IMF now acting like a vulture fund

 

When it comes to borrowing, overspending and looting, Kenya could learn important lessons from at least two countries: Greece and Argentina. Greed, runaway corruption, incompetence and an exploitative global financial system pushed these countries into economic disasters that would take at least 50 years to resolve. 

Like Greece and Argentina, our corrupt leaders and officials are being encouraged by the same exploitative financial system to keep stumbling towards an economic cataclysm. Predatory lending and irresponsible borrowing has consequences that may be delayed but not avoided. 

Argentina, home to 45 million people, is one of South America’s largest and most significant economies. With a US$ 400 billion gross domestic product (GDP), its relatively more sophisticated and diversified economy is at least four times our own. It is endowed with a vast natural resource base including gas and petroleum, and strong manufacturing, agriculture and services sectors. Back in 1980s, Argentine leaders embarked on large scale borrowing and looting. 

They kept borrowing even when it was clear they had overstretched themselves and the country couldn’t afford new loans. They received new and more expensive loans, mostly from American lenders that would later be known collectively as “vulture funds”. 

Insane return

These lenders often preyed on developing countries that were failing economically due to bad leadership. Like actual vultures, they orchestrated, or at least fast-tracked, the collapse of the Argentine economy with the aim of swooping in and grabbing whatever collateral had been put up.

One account by the New York Times states that when Argentina finally defaulted on its $132 billion loans in late 2001, GDP dropped by 28 per cent, and unemployment skyrocketed to above 20 per cent – leading to riots and clashes that resulted in 39 deaths. 

A massive 57.5 percent of a once prosperous Argentina were living in poverty. Attempts by subsequent governments to distance themselves from these bad loans were futile for an American Judge ruled that Argentina had to pay these “vulture funds” in full. 

They were to make an insane return of 1,500 per cent, partly because of a “compensatory” interest rate of nine per cent under New York law. As a footnote, our so-called Eurobonds are held largely by American lenders, among them Citi group. 

No doubt, the IMF was well aware of last year’s widespread allegation that our “Covid millionaires” had brazenly stolen much of what was given to cushion the country and its vulnerable populations. They are also aware that there haven’t been serious efforts to recover these funds. Even without assurances of better stewardship, IMF approved in April a loan of about of Sh250 billion. It released its Country Report No. 21/72 which offers some background and justification for the decision to ostensibly help the country “stabilise the economy and set a new basis for a resurgence of growth and shared prosperity”. 

The new funds are being provided to lure the country into more borrowing and as IMF puts it, “to catalyse support from other official lenders and capital market financing”. The report applies usual cliché; “to advance the structural reform and governance agenda, and address weaknesses in State-owned enterprises, and strengthen the anti-corruption framework”. 

The IMF approved these funds against an acknowledgement that the country was likely to have a referendum on constitutional amendment and a general election. It explains that this was a culmination of a “cross-party endeavor to promote unity through wide-ranging legislative and institutional reforms, including a more broad-based and inclusive structure, enhanced judicial accountability and increased devolution to local governments”. 

False premise

Much of this is contested. For instance, the push to create the office of ombudsman has been interpreted as an affront to independence of the Judiciary, and attempts to emasculate and turn it into an appendage of the Executive.

The IMF further speaks of the government’s commitment to “undertake measures to reduce expenditure in less critical areas”. This is a false premise given that the constitutional amendment will overburden taxpayers with an expanded Executive and Legislative arms of the government. A glut of meaningless positions like the 250 nominated and elective MPs and 53 additional Senators will have a considerable pressure on the wage bill.

The report also references the country’s governance reform agenda and the anti-corruption framework whose key pillars include the promotion of fiscal transparency via publishing procurement information including beneficial ownership of data of companies awarded contracts. But we also know that this is a regime that has strenuously failed to disclose key contracts related to the SGR despite the President promising to do so on national television.

By ignoring all these pieces of evidence, the IMF is acting like a vulture fund. It is essentially funding financial impropriety and unhealthy addiction to borrow that would culminate in a debt crisis and collapse of the economy.

BY DAILY NATION