What will the IMF bring?

Good article. Reading it, makes me feel quite "bitter and twisted". Its like the big bullies of the world move to make the little guys dependent on them by giving easy loans. Once the big bullies have the little guys by the short and curlies, they move in and buy up whatever local riches there are, thereby removing any chance of the little guy ever become free of debt, or being able to use their natural resources to build an economy on. And because the little guy does not want to continue eating more platanos, the scheme succeeds in the short term. Quite a greedy business on both sides.

The loser in any IMF bailout is always the little guy, those who depend on subsidies from the government to make ends meet. Given that the Baninter financial hole equals 80% of the government's annual budget, one does not need a Ph.D. to know that the government will be subject to harsh austerity measures. When Mejia was here in Washington recently asking for direct financial help from the White House, he got a cold response. They told him to go thru the IMF. People here know about the scandals, the 40 million pesos charged in the president's Baninter credit card, bad loans made to prominent government people, the generals who received "regalitos"....in other words, the Bush administration feels that a necessary adjustment needs to take place in the Dominican economy...and some pain will be needed to ensure that this mess does not happen again.

As long as there are predator creditors, there will be easy credit.
mk

The Dominican Republic has nobody to blame for themselves for their financial mess!
With their History can you blame the IMF for putting hard terms and restrictions? Nobody is forcing the DR to Accept these conditions.
I just wish that Just once somebody in the DR would take responsibility for their actions!!!!!

http://www.imf.org/external/np/vc/2002/061702.htm

I don't think it would be as bad as you think. I am not an economist but the IMF will impose spending/borrowing Curbs on your current administration - The one who caused the problem with spending programs for the disadvantaged (Himself). If the GDP in the DR keeps growing in the future as it did until 2001, you will easily grow yourself out of this current problem.

But you need money during the interim, also the only thing that stopped the depreciation of the Peso last week was the rumor of an agreement with the IMF.

The IMF is a loan shark. When they make you a a loan, their objective is (of course!) to get paid back. It is that simple. How do they get paid back? With more loans. How does the DR get even more loans? By giving the impression that the house is in order.

Here is the bottom line: if we Dominicans weren't so frigging stupid to continually put up with the maggots like Mejia and Malkum, then none of this would happen. This administration has successfully stolen over US$4 Billion. The IMF is coming for its fair share of the loot; vultures descending on a decaying carcass. Congratulations to Mejia. He is getting away with this massive heist.

The article is mainly correct, although a little too socialistic for my taste. Argentina prospered largely from the accumulation of over US$ 100 Billion of external debt that it could not pay. The article also points out one of the problems with Dollarizing: a country's inability to alter the economic cylce with monetary policy. But the main reason Argentina went bust is that their politicians and big business did not use all of those loans for productive purposes. They pocketed a lot of that money.

If the DR enters austerity agreements with the IMF/WB et al then we will see a period of calm before the storm. The DR$ might actually reverse course for a little while. But the loans will pile up, the govt will continue to misuse them, and several years down the road we will see an even bigger collapse.

mondongo said:

The article is mainly correct, although a little too socialistic for my taste.

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Just figured out this morning what I am - A Capitalist in my head, and a Socialist in my heart! Some people call it it multiple personality disorder LOL. But there is something that really bothers me about a loan shark offering a quick and easy solution out. It is so easy to accept these promises, especially in an election year. Show the quick money and hey presto, problem solved - re-election in the bag. Future can take care of itself. And most people are none the wiser as it all looks rosy today.

The IMF was formed to help developing countries in Fiscal need !!! The problem lies in the fact that the Dominican Republic got into debt to the point where they cannot pay their creditors. The resolution is to re-finance some of the debt thru the IMF, who by the way does not charge exhorbitant rates. The IMF will only make these loans if the borrower agrees to some stringent rules. The hope is that the economy of the country turns around and addtional revenue offsets the the burrden of the interest.

The bottom line is the DR borrowwed too Much, if this were in the private sector, the business would probably be liquidated.

Chris said:

Just figured out this morning what I am - A Capitalist in my head, and a Socialist in my heart! Some people call it it multiple personality disorder LOL. But there is something that really bothers me about a loan shark offering a quick and easy solution out. It is so easy to accept these promises, especially in an election year. Show the quick money and hey presto, problem solved - re-election in the bag. Future can take care of itself. And most people are none the wiser as it all looks rosy today.

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Oh Chris! And we've worked so hard to get you straightened out politically. Back to the couch for more sessions I guess. You're just an old softie, that's all. Like I've always told you, to a conservative/libertarian politics is based on rational thought, to a liberal it's all faith like a religion.

