WASHINGTON (Reuters) - The number of conditions the International Monetary Fund attaches to its loans has grown in recent years, despite promises to limit what critics see as onerous requirements, a study showed on Wednesday.
The European Network on Debt and Development, known as Eurodad, said nations desperate for cash were at a disadvantage in dealings with the IMF, which were likened to negotiating “at the barrel of a gun.”
The IMF attached nearly 20 conditions, on average, to each loan it has approved in the past two years, said Eurodad, which comprises 48 non-governmental organizations from 19 European countries. That was more than the Eurodad had calculated in two prior reports.
Many of the conditions focused on politically contentious areas, such as public-sector wage cuts or private-sector reform, the report said. Eurodad looked at the period from October 2011 to August 2013, covering 23 loans.
In a 2011 review, the IMF promised to keep “conditionality parsimonious and focused on macro-critical issues.”
The Eurodad report said: “The IMF is going backwards - increasing the number of structural conditions that mandate policy changes per loan, and remaining heavily engaged in highly sensitive and political policy areas.”
In response, the IMF said the report didn’t fully consider the economic environment and country circumstances in which the conditions were developed.
Many loans were approved in the aftermath of the global financial crisis, when countries - especially in the euro zone - were burdened by heavy debt and shut out of markets, and the IMF feared their problems could spread.
“In particular, the report does not assess whether conditions were needed to achieve program objectives,” IMF spokesman Gerry Rice said. “Moreover, the report misses the fact that many conditions in Fund-supported programs are designed to enhance social protection.”
Eurodad’s findings were partly skewed by the biggest IMF loan programs during the period covered. Loans to Cyprus, Greece and Jamaica accounted for 87 percent of funds approved, and had an average of 35 conditions each, Eurodad said.
In the case of Cyprus and Greece, they were shaped by the IMF’s European-dominated executive board, which demanded strict budget cuts in exchange for aid, said Eurodad’s director, Jesse Griffiths.
The report comes six years after the IMF’s internal watchdog urged the fund to slash the conditions it attaches to loans, arguing they were not entirely effective.
The IMF’s loan conditions have long been a sore point for many countries and grassroots groups, who have argued they are excessive and harmful to the poor.
Many governments also complained that IMF conditions were not well-tailored to country circumstances and political constraints, and may have unrealistic deadlines. They argued that the conditions limit a country’s ability to effectively control its economic programs.
Griffiths said nations in dire straits were at a disadvantage in negotiating with the IMF. They were desperate to get cash and show financial markets and other donors that their policies have the IMF’s seal of approval.
For example, Ukraine had long resisted the IMF’s conditions, but finally agreed to them this year after saying it was close to default. Ukraine’s prime minister said his government was on a “kamikaze” mission to make painful decisions.
“It’s like at the barrel of a gun,” Griffiths said. “Those are decisions that are political and should be made in consultation with the people in those countries, and not through negotiations” with the IMF.
The IMF argues its conditions are necessary to put economies on the growth track, and ensure it gets its money back.
Eurodad, however, found most countries were repeat borrowers. Twenty out of the 22 countries with new IMF programs from 2011 to 2013 had borrowed in the past decade, and a majority had borrowed in the previous three years.
Some IMF conditions, such as drastic budget cuts that can weigh on an economy, may make it more difficult for countries to repay loans. The IMF in 2012 admitted it had miscalculated the economic cost of government austerity.
Eurodad said deeper changes were needed, including overhauling the IMF’s governance structure to give developing countries a bigger voice. The IMF in 2010 agreed to an initial step to boost the power of emerging markets, but the reforms have been held up by the opposition of the U.S. Congress.
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Editing by Mohammad Zargham and Bernadette Baum