By Christopher Mason
GV Contributor

OTTAWA - A casual observer would be excused for arching an eyebrow at the development community's response to news that the resources of the International Monetary Fund (IMF) had been tripled overnight during the London meeting of G20 leaders.

The rhetoric from world leaders at the April meeting suggested the budget increase to $750 billion, which came as part of a $1.1 trillion aid package for poor countries, would lead the developing world's recovery from the financial crisis.

For a funding-starved aid sector, the announcement seemed to provide the scale of resource injection experts have been calling on for years.

But as stimulus plans around the world begin to take affect, some critics are questioning whether increased access to IMF loans is the best strategy for supporting developing countries, who now run the risk of accumulating heavy debt loads that may stifle future growth and knock back years of progress on debt relief.

Debt burdens are continually cited as detriments to domestic growth and development, as well as restricting governance initiatives, because in many cases the need to adhere to loan stipulations usurps whatever domestic development priorities an indebted country may have.

Calls for an overhaul of IMF policies in Africa have been renewed by the G20 pledge. Critics say the IMF must move away from its market-friendly policies such as pushes for deep budget cuts, pro-privatization and fewer subsidies of social programs and instead craft its policies more often with the local population and government in mind.

"It is essential that loans and grants are disbursed quickly, and that they come without onerous or harmful conditions attached," said Marita Hutjes, senior policy advisor at Oxfam, following the G20 meetings. " Everything must be done to ensure that poor countries are not landed with even more debt."

There will also be less patience for world bodies that encourage cutting back government involvement in developing countries to make way for the private sector at a time when western governments are spending at record levels and nationalizing sectors at an unprecedented rate as they scramble to stem the effect of the global recession.

In fact there are signs the approach to IMF aid will change little as a result of the crisis. After April's G20 meeting in London, an official from Canadian Prime Minister Stephen Harper's office said Canada's $12 billion contribution to the IMF, announced at the conference, was risk-free because the money would be returned to Canada in the form of loan repayments.

There is some hesitation within the development community to call for reform at a time when one of the world's leading aid lenders has had its resources increased so dramatically.

"There is no question that the IMF needs the extra funding because it has never had the resources it was meant to have," says Jacqueline Best, an IMF expert and political science professor at the University of Ottawa. "But it hasn't yet lived up to its potential. The IMF has a second chance here, maybe its third or fourth chance really, to reinvent itself."

But there are concerns that problems will only be exacerbated if the money is not paired with reform that puts more space between debt and development to ensure the two don't necessarily go hand-in-hand, especially at a time when significant declines in trade, remittances and foreign investment threaten to restrict the economic options of hard-hit developing countries.

There is also concern that the IMF resources will have limited long-term impact since the organization has historically been geared largely towards short-term measures rather than the sort of long-term structural funding more often synonymous with the World Bank.

A recent report by ActionAid estimated the global financial crisis will cost Africa 10 per cent of its income, amounting to some US$49 billion by the end of 2009. Of that, the report said about US$27 billion of that will come from a drop in aid, export earnings and income from developed nations that have been hit hard by the recession.

Among those hardest hit will be African countries that have liberalized their economies along IMF and World Bank guidelines that require loan recipients to encourage privatization attractive to the kind of foreign investment that has cratered amid the global recession. One of the continent's richest countries, South Africa, may lose as much as half its income by the end of 2009 because of its dependence on foreign investment and sources of income, according to the report.

Across the developing world, the World Bank estimates that growth will slow to 1.6 percent in 2009 compared to 6.1 percent in 2008.

"Although developing countries didn't make this crisis, it has become all too clear that they are in the firing line when it comes to suffering its worst effects," says Claire Melamed, ActionAid's head of policy. "Countries that have opened up their economies to global finance subjected themselves to massive risks but didn't get much of a pay-off in development terms."

The solution, she says, must be found within the current aid system because the money is needed, but its method of delivery and restrictions on use must be changed.

"Developing countries do need finance from somewhere and we need a system that can give them what they need without running the huge risk of another financial crisis."

One possible solution: Allow developing countries a greater say in how these aid policies are crafted so they will be effective and targeted when they arrive. Currently, the largest voices within the IMF are its largest donors.

"It's time that the IMF and World Bank became more democratic to allow developing countries an equal voice in decision making," Ms Hutjes of Oxfam says. "Governance reform is pivotal - the Europeans and the US need to cede some of their power over these institutions now."

That change may be on the horizon. In March, IMF managing director Dominique Strauss-Kahn told African delegates gathered in Tanzania that "It is time for the IMF to adapt to this new era," by moving to involve officials from developing countries in key IMF posts.

"It is certainly time for advanced economies to be less arrogant," he told the audience. "The way [they] address leaders of the rest of the world has to change and it is in the process of changing."