Time for the World Bank and IMF to Be the Solution, Not the Problem

By Franciscka Lucien and Joel CurtainReprint | |

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Franciscka Lucien is Executive Director of the Institute for Justice & Democracy in Haiti. Joel Curtain is the Director of Advocacy at Partners in Health.

PORT-AU-PRINCE, Haiti and BOSTON, May 7 2020 (IPS) - The World Bank and the International Monetary Fund (IMF) have a historic opportunity to help stabilize a world reeling from COVID-19. Doing so will require the institutions to change course and aggressively support poor countries’ ability to invest broadly in the government services their populations need.

The pandemic is exposing the consequences of four decades of reduced public spending in the Global South, much of it mandated by the World Bank and the IMF (often called “International Financial Institutions” or “IFIs”). Those consequences were already painfully apparent to people in Latin America, the Middle East and elsewhere, who were massively protesting the loss of public services until the pandemic kept them home.

Starting in the 1970s, the IFIs imposed loan conditions via “structural adjustment programs” that forced sharp cuts in government spending in developing countries and constrained their ability to tax, to regulate business and to protect workers. These programs forced significant reductions in public health, education, agricultural support and other important social and economic programs.

Structural adjustment also transferred power from national governments, which are accountable to their citizens, to corporations and IFIs. These entities were empowered to make decisions affecting people’s lives without those impacted having any say. This transfer of power accelerated when the 1980s credit crisis made countries desperate for loans, especially because the IMF’s seal of approval was a prerequisite to loans by other creditors.

Haiti accepted structural adjustment in return for financial help during its democratic transition in the mid-1990s. The conditions forced the government to eliminate half of its civil servants, privatize public services, and slash tariffs that had protected farmers.

Twenty-five years later, foreign actors have increasing access to Haiti’s economy, but Haitians have limited access to healthcare and other basic services. Spending on public health went from 16.6% of the national budget in 2004 to 4.4% in 2017, and there are currently an estimated 124 ICU beds and 70 ventilators for 11 million people. The shriveled health and sanitation budgets had catastrophic consequences in 2010, when cholera-contaminated sewage leaking from a UN military base spawned the worst cholera epidemic of modern times, with over 800,000 sick and 10,000 killed. After seeing their country ravaged by a disease that can be stopped with clean water and adequate sanitation, Haitians are bracing for the worst from COVID-19.

Although the IFIs have abandoned “structural adjustment” as a term, Global South governments are still recovering from the programs’ effects, and the IFIs continue to impose loan conditions that limit spending for government services. The response to the COVID-19 pandemic is an opportunity to repair this damage with support that enables countries to invest in resilient systems that can respond to a range of crises, and deliver basic government services like healthcare and education.

Seizing this opportunity requires returning power to people, and their governments. The IMF took a small step in the right direction April 13 by deferring debt payments for Haiti and 24 other countries. Debt relief for low- and middle-income countries, coupled with a massive allocation of the IMF’s reserve currency ― Special Drawing Rights ― would provide governments a more appropriate level of financial flexibility. On April 17, the World Bank announced a new Trust Fund to help countries prepare for disease outbreaks.

The IMF’s Managing Director, economists and many governments have backed these common-sense measures. The US government has not, which raises the issue of power within the IFIs. Voting power at both IFIs is skewed profoundly in favor of wealthy countries, with low- and middle- income counties having only 40% of the vote despite representing around 85% of the global population. This power imbalance is both a symptom and a cause of rising global inequality.

The US has one of every six votes in the two IFIs. A bill filed last week would direct those votes to support Global South governments’ investments in the public education, healthcare and other services their citizens need, without imposing inappropriate conditions. The bill, called the Robust International Response to Pandemic Act., was sponsored by Representatives Jesús García (IL-04), Jan Schakowsky (IL-09) and Mark Takano (CA-41). The rest of Congress should rise to the challenge COVID-19 is presenting and pass the bill.