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Narratives of Difference in an Age of Austerity 1st Edition Irene Gedalof (Auth.)
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Library of Congress Cataloging-in-Publication Data
Names: Kentikelenis, Alexandros, author. | Stubbs, Thomas (College teacher), author.
Title: A thousand cuts : social protection in the age of austerity / Alexandros Kentikelenis and Thomas Stubbs.
Description: New York, NY : Oxford University Press, [2023] | Includes bibliographical references and index.
Identifiers: LCCN 2023006076 (print) | LCCN 2023006077 (ebook) | ISBN 9780190637736 (hardback) | ISBN 9780190637750 (epub)
Subjects: LCSH: International Monetary Fund. | Structural adjustment (Economic policy)—Social aspects. | Social policy. | Public welfare. Classification: LCC HD87 .K457 2023 (print) | LCC HD87 (ebook) | DDC 338.9—dc23/eng/20230209
LC record available at https://lccn.loc.gov/2023006076
LC ebook record available at https://lccn.loc.gov/2023006077
DOI: 10.1093/oso/9780190637736.001.0001
ForIsobel,Jacob,andNevyn
Contents
Acknowledgments
1. Introduction
PART I. 40 YEARS OF STRUCTURAL ADJUSTMENT
2. The Evolution of IMF Conditionality
3. How to Evaluate the Effects of IMF Conditionality
PART II. SOCIAL PROTECTION AND STRUCTURAL ADJUSTMENT
4. Conditionality and Health Policy
5. Conditionality and Income Inequality
6. Conditionality and Health Outcomes
PART III. LOOKING FORWARD
7. The IMF and the COVID-19 Response
8. The Future of IMF Lending: A Better Way?
Appendix:ANewDatasetonConditionality,1980–2019 References Index
Acknowledgments
This book is the outcome of more than a decade’s worth of intellectual exchange and extensive collaboration between its two authors. Our starting point was the observation that the types of policies that were being proposed and implemented in the aftermath of the Global Financial Crisis that started in 2007 bore striking similarities to those that were proposed and implemented after every other major crisis since the 1980s: deregulation, liberalization, privatization. Academic scholarship and policy research had long cast serious doubts on whether such policy packages offered a reliable and durable way forward for countries in crisis. Yet we saw the promotion of the same set of policies by the “experts” of global economic governance over and over again—from Athens to Accra, from Buenos Aires to Bangui, from Kingston to Kigali. Were the critics wrong? We set out to definitively resolve these debates by collecting a lot of new data and developing new methodological approaches to capture the impact of austerity policies.
To complete this endeavor we accrued debts to many scholars, policymakers, and activists, who generously gave their time and energy to discuss our findings, debate our conclusions, and open doors for our research. Here, we limit ourselves to thanking those colleagues without whose input this book would not have been possible. Lawrence King provided encouragement in the early stages of the project and worked with us to publish the initial set of findings. Through generous funding by the Institute for New Economic Thinking and the Cambridge Political Economy Society Trust we were fortunate enough to be able to build a larger research team at the University of Cambridge. Bernhard Reinsberg and Timon Forster joined us on this project and their contributions to the
research underpinning this book were invaluable. We draw—directly and indirectly—on the findings of our team throughout this volume.
We were also privileged to have received guidance, support, and friendly criticisms from David Adler, Sarah Babb, Cornel Ban, David Brady, Miriam Brett, Emma Burgisser, Daniela Gabor, Kevin Gallagher, Ilene Grabel, Jo Marie Griesgraber, Neesha Harnam, William Kring, Valentin Lang, Christina Laskaridis, Martin McKee, Isabel Ortiz, Rebecca Ray, Leonard Seabrooke, David Stuckler, and Robert Wade. The collective input of this group strengthened our arguments and prompted us to think about how abstract processes occurring at the global level impact the lives of people on the ground. At Oxford University Press, we are grateful to James Cook for believing in this project and tolerating delays as we changed jobs, moved countries, and weathered a global pandemic.
On a personal level, Alexandros is grateful to Giovanni Menegalle, Domna Maria Michailidou, Philipa Mladovsky, Michał Murawski, and Charlotte Kühlbrand for the many hours spent discussing the impacts of economic crises and their reverberations on politics and society, and to Bart van der Heide for helping him maintain sanity and motivation while wrapping up this manuscript amidst much uncertainty. Thomas thanks Roisin Orchard and William Cochrane for their emotional and material support.
