The biggest shift in the world today - possibly this month, or this year - has gone largely without comment in mainstream media. Let's examine the whole story. Bear with me for a moment : 1) Unlike private parties within the same state, which can use the state's legal system to collect debt, countries and international banks can not simply force another state to give back money (unless they go to war, which is usually unfeasible). 2) This is further exacerbated by the fact many countries are actually democratic to some extent, meaning that even if a government wants to repay debts by taking money from the people, the people may not let it. 3) Being unable to collect debts would obviously freeze interstate lending. This, in turn, would severely slow down world development - countries would not be able to get any help in hard times, or to take on major infrastructure projects. The world would be much worse off. To avoid this, after WWII the countries agreed to make a number of international institutions, with the idea that everyone contributes and everyone can come for help to in hard times. IMF is the biggest of these. In order to further promote stability and good faith in international relations, IMF rules stated that no loans could be given to a country that does not pay back debts to other countries, or is currently at war. That meant that countries would generally go to great lengths to pay back sovereign debt (debt to other countries), and were apprehensive about entering armed confrontations. Getting stuck without a source of credit is a dire problem indeed - for example, your neighbors can take an IMF loan and use the money to build industry and out-compete you on the world market. So far so good, everybody wins. Regardless of failures and questionable results of IMF's other rules and policies, everyone basically agrees - not lending money to frauds and warmongers is an all-around positive thing. Then, Ukrainian conflict happens. There were serious internal reasons for it, to be sure, but in terms of outside influence, it has been aptly described as "USA fighting Russia to the last Ukrainian". US-backed forces from West&Central Ukraine, that have overthrown the elected government, are fighting ethnic Russians in East and South. The newly established regimes on both sides are very weak by themselves and soon become extremely dependent on foreign money and influence, essentially turning into foreign proxies*. Russian and US government get quite invested in this war, and don't want to show weakness by letting their puppets fail. One last piece of the puzzle: US government and its allies control IMF. ... Wanna guess what happened? Yup, rather than spend their own money propping up the Kiev regime, US government decided to use everybody's. And if IMF rules got in the way, they'd bend the single most important pillar of the international lending system to finance their little proxy war. Of course, step one were wildly optimistic estimates of economic performance, to justify the large IMF loans in the first place. The estimates were called "fairy tales" from the start, and two years later, certainly looks like they were. However, this in itself is pretty normal for politically motivated banking decisions, and does not violate any rules - merely undermines the credibility of the financial institution. The first real violation was lending to a country at war. However, some decency was maintained and rules technically weren't violated; instead, this was accomplished by refusing to acknowledge there is an actual war in Ukraine. Yup - in case you didn't know, Ukraine has officially been at peace for the past two years. Tens of thousands dead and several million forced to leave their homes has been a mere police action in the eyes of the nationalist regime and their US backers. Of course, this is completely against Ukrainian law and the fine print of IMF charter, but who cares? IMF got a semi-decent excuse to pretend it's not violating its own rules, and ran with it (many protested, of course - see THIS for an example and more details). However, there was also a matter of Kiev owing sovereign debt. The situation is very simple: Kiev owns Russia $3 billion and stubbornly refuses to pay, even though Russia did not invoke a clause that allowed it to demand early repayment, and offered to stretch payments out over three years. In the end, Kiev had to pay, or default on the debt... So IMF changed its rules in order to keep supporting Kiev. This opens up an Everest-sized can of worms : - No country (except US) can feel safe giving a loan, as IMF can simply decide to let debtors get away with not repaying it, if it happens to be politically expedient - This precedent has just been applied retroactively, meaning it was applied to an existing debt, and that means that it will likely be brought up for many of the existing sovereign debts worldwide - The credibility of IMF has suffered a huge blow, as countries see little point in contribute money to a common pot, then having US government violate a number of key rules in order to finance a proxy war Basically, what's known as the "Western world" (US+allies) once again demonstrated that it considers itself the hegemon, and the only international law is "we do as we please". For a sake of a relatively minor sum (3 bn is less than 0.4% of IMF capitalization, IIRC) and slightly humiliating a geopolitical rival, it cheerfully shakes the foundations of the world's financial system. Of course, this will give a huge boost to alternative international financial institutions, like the BRICS bank and Asian Infrastructure Investment Bank. In the end, much like the Kosovo precedent, it may come back to haunt the US in the near future** Notes: * Joe Biden said he "counsels" Ukrainian President roughly an hour and a half PER DAY. Oh, and he did while visiting a supposedly sovereign state - telling them exactly what they need to do, what government officials to fire, etc. Also see here ** By the way, I wholeheartedly recommend THIS short explanation of US+EU policy during the Yugoslav wars - the complete disregard for rules is quite revealing, and similar to the current IMF situation.

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IMF makes a historic policy change, nobody pays attention

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