The Imf Formula: Generating Poverty - International Monetary Fund - Statistical Data Included

Ecologist, The, Sept, 2000 by John Cavanagh, Carol Welch, Simon Retallack

For two decades, the IMF's Structural Adjustment Programmes have wreaked social, environmental and economic disaster up on the developing world.

When the Fund and the Bank announced at their 1999 annual meeting that poverty reduction would henceforth be their overarching goal, this sudden 'conversion' provoked justifiable scepticism. The history of the IMF shows that it has consistently elevated the need for financial and monetary 'stability' above any other concern. Through its notorious structural adjustment programmes (SAPs), it has imposed harsh economic reforms in over 100 countries in the developing and former communist worlds, throwing hundreds of millions of people deeper into poverty.

The IMF came to hold virtual neo-colonial control over developing countries as a result of the Third World 'debt crisis' of the 1980s. In the 1970s, commercial banks made large loans to developing countries that were mostly wasted by dictators and military regimes. When oil prices shot up in 1979 and US interest rates were raised sharply in the early 1980s, heavily indebted countries suddenly found themselves unable to make soaring interest payments. Default to the banks could only be avoided with continual refinancing. That is where the IMF stepped in.

Unless the IMF certified that an economy was being 'restructured' and 'maintained soundly', the world's public and private lenders would refuse to extend loans. The IMF decided that this meant adherence to the policy package of structural adjustment, which essentially integrates national economies into the global market, enabling multinational corporations to access cheaper labour markets and natural resources, and increase exports. Sold as means to increase domestic growth and living standards, measures have to be introduced to remove restrictions on trade and investment, promote exports, devalue national currencies, raise interest rates, privatise state companies and services, balance national budgets by slashing public expenditure, and deregulate labour markets.

Caught in the trap of having to repay massive debts, most developing country governments -- representing four billion people or 80 per cent of the world's population -- have felt they have had little choice but to agree to implement these reforms in exchange for IMF assistance. The results, however, have brought ruin to national economies, cut-backs in schools and hospitals, increased poverty and hunger, and environmental harm.

The impact on employment

The IMF has ardently promoted so-called 'labour market flexibility' through changes in labour laws and wage policies designed to make countries more competitive and attractive to foreign investment, and to remove 'disincentives' for employers to hire more workers. According to the 1995 United Nations Trade and Development Report, however, employers are using extra 'flexibility' in labour laws to shed jobs and downsize rather than add to productive capacity and create work, as reforms are introduced to make it easier to fire workers and undermine the ability of unions to defend them.

In Spring 2000, for example, Argentinian legislators passed the harsher of two labour law reforms after IMF officials spoke out strongly in support of it, even though tens of thousands of Argentinians carried out general strikes against the reform.

Also contributing to unemployment is the IMF requirement that countries privatise public companies and services and fire public sector workers. In many developing countries, the public sector has provided a great deal of employment. As the IMF forces countries to downsize government agencies, the ranks of the unemployed grow faster than the private sector can absorb them. Removing barriers to foreign investment and trade, meanwhile, makes it much harder for private local producers to compete against better-equipped and richer foreign suppliers, and so also often leads to the closure of businesses and layoffs.

Reorienting the economy towards production for export can have similar results. With most developing countries under structural adjustment, nearly all of them are trying to export similar, often identical, agricultural products and mineral resources to the industrialised nations. The result is a glut, the collapse of staple export prices and the further loss of livelihoods.

Similarly, the IMF policy of devaluing national currencies in less developed countries, makes imports -- which usually include energy resources and machinery -- more expensive, squeezing import-reliant domestic industries which are forced to lay off more workers. Likewise, the IMF policy of raising interest rates prevents small businesses from getting the capital needed to expand or stay afloat, often leading them to shut down, leaving yet more workers unemployed.

The IMF's purely market-based approach has contributed to the fact that at least one billion adults -- more than 30 per cent of the global workforce -- are unemployed or seriously underemployed today. In Senegal, touted by the IMF as a success story because of increased growth rates, unemployment increased from 25 per cent in 1991 to 44 per cent in 1996. In South Korea, a US $58 billion structural adjustment loan in 1998 contributed to an average of 8,000 people a day losing their jobs. Compounding this harsh reality is the lack of existing social safety nets that can support people out of work.