IMF Gives $164 Million to Coup Government in Honduras, Following Familiar Pattern

Update: Following the release of this column, CEPR received news from the IMF that it may not allow the de facto regime in Honduras access to the funds. See this press release for more information

The IMF is undergoing an unprecedented expansion of its access to resources, possibly reaching a trillion dollars. This week the European Union committed $175 billion, $67 billion more than even the $108 billion that Washington agreed to fork over after a tense standoff between the U.S. Congress and the Obama administration earlier this summer.

The Fund and its advocates argue that the IMF has changed. The IMF is "back in a new guise," said the Economist. This time, we are told, it's really going to act as a multilateral organization that looks out for the countries and people of the world, and not just for Washington, Wall Street, or European banks.

But it's looking more and more like the same old IMF on steroids. Last week the IMF disbursed $150.1 million to the de facto government of Honduras, and it plans to disburse another $13.8 million on September 9. The de facto government has no legitimacy in the world. It took power on June 28th in a military coup, in which the elected President, Manuel Zelaya, was taken from his home at gunpoint and flown out of the country. The Organization of American States suspended Honduras until democracy is restored, and the United Nations also called for the "immediate and unconditional return" of the elected president.

No country in the world recognizes the coup government of Honduras. From the Western Hemisphere and the European Union, only the United States retains an ambassador there. The World Bank paused lending to Honduras two days after the coup, and the Inter-American Development Bank did the same the next day. More recently the Central American Bank of Economic Integration suspended credit to Honduras. The European Union has suspended over $90 million in aid as well, and is considering further sanctions.

But the IMF has gone ahead and dumped a large amount of money on Honduras -- the equivalent would be more than $160 billion in the United States -- as though everything is okay there.

This is in keeping with U.S. policy, which is not surprising since the United States has been -- since the IMF's creation in 1944 -- the Fund's principal overseer. Washington has so far made only a symbolic gesture in cutting off about $18.5 million to Honduras, while continuing to pour in tens of millions more.

In fact, more than two months after the Honduran military overthrew the elected president of Honduras, the United States government has yet to determine that a military coup has actually occurred. This is because such a determination would require, under the U.S. Foreign Appropriations Act, a cut off of aid.

One of the largest sources of U.S. aid is the Millennium Challenge Corporation (MCC), a government entity whose board is chaired by U.S. Secretary of State Hillary Clinton.

Interestingly, there were two military coups in the last year in countries that were receiving MCC money: Madagascar and Mauritania. In both of those cases, MCC aid was suspended within three days of the coup.

The IMF's decision to give money to the Honduran government is reminiscent of its reaction to the 2002 coup that temporarily overthrew President Hugo Chavez of Venezuela. Just a few hours after that coup, the IMF's spokesperson announced that "we stand ready to assist the new administration in whatever manner they find suitable." This immediate pledge of support by the IMF to a military-installed government was at the time unprecedented. Given the resources and power of the IMF, it was an important source of international legitimacy for the coup government. Members of the U.S. Congress later wrote to the IMF to inquire how this happened. How did the IMF decide so quickly to support this illegitimate government? The Fund responded that no decision was made, that this was just an off-the-cuff remark by its spokesperson. But this seems very unlikely, and in the video on the IMF's web site, the spokesperson appears to be reading from a prepared statement when talking about money for the coup government.

In the Honduran case, the IMF would likely say that the current funds are part of a $250 billion package in which all member countries are receiving a share proportional to their IMF quota, regardless of governance. This is true, but it doesn't resolve the question as to whom the funds should be disbursed to, in the case of a non-recognized, illegitimate government that has seized power by force. The Fund could very easily postpone disbursing this money until some kind of determination could be made, rather than simply acting as though there were no question about the legitimacy of the coup government.

Interestingly, the IMF had no problem cutting off funds under its standby arrangement with the democratically-elected government of President Zelaya in November of last year, when the Fund did not agree with his economic policies.

