LONDON — In 2001, Martín Guzmán was a first-year university student in Argentina when a debt crisis triggered default, riots and a depression. A stunned middle class fell into ruin when the International Monetary Fund insisted the government make budget cuts in exchange for a bailout.
Almost 20 years later, when the government was again bankrupt, Guzmán, as Minister of Finance, negotiated with IMF officials to restructure a $44 billion debt, the result of a previous ill-conceived bailout.
Today he is one of many prominent economists and world leaders who maintain that the ambitious framework created at the end of World War II to safeguard economic growth and stability, with the IMF and World Bank as its pillars, is failing.
The current system “contributes to an unstable and less equitable global economy,” said Guzmán, who resigned in 2022 after a rift within the government.
The reimbursement that Guzmán negotiated was the 22nd agreement between Argentina and the IMF. Still, the country's nosedive has increased with an annual inflation rate of more than 140 percent, growing lines at soup kitchens, and a new self-proclaimed “anarcho-capitalist” president, Javier Milei, who recently devalued the currency by 50 percent. percent.
The International Monetary Fund was created in 1944 to help bail out countries in financial difficulty, while the World Bank's focus was on reducing poverty and investing in social development.
“Almost 80 years later, the global financial architecture is obsolete, dysfunctional and unfair,” António Guterres, Secretary-General of the United Nations, said at a summit in Paris in June.
Hit by the pandemic, skyrocketing food and energy prices, and higher interest rates, low- and middle-income countries are swimming in debt and facing slow growth. The scope of the problems has grown enormously, but financing from the IMF and World Bank has not kept pace.
Resolving debt crises is also much more complicated now that China and legions of private creditors are involved, rather than just a handful of Western banks. Guzmán and other economists have called for an international legal arbitrator to resolve disputes related to sovereign debt.
The World Bank's own analyzes describe the magnitude of the problems. “For the poorest countries, debt has become an almost crippling burden,” said a recent report. Countries are forced to spend money on interest payments instead of spending money on public health, education and the environment.
The IMF has moderated its approach to bailouts, replacing austerity with the idea of sustainable debt. Last year, the World Bank significantly increased money for climate-related projects. But detractors argue that the solutions so far have been insufficient.
Emerging nations are saddled with high borrowing costs due to the often exaggerated market perception of the risk they represent. And because they are typically forced to borrow in dollars or euros, their payments skyrocket if the U.S. Federal Reserve and other central banks raise interest rates, as they did after the pandemic.
The IMF's last-resort loans may also end up undermining an economic recovery because interest rates are so high now and borrowers face high fees.
Advocates for change say indebted countries need significantly more grants and low-interest loans with long repayment terms, along with other reforms.
“The challenges are different today,” Guzmán said. “Policies need to be better aligned with the mission.”
By: PATRICIA COHEN
BBC-NEWS-SRC: http://www.nytsyn.com/subscribed/stories/7052037, IMPORTING DATE: 2024-01-02 19:15:05
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