The G20 summit in London agreed in principle to raise a staggering $1.1 trillion to help save the world from the effects of the global economic meltdown. Much of the funds pledged would be funnelled through the International Monetary Fund (IMF). But according to a document published by ActionAid USA, there is mounting evidence that the economic policies promoted and enforced by the IMF may prevent developing countries from being able to spend more in their national budgets, with drastic consequences for health and education budgets being constrained at unnecessarily low levels.

The final G20 resolutions focused on putting more money on the table that can be accessed by the poorest countries in the world, including a $500bn fund for the IMF - to lend to struggling economies, $250bn to boost world trade, $250bn for a new IMF “overdraft facility” that countries can draw on, $100bn that international development banks can lend to the poorest countries and the IMF pledged to raise $6bn from selling gold reserves to increase lending for the poorest countries.

The ActionAid document, entitled "Changing IMF Policies to get more doctors, nurses and teachers hired in developing countries", highlights the following points:

According to the World Health Organization (WHO), 57 countries, most of them in Africa and Asia, face a severe health workforce crisis. WHO estimates that at least 2.4 million health professionals and 1.9 million health workers, or a total of 4.3 million health workers, are needed to fill the gap. Without prompt action, the shortage will worsen. Health workers are inequitably distributed throughout the world, with severe imbalances between developed and developing countries. This global workforce shortage is made even worse by imbalances within countries, with the greatest deficits in peri-urban and rural areas, and with misallocations between public and private/NGO/faith-based sectors. Sub-Saharan Africa faces the greatest challenges: while it has 11 percent of the world's population and 24 percent of the global burden of disease, it has only 3 percent of the world's health workers.

Additional doctors, nurses and teachers cannot be hired under unnecessarily restrictive fiscal policies (deficit-reduction targets) and monetary policies (inflation-reduction targets) attached as binding conditions on International Monetary Fund loan programs. 

The history of the IMF

The IMF was created in the 1940s after World War II to help finance the rebuilding of Europe and to provide short-term loans to countries that were importing more than they were exporting. However, in the 1980s, the Reagan administration in the US and the Thatcher government in the UK led a sea change in the way economics is understood, and introduced a whole new set of free market and “free trade” policies into the international foreign aid system by attaching such economic policy changes as conditions on foreign aid to developing countries. At the IMF in particular, part of this major change was the introduction of “monetarist” policies, which prioritized extremely low inflation and reducing or eliminating government deficits over other goals such as higher employment, GDP growth and public investment. While these policies were ostensibly designed to force governments into tackling the huge debt crisis and macroeconomic instability afflicting many developing countries at the time, today these policies are undermining the ability of poor countries to scale-up public spending to fight HIV/AIDS and other pressing health needs and to achieve the Millennium Development Goals (MDGs) for health and education.

The immediate consequences of the IMF policies in the 1980s and 1990s were steep layoffs of personnel across all the public sectors, including public health systems. The lasting impacts have prevented countries from being able to make the necessary long-term capital investments in the underlying infrastructure of the public health systems. Public investment as a percent of GDP has been chronically under-funded in many countries over many years, leading to dilapidated public health facilities, weakened health systems, and an insufficient number of health workers across the developing world today. The IMF’s restrictive spending policies prevent countries both from being able to absorb and spend more foreign aid and from generating more of their own resources domestically.

The IMF’s “Signal Effect” to Other Aid Donors

Over these years, the IMF has amassed tremendous power for itself as the final arbiter of what supposedly constitutes appropriate policies for “macroeconomic stability,” and as a consequence, most bilateral and multilateral lenders and aid donors look to the IMF for its “red light/green light” signal before giving foreign aid, loans or debt cancellation to developing countries. In this way, the IMF has come to play the role of the head of a foreign aid cartel, in which most other foreign aid donors have abdicated their own individual ability to assess the economic policies of their borrowers.

IMF Policies Can Block the Spending of Donor Aid

A 2007 report by the IMF’s Independent Evaluation Office (IEO) on “The IMF and Aid to Sub-Saharan Africa,” examined IMF loan programs to 29 Sub-Saharan African countries between 1999-2005 found that 37 percent of all annual aid increases to these countries in these years was diverted into building international currency reserve levels and that another 37% was devoted to debt repayment. That left and only about $2.70 of every $10 in annual aid increases for actual spending on health, education, infrastructure, or other development needs. So-called weak performers (those with inflation above 5% and “low” foreign currency reserves) on average spent only of 15% of new aid. Having so much of new aid increases not being spent was certainly not the intention of the donors, or citizens in donor countries. According to the IEO report, the “main drivers” in decisions to curtail spending of the aid was the IMF’s insistence on very low levels for inflation, its excessive concerns about the volatility of aid, and its desire for ever higher currency reserves to protect against economic “shocks.”

As part of the larger context for the IMF’s tight monetary policies, one of the major overarching findings of the IEO report was that the IMF Executive Board and senior management were never really enthusiastic about the emphasis placed by donors on “poverty reduction” or the new efforts to scale-up aid and spending for the MDGs over the last several years. Without strong internal leadership directing any real policy changes in this regard, and without wide-spread publicity about pro-spending, pro-growth policy changes, the IEO report found that staff simply reverted to prioritizing macroeconomic stability over other goals. The important implication of this finding for aid advocates is that there is a contradiction happening within the leading donor governments between enabling a “scaling up environment” on the one hand while enforcing rigid macroeconomic stability and spending restraint on the other. 

Wage Bill Ceilings

In recent years, the IMF felt the need to suppress government spending through the use of so-called “public sector wage bill ceilings,” or caps on the amount of money used for paying the wages of public sector employees. Such wage bill ceilings have interfered with countries’ ability to educate, hire and retain the numbers of doctors, nurses, healthcare workers and teachers needed to fight HIV/AIDS and achieve the MDG health goals or to train younger generations. For example, such a policy in Kenya led to several thousands of professionally trained nurses remaining unemployed over many years. International public pressure forced the IMF into retreating somewhat on its wage bill ceiling policy in July 2007, but the IMF still reserves the right to impose such caps, while promising to do so less often in the future. However, the wage bill ceilings are merely a symptom of the deeper problem arising from unnecessarily restrictive fiscal and monetary policies: chronically insufficient public spending and under-investment in human capital development and preservation.

For more information: The G20 Summit: http://www.g20.org/

ActionAid campaign: http://www.actionaidusa.org/what/imf_project/tell_congress_no_gold_sales_for_imf/