The stigma attached to IMF bailouts has waned in Africa, but as Argentina’s experience shows, governments should be wary of seeing them as a fix for their economic problems.
For Argentinians of a certain age, the country’s on-off relationship with the unpopular International Monetary Fund has become something of a running joke.
Since first approaching the IMF for help back in 1958, Argentina has signed 22 agreements with the fund, most ending in mutual mistrust and disgruntlement among a population with a strong historic aversion to the steep costs of structural adjustment.
But given the country’s enduringly precarious finances, few were surprised when President Mauricio Macri approached the fund for another bailout in May last year. The resulting $56bn deal – the fund’s largest yet – has proven no less controversial than its predecessors, despite IMF attempts to sweeten its tough economic medicine.
While some economic measurements are improving – Argentina’s deficit has narrowed to 2.6% of GDP and the country posted a surplus trade balance of $1.18bn as of March – inflation has surged to 55% and poverty rates are pushing 30%, fuelling opposition to the deal and the government.
With Macri facing a tough fight in October elections, the president is coming under increasing pressure to defy the fund and water down the deal. The IMF’s reputation is again on the line.
While many see the fund’s Argentina woes as business as usual in difficult Buenos Aires, the saga contains lessons for the growing ranks of African countries considering drawing on the fund’s finances.
Having initially fallen out of favour on the continent, the IMF has been welcomed back following the 2009 economic crisis and 2014 oil price slump.
Outstanding programmes with sub-Saharan African countries rose nearly fivefold between end-2014 and end-2017 from $1.8bn to $7.2bn, according to Fitch Ratings.
Once as distrusted in Africa as in South America, the stigma attached to IMF bailouts has waned as the fund shows a softer side – the latest Argentina bailout is the first to allow the country to exceed its fiscal deficit target via social assistance spending.
Yet African governments should be wary of seeing IMF engagement as a cost-free fix-all for their economic woes. While controlling public spending and ensuring debt sustainability are crucial goals, the costs of structural adjustment can often be borne by poorer citizens.
The economic impact of IMF bailouts is also disputed. Fitch analysis of 22 IMF African programmes between 2002 and 2017 found only a small improvement in some of the major determinants of creditworthiness, although at least seven African countries in such programmes improved their sovereign ratings between 2001 and 2015.
Real GDP growth accelerated by an average of 1.7% in the countries analysed, but by only 0.5% if the most extreme cases are excluded.
As a lender of last resort, the IMF undoubtedly has a significant role to play in supporting and reforming Africa’s most troubled economies. Traditional pre-bailout fund demands, which include asking governments to curb corruption – have improved transparency and governance. Yet for most, a trip to the fund should not become routine.
Determined economic reforms, introduced incrementally, may not always be popular. But as Argentina shows, they are likely to gain more public support than repeated doses of tough IMF medicine.