IMF, World Bank Ready to Aid Venezuela Once They Decide Who’s the Leader
“The World Bank will be deeply involved, and we are preparing for that, but the situation is still troublesome on the ground.”
Both global lenders, the World Bank (WB) and the International Monetary Fund (IMF), are ready to deliver aid to Venezuela. However, the country’s leadership crisis is proving to be the main obstacle to any aid.
Venezuela is currently enduring a severe economic crisis due to multiple factors including a drastic drop in global oil prices, mismanagement of Venezuela’s oil sector, alleged foreign attempts to destabilize the country and the imposition of sanctions by the U.S. The IMF predicted that the country’s hyperinflation could reach 10M% percent this year and the economy would shrink another 25%.
The incumbent Nicolas Maduro government has been blamed for worsening the situation by implementing costly socialist policies inherited from his late former boss Hugo Chavez. Maduro has rejected financial assistance from the IMF and the WB, adding that both multinational lenders have played a role in setting austerity policies that did more harm than good to countries receiving bailouts.
Maduro’s victory in last year’s election sparked anger, and opposition parties accused Maduro of using intimidation to win the election. However, a group of international observers present during the Venezuelan election said the election was conducted fairly and without bias.
While many in Venezuela remain loyal to Maduro, the crisis in Venezuela has also sparked protests against Maduro’s leadership and led to opposition leader Juan Guaido declaring himself the country’s interim president.
The U.S. and its Western allies have refused to recognize Maduro as Venezuela’s leader and instead back Juan Guaido. Russia, Iran and China back Maduro.
Maduro’s supporters claim Guaido is a puppet of an attempted U.S. backed regime change in Venezuela and point to Guaido’s ties to the U.S. – only one in five Venezuelans had ever heard of Guaido before he declared himself interim President.
The crisis has caused a blackout, a food shortage and a water crisis and forced millions of Venezuelans to seek a better life in neighboring countries such as Colombia, more than 3 million Venezuelans have left the country since 2015.
Both the IMF and the WB Ready to Aid
Both global financial institutions have yet to decide whether to back Maduro or the U.S.-supported Guaido. Newly elected World Bank Group President David Malpass said his bank would be deeply involved and follow the latest situations in Venezuela, adding that the lender’s top stakeholders have the right to recognize either Maduro or Guaido.
“The World Bank will be deeply involved, and we are preparing for that, but the situation is still troublesome on the ground,” Malpass stated.
The U.S. has the most power of any single country at the IMF and WB as it holds 16% of the vote. In March another international creditor, the Inter-America Development Bank, recognized Guaido-appointed Ricardo Hausmann as Venezuela’s representative.
IMF Managing Director Christine Lagarde said at a press conference that the IMF has done “as much preparatory work as we could, drawing on information that is out there, in order to be prepared to act as quickly as we can.”
Lagarde added that given the magnitude of the Venezuelan crisis, the response will require “a multi-task and multi-pronged effort on the part of many.”
Meanwhile, the U.S. is trying to send their own financial package to the once oil-rich nation, but the U.S. has one pre-condition: the aid will be sent only if Venezuela sets up a new government.
“We’re going to be working on trying to put together a consortium of about USD 10 billion of trade finance that would be available for the new government to spark trade,” Treasury Secretary Steven Mnuchin said.
IMF Solutions in Latin America Are Often Not Effective
The history of IMF involvement in Latin America traces back to the 1980s and what is known as “the lost decade.” The moniker stems from the severe economic crises that plagued Latin America during the 80s, the worst since the Great Depression. Latin American nations were pressured to avoid default and adopt the lender’s macro-economic program.
But the IMF’s influence was criticized as being ineffective. As economist Mark Weisbrot wrote in his paper Growth May Be Good for the Poor– But are IMF and World Bank Policies Good for Growth?, most Latin American nations’ had little to zero growth after the IMF and WB instituted their structural adjustment policy in the 1980s.
“In Latin America, for example, GDP per capita grew by 75% from 1960-1980, whereas from 1980-1998 it has only risen 6%. For sub-Saharan Africa, GDP per capita grew by 36 percent in the first period, while it has since fallen by 15 percent,” Weisbrot wrote.
“In short, there is no region of the world that the Bank or Fund can point to as having succeeded through adopting the policies that they promote– or in many cases, impose on borrowing countries.”
The IMF and the WB are often considered Washington “instruments of financial warfare” implemented to force countries to adopt policies favorable to the U.S.
A U.S. military guidebook leaked by WikiLeaks detailed how “some of the best weapons do not shoot,” as the leaked guidebook states in reference to how the U.S. relies on financial institutions such as the IMF and WB to act as “unconventional” weapons.
One section in particular in the 248-page document is titled “Financial Instrument of U.S. National Power and Unconventional Warfare.” It describes how the U.S. government exerts its financial power and influence by using not only the WB and IMF but also the Bank for International Settlements and the Organisation for Economic Co-operation and Development as tools to accomplish its mission through loans, grants and other financial support.
Will Venezuela Turn to the IMF Loan?
Should the regime change happen in Caracas and Guaido takes over, the country will likely seek financial support from the IMF and the WB, as senior writer Kenneth Rapoza wrote for Forbes on Feb. 8.
“But the thing is financial aid. That will come from the International Monetary Fund and World Bank, which will require massive structural reforms, including a return of foreign investment and foreign companies into the Venezuelan oil market,” Rapoza wrote.
If Maduro holds onto power, he will likely look to alternative sources for aid including China, Russia and Iran.