The International Monetary Fund is hated by everyone who ever came under its regime. One of its function is to be a lender of last resort whenever a country goes bankrupt. Such IMF loans come with strict conditions and neoliberal policy demands: Fire the teachers, lower taxes, lower social expenditure, allow foreigners to buy up your country and so on.
After the Asian financial crisis the IMF had little to do. Many countries build up foreign reserves to protect their currencies and economies and nobody asked the IMF for loans. Latin America paid off its outstanding debt to the IMF. For a while Turkey was the only country with IMF mangling but this year it repaid most of its outstanding IMF loans and was freed from the international debt tower.
The IMF had nothing to do but as the international credit bubble goes bust it is back in business. Only this time the customers are a bit different.
The current list of countries talking with the IMF is getting longer each day. Iceland was for starters. Estonia, Latvia and Lithuania and the Ukraine are likely to fall under IMF dictatorship. Serbia and Hungary are also candidates.
It will be interesting to see if the IMF will apply the usual torture or have less neoliberal recipes for these countries. Most of the above are already drunk on neoliberal kool-aid like regressive tax regimes and more of that drug will not do them any good.
Another candidate for IMF help was Pakistan which has less than five mouth worth of foreign reserves available, high inflation and immediately needs a loan of at least $10 billion. But there has been no talk of IMF intervention. The IMF has so often intervened in Pakistan that it is accused to be the real culprit of the countries current state.
Pakistan had hoped for help from Saudi Arabia but the Saudis hate president Zardari and his Bhutto clan and want their candidate/proxy Nawaz Sharif to rule that country. They have not answered the calls from Islamabad. Pakistan also asked the U.S. but the result was only a paltry $4 billion international arrangement which comes with very harsh conditions:
During its negotiations with the World Bank and other IFIs, Pakistan pledged to reduce its fiscal deficit from 7.7 per cent of the GDP last year to 4.3 per cent of the GDP this year.
Pakistan agreed to reform its tax policy and tax administration with the aim to mobilize additional revenue. The tax to GDP ratio is to be reduced to 15 percent of the GDP over the next five to seven years. Pakistan promised to tighten monetary policy as and when needed.
In most European countries the tax to GDP ratio is around 40%. In the U.S. it is about 30%. How is Pakistan supposed to provide for its people with a tax ratio of 15%? This is a formula for more instability.
Zardari’s first official trip abroad is to China where he is currently asking for more money. He will get some and the conditions will likely be less harsh than those coming with the U.S. arranged loan.
China may well be really smart and lend a full $10+ billion and recommend that some of that is used for infrastructure development. That would avoid the pressure on Pakistan from the conditions of the U.S. arranged loan.
Could the Baltics, the Ukraine and other East- Europeans do something Zardari like and go to Moscow? A bailout from Russia might have better condition then an IMF loan from Washington DC. If they are smart, they will at least give it a try.