1 Introduction
On Monday, June 4, 2018, Jordan’s prime minister Hani Mulki was tendering his resignation after just two years in office. His government had been rocked by five days of intense protests throughout the country, culminating in several thousand demonstrators gathering outside his office the night before. At issue were the introduction of extensive budget cuts and steep tax hikes that the government had signed on to as part of its loan agreement with the International Monetary Fund (IMF). Jordan had already implemented increases in general sales taxes and removed bread subsidies following the IMF’s policy recommendations, but this time the population vehemently resisted. Protesters, egged on by parliamentarians, took to the streets and demanded change: the IMF-backed reforms were unwelcome. Responding to these calls, the new government promptly announced their intention to revisit the terms of the agreement and dispatched a team to seek a new deal with the IMF. A few months and minor concessions later, the controversial tax reforms were passed by parliament in November. Protesters gathered yet again calling for change, but it was now too late. Under the pressure of deteriorating economic conditions, the government had capitulated to IMF demands for a rapid scale-back of public debt from 94 percent of gross domestic product (GDP) to 77 percent in just three years. The funds raised through budget cuts and tax hikes would be directed to that goal.
Around the same time, on the other side of the world, Argentina’s government, facing economic crisis, went back to the doors of the IMF on Tuesday, May 8, 2018, to request financial assistance. This came almost 15 years after Argentina’s last encounter with the IMF’s
policy prescriptions that left nearly a fifth of the workforce unemployed. Unsurprisingly, the Argentine people were not content. Protests erupted all over the country against the steep budget cuts that the government pledged in exchange for the IMF loan. The 2.7 percent deficit in 2018 was supposed to become a 0.5 percent surplus within three years. Protests intensified in subsequent months as the government prepared to enact these cuts. On July 9, Argentina’s Independence Day, protestors mobilized again with signs reading “Independence Cannot Be Negotiated” and “No to the IMF.” That September, general strikes saw hundreds of thousands block the main streets surrounding parliament in Buenos Aires. Despite protests, however, the government pressed ahead. By the end of the year, Argentina was already implementing an array of unpopular measures—slashing energy subsidies, hiking taxation on cooperatives, reducing fiscal transfers to provinces, and instituting a hiring freeze for public sector employees.
In both cases, the IMF stands out as the key actor pushing countries to adopt tough budget cuts and structural reforms that fundamentally reshape their policy environments in exchange for providing much-needed loans at preferential terms. This loans-forreforms practice is known as “conditionality” and is one of the most controversial outputs of any international organization, as it restructures political-economic environments among borrowing countries. The IMF’s loans are intended for countries facing external shocks or unsustainable debt burdens, thereby placing the organization at the center stage of global economic governance as a key “financial firefighter.” In turn, conditionality is used both to avert moral hazard—that is, the risk that countries continue to adopt unsustainable policies if they can always anticipate yet another IMF bailout with limited strings attached—and to ensure that the funds are actually repaid to the organization.
Conditionality has afforded the IMF substantial domestic policy influence, with major implications for social policy. Countries like Jordan and Argentina resort to the IMF because the alternative— defaulting on external debt—can be much worse for their citizens. It would result in international lenders withholding further credit, which
could plunge governments, firms, and households into crisis (Roos, 2 019). For example, a default would ripple through the wider economy by provoking capital flight and a collapse of domestic banks; exporters and importers would lose access to trade credit, resulting in shortages of necessary goods; producers would find it difficult to obtain foreign or domestic investment, and would lay off workers; and households would struggle to obtain credit for consumption (Roos, 2019). Faced with such bleak options, most governments still choose the IMF. What has been the scale and scope of IMF conditionality over the past four decades, and how has it impacted social policies and outcomes? These questions are important because they highlight the role of the IMF—primarily an economic institution—in materially shaping the social conditions of its borrowers. This has obvious distributional implications, as IMF policy advice explicitly or implicitly promotes the interests of some social groups at the expense of others. How budget cuts are distributed is, after all, a core political question. But the IMF’s impact on social protection systems also shapes economic conditions in the long run, as adverse effects on these systems reverberate across time: they shape the income, health, and living conditions of individuals, and—by extension—key attributes of the future workforce of countries in crisis. Tracing the many links between austerity and social protection is the task of the present volume. But before outlining the ambition and contributions of the book, some opening remarks on the histories of the IMF and austerity are in order.
A Brief History of the IMF
In the global economy, no nation is an island. Each depends for many of the things it consumes on imports from other countries, and on revenues from the goods it exports to other countries. There is also a constant migration of capital flows (in the form of investment or loans) back and forth across national borders. When a country’s export revenues and financial inflows add up to less than the cost of
imports and capital outflows, the country is said to have a balance of payments deficit. This causes its central bank to lose reserves, and perhaps ultimately leads to a devaluation in its national currency. Orderly, incremental currency adjustments are routine events. Sometimes, however, there are big destabilizing shocks—a spike in the price of imports, or a crisis in the national financial system—that can cause large, disorderly devaluations, with a host of undesirable side effects: escalating debt, the mass exodus of nervous investors, spiraling inflation, and the contagious spread of financial instability to other countries. Enter the IMF as the most important global financial firefighter to provide loans to governments to manage and contain balance of payments crises.
