Record IMF Greek Lending May Intensify Favoritism Concerns

By Ian Talley

International Monetary Fund lending to Greece has already blown away any previous borrowing records based on country contributions to the world’s last-chance bank.
That fact, along with the increasing likelihood the IMF will lend the failed economy even more cash and hasn’t required talks with private creditors, is underscoring concerns by emerging markets that the fund favors rich countries and may further undermine the bank’s perceived legitimacy.
The IMF says the extraordinary lending is not just to save Greece, but the world economy. “Our programs are designed to of course support an individual country so that they can restore financial stability, but the goal is to support the global international system,” said fund spokeswoman Caroline Atkinson.
IMF officials say the risk of European contagion is ring-fenced. But economists say the sheer size of the loan compared to Greece’s contribution to the fund, called its quota, indicates how scared the IMF is about Greece’s failure affecting the euro zone.
Greece’s $40 billion loan from the IMF represents more than 30 times what it contributes to the IMF. The next biggest loan, also compared to its quota, is Ireland, with more than 23 times its fund contributions. Mexico’s flexible credit line of around $75 billion was for ten times its contribution, but it never actually tapped the line, just used its availability to reassure markets.
On top of the mountain of money already shoveled into Greece, the IMF is indicating it’s prepared to give Athens another stack of cash. That’s despite Greece already failing to meet important targets such as tax collection and having to wait two more years to borrow from private markets. European officials estimate Greece needs at least another $86 billion. That would push IMF’s Greece lending to around 50 times its quota.
Following near irrelevancy in the mid-2000s and vitriolic hatred in many Asian countries after its tough stance during their own crisis, the IMF’s image partially recovered during the recent crisis. Then in May, former managing director Dominique Strauss-Kahn was accused of sexually assaulting a New York hotel maid from West Africa. In the race to replace Strauss-Kahn, Europe renewed its seven-decade claim to head the fund. Fred Bergsten, director of the Peterson Institute for International Economics, said Europe’s push for French finance minister Christine Lagarde to manage the bank only accentuates concerns of preferential treatment. There’s already a rigorous debate as to whether the conditions insisted from Greece, Portugal and Ireland are adequate. “At the moment, with Greece not meeting the conditions that it’s already accepted, that’s further fuel to that fire,” he said.
Gary Kleiman, a senior partner at emerging-markets consultancy Kleiman International, says the favoritism extends beyond the outsized access to resources and into a major tenet of many fund programs: negotiations with private creditors.
Kleiman said IMF urging good-faith discussions between authorities and the private sector on burden-sharing has been common practice in emerging markets over the past decade, whether explicitly written into programs or not.
But the IMF has taken great care in public to not call for private sector involvement as part of its Greek program.
“So there’s the special treatment and the double-standard that’s mutually reinforcing resentment emerging markets are feeling,” Kleiman said.