As geopolitical fault lines in Europe reappear, the International Monetary Fund’s role is beginning to shift. The IMF has always been a factor in international politics, but over the past two decades, when there have been few fundamental geopolitical fault lines, the IMF was not forced to align itself with specific blocs. However, as Europe faces multiple crises, including mounting debt and the Ukraine issue, the IMF is being forced to take sides and is moving toward furthering Western geopolitical goals.
Yesterday, the IMF decided to amend its rules on arrears to official creditors, in effect allowing Ukraine to continue receiving assistance from the IMF even if Kiev defaults on its $3 billion loan to Russia. The U.S. is the largest member of the IMF, in terms of monetary contribution, and this translates into a high voting quota, the equivalent of 16.74 percent of total votes in the IMF’s Board of Governors. Russia holds only 2.39 percent. The IMF has already over the past year and a half shown great flexibility when negotiating with Ukraine, taking into account challenges arising due to fighting in the east. In fact, without the IMF’s assistance, Ukraine would have gone bankrupt. Following the IMF’s decision not to allow Ukraine’s debts to Russia to impact Ukraine’s aid package, Russian Prime Minister Dmitry Medvedev accused the IMF of supporting the economy of a debtor country “in spite of legal agreements” and “for purely political reasons.”
The IMF’s decision has undermined a part of the Kremlin’s strategy in Ukraine. One of the ways Moscow has sought to pressure both Kiev and its Western allies has been by threatening that a non-payment of the loan would trigger a default that would close off international financial assistance to Ukraine and completely cripple the country’s economy. Throughout the conflict, Moscow’s hope has been that the loss of Crimea and parts of eastern Ukraine would weaken the country’s economy to the point of destabilizing the Kiev government and undermining Ukraine’s efforts to integrate further with the West. Ukraine’s economy is struggling, but with the help of the IMF and Western governments, the country can continue financing its expenditures.
Ukraine is not the only place where the IMF’s decision-making has a direct impact on international politics. The IMF is also a factor in Greece, where the Fund and its demands are a point of contention between the Greek government and European governments, especially Germany, which are seeking to avoid yet another crisis over Greece’s economic future and eurozone membership. For Germany, a major exporter, maintaining the currency bloc and free trade zone are key priorities.
Greece’s current IMF program will expire in March and the Fund is demanding a wide range of tough reforms, including the liberalization of Greece’s labor market. The IMF is also pushing for European governments to grant Greece debt relief. German Finance Minister Wolfgang Schaeuble yesterday criticized the Greek government’s public questioning of the IMF’s involvement in its bailout program, warning that Greece is “as always” behind schedule in the implementation of its agreements. At a time when the European Union is increasingly fragmented and Greece in embroiled in negotiations with European governments over its handling of refugee flows, discussions of further reforms and potential debt relief add to internal pressures on the Greek government and have the potential to fuel further disagreements among eurozone countries.
There are several initiatives to provide alternatives to Western-led financial institutions, including the BRICS-led New Development Bank and the China-led Asian Infrastructure Development Bank. However, these projects will have their own political constraints and aspirations. And just as a China-led bank will focus on Beijing’s geopolitical priorities, an international financial institution where Russia is a major contributor is highly unlikely to lend money to Ukraine.
As the West and Russia negotiate over the future status of Ukraine, and as countries like Germany strive to keep the eurozone intact, the IMF’s role is shifting. The institution is moving toward making decisions along geopolitical fault lines. From Ukraine to Greece, the IMF’s role is intersecting the economic and political turmoil of Eurasia.