The IMF is the International Monetary Fund and they go into a country when that country defaults on paying International Foreign Currency debt. The IMF doesn't really help pay off the loans, it is more of a police officer leading a SWAT TEAM armed with riot clubs and stun guns, to make the country pay off it's debts. In the Mafia, the loan sharks break legs, and arms. These are muscle enforcers who punish defaulting loan borrowers. In the International world of loan financing, this job falls to the IMF.
Ecuador now has the IMF interfering in it's economic affairs, because they defaulted on a $44.5 million payment for it's USA backed Brady bonds last Sept. 30, 1999.
What the muscle does ( the IMF ) is force the government of a country to quit borrowing foreign loans and go into austerity programs. The ordinary people now have to pay for the excesses of past politicians and poor policies. The IMF will lend the country money, but usually this is solely to meet the interest payments on their foreign debts. A country ends up for several years paying interest on loans to pay interest on loans that are paying interest on previous loans. The big thing is that they force a round of increased taxes on the population and stop the government services, by cutting government programs and departments of their budgets.
If Belize ever defaulted on the payment of any of it's foreign loans, the IMF would come in and Belize would become a Pariah style financial state. Government department budgets would probably be slashed by two thirds and taxes would rise exponentially. Perhaps SALES TAX would rise to around 28% and gasoline prices because of a rise in government taxes would probably rise to about $25 a gallon. This sort of thing is being applied in Ecuador right now and is likely to go on for at least ten years. Any export revenues in the case of Ecuador, which is oil, bananas, flowers and seafood would be controlled by foreign exchange controls and all foreign currency would be confiscated for the IMF to pay off their debts first that were paying interest payments on the earlier foreign loans and as the country caught up, then go to paying off the foreign loans principal and interest.
On the one hand, if gasoline prices in Belize were to be taxed to the point that a gallon of gas cost $25, then gasahol would become practical. Making alcohol from sugar cane and mixing it with gasoline and burning that. Gasahol becomes competitively effective around $8 Bz per gallon for gasoline. This would seem to be something good, but the government of the day in Belmopan would find itself in a quandry, for the IMF would not allow the substitute of more economically home grown fuel supplies in place of tax raises. For the IMF is there to see that the foreign currency loans of past years are paid off and this can only be done by taxing the citizens of a country to the point of slavery and penury. A government, any government, not just in Belize, that borrows foreign currency loans is playing with fire. The citizens of that country at some time in the future will have to make good, no matter the mistakes of the politicians, whether innocent mistakes, or deliberate get rich schemes, for them and their crooked cronies.
In Ecuador right now, the Sucre this year is going through an inflation bout. A few months back the Sucre was 3200 to the US dollar. Today the Sucre is 16,000 to the USA dollar and the government printing authorities are printing money as fast as they can. The catch is, that this is local money for internal use and has no value outside of the country. Nor has the Belize currency any value outside the country of Belize. A dozen banks have already failed in Ecuador and the story is likely to get much worse before it can get better. If a bank has local real estate loans in the portfolio and the money becomes valueless, then the value of the underlying security, or collatoral also becomes less than the original loan, making the loan not a profit interest maker, but a losing loan portfolio. The bank goes bust if the ratio of failed loans to the amount of cash reserves is lopsided, which it usually is.
How could Ecuador get itself into such trouble? Simple really! I'll explain a little later. Just like in Belize, some good years come along and it is human nature to assume they will go on forever. Spending increases by government become the norm, an expansion of government projects (growth economics) and departmental fiefdoms and hiring, instead of the surpluses going into foreign currency savings and when economic disasters arise from international prices falling, the governments of the day find they spent money on projected good times that didn't materialize and are now doubly in trouble because not only do they have less than before, they spent more, projected on figures that showed an increase of revenue from speculated growth economics. They get hit with a double whammy. To cap it all, they borrow money in foreign currency loans, ( credit loans with interest to be paid ) to push ahead projects of construction they cannot normally pay for with ordinary revenue earnings, all projected on the new expected optimistic windfalls that are supposed to be coming in the future years.
Inflation in Ecuador has now gone from 50% to 70% a year. When it reaches a 100% inflation, we call that hyperinflation. Ecuador is going to blow up economically speaking!
Like Ecuador, Belize does not have any legislative controls on the size of government and on how much a government can spend, print, or borrow in foreign currency loans. In order to curb the excesses of optimism and greed, some very normal human traits that all politicians and bureaucrats are susceptible to; you have to legislate controls into the way the country is governed economically. You simply cannot rely on common sense, economic advice, or human nature. The control of borrowing foreign loans, or printing of money has to be inscribed in stone ( preferably granite ) and made part of the Constitution. It has to be the law! People change in government and while you may have an economic guru today that has common sense, tomorrow you will have a complete idiot running government. If the controls are law, then the hands of politicians and bureaucrats are tied, both through good times and bad times. This creates a slower, but more steady rising growth curve, with less economic corrections and recessions. Our present economic GURU is Fonseca. He espouses a control of 3% of GDP as a loan ceiling. I espouse a law that says the government can borrow foreign currency abroad up to 20% of the average of the last two years annual revenues. If you go over that, a moratorium on foreign loan borrowing goes into effect until the foreign currency debt load drops below 12% and then you can borrow again.
Whatever way you choose, the important consideration is that the control of foreign loan borrowing has to be made LAW. Binding on anyone who is in government, no matter the party, or the state of the economy, through good times and bad times.
In Ecuador, some officials blame the problems on the weather and El Nino and others say that there was a spending spree during the opening of the oil boom and when oil prices crashed, they couldn't pay off the foreign advanced borrowing. Who or what is to blame is not really the point here. They should have had legal legsislated controls on foreign currency borrowing, no matter the euphoria in good times, or the unexpected surprises in bad times from calamitous weather, or foreign market price fluctuations.
Local citizens in times of such economic disaster, devaluation and inflation, have to turn to more primitive means of operation. Barter becomes the rule, mechanics have to patch and make makeshift repairs to machinery and those with sources of foreign exchange have to keep it abroad in foreign bank accounts in order to keep operating and being able to purchase their imported goods. Local money becomes worthless and assets have to be real property, such as real estate, a house, pigs, or something of a value that will hold despite the fluctuations in worthless inflated printed government money.
Belize lacks legislative financial controls and it badly needs them! WHAT ARE YOU GOING TO DO ABOUT IT?
Ecuador has a foreign debt of $13.5 billion and a population of 12.2 million, with a GDP of $14 billion.
Belize has a foreign debt of $750 million with a population of 220,000. I tried to compare these debts per person of population but the billions and millions and tens of thousands with all those zeros threw me off. You do it yourself and tell me! I do not know the GDP of Belize.