My problem is that the government is making and accepting these deals on behalf of a population that doesn't have the time, gumption, or intelligence to understand what's going on and put a stop to it. So I am leaving the United States for ... OOoops! Hmmm. Seems I've seen this happening somewhere else before. Guess it's not a problem unique to the U.S.A.

A slow death

The article ?The IMF strikes again? is an interesting one to say the least. The whole thing to me can be likened to the DR having a huge cancer of economic problems that is out-of-control. A Spartan regimen is needed to bring the patient back to health. The patient, the DR, does not want to acknowledge it and/or take responsibility to cure itself. Mommy will take care of me.

Then, in step the doctors (IMF) to diagnose the DR?s symptoms. What happens? They threat the patient with huge doses of chemotherapy and radiation, the patient does not get any better, only worse, the cure is worse than the disease. The doctors and the pharmaceutical companies get richer, the patient gets sicker. The patient signs over the house to pay for the treatment and dies a slow death, penniless. The doctors buy a new Mercedes. Regards, PJT

I like the metaphor, PJT. The doctors are administering their strong medicine, but the patient is told that unless he plays a part, the medicine will be insufficient to save his life. "Stop smoking, give up alcohol, fried foods, caffeine, and go for a hearty walk every morning on Parque Mirador" says the doctor. "Yes yes, of course", says the patient, with little or no intention of doing anything of the sort.

We are happy to receive the IMF loan, but are we prepared to cut spending on the public payroll?

Chiri

XanaduRanch said:

Oh Chris! And we've worked so hard to get you straightened out politically. Back to the couch for more sessions I guess. You're just an old softie, that's all. Like I've always told you, to a conservative/libertarian politics is based on rational thought, to a liberal it's all faith like a religion.

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Yuck, I knew I forgot to take those meds! Jazzcom, if you're monitoring this thread, see, more than one person is trying to straighten me out politically, not just you! I'm too old, guys! I still believe the IMF is a big bad wolf and everybody else is Little Red Riding Hood. Guess who wins at the end of the day!

DCfred said:

... in other words, the Bush administration feels that a necessary adjustment needs to take place in the Dominican economy...and some pain will be needed to ensure that this mess does not happen again.

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I beg to differ, fred.

I sense that Dubya couldn't care less what happens in corrupted "banana republics", including Mexico. The fact that he did not even receive the DR President when he was making the rounds of Washington indicate such.

Dubya was right to refer the matter to the IMF, which is precisely what the DR President was trying to avoid. OTOH, it appears that the EU will likely chip in with some solid cash, without ties that bind.

That the IMF has "failed" in resolving third world incompetence in financial governance is a misrepresentation. The IMF is a bank, not a munificence fund. It has members who pay in the monies, and they expect the monies to be used towards calming the waters of troubled national financial systems. It is not USAID or a development bank, the intent of which is to assure sustained economic viability.

Some people are judging the IMF on the wrong criteria, given its charter. The world banking system is not a beauty pageant. Who expects hand-outs from his/her local bank?

I sense that Dubya couldn't care less what happens in corrupted "banana republics", including Mexico. The fact that he did not even receive the DR President when he was making the rounds of Washington indicate such.


Had I been an advisor to Mejia, I would have told him to drive this message clear in Washington: "You don't give me direct aid, you will have a flotilla of yolas to deal with," which is basically the argument Mexico made successfully to the Clinton administration. Trust me, this is a big bargaining chip the government has, if it wants to play hardball. The idea of yolas approaching the Florida coast would get one Bush to call the other- and rapido.

DCfred said:

Had I been an advisor to Mejia, I would have told him to drive this message clear in Washington: "You don't give me direct aid, you will have a flotilla of yolas to deal with," which is basically the argument Mexico made successfully to the Clinton administration. Trust me, this is a big bargaining chip the government has,

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You have a point. Clinton had also the priority of keeping NAFTA together, and a bankrupt Mexico didn't help.

But, I cannot see an American government caving into to that sort of blackmail. It would be too easy. I don't think any DR president would have the balls to do it.

They come hat in hand to Washington when they have royally screwed up some financial problem, and Washington, unaware of the structural fundamentals (rampant state dishonesty, concentration of wealth) does not understand the need to fix the real problem - endemic governmental graft at the highest level.

This is a legacy of ancient State Department Caribbean foreign policy of catering to any jerk who professed to be rabidly anticommunist, because they thought the "falling domino" theory would cause communism to spread throughout the Caribbean basin. Besides, who in his/her right mind would take Cuba as a role model of economic success?

