In the midst of the pandemic, why does the IMF continue to push for austerity in the countries of the South?
This article is part of our Economy ‘Decolonize the economy ‘ series.
In the aftermath of the 2007-2008 financial crisis, a report by the independent assessment office of the International Monetary Fund on the institution’s handling of the crisis, praised its role in supporting global stimulus packages to stimulate economic activity, but criticized it for its endorsement of ‘a premature return to austerity measures. Surely the IMF won’t make the same mistake twice?
At the onset of the COVID-19 crisis, IMF economic forecasts and warnings that the pandemic could trigger a global recession on a scale not seen since the Great Depression prompted governments to act.
Debt relief was pledged for the poorest countries and the IMF quickly began making emergency loans to governments desperate for cash as the virus moved from country to country. The grants would have been preferable, but the fact that they were able to transfer large sums of money quickly was welcomed.
But it didn’t take long for the IMF to return to its usual profile of a relentless provider of austerity economics to developing countries. In normal times, this identity makes its lending programs an obstacle to development and human rights; in the days of COVID-19, it threatens to plunge countries into years of suffering and depression – another ‘lost decade’ for development, as many have warned, including the IMF itself .
ActionAid’s new policy briefing, The pandemic and the public sector, examines how the COVID-19 health and economic crisis has affected IMF policy advice, with a particular focus on constraints on the public sector wage bill. He finds that the emergency loans that the IMF distributed between April and July contain commitments to new or renewed austerity programs as soon as the immediate health crisis reached its peak, with little provision for a period of recovery. .
We have found that the documents attached to these emergency loans contain a poison pill that many might have missed when the main concern was getting cash. In the majority of loans, the IMF has made commitments from most recipient governments to revert or embrace austerity as soon as the pandemic recedes (in sub-Saharan Africa, 25 out of 30 countries pledge a full reset, and four more promise a).
Virtually all countries benefiting from an IMF emergency loan have a section like that of Ghana, indicating:
“The government remains fully committed to maintaining macroeconomic stability and will pursue medium-term policies consistent with fiscal consolidation.”
Fiscal consolidation in the IMF lexicon means austerity programs. Although these measures are not presented as conditions, the obvious pressure from the IMF to use the word “commitment” in the lending documents of most countries certainly suggests an obligation on the side of governments. These commitments will reduce or freeze public sector wages and seriously limit public spending during what would otherwise be the period of countries’ economic recovery.
This inability to sustain a genuine recovery after easing demands for austerity at the start of the crisis is uncomfortable with statements by IMF Managing Director Kristalina Georgieva in April that the crisis is an opportunity for “create a different and better future together“.
There are other glimmers of alternative thinking on the part of the political services and the leaders of the IMF where this return to austerity is called into question. Frequently Asked Questions document on the IMF’s response to COVID-19 argues that “countries should also be ready for a fiscal stimulus to stimulate demand and help the economy recover.
And last week Georgieva warned in a blog post on the harmful effects of austerity: “Just as they [indebted countries] beginning to recover from the pandemic, many of these countries could experience a second wave of economic distress, triggered by defaults, capital flight and fiscal austerity. Preventing such a crisis can mean the difference between a lost decade and a rapid recovery that puts countries on a sustainable growth path.
It is striking that Georgieva is referring to a ‘lost decade’, which refers to the 1980s in developing countries (and for many in Africa as well the 1990s) due to the economic shutdown, including massive erosion public services, caused by IMF structural adjustment or austerity. programs that halted economic development in the name of stabilization.
But emergency loan documents as well as recent program documents reveal that the IMF is only comfortable responding to the immediate health crisis, not the devastating post-pandemic economic crisis to which COVID- 19 is giving rise. Despite all Georgieva’s speeches on building a “different and better future together”, the IMF has revealed itself in its real emergency intervention as having only one tool: austerity..
Faced with a once-in-a-century economic crisis requiring major systemic revisions, the world’s leading macroeconomic institution is scratching its head and seems to suggest it can offer no alternative to the austere status quo it has imposed over the past 40 years. years.
Perhaps it is time to find a way for global agencies other than the IMF, such as the United Nations Conference on Trade and Development or the United Nations Development Program, whose mandate goes beyond the maintaining a particular definition of economic rigor to enhance development and global well-being, to take a more active, even leading role, in the development of financial recovery plans for developing countries.