Among the multitude of multilateral bureaucracies, the IMF stands out for the power it has over borrowing countries and for its role as the focal institution of global economic governance (see Box 1.1). The roots of the organization lie in the Bretton Woods Conference in July 1944, when representatives from 44 nations gathered in a mountain resort in New Hampshire to negotiate the foundations of the post–Second World War economic order (Mazower, 2012). The towering figure in these discussions was renowned British economist John Maynard Keynes, even though the ultimate outcome was much closer to the policy preferences of the United States, then already emerging as the world’s largest economy and creditor (Ikenberry, 19 92; Steil, 2013). In response to appeals for a system of global financial and monetary governance, the IMF was established in 1945. Its original role was to oversee the system of pegged exchange rates of member governments and make financial resources available on advantageous economic terms to countries facing balance of payments crises. But following the shift to floating exchange rates in 1973, only the second facet endured.
Box 1.1 Activities of the IMF
The IMF engages in three main operational activities. First, the organization conducts regular surveillance missions, in which it
monitors economic performance and risks at the national, regional, and global levels. These missions form the basis of nonbinding policy advice communicated to countries via annual discussions, called “Article IV consultations.” The IMF’s second core activity is the provision of technical assistance and training on economic issues to central banks, finance ministries, and statistical agencies. It is delivered via a combination of short-term staff missions, longterm in-country placements of resident advisors, and regional capacity development centers. Third, the IMF lends to countries experiencing balance of payments crises. In exchange for financial support, borrowing countries must agree to a package of obligatory policy reforms, or conditionality, administered through a lending program lasting from six months to four years. Loan disbursements are phased over the duration in tranches, contingent upon the implementation of policy reforms assessed on a quarterly or biannual basis.
Today, the IMF has an estimated one trillion US dollars of lending firepower (Gallagher et al., 2020). In principle, all member-states can turn to it for financial support, but in practice high-income countries rarely do anymore—with the notable exceptions of Cyprus, Greece, Iceland, Ireland, and Portugal in the aftermath of the 2007–2008 Global Financial Crisis. The main purpose of the IMF’s support is to prevent financial crises in one country spreading to its trading partners, forestall sharp or disorderly devaluations, and allow countries to keep servicing their external debts. In doing so, the organization became infamous for using these resources as a lever for inducing governments to implement policy reforms that are timetabled in lending agreements and assessed on a regular basis. Nonimplementation can result in delays in loan disbursements and— ultimately—the suspension of lending altogether.
But the nature of the conditions required of countries has changed substantially over the years. Until the 1980s, the IMF primarily required reforms to fiscal, monetary, and exchange rate policies with the aim of controlling inflation, stabilizing currencies,
and reaching sustainable balance of payments (Dell, 1981, 1982; Dia z-Alejandro, 1981; Williamson, 1983). These reforms appeared in loan documents as a series of quantifiable targets, such as reductions in the fiscal deficit and money supply. While potentially painful to local populations, IMF intervention was short-term in nature—usually about one year in duration—and did not disrupt the relative role of states and markets in domestic economies, a matter considered beyond the IMF’s mandate (Finch, 1983). In the mid1980s, however, the IMF introduced a series of lengthier lending programs—typically up to three years in duration—targeting structural change. The term “structural adjustment” became shorthand for an extensive range of reforms in these programs to promote fundamental, comprehensive, and enduring overhaul of a borrowing country’s policy arrangements.
Against a background of protracted economic crises in the 1980s and 1990s, structural adjustment programs became ubiquitous, achieving notoriety for requiring developing countries to implement market-liberalizing reforms (Chang & Grabel, 2004). The IMF’s advocacy of an erstwhile narrow set of reforms—mostly on fiscal and monetary policy—thus expanded to a much wider remit: the elimination of barriers to trade and the movement of international finance to facilitate access to international markets and promote foreign direct investment; repeal of government rules, regulations, and checks and balances surrounding economic activity—such as industry entry criteria and labor standards—to abolish perceived inefficiencies in the functioning of the private sector; and the selling of state-owned enterprises and natural resources to the private sector, with the hope of improving the economic management of these industries (Summers & Pritchett, 1993; Toye, 1994; Williamso n, 1990).
The augmentation of the remit of IMF activities to target policy areas that were hitherto under much greater state control was seen as evidence of “mission creep” and prompted intense controversies (Babb & Buira, 2005). On the one hand, these policies were seen as an undue imposition of a radical free market agenda on countries caught up in a crisis (Simmons et al., 2008). The fact that it was an
international organization dominated by the Global North (see Box 1. 2) forcing countries in the Global South to implement extensive reforms that expanded the remit of markets and reshaped state infrastructures led observers to draw parallels to the colonial era, only now rich countries were operating more stealthily through the cloak of a venerable multilateral institution (Browne, 1984).
