Latin America Appears to Warm to IMF

By Juan Forero and Joshua Partlow
(c) 2009, The Washington Post

QUITO, Ecuador — Few guests have felt so unwanted in Ecuador as the International Monetary Fund.

The country's president regularly vilifies the Washington-based multilateral organization as an arm of imperialism, and the fund's representative here left after being declared persona non grata.

But with Ecuador hit hard by the worldwide economic crisis, the government has quietly resumed talks with IMF officials, mirroring a trend in Latin America as one country after another overlooks the fund's sometimes ignominious reputation in the region to seek its assistance.

Ecuador still publicly shuns the IMF as President Rafael Correa's government openly seeks help from China and small multilateral lenders. But for the loans Ecuador needs — economists say as much as $2 billion to alleviate a crushing $3.5 billion trade deficit — the Correa administration may be forced to go to the IMF, which has the ability to make large loans fast. Economic Policy Minister Diego Borja has met with fund representatives in Washington and held videoconference calls with its officials, according to economists in the capital of Quito who are familiar with the country's efforts to deal with the crisis.

"It's perfectly logical that they meet with the fund," said Ramiro Crespo, president of Analytica Securities, an investment bank in Quito. "And the fund is trying to accommodate itself to Ecuador."

Flush with money and a new leadership, the fund has revamped its loan requirements to make it easier for countries, particularly those the IMF judges to have sound economic policies, to borrow. The policy is being watched especially closely in Latin America, both because of the broad scope of the loans and the once-prickly relationship the fund had with many countries here.

Nicol s Eyzaguirre, the fund's Western Hemisphere director, described a nimble organization more focused on helping countries avert crisis and strengthen investor confidence than offering condition-laden bailouts.

"If we are willing to put our money where our mouth is, investors should not fear," said Eyzaguirre, a former Chilean finance minister. "The fund could step in, if the countries want, with our money — and it's a wall of money."

With commodity prices bolstering national treasuries, the IMF's loans to Latin America fell from $48 billion in 2003 to just $803 million last year. This year, Colombia, Costa Rica, El Salvador and Guatemala are already in the pipeline for loans, and Mexico is receiving $47 billion.

Eyzaguirre said the fund hopes to appeal by stressing "prevention rather than cure," which in the past came with what some countries considered harsh structural adjustments to their economies.

The question many economists are asking is whether an organization that had become a punching bag for some Latin American leaders is implementing enough changes to attract countries like Argentina, Bolivia and Ecuador, whose governments publicly severed ties with the IMF.

"This would be an opportunity for both sides to show that the IMF can be a different kind of institution than what it was in the past, instead of being so much of a policeman for the rich countries," said Nora Lustig, an Argentine economist teaching at George Washington University.

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Already, some leaders have offered conciliatory words to the fund. President Luiz In cio Lula da Silva of Brazil, Latin America's biggest economy, recently expressed his government's willingness to back the fund.

"I spent 20 years of my life carrying a banner and shouting in the street, in the gates of factories, on platforms: `Get out IMF,' " Lula, a former union leader, said at the World Economic Forum in Rio de Janeiro this month. "And these days, I called my finance minister and told him: `We are going to loan money to the IMF.' "

Among the countries most averse to dealing with the IMF is Bolivia, which had closely followed Washington's prescribed changes. But instead of prosperity, by the early part of this decade, Bolivia remained mired in poverty and instability.

Javier Comboni Salinas, a former Bolivian finance minister, said the fund's history in the remote, land-locked country makes it politically unpalatable for President Evo Morales, a critic of globalization and the IMF, to embrace the organization.

Argentina, too, disparages the fund, which is blamed for helping generate an economic collapse in 2001 and then not helping extricate the country from the quagmire. Under then-President Nestor Kirchner, Argentina recovered while openly disregarding fund orthodoxy.

Under the current president, Cristina Fern ndez de Kirchner, Nestor Kirchner's wife, Argentina has sought help in the face of plummeting commodity prices by going to China for a three-year, $10 billion currency swap designed to improve confidence in its weakening currency. Since 2006, the government has not permitted the fund to do its article IV consultation, an annual economic report card the IMF conducts in dozens of countries.

"The fact that Argentina has not wanted to receive this mission is a completely childish attitude," said Pablo Guidotti, a former Argentine treasury secretary.

But as the economic crisis has worsened in Latin America, even Argentina has softened the rhetoric.

At the Group of 20 summit in London this month, Fern ndez de Kirchner and other world leaders signed a document supporting IMF supervision of "our economies and our financial systems." Argentine Foreign Minister Jorge Taianasaid Central Bank reserves would grow by $2.5 billion because of IMF allocations channeled to member countries in the wake of the $250 billion pledged to the fund at the summit.

An IMF spokesman also said the article IV consultation would resume soon — a requirement if Argentina is to qualify for assistance.

In Bolivia, too, the IMF has been quietly at work, providing technical assistance and writing reports for the government on monetary and fiscal issues. Bolivia has not sought the fund's help, but IMF officials said they have a working relationship with Morales' government.