I read an article in the Financial Times earlier this week (September 23, 2023) -…
When a nation or region is experiencing the worst crisis the IMF always comes to the party and makes it worse. The latest evidence from those who study the detail of IMF interventions across the globe have found that the IMF has imposed harsh conditionalities (healthcare spending cuts, cuts to jobless assistance, cuts to public service wages and employment) in 76 out of the 91 loans it has extended to nations in peril as a result of the pandemic. On the other hand, data show that the wealth of billionaires has scaled new heights between April 2020 to July 2020 – a 42.4 per cent increase in their total wealth. If all that doesn’t tell us that the neoliberal system has overextended it indecency and rebellion is required then what else would? The point is that when disaster strikes the poorest nations, the IMF guarantees to make it worse. It should be dissolved immediately through defunding from national states and a new progressive, multilateral institution created that helps people not punishes them.
In this report (October 8, 2020) – Fighting Inequality in the time of COVID-19 – we learn that the:
The 2020 Commitment to Reducing Inequality (CRI) Index shows clearly how the majority of the world’s countries were woefully unprepared for the coronavirus pandemic.
The CRI includes measures of “spending on public healthcare and weak social protection systems and rights for workers” and the conclusion reached after assessment is that the “very low levels of spending” by governments in these key areas of well-being means that:
… their populations were left brutally and unnecessarily vulnerable. The failure of governments to tackle inequality is now forcing ordinary people to bear the brunt of the crisis and pay a much higher price than they should.
The Oxfam spokesperson said in releasing the report (Source):
The failure of governments to tackle inequality has resulted in hundreds of millions suffering hardship or missing out on the healthcare they need. Women have paid a higher economic price as a result of the lockdowns introduced in response to the pandemic, while unpaid care work and gender-based violence have increased dramatically.
That spells – failed states.
That tells us that the essential role of fiscal policy to advance well-being in society has been deliberately abandoned by governments who have chosen to use their fiscal capacities to pursue other ends that profit from on-going and worsening income and wealth inequality.
That spells – a successful paradigm for those that benefit but for most people it means the system in place has failed them.
The following graphic is taken from Figure 1 of the Oxfam Report on the CRI progress and gives you an idea of what they consider as part of the index.
I urge interested people to read the full details in the Report.
The summary results show that:
1. “Just 26 of the 158 countries … were spending the recommended 15% of their budgets on health going into the pandemic.”
2. “In 103 countries, at least one in three of the workforce had no labour protection such as sick pay.”
3. “Only 53 countries had social protection systems against unemployment and sickness, and they covered only 22% of the global workforce.”
4. “those governments already committed to reducing inequality were the ones best placed to face the economic and health challenges posed by coronavirus. They were best placed to ensure that ordinary people were protected as much as possible, and that the impact of the virus was not dictated by whether you were rich or whether you were poor.”
Oxfam noted that some countries have failed to reduce inequality with “disastrous consequences” and they found that:
The United States ranks last out of the wealthy G7 countries and trails 17 low-income countries like Sierra Leone and Liberia on labour legislation due to anti-union policies and a very low minimum wage. The Trump administration gave only temporary relief to vulnerable workers with its April stimulus package after having permanently slashed taxes which overwhelmingly benefitted corporations and rich Americans in 2017.
What would Biden have done?
Obviously, the Report has flaws.
It tries to draw a link between the size of GDP and the capacity of governments to spend via the broader tax base.
Clearly that is incorrect logic. The government does not need tax revenue to spend.
The size and exploitation of a tax base does allow the government sector to be larger, other things being equal, because it reduces that much non-government spending capacity which would tie up productive resources in non-government uses.
The taxes create idle resources in the non-government sector, the public spending brings them back into productive use – in the government sector.
Oxfam also examined the performance of the World Bank and the IMF during the pandemic.
They found that:
While the World Bank has pledged US$160bn (£124bn) in emergency funding, including health projects in 72 countries, only eight of these projects attempt to remove healthcare user fees, which each year bankrupt millions of people and exclude them from treatment.
Count that as a fail.
The World Bank recently announced (October 7, 2020) – Updated estimates of the impact of COVID-19 on global poverty: The effect of new data – that “The increase in extreme poverty from 2019 to 2020 is projected to be larger than any time since the World Bank started tracking poverty globally in a consistent manner”
We estimate that an additional 88 million people will live in extreme poverty in 2020 as a result of COVID-19 and that this number could rise to 115 million under the COVID-19-downside scenario
There is no statement by the World Bank about the contribution that inadequate stimulus measures to this appalling situation.
The other side of the coin is the recently released UBS/PwC Report – Riding the storm – (aka “Billionaires insights 2020”) which shows that:
1. “Wealth reaches new heights from April 2020 to July 2020 from USD 8.0 trn to USD 10.2 trn” – there has been “V-shaped rebound in asset prices”.”
2. “During 2018, 2019 and the first seven months of 2020,4 technology billionaires’ total wealth rose by 42.5% to USD 1.8 trillion”
3. “healthcare billionaires’ total wealth increased by 50.3% to USD 658.6 billion”.
