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When disaster strikes the poorest nations, the IMF guarantees to make it worse

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”

They said:

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.

Conclusion

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.

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    This Post Has 16 Comments
    1. Above all – it seems to me – this blog article amounts to a searing indictment of the US Empire, and of the American polity as a whole of which that empire is just a projection. As Michael Hudson (among others) has persistently and cogently argued, both the World Bank and the IMF – both of course positioned (nested) within the very centre of American power – exist to act as instruments of American global hegemony: as Hudson puts it, as the de facto non-military arm of the State Department (openly recognised to be such by the Pentagon). Take for example the actions of the IMF, coordinated with American-led economic sanctions and other forms of pressure, in the on-going Venezuela imbroglio.

      It’s an as least as effective (probably much more. usually) and for America far less painful instrument than putting American troops’ boots on the ground.

      (Not that other developed nations’ governments (including UK’s, cravenly following American “leadership”) have anything to be proud of in this sorry tale).

      It’s only going to change if and when the USA is finally dislodged from its still-dominant global position. The worry about that is twofold:- will it happen peacefully (which doesn’t seem very likely, and if not entails the possibility of nuclear weapons being resorted-to), and could Chinese global hegemony (for example) be expected to be any less malign than the American is now?

      What a far cry it all is from the era in which American policy-makers had the wisdom and intelligence to conceive-of and carry-through farsighted foreign and economic poiicies, like the Marshall Plan! That was the high point: it’s been downhill ever since.

    2. The IMF and world bank are doing exactly what they are told to do by Washington.

      Geopolitics – The elephant in the MMT room.

      Why all countries fight against MMT and attack us. Because of this I very much doubt I will see MMT put to good use in the UK in my lifetime.

      I could very easily be wrong but I predict fiscal policy errors the world over and the virus will change very little. They’ll all revert back to type when it’s over because Washington demands it. Cut back the stimulus way too early.

      Democracy is a sham. The current US election is a circus filled with freaks that will change nothing. A sideshow of liberal metropolitan insanity that fuels populism everywhere. That will only end up as complete and utter carnage as the world burns. War is certain, what kind of war it will be is the question. Only guarentee is millions will suffer.

    3. @ Robert H: Good post.

      “could Chinese global hegemony (for example) be expected to be any less malign than the American is now?”

      Probably not..they are human, though the ‘communist ideal’ might be a constraint on any impulses toward malign hegemony, given their pride if they do create a world-leading, poverty-busting economy, as is their goal.

      Meanwhile, given China’s apparent capacity to grow around 6% per year, it might be smart if world leaders seriously considered strengthening the institutions of the UN….

    4. @ Neil Halliday I’m far from sure that China’s Belt and Road plan has any benign intention extending beyond the Han Chinese, and minority ethnicities who have fully integrated as lower caste members of Han society. With regard to UN institutions, ‘China (ignoring invasion and imperialism of Tibet, and more recent abuse of Uighar people) Russia, Cuba, Pakistan and Saudi Arabia are expected to be elected to the board of the UN human rights council’ this Tuesday.

    5. @ Neil Halliday

      Thanks.

      May I reciprocate by quoting from Heteconomist’s blog (one approved by Bill) “Politically Motivated Attempts to Own or Disown China as ‘Capitalist’”, last January, the following which seems to support a lot of what you’ve been arguing re China:-

      “Not only can a currency issuer such as the Chinese government override the law of value but the prominent role of government spending, public investment and public lending in China is likely a big part of why its macroeconomic performance outstrips the west in which governments voluntarily hamstring themselves in various ways, behaving as if they are revenue constrained. Subservience to the law of value results in chronic underinvestment in basic research, infrastructure and anything else that is not directly profitable to private owners of the means of production.”

      .

    6. Great article. IMF is truly an unaccountable institution of savagery.

      My family had been doing miserably even before the pandemic.

      The sharpening of the contradiction between capital and proletariat is the condition of the day.

      How silly is the thought in the Fordist-Keynesian area that capital and labor can ever have their interest aligned without guaranteed profits and USSR demonstrating an alternative way of living.

      Shame that there is not a single leader who can galvanize working people to sweep all the oppressors away in one stroke.

    7. If I may, sometimes, I feel that the opinion we shared here reflects value judgements of a certain group of people, which I am part of.

      But the world is where it is today because of the will of many different groups, for example, making America great again, the Silk road project, the EU project, etc.

      It boils down to the shared meanings of many large and small groups of people in the global (and local) arenas.

      How the world go forward is not easy, doesn’t matter how logical adequacy one has over the other or vice versa.

      Multiple realities is a phenomenon suggested by relativists, constructivists and others. Thus, objectivity is hard to define let alone operationalise when we talk about social, political and even economic issues mainly because of the differences in our socioeconomic background, values, customs, traditions and so on.

      Even the best of intentions like religions, have many shades.

      The question, I think, at least one, is how can we, or the world for that matter, get through this difficulty or hardship period without repeating the undesirable history? But peacefully.

    8. @ Patrick B:
      re membership of the board of the UN Human Rights Council:

      According to the UN website, members serve “for a period of three years and are not eligible for immediate re-election after serving two consecutive terms”.

      Given the HRC consists of 47 member states from defined areas covering the whole world, maybe a sharp-talking Westerner can point out to the Saudi’s (while they are a member of the HRC) how disgusting certain provisions of Sharia Law are; and China can point to the disgrace of entrenched poverty and high incarceration rates among blacks and other disadvantaged groups in the US and Australia….if you understand my drift….we are all “human rights abusers”…

      I’m convinced the UN is the best game in town… especially because many actors in the UN itself are only too aware of the urgent need for reform of the UN, and are working tirelessly to achieve a more effective body.

    9. Bill writes:
      “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.”

      In just three months!
      Where’s the source for that? I don’t see it in the “Fighting Inequality” report, or in the UBS-PwC “Riding the Storm”, which says

      The V-shaped equity market recovery from April to July 2020 propelled billionaire wealth to a new high. Total billionaire wealth globally climbed by 27.5% reaching USD 10.2 trillion [at end of July], up from 8.0 at the beginning of April.
      This is a new high, surpassing the previous peak of USD 8.9 trillion reached at the end of 2017.

      As for IMF, I’ve seen it called the Infant Mortality Fund, because that’s what it causes.

    10. Dear Neil. I do understand your drift, and pretty much agree with it. Also, of course, as robertH points out, the obvious advances in infrastructure, education, housing, health, technology, industry that China has made, while not constrained by austerity economics nonsense, supports the MMT analysis of how currency issuing governments can operate without going bust or causing hyperinflation. But the article on heteconomist.com that he references is rather overdoing it, in viewing China as not capitalist so it must be socialist on the basis of the state not storing up value and ‘Private enterprise that does occur is financed by publicly owned banks and often under the direction or strict regulation of government’. Yes private business is subject to more regulation, particularly in regards to legal borrowing, than in ‘western countries inc. Japan and SK, but there is a great deal of private business, far from an occurrence, and the relationship between boss and powerless worker is far from social.

    11. The Wealthy and the Powerful have a lust for wealth and power. Everything they do has an underlying design: to gather all productive resources to itself.

    12. Bill [typos?] writes:
      “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.”

      This looks like the source?
      “Across 2018, 2019 and the first seven months of 2020, the fortunes of four billionaires in the tech sector increased by 42.5 pe rcent, putting their cumulative fortune at an estimated $1.8 trillion.”
      https://www.ctvnews.ca/world/billionaires-riches-reach-record-highs-during-pandemic-1.5136326

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