IMF and World Bank: No to austerity, yes to stronger health systems : Peoples Dispatch

For several decades, the policies of international financial institutions such as the International Monetary Fund (IMF) and the World Bank (WB) have preoccupied global health and development activists. Created in 1944 to deal with the aftermath of World War II, the IMF was to be the emergency lender of last resort to countries facing macroeconomic problems, and the WB was to provide loans and grants, first to rebuild the Europe and, later, to finance the development of market economies in low-income countries in the context of Cold War geopolitical rivalries.

When the global economy entered a long downturn and the world experienced two sudden oil price shocks in the 1970s, many developing countries faced sovereign debt crises (the inability to face the regular repayments of their international loans) which threatened the stability of world capitalism. The IMF and the World Bank intervened with new loans or grants to help heavily indebted countries honor their payments, but in return they required these countries to restructure their economic and fiscal policies. These “structural adjustment policies” reflected the neoliberal economics promoted by conservative governments (such as those of Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom), and emphasized the small size of the economy. government, fiscal tightening, trade liberalization, privatization of state assets, financial deregulation, and minimal social welfare spending.

These neoliberal policy demands have largely proven disastrous for health, education and poverty reduction, especially in the countries that depend on them the most; in Africa and Latin America, the 1990s are still called “the lost decade”. Subsequent to research established that the fiscal contraction demanded of indebted countries was bad for the health and social well-being of women, children, the poor, rural communities and society in general. They failed to even stimulate economic growth, which was the rationale used to defend them.

In the 2000s and the adoption of the Millennium Development Goals, the IMF and World Bank placed greater emphasis on governments receiving financial bailouts trying to protect their health and education budgets, even as they cut their overall expenses. This has had mixed results (some countries have protected their health and social spending, others have not) but, in the context of falling GDP or devaluing a country’s currency, per capita spending in health and education in many countries have often declined in real dollars. terms.

In the aftermath of the 2008 global financial crisis – a crisis of liberalized and deregulated investor greed on a global scale that made some people fabulously richer and many others much poorer – at the behest of the IMF, most governments implemented what we now call austerity, a kind of mild “structural adjustment”. Austerity policies were new to most wealthy countries, but they were essentially a repetition of conditions long familiar to developing countries that had become dependent on IMF emergency loans.

“Divergent recovery” from COVID-19

Then came the pandemic. The governments of many low-income countries, already heavily indebted, borrowed even more on international markets to support their citizens during this period. The result has been an international debt burden that has again risen to the same levels that led to the sovereign debt crises of the 1980s. A new narrative from the IMF now underlines the importance of avoiding a ‘divergent recovery’ post -pandemic, in which some countries are progressing with high growth rates supported by robust government interventions while others lag further behind. In this account, rather than budget cuts, governments needed to invest in employment and human capital formation. While this sounds good on paper, in many cases IMF emergency lending continues to require budget cuts and the liberalization and privatization that will keep many poor countries in dependent relationships with rich countries in the world. world.

A recent study found that although the IMF’s policy rhetoric has softened, the impacts of its lending conditions will see more than 80 countries experience fiscal contraction over the next few years. Some of this will result directly from IMF lending conditions. Although not all of the emergency pandemic funds the IMF has made available to developing countries come with strings attached, nearly half have and still do. The over-indebtedness of beneficiary countries could be high, the required government budget cuts will be devastating. In other cases, the budget cuts might be more moderate, but they are still part of the neoliberal plan to increase indirect taxation (which is hardest on the poorest in a country), reduce food subsidies and energy, limiting the public sector wage bill and privatization. public companies. These are the same policies we have known since the 1980s and 1990s that have almost always led to negative health and socioeconomic outcomes.

Although some IMF loan conditionalities (in some countries) are no longer as strict as they were in the past, they are expected to become more rigid in the short term as more countries face multiple health, environmental, and socio-economic. And although the IMF and World Bank encourage recipient governments to protect their public spending on health, education and social protection, given sectoral competition for a smaller amount of government revenue, this does not always happen. And what about accommodation? Or water and sanitation? Or the growth of formal employment? Or agricultural support to rural farmers? Protecting public investments in the social determinants of health is as important as protecting health and education spending.

Special drawing rights should go to low-income countries

Instead of renewed (and largely failed) structural adjustment policies, there are calls for the IMF to issue special drawing rights (SDRs) – the Fund’s reserve currency – to support the pandemic recovery in low-income countries. SDRs are virtually interest-free and unconditional. In 2021, the IMF approved the release of $650 billion in SDRs in response to the pandemic, the largest international contribution to pandemic recovery to date. But current rules mean that most of this amount is only accessible to high-income countries. Low-income countries will only receive 1% of the SDR allocation. Campaigners urge wealthier countries to voluntarily allocate their share to low- and middle-income countries (and some have), but also point out that the IMF should change its allocation rules so that at least $400 billion dollars are available for the countries that need them. more. They also have called the IMF to issue an additional $500 billion per year in SDRs over the next 20 years to finance climate change mitigation.

Finally, bring the BM in the picture: In its support of universal health coverage, the World Bank continues to actively promote private sector participation in health systems, financing, insurance and delivery of health services. Publicly funded and provided services, on which the poor invariably rely, could face cuts while the private health sector benefits from increased public subsidies.

In sum, the IMF and World Bank are now trying to project a softer, softer image. But their role in the global economy is, and always has been, to defend the market economy of capitalism, which over the past 40 years of neoliberal domination has disproportionately benefited the wealthiest countries and individuals of the world. world. Unless and until countries address the structural roots of economic inequality, the conditions attached to IMF emergency loans or World Bank grants will do little or nothing to make the world more just.

Ronald Labonté is co-editor of Global Health Watch 6; Professor and Distinguished Research Chair, School of Epidemiology and Public Health, University of Ottawa, Canada.

People’s Health Dispatch is a bimonthly newsletter published by the People’s health movement and Dispatch of the Peoples. For more articles and subscription to People’s Health Dispatch, click here.

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