We're still a long way from a reformed IMF.

This column was published by The Guardian Unlimited on September 3, 2009.

 

 

Comments

[RobertNaiman]

Note:

"This column was published by The Guardian Unlimited on September 3, 2009."

On September 4, CEPR issued the following press release:

IMF May Withhold $164 Million Allocated to Honduras
http://www.cepr.net/index.php/press-releases/press-releases/imf-may-withold-aid-honduras/

[cadejo4]

This is a confusing situation, but my understanding is that, while Honduras' share of the IMF's recent allocation for all 186 of its member nations would be about $163 million, it can not actually use those funds until the IMF decides whether it will deal with the de facto regime.
On the other hand, the Honduras Central Bank's most recent (September 3) foreign reserve statement does credit the IMF funds to its account, so who knows?
Here's the relevant IMF Q&A from September 10:
http://www.imf.org/external/np/tr/2009/tr091009.htm
QUESTIONER (online): Could you please clarify the conditions under which Honduras could access the SDR allocation?
MR. HAWLEY: Well, as we’ve already announced, the Fund recently approved a global allocation of SDRs of about $250 billion in special drawing rights. These are intended to supplement the reserves of all 186 members of the IMF. Honduras’s share of this allocation proportional to its quota in the Fund, is about $163 million -- $163 million. However, the present regime in de facto control is not able to use these SDRs until a decision is made whether the Fund will deal with this regime as the government of Honduras.
Here's the Honduras Central Bank's weekly statement crediting the IMF funds:
http://www.bch.hn/download/resumen/2009/resumen03_09_2009.pdf

[Meno Argenti]

(You can not say, this was a coup. The military was ordered by the governing body to implement this action. Zelayas' term was to expire soon and according to Honduran rules the President can only serve one term. He was trying to force the issue, so he could serve more than one or possibly more.)

Leakman, please do your homework. This was a coup. Zelaya wasn't trying to extend his term, and as such since you have elected to not read the reality behind the coup, you cannot comment on it properly. I notice all your other posts usually have some research behind it, so please do some real research before commenting on what you probably read in some AP story which was wrong.

http://www.hondurancampesino.org

[Hector Corrales]

Weisbrot, I am amazed by the fact that when writing this piece, you didn't bother checking if the title of your piece was true at all.
1) There is no 'disbursement'. This $164 million do not actually exist, and cannot be used to purchase goods and services. That's because the awarding of that 'money' is simply in Special Drawing Rights (which you mention nowhere in your article), and the only thing that that money can buy, is dollars to strengthen Honduran foreign exchange reserves, and Honduras must pay for those dollars, it's just an assurance that they can buy them at the current price if the Honduran currency were to hyperinflate, this money was not disbursed as you put it, transferred or any other variant of a case where Honduras receives money from the IMF.

2) IMF's official position on Honduras: " IMF has not decided whether Honduras, where the military seized power in June, is eligible to draw on recently allocated IMF funds."

[Leakman]

You can not say, this was a coup. The military was ordered by the governing body to implement this action. Zelayas' term was to expire soon and according to Honduran rules the President can only serve one term. He was trying to force the issue, so he could serve more than one or possibly more. This is a problem that Hondurans have to deal with. Americans(U.S.) shouldn't even offer advice or support; especially after invading two countries and destroying them, giving away the bank to the banksters, and don't have the ability to even provide basic healthcare for our citizens. Sheesh!

[drjasonmd]

It was a coup, no matter how you try to spin it.

[mercedes63]

drjasonmd and Meno,

Why do you want to promote a mis-representation that this was a COUP; It was NOT. A coup is the military acting on its own and taking over the government. There are no military generals in control of the goverment. The order was made by their Supreme Court and Legistators to enforce their Constitution because Zelaya was violating it. Its an error on by the US to be involved, especially supporting the power hunger and Chavez puppet that Zelaya is.

Many Hondurans in the US do not support what Zelaya attempted to do and are pleased that he was removed.