The economic challenge is simple. Get the low, the lower-middle and the middle classes to have more income (and not just government do-nothing jobs) and they will spend that money, generating a virtuous circle. Spending triggers investment, investment in production brings jobs, jobs bring income, income brings further spending, spending triggers ... etc., etc., etc.

How do you do that? By investing heavily in skills education, and soft(er) loans to small and medium size enterprises that are the bulwark of any economy throughout the world. With an interest rate in the teens, they are starving any investment in the smaller enterprises. Only the largest projects ( tourist, for instance) where the ROI has been handsome, have been able to borrow at those rates and sustain the payments. Even then, just .... Did the government think that every low-skilled Dominican was going to serve Daiquiris poolside to visiting American/European tourists?

Keeping wealth to a select (minority) percentage of the population never can be the answer to the DR's future. When most of the wealth gets to most of the people, then things will change. The rich will be richer (because they will still own many of the means of production, not to mention the land) and the poor will be just as poor - but fewer. It is the latter, fewer poor, that is the key to success. For all Dominicans.

Poor people have a far larger propensity to spend, in the aggregate, than the rich.

Amicus, what you term as 'blackmail' is the backbone of aid agencies' lobbying strategies when tackling western governments' aid policies and donations to poor countries!

Perhaps it is put in milder terms, but at the core of it the message is - 'they starve - you get hordes of immigrants pushing at your borders, and you don't want that, do you?'. Do you think the US and other wealthy nations have aid programmes and budgets for purely altruistic reasons?

And - ahem - I think the folks in the US administration are well aware of the 'rampant state dishonesty' here and in other Latin American nations. But they have their interests, and these are not linked to the cleanliness of our records.

Chiri

Chirimoya said:

And - ahem - I think the folks in the US administration are well aware of the 'rampant state dishonesty' here and in other Latin American nations. But they have their interests, and these are not linked to the cleanliness of our records.

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I also think the best way to keep the hordes home is to develop a buoyant economy that attracts them to stay. (Why, otherwise, do so many Dominicans want leave for work abroad?)

That cannot happen in either the DR or other Latin American countries until they develop sustained economic growth, not lurch from one crisis to another, or become dependent upon drug exports. And, to a large extent, most Latin American countries have various degrees of political governance that is slightly better or slightly worse than the DR's.

Why? Because it has always been that way. The rich stay rich and the poor stay poor ... or immigrate. That can only change when the lower classes start voting the right people into office.

In just over 100 years the US has moved a very large part of its population from lower to middle-class status. That is a remarkable success. Since WW2, Europe has done even better percentage-wise. (They had further to come from, but they did it quicker as well.)

The US has also made one helluva lot of dollar millionaires, but that is the American dream. I suspect, given its population, the DR has quite enough millionaires.

What you say is true. The reason it doesn't happen is a bad case of short termism - the poor and the middle class are concerned with surviving in the short term, and the rich and those in power are concerned with grabbing all they can get while they can. I think Amber expressed this better in a recent post. The question is - how to change this. What did Europe and the US have that we haven't? There was quite a good thread on this once, I'll go and find it and post the link.

http://dr1.com/forums/showthread.php?s=&threadid=19505

An international development agency once came up with a lobbying position that world poverty would be eradicated if the rich nations came up with 'a Marshall Plan (for Africa)' but it takes more than that to change the habits of generations.

Chiri

(edited to add URL)

The IMF/World Bank are bloodsucking leeches. Their directors are the same directors of the international banks that lent money to the DR government in the first place, without strings, knowing full well that it would be stolen by the politicos. Now they get to collect exhorbitant interest twice (or more), with future generations of poor Dominicans to foot the bill through higher taxes and reduced services and infrastructure development.

The idea that the Dominican people are somehow responsible for this and must pay the price is absurd. It is and always has been a conspiracy of the monied and powered - Dominican, US, Swiss, etc. The cycle of exploitation continues. To blame the Dominican people is like blaming the Bulgarian people because the Pope got shot by a Bulgarian.

Make me grand pubah of the DR and I would default on the loans while suing Citibank, CreditSuisse and the lot for fraud, conspiracy and having "unclean hands" in lending money to a openly and notoriously thieving government. That would really f_ck with the system. You say that then the DR would lose access to foreign capital? Who cares! Balaguer never used it anyway. All other policies could remain pro-investment.

One problem with my idea: The Americans, Canadians, Brits, Spaniards, French, Germans, Swiss and Japanese would get together and nuke us!!! (Or, at least, the CIA would take me out.)