Press Release: IMF sends mixed messages on fossil fuels

Press Release

Recourse

For immediate release 

IMF sends mixed messages on fossil fuels

Amsterdam, 28 September 2022

Today, Recourse and its partner organizations Fundeps in Argentina, Alternative Law Collective and Policy Research Institute for Equitable Development (PRIED) in Pakistan published a new policy report spotlighting how recent International Monetary Fund (IMF) lending programs to Argentina and Pakistan have impacted these countries’ phase-out of fossil fuels, including coal. These are some of the largest loans that the IMF has approved in recent years. They are directed to countries with both ongoing economic instability and extensive climate vulnerabilities.

The authors of the study, professors Thomas Stubbs of Royal Holloway (University of London) and Alexander Kentikelenis of Bocconi University, report that the IMF’s practices are full of ‘mixed messages.’

The IMF advocated for reducing energy subsidies in conjunction with appropriate measures to cushion the blow on low-income households. These are sound policies to ensure carbon is priced appropriately.

But the organization also encouraged investments in fossil fuels in Argentina and advocated for the removal of tax incentives for investments in renewable energy in Pakistan. Such measures hamper the ability of countries to phase out fossil fuels in the long term.

In the case of Argentina, the IMF proposed energy subsidy reforms that were consistent with a transition away from dependence on fossil fuels. But the endorsement of private sector investment incentives in the shale oil and gas reserves of Vaca Muerta, a large untapped region in Northern Patagonia, was not consistent with such objectives and will lock Argentina into further fossil fuel reliance over the long-term.

Gonzalo Roza of Fundeps in Argentina said: “While Argentina is going through a complicated economic situation, with high inflation rates that particularly affect sectors with fewer resources, the program with the IMF poses a series of contradictions and inconsistencies, as reflected in this study. Being able to strike a fair balance between the need to solve some of Argentina’s most pressing macroeconomic problems -such as inflation and fiscal deficit- while preventing the weight of the adjustment measures from falling on the most disadvantaged and marginalized sectors; and without neglecting the climate commitments that allow progress towards a fair energy transition, will mark the success or failure of a program that has been widely criticized by various sectors of society and that consider the debt with the IMF as illegitimate. In this framework, both the Argentine government and the IMF must ensure that the implementation of the agreement is not carried out from a purely economic perspective -replicating old recipes that have failed in the past- and that, on the contrary, put human rights and the green transition at the center of the debate.”

In Pakistan, IMF mandated tax reforms resulting in increased taxes for imported electric vehicles, wind turbines, and other renewable energy technologies. While the program did include energy subsidy and pricing reforms, these were informed by fiscal rather than climate concerns, and contributed to recent social unrest.

Zain Moulvi of Alternative Law Collective from Pakistan said: ” The present IMF program in Pakistan is actively derailing the nation’s quest for a just energy transition. They are doing this by imposing inhospitable tax and energy sector reforms as well as severe fiscal consolidation measures that have endangered the lives and livelihoods of some of the most climate vulnerable sections of the population. With the nation drowning in debt over 60 years of failed IMF programs, and another third of the population reeling from the devastating consequences of the recent floods, the time for gradual shifts and mitigation strategies is well past. An urgent process of climate adaptation is now the need of the hour. Besides overturning the taxes on renewable technologies, incentivizing local renewables industry, and suspending the fiscal austerity measures, the IMF will also need to move swiftly on debt cancellation, and on developing non-debt creating financing solutions for Pakistan.”

This report comes at a time that the IMF is reshuffling its policy advice on climate issues. IMF leadership has promised to embrace the transition to a new climate economy—one that is low carbon and climate resilient. To this end, the organization has been rethinking the lending instruments it has available for countries in economic trouble. It recently launched the Resilience and Sustainability Trust that will provide more targeted lending to vulnerable countries to deal with major challenges, like climate change.

Broadening out from the report’s findings, lead author Dr. Thomas Stubbs said: “The IMF needs to live up to the narrative on climate change. Most importantly, it should urgently adopt a ‘do no harm’ approach by aligning its lending programs to the goals set out in the Paris Agreement on reducing greenhouse gas emissions.”

Commenting on the significance of this report, Nezir Sinani of Recourse said: “The IMF has a major role to play in supporting its government partners to address climate change. As noted by IMF’s Managing Director herself, the science is clear: only decisive action to tackle climate change will prevent disastrous outcomes for people and economies. Given the climate crisis, IMF must overhaul its policies and practices to put addressing climate change at the heart of its engagement and to end support for fossil fuels.”

-ENDS-

A copy of the report can be downloaded from the following link: https://www.re-course.org/wp-content/uploads/2022/09/Mixed-messages-IMF-loans-and-the-green-transition-in-Argentina-and-Pakistan-Updatedweb.pdf 

For more information, contact:

Nezir Sinani, Co-Director of Recourse at nezir@re-course.org or +31 6148 20789

Thomas Stubbs, lead author of the report at thomas.stubbs@rhul.ac.uk or +44 7522 772306

Zain Moulvi, Alternative Law Collective at zainmoulvi@gmail.com or +92 3364 307567

Gonzalo Roza, Fundeps at gon.roza@fundeps.org or +54 3514 290246