The IMF’s pitiless helping hand

For a while after the global financial crisis broke, we were told that the International Monetary Fund (IMF) would change. The Group of Twenty (G-20) meeting in April 2009 provided a massive increase in resources for the IMF to provide lending to countries affected by the crisis. In return, the Fund announced that it was going to be more supportive of enlarged fiscal deficits and other expansionary measures in the face of the crisis, and provide large amounts of funds to developing countries to cope with the situation. It would strengthen the focus on supporting poverty alleviation and growth; to protect public spending even as economic downswings cut revenues; and to prioritise national budgets in the direction of spending targeted at the poor.
If all this had actually happened, it would imply a sea change in the extent and manner of the IMF’s delivery of emergency and other financing to developing countries. But, of course, it was too good to be true. In actual fact, the implem­entation of IMF lending has been rather different from what is sugg­ested by the public pronouncements.
First, the amounts lent out by the Fund are still small and even negligible in relation to the projections made by the G-20 when the Fund was given such an important role, and certainly in relation to the actual funding requirements of the countries it has signed agreements with. Second, the programmes agreed up­on for IMF funding are generally still heavily pro-cyclical in terms of requiring public expenditure cutbacks and often stringent fiscal austerity and tighter monetary policies as the means of en­s­u­ring adjustment. They are also still heavily skewed towards en­c­ouraging or requiring the privatisation of public enterprises and utilities, with associated job losses and increases in user charges.
In April 2009, the IMF’s resource base was effectively tripled from $250 billion to $750 billion, and it was promised that the concessional lending to low income countries wo­­­­­­­uld be increased ten-fold from the pre-crisis levels by 2014. However, since the onset of the crisis, the IMF promised less than a total of SDR 2.6 billion to 25 countries (an average of just around SDR 100 million per country), and less than half of that amount (only SDR 1.2 billion) has actually been provided.
Under non-concessional lending, SDR 20.5 billion was proffered in 2009 and SDR 10.4 billion in the first half of 2010. This was only a quarter of the committed reso­ur­ces, and of this only one-third was actually provided to countries. Just five countries — Hungary, Romania, Ukraine, Pakistan and most recently Greece — have accounted for nearly half of the amount disbursed. This means that the other countries received minuscule amounts of IMF resources, which are unlikely to have gone very far in even compensating for the loss of export revenues and private capital flows, much less easing the constraints on domestic investment, consumption and growth.
Uncommitted usable resources actually increased from SDR 213 billion in 2009 to SDR 230 billion in 2010. So it is not lack of available resources that has constrained the IMF from offering more resources to developing and other countries hit by the crisis. Nevertheless, the fact that the amounts made available to different countries have been so niggardly has definitely affected the recipient countries, which have not really been able to use this as a viable alternative to market finance that had dried up.
Perhaps even more significant is that the conditions attached to this rather paltry lending have not really changed. Several independent assessments have found a disturbing lack of change in the basic conditionalities being imposed on recipient countries, notwithstanding some minor changes in terms of preserving certain types of social expenditure or safety nets.
A recent study by United Nations Children’s Fund (Unicef) (Ortiz, Vergara and Chai 2010) of 86 cou­ntries showed that nearly 40 per cent of governments were pla­nning to cut total spending in 2010-11, compared to 2008-09, with the av­e­rage size of the projected expe­n­diture contraction amounting to 2.6 per cent of gross domestic pr­oduct (GDP). Very large cuts (4-13 per cent of GDP) we­re expected in seven countries. The fiscal cuts were forced onto countries by the absence of adeq­u­a­te funding, inc­l­uding from the IMF. Many of these countries have dominantly poor populations and very inadequate provision of infrastructure and public services that pr­ovide minimum socio-economic rights for the majority of the peop­le. Therefore, cutbacks in fiscal sp­ending in such countries are li­k­e­ly to have direct implications for economic and humanitarian conditions.
In many countries, it was not just lack of resources, but the IMF’s policy advice that led to fiscal cuts. In a substantial majority of countries (57 out of 86 countries), the IMF recommended contractions in total public expenditure. It is true that in some cases it has pointed to the need to protect and, in some cases, expand pro-poor, priority social spending within this. But even so, this essentially points to a contractionary fiscal stance in the midst of crisis.
Even within supposedly protected social spending, a significant number of countries have been advised to make cuts, in the form of limiting/reducing subsidies (including on food and health), “reforms” in pension and health systems which essentially reduce pensions and make public healthcare services more expensive, and reduce the spread of social spending by emphasising targeted rather than universal provision.
The only “positive” recommendation for a significant number of countries is the expansion of targeted transfer programmes. While this may appear to be a positive sign, the many problems associated with targeting in developing countries (problems of unfair exclusion or unjustified inclusion, higher administrative costs, diversion and overall reduction in quality) suggests that such increases are unlikely to benefit or even counter the negative impact of other measures for much of the population, including vulnerable groups.
Most countries have also been told to place caps or induce cuts in public sector wages. But it is now recognised that erosion of pay and arrears in wage payments can have significant adverse effects on public service delivery in such essential areas as health and education, through greater absenteeism, internal and external brain drain and loss of motivation.
The pity of it extends beyond the impact on the countries concerned. With fears of double dip recession now emerging in so many places, the world economy really cannot afford a dysfunctional IMF that does not even do what it has explicitly promised.