November 30, 2021

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The dilemma facing Latin America when using IMF assets (and the cases of Argentina and Mexico)

After overcoming the devastating effects of the Govt-19 epidemic, the governments of Latin America and the Caribbean – one of the most vulnerable regions in the midst of health coincidences – are determined to coordinate recovery. Their economies.

The International Monetary Fund (IMF) decided to pay cash flow into the world economy by granting $ 650 billion in special drawing rights (SDR) – an international reserve created in 1969 to replenish member countries’ reserves. In August of this year, it means “a step in response to the global crisis,” experts advise RT.

In the case of the fund’s Latin American and Caribbean member states, the SDR allocation is equivalent $ 50.3 billion. The use of these resources sparked controversy in many countries of the region and their fate ended in a “political war”.

In countries such as Mexico, monetary officials and pressure groups associated with the financial sector insist that the Lopez Obrador government cannot use these funds. They promise “they are the property of the central bank” because they are “assets that will become part of the international reserves”.

In Argentina, the debate revolves around the urgency of directing resources towards the basic needs of the population. Instead of strengthening the central bank’s reserves, or providing them to repay loans contracted with the IMF and the Paris Club, the SDR allocated to the South American nation should be aimed at “mitigating the social crisis.” Financial markets “, say researchers specializing in the field of international economics and finance.

“People’s Priority in Facing Economic and Health Emergencies”

Argentina was one of the most vulnerable Latin American countries when the COVID-19 epidemic felt its first effects on the world economy. When imprisoned, the management of Alberto Fernandez was promoting the recovery program in areas of employment and investment. As a result, in the first months of the government the macroeconomic affairs were thrown out as little as possible to recover.

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SDR’s $ 4.334 billion allocation sparked debate inside and outside the government. A group of lawmakers from the social movements and the Frente de Todos Coalition facing the deepening economic crisis called on the national government to use resources for social investment.

Instead of using them to pay off debts owed by the International Monetary Fund and the Paris Club, Majority committee of ruling party senators -By Budget and Finance Commission – Alberto Fernandez called on the government Direct sources for “serious problems in society” Argentina invests in health, education, housing, and job creation.

At a time when the economy was collapsing, lawmakers called on the government Do not use IMF assets to cancel maturities This year with a multifaceted organization.

George Marcini, a professor at the University of Buenos Aires (UPA), warns that the government must take into account the fact that the country is going through a “necessary crisis,” a “deep crisis”. To “protect the higher interests” of social life.

There are two conflicting views on the use of SDRs: one is determined to increase international reserves to increase the ‘confidence’ of international markets; And the ‘real economy’ seeks to promote recovery and meet social needs.

As promised by the International Credit Watch’s coordinator for Latin America, when re-negotiating payment terms with the IMF or developing a new recovery plan, “Before complying with the demands of creditors, the government must put the basic needs of the people first”. “In the midst of an economic and health emergency, people are the priority,” he says.

Marcini says there are two visions of using SDR on the continent. On the one hand, it is committed to increasing international reserves and, as a result, increasing the ‘confidence’ of international markets. On the other hand, it seeks to improve the so-called ‘real economy’ and meet social needs, for example, the purchase of vaccines against Govt-19.

“Unfortunately, the international market pressure on Argentina is so high that there is a view to paying two repayments with the IMF using the SDR. In fact, the manner in which it was purchased is highly questionable. We need to discuss, what we are going to do to revive our economies, and propose multifaceted changes. Organizations. “

“Stubbornness prevails in Mexico”

As soon as the amount of SDR allocated to Mexico was announced, it was about $ 12,117 million, President Andres Manuel Lopez Obrador (AMLO) He proposed to use them to repay loans with higher interest rates.

However, from the first moment, the president received Review of journals that specialize in financial matters, The assets of the IMF are not sources in government possession, but the assets of the central bank: Banco de México.

North American monetary officials were not far behind and questioned the president’s intentions. Gerardo Esquivel, deputy governor of the Bank of Mexico, posted a message on Twitter in early August, explaining that the SDR “cannot be used to repay debt as required by law because it is an international asset.”

The position defended by Esquivel and other Banco de México officials is “wrong”, according to Andres Aras, an economist who specializes in international finance and who served as Ecuador’s representative on Banco del Shrub during the Raphael Korean government. .

In an interview with RT, a former presidential candidate, he pointed out that monetary officials questioned President Lopez Obrador on the basis of “confusion” in the interpretation of the law. Arus explains One is ‘international assets’ and the other is their ‘ownership’.

“For example, if Petroleum sells Mexican oil (Pemex) and receives dollars and deposits it in the central bank (Banco de México), these dollars will remain the property of the oil company. However, they will be deposited in the bank. .

Legally, he explains, SDRs belong to IMF member countries, According to Articles XV and XVII Agreement The structure of this multifaceted system. And since this is an international agreement, the agreement establishing the fund is above any national law, including the management of the central bank.

In the midst of one of the most serious crises of the last 100 years, there has been great opposition on the part of the financial elites to Latin American regional governments using the IMF’s assets to mitigate the social crisis.

As a member of the Mexico Fund, Aras emphasizes the fact that SDRs belong to the nation, not to the central bank. In that regard, he assures that the Ministry of Finance and Public Debt could have made good use of the reserve assets of the Fund.

Government of Mexico, However, Finally succumbed to the pressures And the IMF was able to buy $ 7,000 million from a Mexican bank in mid-September, instead of using the assets set aside to repay the loan or raise funds at higher interest rates.

“Unfortunately, the monetary authorities in Mexico have misunderstood their law that the SDR belongs to the central bank, and as a result, if the Ministry of Finance and Public Debt wants to buy them, they must actually buy the SDRs.

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According to Arauz, Mexico’s case only reflects the persistence of a “stubborn view” among its central bank officials, which he promises will “act to the power of international finance capital.”

The controversies in both Mexico and Argentina are gaining relevance in light of the potential for new SDR issues by the IMF in support of the recovery of the world economy.

However, in the midst of one of the most serious crises of the last 100 years, there continues to be strong opposition on the part of the financial elite to Latin American regional governments using IMF assets to mitigate the social crisis.

Below, Andrés Arauz concludes that the debate over the use of the SDR is a “political” matter, as Latin American governments use these resources. “Your bargaining power will increase” Against investment banks, risk appraisals and other financial institutions.

Ariel Noola Rodriguez

@ Noola_Aerial