Thursday, January 6, 2011

IMF ... World Bank .... MONEY

By: Bekki Davis

Hello All!

Today we had a really great lesson about Nicaraguan economics and how American policies affect the economy of developing countries like Nicaragua. It was a lot to take in and it is a very complicated topic, but I learned a lot and feel like the team and I have a much better understanding of it all. I am going to try and give you the entire cliff notes version here in the blog. Feel free to ask questions in the comments!

Nicaragua has faced wars, revolutions, and natural disasters as well as corrupts government officials, who embezzled the aid given to them to rebuild after these events.  Once the corrupt officials (like the So mozas) were out of office, the country had very little money to rebuild.

Nicaragua borrowed money from the World Bank to revitalize their economy but when the global debt crisis hit in the 1980’s the bank wanted the money back, which Nicaragua was not able to pay back. The country sought another loan to pay off the first one. But when a lending institute sees a person trying to pay debt off with debt they often decide the person is too big of a risk to lend money to or charge them exorbitant interest rates, which further disables them from paying back their debt. The same thing happened here to Nicaragua.

At this point the International Monetary Fund (IMF) came to the “rescue”. The IMF receives its money from different countries that make annual contributions. The more money you give the more say you have in how the money is doled out. The veto percentage required is 15%, and the US currently gives 17% of the annual budget. Translation – IMF policies are American policies and the US will always give enough to maintain veto power.

In theory this would not be so bad, if the policies in place were not so harmful to the countries involved. In order to get the money from the IMF Nicaragua had to agree to do things such as privatize state companies (i.e. telecommunications, electricity, etc). The income generated from this privatization was meant to go back to paying the debt to the IMF.

The problem is – outside investors took advantage of Nicaragua’s economic downfall. For example Nicaragua’s electric company was state owned and Nicaragua valued it at $400 million, the company who was interested in it valued it at $250 million and ultimately paid $115 million for the company and if Nicaragua wanted to buy it back in the future, Union Fenosa (the purchasing company) put in a clause that they would have to pay double the purchasing price. This was done as a way to protect the company’s investment.

While that makes sense to me and seems like a smart business move on the part of Union Femora, the immoral issue to me is the fact that the company is charging much more money than the state did for energy (prices went up 300%) and the customers often face blackouts and other issues.

Currently Nicaragua pays 30% of its gross domestic product back to the IMF every year. The IMF also has a say in how the country spends its domestic budget as well. This means that money that would normally be spent on education, health care, poverty reduction, and development, is now being spent on debt payment

This debt repayment schedule is choking a country, which wants to thrive, and furthering systems of oppression. Poor health care means unhealthy children and lower life expectancy for the people, lack of education means being sentenced to ignorance and poverty, and lack of development means the country is not able to neither create stabilization and attack foreign investors nor gain a fair deal from the investors.

While I don’t think canceling Nica’s debt completely will ever happen, I do think we need to work towards creating a humane repayment program which does not further abuse a people who have already been so taken of  and continues to prevent them from thriving and living with their heads held high rather than in the bondage of extreme debt and poverty. 

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