Calling on the IMF for help

Two reasons may push a developing country to call on the International Monetary Fund (IMF) for help.

One is a governmental choice to get technical benefits from the extensive experience of the IMF. The other is done out of the necessity to prevent looming financial default and get debt relief in the form of rescheduling of debt and perhaps reduction of interest.

Jordan went through both experiments.

Around twenty five years ago (1989-1990), when the Central Bank reserve of foreign exchange was depleted and the Ministry of Finance was unable to service the debt and pay installments and interest to foreign creditors on time, Jordan had no choice but to call on the IMF.

Five years ago (2011), Jordan called on the IMF to sponsor an economic reform programme for three years. The purpose, this time, was to convince donor countries, creditors and investors that the Jordanian economy is going in the right direction and that the country’s financial position is sound.

When the IMF is called upon to help in a crisis, the economic adjustment programme imposed by the fund will be obligatory.

The financial facilities provided by the IMF will be strictly conditional.

In fact, the country has to give up part of its national pride and sovereignty. The IMF will dictate the policies and measures, while the debtor country has no choice but to act accordingly.

In the optional case, like ours, the reform programme is only indicative.

If the set objectives are implemented properly, that is good, but if not, there will be no big problem.

The agreed timetable is flexible. Required decisions can be postponed according to circumstances, and the country remains free to act as its authorities see fit.

The IMF does not impose its programme on any country. It is normally invited to help.

Jordan is member of the IMF, and owns part of its capital. Accordingly, it has the right to benefit from its expertise.

This should be and remain a choice, rather than a necessity.

Now Jordan has opted for entering into yet another three years of an economic reform programme with the IMF, even though it has no difficulty in meeting all its foreign financial obligations on time.

The government is not asking for debt rescheduling or for any concessions from its creditors. The purpose is to benefit from the credibility of the fund and its regular certificates proving that things are going in the right direction, and that the economy is managed properly.

This will serve as assurance to donors, creditors and potential investors. It boosts their confidence.

However, not everything is going in the right direction, especially when it comes to the rapidly growing public debt.

It is imperative, therefore, not to allow debt to rise to a dangerous level that renders calling on the IMF a necessity, in which case the country has to submit to the fund’s conditions.