For several decades now, the policies of international financial institutions such as the International Monetary Fund (IMF) and the World Bank (WB) have been subjects of concern to health and development activists globally. Created in 1944 to manage the aftermath of the Second World War, 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 ravaged 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 went into a long downturn and the world went through two sudden oil price shocks in the 1970s, many developing countries faced sovereign debt crises (the inability to meet regular payments on their international loans) that threatened the stability of global capitalism. The IMF and WB stepped in with new loans or grants to help heavily indebted countries meet their payments but, in return, required these countries to restructure their economic and fiscal policies. These ‘structural adjustment policies’ reflected the neoliberal economics promoted by conservative governments (such as Ronald Reagan’s in the US, and Margaret Thatcher’s in the UK), and emphasized small government, fiscal retrenchment, trade liberalization, the privatization of government assets, financial deregulation, and minimal social protection spending.
These neoliberal policy requirements largely proved disastrous to health, education, and poverty reduction, especially in those countries most dependent on them; in Africa and Latin America, the 1990s are still referred to as ‘the lost decade.’ Subsequent research has 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 of society over all. They failed even to stimulate economic growth, which was the rationale used to defend them.
By the 2000s and the adoption of the Millennium Development Goals, the IMF and WB were more insistent that governments receiving financial bailouts should try to protect their health and education budgets even as they cut back on their overall spending. This had mixed results (some countries did protect their health and social spending, others did not) but, in the context of falling GDP or the devaluation of a country’s currency, per capita spending in health and education in many countries often shrank in actual dollar terms.
In the aftermath of the 2008 global financial crisis — a crisis of globally liberalized and deregulated investor greed that made a few people fabulously wealthier and many others substantially poorer — at the behest of the IMF, most governments implemented what we now refer to as austerity, a sort of ‘structural adjustment’ lite. Austerity policies were something new for most of the rich world, but were essentially just a repeat of conditions long familiar to developing countries that had become dependent on IMF emergency loans.
“Divergent recovery” from COVID-19
Then came the pandemic. Governments in many low-income countries, already carrying high debt-loads, borrowed even more from international markets to support their citizens during this time. This resulted in an international debt burden that once again reached the same levels that had led to the sovereign debt crises of the 1980s. A new IMF narrative now stressed the importance of avoiding a post-pandemic ‘divergent recovery’, in which some countries steamed ahead with high growth rates underpinned by robust government interventions while others fell 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 loans continue to require fiscal cuts and the liberalization and privatization that will keep many poorer countries in dependent relationships with the world’s rich countries.
One recent study found that although the IMF’s policy rhetoric has softened, the impacts of its loan conditions will see over 80 countries experience fiscal contraction over the next few years. Some of this will be a direct result of IMF lending conditions. Although not all the pandemic emergency funds that the IMF has made available to developing countries have attached conditionalities, almost half did and still do. The debt distress of recipient countries might be high, the required government budget cuts will be devastating. In other cases, the budget cuts might be milder, but they are still a part of the neoliberal playbook of increasing indirect taxation (which is hardest on a country’s poorest), slashing food and fuel subsidies, limiting the public sector wage bill, and privatizing state-owned enterprises. These are the same policies that we know from the 1980s and 1990s have almost always led to negative health and socio-economic outcomes.
Although some IMF lending conditionalities (in some countries) are not as stringent as they were in the past, they are expected to become more rigid in the near term as more countries face multiple health, environmental, and socio-economic crises. And while the IMF and WB do encourage recipient governments to protect their public spending in health, education, and social welfare, given sectoral competition for a smaller amount of government revenue, this doesn’t always happen. And what about housing? Or water and sanitation? Or formal employment growth? Or agricultural support to rural farmers? Protecting public investment in the social determinants of health is as important as protecting spending in health and education.
Special Drawing Rights should go to low-income countries
Instead of renewed (and largely failed) policies of structural adjustment, there are calls for the IMF to issue Special Drawing Rights (SDRs) — the Fund’s reserve currency — to support low-income countries’ pandemic recoveries. SDRs are virtually interest-free and come without any conditions. In 2021 the IMF approved the release of $650 billion in SDRs in response to the pandemic, the largest international contribution to pandemic recovery yet. But current rules mean that most of this amount is accessible only to high-income countries. Low-income countries will get just 1% of the SDR allocation. Activists are urging wealthier nations to voluntarily allocate their share to low- and middle-income countries (and some have), but also point out that the IMF should shift its allocation rules so that at least $400 billion is available to the countries that need it most. They have also called on the IMF to issue an additional $500 billion annually in SDRs over the next 20 years to finance climate change mitigation.
Finally, to bring the WB back into the picture: in its support of universal health coverage, the WB continues to actively promote private sector involvement in health systems, in financing, insurance, and health services delivery. Publicly funded and delivered services, upon which the poor invariably rely, could find themselves facing cuts while the private health sector benefits from increased public subsidies.
In sum, the IMF and WB are now attempting to project a kinder, softer image. But their role in the global economy is, and always has been, to defend the market economics of capitalism, which, under the past 40 years of neoliberal dominance, has disproportionately benefited the world’s wealthier countries and individuals. Unless and until countries address the structural roots of economic inequality, the conditions attached to IMF emergency loans or WB grants will do little or nothing to make the world a fairer place.
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.