Will Bolivia Kiss the IMF Goodbye?

There are so many stories coming out of Bolivia right now – Evo's visit to Chile and meeting with Condoleeza Rice, the new law convening the national constituent assembly, and this story about Bolivia preparing to free itself of the IMF. We'll do our best to get you caught up on the rest as the week continues.

Will Bolivia Kiss the IMF Goodbye?

For twenty years Bolivia has operated under a series of aid agreements with the International Monetary Fund. The essence of these agreements with the IMF has been – we loan you money and you pay us interest and rearrange your economy according to our advice. The results haven't been too good. Privatization of the oil and gas industry (one of the IMF's great Bolivian goals) led to a plummeting in the percentage of the national budget coming from gas and oil. IMF demands for steep deficit reduction in 2003 triggered Febrero Negro and the needless deaths of 34 people.

Even the IMF itself confessed, in a report last April, that the failure of IMF policy in Bolivia is a "puzzle”, noting that, "a country perceived as having one of the best structural reform records in Latin America experienced sluggish per capita growth, and made virtually no progress in reducing income-based poverty measures." The IMF has finally learned what people on the streets here have known for a good long time. The IMF's very-educated economic recipe just plain failed.

Now, it looks like the government of Evo Morales is getting ready to follow in the footsteps of Brazil, Argentina and Venezuela and to tell the IMF that it doesn’t want to do business anymore. Bolivia's current three-year "stand-by" lending agreement with the IMF ends at the end of this month and both Bolivian and IMF officials have signaled that Bolivia isn’t interested in signing a new one.

In reality, this a good move for Bolivia and a good time to make it. Bolivia, for the first time in many years, no longer owes the IMF any money. Last December the IMF announced that it was canceling Bolivia's $251 million debt to the Fund, along with the debts of a host of other poor countries. In reality, direct loans from the IMF are relatively small in the scheme of things. What makes the IMF more important for Bolivia is that it is used as the gatekeeper for good economic behavior by a number of foreign governments that give Bolivia foreign aid. Bolivia can surely find a way to keep those donors happy without giving control of its economic policy over the Fund officials in Washington.

I was in a discussion about this issue last month, with a group of Bolivian policy makers and some economic experts from abroad. There was clear agreement that the price of continued IMF involvement in the Bolivian economy was just too high – especially given the Fund's clear opposition to moves by the country to take back control of its gas and oil reserves. According to a Reuters report last week, both IMF officials and Bolivian officials now anticipate that when the current agreement with the Fund ends in three weeks. The IMF will have one less customer in Latin America. Given the disasters that its policies have left behind here, that is a very good thing.