The IMF has been accused of reckless lending to financially troubled countries by the Jubilee Debt Campaign (JDC), a UK based group.
The UK group revealed that the International Monetary Fund extended credit worth $93 billion to countries without any debt restructuring plans. According to Jubilee Debt Campaign, the international lender created a moral hazard because countries know that they will be bailed out regardless of their risky loans.
In a press release, JDC criticized the IMF for issuing loans to 18 highly in debt countries including Ecuador and Egypt.
“By constantly bailing out countries in debt crisis without requiring debt restructuring, the IMF is placing the burden of a crisis squarely on the shoulders of the citizens of a debtor country, letting lenders off the hook and ensuring the cycle of debt crises continues,” said Sarah-Jayne Clifton, the campaign’s director.
A recent IMF research shows that IMF programs work well when combined with debt restructuring. Moreover, debt restructuring programs had a 45% success rate in highly debted countries. However, high debt countries without a debt restructuring program recorded only 5% success rate.
Nevertheless, the international lender still granted credit to various high-risk countries without debt restructuring plans. For instance, IMF gave Argentina a loan of $ 56 billion even when the agency classifies the debt as unsustainable.
Worse still, the Fund granted Argentina the debt when Her external debt to exports ratio was at 47 percent. In this regard, the IMF broke its own rules by lending to without providing an avenue out of the debt web.