CIA Files









In the newly released archive of 13 million pages by CIA, we found quite an impressive report concerning the IMF changing strategies on debtor countries. The report dates back to 1985, but what is even more impressive, is that, it was predicting an increase of instability in those countries, as well as, methods of reducing potential popular anger!





Specifically, the report was monitoring IMF's changing policy to enforce strict conditions and austerity on indebted countries that could cause political unrest:





The financial community's primary demand on LDC [Least Developed Countries] debtors has shifted from simple adoption of an IMF standby agreement to vigorous compliance with economic performance targets . Not only are nearly 90 percent of IMF drawings now tied to strong economic policy conditions, but the IMF is enforcing these conditions with closer scrutiny and greater resolve . Compliance with IMF targets – the key to obtaining official reschedulings and new money commitments from banks – is becoming an increasingly important factor in pledges of bilateral and multilateral assistance as well. We believe that debtors will continue to improve their current account performance but will have more difficulty meeting domestic performance targets set under IMF guidance .





Greater emphasis on compliance will force governments to attempt closer adherence to austerity programs than has been true in the past. For some countries, this could lead to greater levels of political unrest in the short term, especially in cases where restrictive economic policies have been in place for some time. Intensified compliance efforts have already led to civil unrest in a number of LDCs with IMF-supported programs. Sporadic protests have erupted over price hikes in Jamaica and the Dominican Republic, while wage-related strikes have plagued Brazil. [...] we believe that in countries like Soudan, with very narrow resource bases and other political problems, the prospects for compliance with IMF programs while maintaining political stability remain dim.





Argentina and Philippines are countries where we might see increased political unrest this year as the governments strive for compliance to qualify for needed debt restructuring. As key interest groups – labor unions and student groups in particular – are adversely affected by drastic changes in economic policy, we anticipate more riots, protest demonstrations and strikes.









Concerning the policies imposed by the IMF, the report clearly refers to the complete control of money flow through the central bank:





Standby arrangements almost always include performance criteria expressed in terms of quantitative targets, which usually are reviewed on a quarterly basis. The criteria normally take three general forms: A ceiling on central bank lending and the subceiling on lending to the central government [...] Limits on the assets of the central bank, which are designed to limit the expansion of money supply ...





Yet, probably the most impressive, is that the report gives some guidance to governments in order to limit potential unrest, including some level of propaganda (Publicity campaigns can be initiated to educate the people on the need for adjustment and on the long-run benefits they can expect ...), manipulating prices and exchange rates, methods of public disorientation (... the government can attempt to move away from the passionate issues of price increases into less sensitive areas such as divestment of publicly owned enterprises.)





Another type of public disorientation refers to easy victims and scapegoats, like refugees!





Specifically:





Government leaders hoping to implement needed economic measures and avoid political fallout face a limited number of options:





Publicity campaigns can be initiated to educate the people on the need for adjustment and on the long-run benefits they can expect . There are risks, however, if the government fails to make good on its promises.



Exchange rates could be adjusted on a daily or weekly basis rather than through massive one-time devaluation, thereby partially diffusing a politically sensitive issue .



Price increases can be implemented in stages to limit negative public reaction . In Egypt, for example, the Mubarak government initiated bread price increases only in wealthy neighborhoods in an attempt to avoid rioting reminiscent of 1977, when more than 100 people were killed.



In politically tense situations, the government can attempt to move away from the passionate issues of price increases into less sensitive areas such as divestment of publicly owned enterprises .



Civil anger can actually be directed away from the local government and toward the IMF and other foreign lenders. In Sudan, for example, the Nimeiri government is aided by the population's perception that international donors, the drought, and the influx of drought refugees are responsible for a large part of their economic ills.



