The Failure of the IMF in Bolivia
By Teresa Morales (Former Minister for Productive Development in the Bolivian govenrment 2011-2015)
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.
The issue of supporting small businesses is also key. In our government we gave credits at 0-1% interest to small producers so as to help grow those small scale economic units. The IMF focus on austerity requires an end to such investments, which would be disastrous during this pandemic because 80% of Bolivians work in these small to medium sized enterprises and during this lockdown by Añez, they’ve had to eat the little capital they have and are facing bankruptcy. If Carlos Mesa had been elected President then surely all these enterprises would have gone to the wall as he’d have continued with the policies demanded by the IMF
The IMF sees those in the informal economy, such as those selling food or wares at the side of the road, as economically unviable. Our vision was the reverse, we saw those people as the motor of the economy, we invested in those sectors. What does a carpenter do with 10bs? They spend it at the shoemaker, at the market. That is to say, in the community. That money goes around 10 times. If you give 10bs to a millionaire, it’ll just end up in Miami. The small producer spends on national goods made within the country. So by boosting internal demand we boosted the economy and brought about a new dynamism.
The whole world talks about the economic miracle led by Evo Morales and Luis Arce, this is how we managed it. The IMF wanted to disrupt this model by imposing itself during the year of an illegitimate government, but now we’ve returned that loan with the message that ‘we are not going to use this because we do not accept your conditions. It’s an act of dignity and justice, hopefully, other countries will take the same path. This pandemic has meant that poor countries feel forced to accept IMF conditions, from Bolivia, we want to show that it is not the only option.