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By Lewis McLellan, Oliver West, Phil Thornton
Oct 13, 2020
Development activists are concerned that the IMF is pressuring Covid-affected countries to implement austerity measures, although these are not traditional conditions. The IMF says its message is “spend what you need, but keep the receipts.”
The overwhelming majority of Covid-19 loans from the International Monetary Fund have come with advice that poor countries hardest hit by the economic consequences of the pandemic should adopt tough new austerity measures, according to development lobbies.
Since the pandemic was declared in March, 76 of the 91 IMF loans negotiated with 81 countries, or 84%, have pushed to tighten their belts that could result in deep cuts in public health and social protection systems, such as benefits, said the charity group Oxfam.
Ana Arendar, the charity’s head of inequality policy, said this was “exactly the wrong instruction” the IMF was giving poor countries. “It is nothing short of unacceptable that the IMF is using its power to make life more difficult for people who are already struggling to survive,” he said.
“Millions more are likely to be left without medical assistance or financial support while looking for work, dashing any hope for a sustainable recovery.”
Ecuador highlighted, where the IMF advised the government to back off increases in health spending and halt cash transfers to people unable to work. A recently agreed $ 6.5 billion loan includes cuts to fuel subsidies.
Philip Mader, a researcher at the Institute for Development Studies, said that Ecuador had been negotiating with the IMF since 2017, which, he said, had led to a “substantial” reduction in public investment, including reduced investment in health. by two thirds.
“The consequences of this have been devastating for the country’s response to the pandemic,” he said. Global markets. “I would have expected the IMF to back down on that, but it looks like the new financial aid will continue to be based on fiscal consolidation and austerity.”
‘Spend what you need’
Oxfam said 14 countries, including Barbados, El Salvador, Lesotho and Tunisia, will likely freeze or cut public sector wages and jobs, which could mean lower quality health care and fewer nurses, doctors and community workers in countries that they already have a shortage of health personnel.
Mader said that Latin American states that lacked the social institutions to allow people to take refuge and give up weeks of wages had far worse infection and death rates. “Countries must have the public capacity to prevent poverty from expelling people and putting themselves and others at risk in order to feed themselves and protect themselves,” he said.
Nine countries, including Angola, Nigeria and Malawi, are likely to introduce or increase the collection of VAT, which Oxfam says applies to everyday items such as food, clothing and household items, the highest costs of which would be disproportionately borne by the poor.
Arendar urged the fund not to repeat the mistakes it made after the 2008 financial crisis. “Ordinary people paid the price for austerity measures,” he said.
Mader said the global consensus was to ask for loans, stimulus and bailouts now and worry about paying later. “The IMF and the rest of the IFI community have to think about what they want their role to be,” he said. “If they want to be a global social good, they should look beyond narrow investors’ risk aversion. That may mean that some of the loans they make will not and should not be repaid. “
Reza Baqir, Governor of the State Bank of Pakistan, said Global markets that the IMF had to rethink the balance between adjustment and financing. “This is a unique crisis. The last global financial crisis was unprecedented, but it is very, very different. I hope the IMF sees its own set of tools and how it wants to help countries out of the crisis. I look forward to much more in coming. In terms of how we design the programs, the size of the programs, what constitutes exceptional access. This is all at stake, “said Baqir, a former IMF division chief.
However, neither agency accuses the IMF of imposing conditions as it did in previous crises. The IMF said it is currently providing emergency financing with a strong focus on immediate fiscal support and without conditionality. Indeed, IMF chief Kristalina Georgieva has said that countries should spend what they can “but keep the revenue.” “Our message has been clear: Spend what you need to save lives and livelihoods,” said spokesman Gerry Rice.
However, he said that once the pandemic was defeated, many countries would have higher debts and lower incomes and would need to get their finances back on track.
Rice said governments should prioritize increasing revenue through progressive tax measures that focus on those who can afford to pay, crack down on loopholes and tax evasion, and shift spending priorities and make it more. efficient to “get more of your money”.
By Lewis McLellan, Oliver West and Phil Thornton
Oct 13, 2020
