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, according to a study released on Wednesday.
The Eurodad network of European development groups also said nations desperate for cash are at a disadvantage in their dealings with the IMF, likening them to negotiating “at the barrel of a gun.”
The IMF attached nearly 20 conditions on average to each loan it approved in the past two years, Eurodad found. That was more than the number the group had calculated in two prior reports.
Many of the conditions also focused on politically contentious areas, such as public sector wage cuts or private sector reform, according to the report. 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.”
The results were partly skewed by the biggest IMF loan programs during the period covered. Loans to Cyprus, Greece and Jamaica accounted for 87 percent of all 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 own internal watchdog urged the fund to dramatically reduce 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 complain IMF conditions are not well-tailored to country circumstances and political constraints, and may have unrealistic deadlines. They argue conditions reduce a country’s ability to effectively control its economic programs.
Griffiths said nations in dire straits are at a disadvantage in negotiating with the IMF. They are 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 it finally agreed to them this year after saying it was close to default. Ukraine’s prime minister said his government is 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 also make it more difficult for countries to repay their 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.
Reporting by Anna Yukhananov; Editing by Mohammad Zargham