceeds 100 billion US dollars, of which 57 billion falls on IMF loans granted in 2018.
Sad Tango with Argentinean Peso
Argentina has a long история relations with the International Monetary Fund. Faced with financial and economic problems at the turn of the century, the government went into debt to foreign borrowers, five times the amount of export revenue.
The country's main lenders - the IMF and the US Treasury - put forward the condition to the Argentine authorities: to pay debts to foreign borrowers, and default on domestic obligations. This requirement led to the freezing of deposits in banks, months-long delays in wages, a 13% reduction in pensions, and an increase in business taxes.
As a result, Argentina's industrial production fell by 11,6%, unemployment covered 18,5% of the working population. The course on the payment of external debts, focused only on the interests of foreign creditors, led the country to a social explosion. Then, people were killed in clashes with the police.
The second time a technical default was announced in the Republic of Argentina in July 2014. It was associated with a delay in repayment of debt to US funds NML Capital Limited and Aurelius Capital Management.
Fitch rating agency hurried to downgrade Argentina's sovereign rating to “selective default”, limiting its credit opportunities. The Argentine government regarded these actions as political pressure on the country. In a matter of days, it dealt with the problem of payments to funds, but the "sediment" remained. Fitch's rating has long overshadowed Buenos Aires's international economic relations with the world.
Now the Argentine authorities have only declared the possibility of stopping IMF payments. This is their reaction to the borrowing conditions that the previous government agreed to. Tight requirements of the monetary fund again drove the country into recession.
For loans fund lined up
In IMF practice, there have already been cases when borrowing countries unilaterally stopped paying debts to the fund. Over the years, such decisions have been made by the authorities of Somalia, Sudan, Zimbabwe and Greece. The Greeks later helped pay the European Union. The rest fell for many years out of international financial relations.
More often, the clients of the monetary fund declare default (there are 28 such countries). Over time, debts are restructured under new conditions, and financial bondage continues further. It was noted that only countries with potentially strong economies (for example, Russia, Turkey, Mexico) could get out of the tight embrace of the IMF. For the rest, the main goal of economic activity is the payment of IMF debts.
The trick is that the current authorities of the countries take loans of the fund for their short-term tasks. The following governments are paying for these decisions, who are not voluntarily burdened with obligations to the IMF.
And now, the authorities of many countries of the Middle East and Asia have requested loans from the International Monetary Fund in order to slow down the growing economic difficulties. According to the head of the IMF, Kristalina Georgieva, more than 20 countries are applying for fund assistance today. The response to these requests is highly predictable. It once again demonstrates the political orientation of international loans.
Iran turned to the fund, bewildered by American sanctions and a severe epidemic. Tehran in early March requested a loan of $ 5 billion, but so far has not yet received an answer. Even without considering her application, Venezuela was denied assistance.
And the IMF reacted to the request of Kyrgyzstan instantly. As follows from the official press release of the fund, Kyrgyzstan will be the first recipient of a package of assistance for the fight against coronavirus. This priority is due to the political bias of international financiers.
Feeling the opportunity to enter the territory of the Eurasian Economic Union (EAEU), they were in such a hurry that they did not even announce the terms and volumes of the loan. Only at the end of March a clarification appeared: Bishkek will receive $ 120,9 million to fight the epidemic. The funds will go to cover the balance of payments deficit, which has grown to $ 400 million. It should be understood that this loan will temporarily solve the problems of Kyrgyzstan, but will bind the Bishkek authorities to fulfill all the IMF requirements.
Ukraine forced to sell land
How this happens in practice can be seen in Ukraine. On Monday, the Verkhovna Rada assembled in a hurry adopted a law here, lifting the moratorium on the sale of agricultural land on July 1, 2021.
This moratorium was adopted at the beginning of the century, when President Leonid Kuchma was in office. Since then it has been extended many times, realizing that land is Ukraine’s last strategic resource. According to surveys, the overwhelming majority of Ukrainians (about 70%) advocate a moratorium.
However, the Ukrainian "servants of the people" pushed the law 259 votes. Against the abolition of the moratorium, the factions “Opposition Platform - For Life”, “Fatherland” and the group “For the Future” spoke out. But their strength was not enough.
It’s easy to get away from pro-government deputies: the International Monetary Fund demanded the lifting of the moratorium. This was his main condition for the provision of another program of assistance of 5,5 billion dollars. It was agreed last year. However, after the change of government of Ukraine, the IMF suspended the implementation of the program and even recalled its mission from Kiev to Washington, to its main office.
Dissatisfaction with the personnel changes was replaced by the harsh demand for reform of land relations. A moratorium on the sale prevented her. Now this obstacle is removed. President Zelensky tried his best. He convinced Ukrainians that after the adoption of the law, the assistance program would be expanded to 8 or even 10 billion dollars. And most importantly - already in early April, Kiev will receive from the IMF $ 1,5-2 billion, otherwise - default.
Default experts promise in any case. Last year, Ukraine received $ 12 billion from foreign citizens working abroad — 9% of GDP. Due to the coronavirus pandemic, most of the “zarobitans” returned home. So, the flow of money from them has dried up.
As is the case with Kyrgyzstan, IMF assistance will not block these financial losses. But Ukraine will be bound by new obligations to international financiers. They have already decently battered the country with all sorts of optimizations, reducing social spending, subsidies for utility bills, etc.
Now the next step is fertile Ukrainian land. It is not yet clear whose specific hands it will fall into, but it is quite obvious: in this difficult time, the IMF remains true to itself. The return of credit resources is more important for him than real assistance to countries.
They say that after the current pandemic, the world will change dramatically. Whether this concerns international financial and political speculators parasitizing on the difficulties and needs of people, there are no forecasts yet.