Box 1.2 Governance of the IMF
The IMF is located in Washington, DC, and headed by a managing director who is, by convention, a European national—since October 2019 Kristalina Georgieva from Bulgaria. It is staffed by technocrats trained in neoclassical economics at elite universities, typically in the United States or United Kingdom. The IMF’s highest decisionmaking body is the Board of Governors, where all its 190 members are represented, and which meets twice a year. In terms of day-today operations, the organization is governed by an executive board that meets up to three times per week, composed of 24 executive directors that are appointed by member countries to decide on a range of key issues, including the approval of loans and the establishment of organizational policies. The institutional setup of the IMF reinforces dominance by the United States and other economically powerful countries that contribute to its resource base. In contrast to many other international organizations, their voting power is linked to this dominance. The United States holds the largest block of voting shares (16.5% of votes in 2021), followed by Japan (6.2%), China (6.1%), Germany (5.3%), France (4.0%), United Kingdom (4.0%), Russia (2.6%), and Saudi Arabia (2.0%). These eight shareholders appoint their own executive directors, whereas other countries must form constituencies (except for Syria, which is represented by the Russian executive director). The most important decisions, such as changes to the mandate, require a supermajority of 85%, giving veto power to the United States. Resistance to organizational changes that would grant greater influence to developing countries remains a major
source of contention and conflict (Vestergaard & Wade, 2013; Wade, 2013a, 2013b; Wade & Vestergaard, 2015).
But it was not only the ideological orientation of these policies that attracted attention. The types of reforms promoted by the IMF sought to irrevocably alter the policy environments of its borrowers by reducing governments’ options on how to deal with economic predicaments. Once many of the IMF-mandated reforms had been implemented, they were—by design—very difficult to reverse, as they create their own self-enforcing dynamics (Appel & Orenstein, 20 16; Stallings & Peres, 2011). For instance, attempts by countries like Argentina or Ecuador to renationalize national resources or companies sold off as part of IMF conditionality in the past have been met with vehement resistance from the multinational corporations that now own them and resulted in years of expensive litigation.
The promise of the IMF’s painful reforms was that they would be justified in the long run by sustained economic growth, which generally failed to materialize. This was most emphatically the case in sub-Saharan Africa, where the 1980s were dubbed a “lost decade” following a succession of IMF-endorsed crisis management measures that precipitated negative growth rates and triggered rapid rises in poverty (Harrison, 2010; van de Walle, 2001). Faced with disconfirming evidence, the IMF’s view was that their programs had paid insufficient attention to the institutions that allow markets to function, such as laws and judicial systems, but that the underlying market-liberalizing impetus was essential correct. By the 1990s, conditionality had expanded further to include rule of law and governance issues, and also become a staple vehicle for implementing the transition to capitalism in postcommunist countries. The IMF was extensively criticized in subsequent years, especially following their handling of financial crises in Mexico, East Asia, Russia, and Argentina (Babb & Carruthers, 2008; Stiglitz, 2002; Wade & Veneroso, 1998). By the early 2000s, in response to such criticism, the IMF pledged to strengthen the pro-poor orientation of
their programs (IMF, 2001b). We evaluate this track record later in this book.
Austerity and Its Discontents
A narrow interpretation of the term “austerity” refers to a reduction in the government budget balance. The budget or fiscal balance equates to the difference between what a government spends and the revenues it collects. A reduction in this balance, otherwise known as “fiscal consolidation,” occurs when governments cut expenditure and when they generate more revenues, such as by raising taxes. From a pragmatic standpoint, many economists— including IMF staff view austerity as a desirable policy prescription in times of balance of payments crisis because it frees up government resources to repay external debts and replenish international reserves (Ban & Patenaude, 2019; Chwieroth, 2010; Mo mani, 2005; Nelson, 2014a). Ideologically speaking, austerity also guards against having a big interventionist state, seen as anathema by orthodox economists, for whom the market is thought to be able to provide services to the population more efficiently (Ban, 2016). The idea goes that austerity is a form of voluntary deflation that allows a government to adjust via reductions in wages, prices, and public spending to restore competitiveness and inspire business confidence (Blyth, 2013). As austerity advocate John Cochrane of Stanford University proclaimed, “Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both” (cited in Blyth, 2013).
A wide mix of policies have been historically used to consolidate budgets (Blyth, 2013; Ortiz & Cummins, 2019, 2021). Cuts or caps on the government wage bill reduce or freeze the salaries and number of public sector workers. Reducing or removing social welfare programs—occasionally big budget items even in countries in
the Global South that still spend considerably less than high-income countries—can free-up funds. This includes overhauls of public health and education systems, like raising fees and introducing copayments for patients or students, which reduce public spending. Labor market flexibilization reforms help limit salary adjustments and decentralize collective bargaining, which encourages precarization of employment and further depresses incomes. Privatizations of stateowned enterprises can both remove expensive institutions from the budget balance sheet and generate short-term revenues that can limit budgetary pressures. Finally, increases in consumption taxes on basic goods and services, such as value-added taxes or excise taxes, has very commonly been a staple policy to bolster revenues.