So do the juxtaposition and the only conclusion is that the global system has failed humanity
It cannot be business as usual.
We need a radical overall of all of this and if that requires widespread rebellion then that strategy has worked in the past when the indecency of the elite surpasses any reasonable levels.
And then we get to the IMF, that august international organisation that receives millions of dollars in funding via the quota system from – Member governments.
The Oxfam release (October 12, 2020) – Over 80 per cent of IMF Covid-19 loans will push austerity on poor countries.
The headline really tells you everything.
This is what has been happening.
1. Less well-off nations are hit with a pandemic that they didn’t start. It would have entered their nations through mobility and you can be sure that the poorest members of the societies are unlikely to be those who have been venturing wide and far.
2. The IMF extends loans to 91 nations – they committed $1 trillion to help nations but to date have spent on $89 million (Source).
3. 84 per cent of the loans extended – “76 out of 91” – which involved 81 countries required the nations to cut public spending and target “deep cuts to public healthcare systems and social protection.”
4. The IMF has published research in recent years that show such cuts increase poverty and drive up inequality – see Neoliberalism: Oversold? (June 2016).
5. Oxfam provides a full examination of the IMF programs and conditionalities – HERE.
Specific examples include:
1. The IMF forced the Ecuadorian government to cut healthcare spending, end any cash transfers to those who lost jobs, cut petrol subsidies which benefit the pooor, at the same time that the healthcare and burial system has been overwhelmed.
2. Other nations have been forced to cut public sector wages and sack public servants including healthcare workers.
3. Other nations have been forced to increase taxes on “food, clothing and household supplies” which damage the poorest citizens.
A campaign has been launched – The IMF Must Immediately Stop Promoting Austerity Around the World – to bring citizens around the world to rise against this cruel and indecent institution.
The IMF couches the austerity as “fiscal consolidation in the recovery phase” but, of course, the cuts stifle recovery and then the IMF further burdens the nations with extended loan arrangements and more austerity.
It is not as if we haven’t been there before.
The long and sordid history of the IMF ‘structural adjustment policies’ (SAPs) has shown them to have been a disaster. The IMF and the World Bank are both institutions that serve to facilitate income movements from poor to rich.
Developing countries seeking finance from the IMF and the World Bank have been forced to adopt neoliberal policies that included harsh austerity measures as a condition of international support.
The programmes of structural adjustment and austerity imposed by the IMF on developing countries in the 1980s and 1990s undermined many of the achievements of the previous growth model, driving living standards down and poverty levels up.
By the mid-1990s, no less than 57 developing countries had become poorer in per capita income than 15 years earlier – and in some cases than 25 years earlier.
In almost all countries where austerity-driven policies were imposed, poverty and unemployment grew, labour rights deteriorated, inequality soared, and financial and economic instability increased.
This study in the Public Health Reviews journal (published July 10, 2017) – Structural adjustment programmes adversely affect vulnerable populations: a systematic-narrative review of their effect on child and maternal health – is an indictment of the IMF and the World Bank.
The researchers concluded that:
… rigid fiscal targets stipulated under structural adjustment loans often take precedence over social spending, and that aid funds are siphoned from health and social sectors to repay debt or increase reserves …
The notion that IMF fiscal consolidation is conducive to growth is likewise contested … with implications on revenues available for health spending.
There are many other studies that conclude along similar lines.
The overwhelming evidence shows that the so-called structural adjustment program (SAPs) that the IMF and World Bank typically impose on poor nations struggling with balance-of-payments problems – based upon fiscal austerity, elimination of food subsidies, increase in the price of public services, wage reductions, trade and market liberalisation, deregulation, privatisation of state-owned assets, etc. – have had a disastrous social, economic and environmental impact wherever they have been applied.
Please read my blog post – IMF policies undermine the health of mothers and children in the poorest nations (November 2, 2017) – for more discussion on this point.
And now in the worst crisis to hit humanity in living memory, the IMF officials, cosy in their high-paid jobs, are repeating this form, which will have similarly terrible outcomes.
Clearly, the IMF and the World Bank have outgrown their original purpose and have ceased to play any positive role in the management of world affairs.
Rather, their interventions have undermined prosperity and impoverished millions of people across the world.
In this context, a new multilateral institution (or series of institutions) should be created to replace both the World Bank and the IMF, charged with the responsibility of ensuring that these highly disadvantaged nations can access essential real resources such as food are not priced out of international markets due to exchange rate fluctuations that may arise from trade deficits.
There are two essential functions that that need to be served at the multilateral level:
1. Development aid – providing funds to develop public infrastructure, education, health services and governance support.
2. Macroeconomic stabilisation – the provision of liquidity to prevent exchange rate crises in the face of problematic balance of payments.
A progressive multilateral institutions would aim to reduce (and ultimately eliminate) poverty through economic development but within an environmentally sustainable frame.
We outline such a model in new book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017).
Quite sad and angry to be writing this today.
That is enough for today!
(c) Copyright 2020 William Mitchell. All Rights Reserved.