WASHINGTON — Judging from what International Monetary Fund Managing Director Christine Lagarde told me in an interview a few days ago, the IMF is working hard to stop being Latin America’s favorite villain.
There are good reasons why it should do so: The IMF is scheduled to hold in 2015 its first annual meeting in Latin America since 1967 in Lima, Peru, and many anticipate violent protests.
If there is one thing that unites the left and center-left in most countries in the region, and even parts of the right, it’s the belief that the IMF has impoverished their nations by demanding too much austerity measures in exchange for its loans.
The Washington-based IMF lends money to debt-ridden countries that are in the midst of financial crises. But its emergency rescue loans have often come with stringent conditions, such as deep cuts in public spending, which have enraged recipient countries.
I asked Lagarde: Hasn’t the IMF made mistakes in Latin America by demanding too much austerity?
“I don’t want to rewrite history, but I will say one thing: I think we now are paying more attention to the population that is most exposed,” she answered. “In the programs that we design, we have more social safety nets, we have more focus on those that do not have much, and that should be protected.”
Does that mean that the IMF is demanding less belt tightening?
“A different belt tightening. A belt tightening that is better designed to protect the poorest,” she said.
Lagarde avoided using the word “mistakes,” saying there is an open question on whether crisis-ridden countries should take their medicine “hard and quickly,” or take a “milder medicine over a longer period of time.” Most recently, there has been growing support for the latter, she said.
She said the IMF has introduced, among other things, “flexible credit lines” to allow countries to strengthen their foreign reserves and avoid financial crises, and more focalized conditionality programs that seek to avoid hurting the poor. In addition, the IMF has become more flexible on Latin American countries’ measures to control capital movements, which it opposed until recently, and is “making progress” in talks to give a greater representation to emerging countries on its board, she said.
Isn’t she afraid that protesters will throw eggs at her when the IMF goes to Lima, Peru, in 2015?
“Be it as it may, I can tell you that I personally look forward to that 2015 meeting in Lima,” she responded. She added that the IMF is working “very closely’’ with Peru, and that the country will greatly benefit from the estimated 15,000 foreign visitors who are expected to attend.
Asked about the IMF’s economic projections for next year, she said that “2014 will be a bit better than 2013 across the board,” with rich countries recovering somewhat faster than developing ones. Latin America is expected to grow by about 3.1 percent next year, up from 2.7 percent this year, she said.
When I asked her which Latin American economies she expects to do best, she mentioned Mexico, Chile, Colombia and Peru.
On the ongoing dispute between the IMF and Argentina over that country’s dubious inflation statistics — the government claims inflation is at about 10 percent, but virtually all independent economists agree it’s closer to 25 percent — Lagarde said that the IMF is making “positive progress” in talks with Argentina to establish reliable statistics.
On Venezuela, Lagarde said that while the IMF has not been able to work in the country since 2003, from all available information, “I don’t think that the economy is doing well at the moment.” She added that “It’s an economy that will really have to face difficult policy issues, probably shortly.”
My opinion: I would have liked Lagarde to make a more explicit mea culpa for the IMF’s past mistakes in Latin America, although she certainly came close to doing that.
While it’s true that demagogues in the region have long used the IMF as a scapegoat for their own irresponsible policies, it’s also true that the IMF has erred by using the same austerity formulas for all countries, without taking into account that many of them don’t have social safety nets to protect the poor.
Most likely, Lagarde is saving a more explicit IMF apology for when the IMF meets in Lima in 2015. I hope she makes that mea culpa by then, so that both the IMF and the region can leave the past behind and focus on the future.