In rich countries, the onset of austerity measures is commonly associated with the ascendancy of right-wing governments in the 1980s—most notably, Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States—that had ideological predispositions toward reducing the role of the state in the economy and expanding the remit of markets (Blyth, 2013; Harvey, 2005). In developing countries, however, it was often the IMF that advised governments to undertake austerity reforms, either as part of its regular surveillance missions or when countries had to sign up to its “structural adjustment programs” to borrow money. For this reason, the term “austerity” is sometimes used synonymously with “structural adjustment,” even though in practice IMF programs can entail a broader set of policies. As Larry Summers and Lant Pritchett explained, these programs were designed to target “the four ‘ations’—stabilization, liberalization, deregulation, privatization” (Sum mers & Pritchett, 1993). That is, they went beyond simply balancing the budget in the short term, as a narrow understanding of austerity implies, but were more ambitious in their nature. In this book we adopt this wider understanding, and use the terms “austerity” and “structural adjustment” interchangeably in reference to the broader suite of measures, unless stated otherwise.
Austerity policies have been consistently criticized for prioritizing short-term fiscal objectives over longer-term social investments such as health. For example, civil society organizations contend that
decades of austerity promoted by the IMF—as well as its sibling institution, the World Bank—have undermined social protection, impeding the ability of governments to respond to major shocks, including the COVID-19 pandemic (Griffiths & Todoulos, 2014; Ortiz & Cummins, 2019; Ortiz & Stubbs, 2022). Further, close observers claim that austerity had a detrimental impact on the population— that inequalities grew, and millions were pushed into poverty, with women particularly affected (UN Women, 2015). Some countries, like Pakistan and Jordan, have seen the emergence of widespread social mobilization to fight the introduction of austerity. Evidence on worldwide social protests suggests that 53 percent of them were resisting austerity measures and over 10 percent explicitly targeted at IMF conditionality (Ortiz et al., 2022).
In this book, we weigh in on controversies surrounding the social consequences of IMF-mandated austerity. These controversies have a long history (Payer, 1974). Critics argue that—by design or by omission—IMF conditionality can result in extensive collateral damage in developing countries (Babb, 2005), and that a social development policy agenda was never institutionalized within the organization even though it has become a widely recognized international priority (Vetterlein, 2010). But despite early recognition by the IMF that—in the words of its then managing director —“adjustment that pays attention to the health, nutritional and educational requirements of the most vulnerable groups is going to protect the human condition better than adjustment that ignores them” (de Larosiere, 1986), criticisms of its policy advice only intensified. Trailing the expansion of the IMF’s remit into an evergrowing number of policy areas, a new generation of studies furnished additional evidence of the links between IMF-designed reforms—like privatization, trade and financial liberalization, and the marketization of social policies—and adverse social consequences (C olclough & Manor, 1991; Stewart, 1991; Toye, 1994; van der Hoeven & Stewart, 1994). The IMF responded to these criticisms by claiming that its modus operandi now incorporates due attention to social protection issues (Fedelino et al., 2006; Gupta, 2015, 2017; IMF, 200
Who is correct? Is the organization right to proclaim that it has addressed criticisms and adapted the policies attached to its financial assistance packages vis-à-vis social protection? Or are critics accurate in their portrayal of the IMF as “going backwards” (Griffiths & Todoulos, 2014)? Tackling these contested questions requires new data, the use of appropriate quantitative methods, and extensive reanalysis of the impact of IMF-mandated reforms on public policies and the human condition. This is the task for the remainder of the book. In taking on these questions, we build on scholarship across the social sciences that has highlighted the connections and tensions between global processes and local outcomes, between economic reform and social change, between supposedly apolitical technocratic knowledge and attempts by peoples and movements to defend rights and livelihoods (e.g., Almeida, 2014; Almeida & Martín, 2022; Ghodsee & Orenstein, 2021; Kentikelenis, 2018; Orenstein, 20 08; Pfeiffer & Chapman, 2010; Walton & Seddon, 1994).
The Ambition and Contributions of This Book
Writing a book on structural adjustment in 2023 might appear anachronistic to some readers. Indeed, the IMF jettisoned this term altogether at the turn of the millennium and has carefully distanced itself ever since. The official narrative emanating from the institution is that they “do not do that anymore” (IMF, 2014k). But a starting point for our analysis is that taking the IMF narrative—or any selfserving narrative by an international organization, for that matter at face value is inappropriate. To be sure, “structural adjustment programs” were replaced by “poverty reduction and growth programs”—but does that really mean that the latter were substantially new creatures, and ultimately delivered poverty reduction and growth? These are empirical questions, with important real-world implications. After all, the IMF’s conditions fundamentally reshape domestic policy environments in borrowing countries,
thereby having a direct impact on socioeconomic development and long-run development trajectories.
However, answering these empirical questions has been marred with many difficulties until very recently. Most notably, social scientists did not have access to detailed and easy-to-use data on conditionality (Vreeland, 2006), thereby leading to highly imprecise measurement. For example, scholars studying the impact of IMF programs on different indicators tended to use a binary variable for the presence of a program or not in a given country in a given year. This assumes that all IMF programs are alike, when in fact they contain different types of conditions: some programs may emphasize labor market reforms, others might prioritize privatizations, and some may focus on rule of law and anti-corruption issues. Pretending they are all alike impedes a fine-grained evaluation of which precise policies help or hurt in relation to social outcomes.
This volume makes three key contributions. First, we present a comprehensive new dataset of IMF conditionality, which we also make publicly available at www.imfmonitor.org. Based on archival material on the IMF’s lending operations, we identified all policy conditionality in loan agreements between 1980 and 2019. In total, we retrieved over 6,100 loan-related documents, from which we extracted 65,707 individual conditions applicable across 132 countries. We then classified these conditions into eight mutually exclusive policy areas. The detailed codebook is available in the appendix. Through this data, we can initially show that “structural adjustment” is not a term with delimited use to describe 1980s and 1990s conditionality, but still highly relevant. There is a clear family resemblance of the reforms introduced in the past and those advocated today, albeit with modifications that we trace and clarify.
Second, we introduce a novel methodological approach to capture the effects of IMF programs. Our approach is an improvement on existing methods because it allows us to isolate where an effect is derived from among several types of IMF conditions, promising greater nuance for our findings and their policy implications. For instance, we can establish whether it is trade liberalization or stateowned enterprise reform that influences social outcomes, whereas
earlier studies could only identify that IMF intervention had an overall effect. Our approach also allows us to make causal—rather than correlational—arguments by addressing statistical biases that have hamstrung earlier analyses: that governments choose to participate in IMF programs reflecting, inter alia, the severity of economic crises and the political will of leaders to address the situation; and that once participating in a program, governments receive more or less conditions depending on domestic characteristics that also affect social outcomes, such as the extent to which democratic rights are respected.
Finally, with these two tools, we can turn to making a range of substantive contributions based on new analyses on the impact of IMF programs on social protection. Our findings provide grounds for continued skepticism about the role of conditionality. Across a range of empirical analyses, we show that IMF programs have led to the introduction of regressive public policies, which in turn have adverse impacts on social outcomes. Relatedly, we document that while the organization has made some strides in the introduction of pro-social spending measures, these are often cosmetic changes that are frequently not enforced. In short, there is still scope for extensive reforms in IMF programs if they are to underpin equitable socioeconomic development, especially in the context of the postpandemic recovery.
A note on what this book does not attempt is also relevant. We focus on the activities of the IMF due to its key role in influencing policy design at the level of central government decision-making. Its mandated reforms directly target tax and spending policies designed by finance ministries, and spell out structural changes in most major areas of economic policy. In doing so, the IMF shapes the policy space available to decision-makers across levels of government. But the IMF is not the only organization with the power to do so. The World Bank and the European Union can also attach conditions to their support, sometimes in cooperation with the IMF (Broome, 201 3; Kranke, 2020; Lütz & Kranke, 2014). In particular, the World Bank has also had a role in designing structural adjustment programs for low- and middle-income countries around the world since the 1980s.
Yet for the Bank, such programs—now revamped as “development policy lending”—form a relatively small share of its lending activities, with the bulk going to finance large projects like infrastructure or health facilities. Even so, criticisms of the role of World Bank projects and policies abound, but these receive extensive coverage elsewhere (e.g., Cormier & Manger, 2022; Gabor, 2021; Malik & Stone, 2018; N oy, 2017, 2021; C. L. Shandra et al., 2011).
Outline
The goal of this book is to explore how the IMF has influenced social protection worldwide. Without denying the importance of other areas of IMF activity (such as economic surveillance and technical assistance), we turn our attention to the decisive role played by the organization’s practice of conditionality in shaping public policies and social outcomes.
In Chapter 2, we situate our inquiry within contemporary scholarly debates and media criticism over the extent to which the IMF’s official narrative of organizational reform matches reality. Since the onset of the Global Financial Crisis in 2007–2008, a number of analysts have observed a “new, cuddly IMF” (Wolf, 2011). This has been coupled with a proliferation of self-congratulatory organizational factsheets, discussion notes, and public statements telling us that the IMF is now a changed institution. If the hype is to be believed, the IMF took on board the many criticisms of yesteryear and reformed its practices. The pièce de résistance of the new IMF is an organizational mantra of enabling policy flexibility for borrowing countries, a marked shift from the rigid structural reforms that shackled governments and were so notorious as to elicit a “phobia of the IMF” among people in countries participating in structural adjustment programs (IMF, 2014k). The chapter sets out to examine whether IMF rhetoric on policy flexibility for its borrowers matches the actual conditions attached to the organization’s loans. In so doing, the chapter offers useful context for Part II of the book by providing an overview of IMF conditionality, including its
organizational and technical apparatuses. Using our original data, we focus on whether the IMF has evolved to allow for more policy space by empirically exploring the patterns of conditionality in loan agreements between 1980 and 2019. What does the available evidence show? It provides little support for arguments claiming a fundamental transformation of practices by the IMF. Instead, we find that the scale of organizational change was both modest and shortlived. In the immediate aftermath of the Global Financial Crisis the scope of reforms was somewhat reduced, but as the IMF solidified its role as the central institution charged with crisis management, its programs re-incorporated many of the reforms that it claimed to no longer advocate. To explain this finding, we conceive of the IMF as an open system influenced both by external environments and internal pressures and demands that give rise to a decoupling between stated goals and actual practices of conditionality. Put simply, whattheIMFsaysisnotnecessarilywhattheIMFdoes.
Before proceeding with the analyses, it is essential to scrutinize the methods social scientists use to evaluate the effects of IMF conditionality. Chapter 3 takes on this task, arriving at a methodological template applied to the quantitative studies undertaken in Part II of this book. To understand the issues involved in pinpointing effects of IMF intervention on social outcomes, we consider the oft-used analogy of the IMF as a doctor giving treatment to a patient. Countries opt into an IMF program because they are suffering from macroeconomic maladies. The IMF prescribes a series of conditions to treat the patient, or ailing economy. If we fail to account for the fact that the patient—or country—was initially feeling poorly, then we underestimate the effectiveness of the doctor’s—or IMF’s—treatment. Scholars are, of course, acutely aware of such issues and have developed complex statistical solutions as a result, techniques we consider in the chapter. Yet these studies rely on a crude indicator of IMF intervention that statistically treats all programs as if they are identical, since data on conditionality was not yet available for this earlier generation of studies. Once we consider information on conditionality, additional steps must be included in statistical
analyses to ensure that we capture the effect of IMF intervention and not pre-existing circumstances that prompted the country’s government to seek a program. Thus, we develop a sophisticated state-of-the-art statistical strategy capable of testing the effects of IMF conditionality. In so doing, we can account for the two main sources of statistical bias. First, countries decide to enter an IMF program based on an array of domestic and global economic, political, and social characteristics, some of which cannot be directly observed or measured, which may in turn influence the outcome of interest. And second, these characteristics may also determine the number and type of conditions included in the IMF program. By statistically controlling for these factors, we are able to ascertain whether there is truly a causal relationship between IMF conditionality and social policy and outcomes, rather than being a mere correlation.
Chapter 4 focuses on health systems and is the first of three chapters in Part II that apply our statistical strategy to examine the social consequences of IMF conditionality. Strengthening public health systems is central to achieving universal health coverage and to minimizing the fall-out of global health emergencies, witnessed so acutely during the COVID-19 pandemic. In setting fiscal priorities for borrowing countries through the practice of conditionality, the IMF has emerged as a key player in shaping the design and implementation of health policies and systems throughout the world. While the IMF has long been criticized for impeding the development of public health systems in borrowing countries, the organization has persistently argued to the contrary, claiming their programs have in fact strengthened public health systems. We wade in on this debate by focusing on cross-national and historical comparisons of government health spending in response to IMF conditionality. The results demonstrate that IMF conditionality has a robust and powerful negative influence on government health spending. These effects are mostly channeled through labor-related reforms, such as wage and employment ceilings, which limit the ability of governments to hire and retain civil servants, including key medical personnel. We also find some evidence that fiscal, revenue, and tax
reforms—such as ceilings on general government expenditures and floors on the fiscal balance—shrink fiscal space for spending in the health sector. We then show how these channels of influence bear out on the ground in an analysis of additional archival documents for West Africa, a region that stands out due to the sheer magnitude of health and developmental challenges and near-constant presence of IMF programs over the past three decades.
Chapter 5 evaluates the impact of IMF conditionality on income inequality. The IMF has in recent years styled itself as a champion of reducing inequalities, representing a sharp departure from the reputation of the organization. According to its critics, the IMF has increased social inequalities through its own policy advice. Both sides of the argument have been guilty of resorting to selective anecdotes —rather than rigorous scientific inquiry—to consolidate their positions. Given the centrality of the IMF in guiding post-COVID economic recovery, it is crucial to obtain something approaching closure on the IMF’s record on income inequality. We therefore set out to test these competing claims systematically across a broad range of countries and years. Our results validate the position of the critics: IMF conditionality drives increases in income inequality, as measured by the income Gini. These findings are driven by reforms pertaining to the liberalization of flows of goods and capital as well as currency changes. Workers’ rights are often adversely affected by trade liberalization, as firing is made easier and employment relations favor business interests rather than worker protections; and the expansion of portfolio investments from liberalizing capital flows can increase market volatility and amplify financial crises, disproportionately affecting poorer individuals. Using an auxiliary dataset measuring the intensity of fiscal adjustment required by countries participating in IMF programs, we also show that IMF fiscal consolidation—conditions calling for cuts to government spending and increases in revenues—fostered inequality by concentrating income to the richest 10 percent of the population, with middle-class and low-income earners accruing the biggest losses. This occurred via wage, employment, and pension cuts for civil servants, as well as through rises in value-added taxes over income and corporate taxes.
Has IMF conditionality ultimately harmed population health? Chap ter 6, which is the last of the three chapters in Part II, investigates this issue. Apart from any impact that conditionality has on government health spending, increasing attention has focused on the effects of broader public policies on the social determinants of health, understood as the circumstances “in which people are born, grow, live, work, and age” (Commission on Social Determinants of H ealth, 2008, p. 1). The chapter initially focuses on two key measures of health outcomes: a universal health coverage index based on a series of risk-standardized death rates from 32 causes, and the neonatal mortality rate. Based on the most rigorous statistical techniques available, the evidence shows that across multiple decades throughout the world conditionality reduced coverage of essential health services and increased neonatal mortality, regardless of how much a government spends on health. This effect is derived from state-owned enterprise privatization and labor conditions, which affect health systems indirectly by weakening state capacity to deliver a range of effective public health services and interventions, as well as depriving public sector workers of high-quality healthcare access where such employment benefits are withdrawn. These conditions have a cascading impact on key social determinants of health, as changing work patterns and unemployment lead to stress and social exclusion, affecting access to food and fueling selfdestructive behaviors such as alcoholism. We also find a detrimental effect linked to health sector restructuring, as well as price increases for basic needs goods like food, water, public transport, and shelter, access to which influences key social determinants of health like stress and early life experiences. To further explore the effects of IMF conditionality on health outcomes, the chapter then draws on data for 23 additional indicators featured as health targets nested within Sustainable Development Goal 3 (i.e., to ensure healthy lives and promote well-being for all at all ages). Of these, 10 were influenced adversely by IMF conditionality: maternal mortality, under-five mortality, malaria cases, hepatitis B incidence, vaccination coverage, health worker density (nurses and midwives, physicians, and summed across cadres), deaths from poisoning, and deaths
attributed to unsafe water, sanitation, and hygiene. The only indicator where we detected a beneficial impact was for the prevalence of smoking, a likely product of conditions calling for increases in excise and value-added taxes, thereby shrinking demand for tobacco due to rising prices.
Chapter 7 grapples with the question of how the IMF has changed since the onset of the COVID-19 pandemic. The IMF stressed the importance of avoiding a divergent recovery from the pandemic, where some countries race ahead and others fall further behind. To this end, IMF managing director Kristalina Georgieva called for an economic recovery from the pandemic that should not witness budget cuts, but rather investments in employment and human capital (Georgieva, 2021b). Given these statements, are our findings on the detrimental social impact of IMF conditionality still relevant in a post-COVID world? Based on public spending projections from the IMF’s highly influential World Economic Outlook report, we find—as we did in Chapter 2 for an earlier era—that the IMF’s proclamations cannot be taken at face value. A total of 86 countries are projected to face fiscal contractions by 2023—that is to say, they will be spending less than their 2010s average—exposing 2.3 billion people to the socioeconomic consequences of budget cuts. These projections become prescriptions for many developing countries, especially IMF borrowers where they get inscribed as conditions. We also present new data on IMF financing approved to combat COVID19 and subsequent economic recovery. While no-conditionality facilities were the prevalent lending instrument for the initial phase of the pandemic, these are being replaced by lending arrangements that mandate the introduction of policy reforms—those that have been the topic of analyses throughout this book. To better understand the requirements of post-COVID IMF programs, we examine the precise content of IMF conditionality in three of these programs: Ecuador, Kenya, and Madagascar. We find that these programs continue to include steep austerity measures and structural reforms like privatizations or civil service restructuring. The narrative on the abandonment of austerity is therefore dubious, as there is every indication that the IMF is returning to its business-as-
usual approach. Mistakes of the past—such as conditions that have reduced government health spending, increased income inequality, and detrimentally impacted health outcomes—may well be repeated without decisive action to forge an alternative approach.
Looking forward, what is to be done? In the concluding Chapter 8, we elaborate on how the IMF can effectively live up to its promise and potential by encouraging more effective engagement with social protection policies and avoiding the adverse socioeconomic consequences that we document in this book. In the immediate aftermath of the Global Financial Crisis of 2007–2008, commentators remarked on what appeared at the time as a period “pregnant with new development possibilities” (Grabel, 2011, p. 805), which—as our data shows—never came to fruition. And while international political economic history does not repeat itself, it does sometimes rhyme. Early in the COVID-19 pandemic, no-conditionality IMF facilities supported rapid and substantive increases in health and social protection spending; the longer-term outlook presents a bleak picture of austerity redux. But a window of opportunity does present itself. This window is closing but has not shut completely. Among governments and international institutions, social policy is receiving renewed attention and there has become a much clearer recognition that “we are only as strong as the weakest health system,” as UN Secretary General Antonio Gutiérrez put it (United Nations, 2020). The chapter contemplates how IMF programs will interface with social protection policies in a status quo scenario. We then home in on a fledgling area of IMF engagement that is likely to become the dominant battleground for social protection issues: climate change adaptation and mitigation policies. Finally, we reflect on whether the IMF’s mandate is consistent with achieving a socially just world economy (it is!), before proposing concrete recommendations on how the organization can move toward addressing the criticisms raised in this book.
