IMF serious about measuring conditionality impacts?

17 February 2011

More criticism emerged of IMF programmes as it begins the process of another conditionality review. Meanwhile, political upheaval in Ireland and continued protests in Greece are focussing attention on the IMF’s controversial economic policy advice.

A new academic paper published in the International Journal of Health Services in January finds that countries with IMF programmes failed to increase public health spending when receiving additional health aid. The paper by David Stuckler at Oxford University, Sanjay Basu at University of California San Francisco and Martin McKee at the London School of Hygiene and Tropical Medicine, responds to an article in the journal Lancet which argued that routing health aid through NGOs rather than developing country governments might be more effective in increasing actual expenditure on health services.

The statistical analysis of 119 countries between 1996 and 2006, which the authors admit is based on weak data and susceptible to selection bias, finds that “in IMF-borrowing countries there was essentially no additional benefit of external health aid – each additional $1 of aid resulted, on average, in less than $0.01 added to the health system (complete displacement). In countries that did not borrow from the IMF, however, each additional $1 of aid resulted, on average, in about $0.45 added to the health system.”

in IMF-borrowing countries there was essentially no additional benefit of external health aid

The IMF denounced the study as having “serious methodological problems. It ignores the economic situation of countries borrowing from the IMF: they nearly always face severe economic disruption.” The authors had admitted “reservations about drawing potentially far-reaching conclusions from the data”, but still had argued that even with countries in crisis “it is reasonable to expect aid from donors to have at least some positive impact on health funding, especially given that health needs are often greatest at such times.”

The IMF also argued that their programmes actually encourage poor countries to raise their health spending: “We have quadrupled concessional lending and are lending at zero interest. We have made our lending programmes more flexible, streamlined policy conditions, supported higher government spending to cushion the downturn, and introduced a more flexible approach to debt. The IMF also supports robust social safety nets.” However, their response failed to distinguish between the use of aid in general and the specifics of the research, namely “changes in aid”. It is unclear whether the IMF will deal substantively with the question about what happens when health aid to an IMF programme country increases.

A rebuttal by the authors noted that “the IMF’s criticism raises a deeper question. When challenged on this issue, [the Fund] often invokes the problems facing the countries it lends to. Yet this cannot substitute for evidence of the effects of the IMF’s policies. Why would financial crisis cause greater aid displacement? … The Fund also claims that ‘this time it is different’ and its policies have increased social spending, although we are not the only ones to contest this. Aid for health should be additional; the onus of proof is on the IMF. Rigorous scientific studies and methods are needed to ensure there are neither unintended nor adverse intended consequences, such as aid diversion and displacement, arising from the advice of IMF economists.”

Rick Rowden, a well-known IMF critic based at Jawaharlal Nehru University (see Update 69), responded to internet discussions of the merits of the research saying: “One way to have criticised the Stuckler, et al. paper would have been to explore why various studies have so often inconsistently found differences or no differences between IMF programme and non-IMF programme countries. The answer may well be that it is not about an IMF programme, per se, but rather the ideological biases that underpin conventional monetary policies that is actually at issue.”

IMF conditionality review

The IMF is launching an internal review of conditionality policy this year. The Fund refused to publicly share the concept note on the methodology for the review before the board had discussed and agreed it in mid February. Thus the public, NGOs, and experts had no opportunity to input into or influence the design of the review.

Five NGOs including Third World Network and Oxfam wrote to the head of the IMF’s policy department in January arguing that “assessing the criticality and focus of conditions, the supposed purpose of the conditionality guidelines, would necessitate a review of the policy content. We also believe that the conditionality review must also assess the appropriateness of the quantitative targets included in IMF programmes, as it is often through these targets rather than structural conditions, that the greatest negative impact is felt.” They also noted that and “an assessment of conditionality must involve a dialogue with those affected. This means not only the country authorities, but also line ministries and people in the countries in question.”

While they failed to receive an official reply, staff from the IMF policy department said the review would look at both programme design and specific conditions, and that it would investigate, among other things, whether the right balance had been achieved between adjustment and the amount of IMF financing, as well as the impact of IMF programmes on growth and employment. The staff were at pains to warn that there should not be too much hope for new analytical work on the impact of IMF programmes, because of the limited budget and time to conduct the review. With little new analysis, civil society organisations are likely to continue their critiques based on their independent findings that the IMF often stands in the way of development (see Update 72, 71, 70).

New loans, more criticism

In the wake of controversy surrounding the IMF-EU loan to Ireland (see Update 73, 72), the government fell in mid January and prime minster Brian Cowen was forced to agree to stand down at the time of early elections due at end February. All polls are pointing to a change in government. The two major opposition parties have both called for a renegotiation of the loan, while smaller opposition parties such as the nationalist Sinn Fein have called for kicking out the IMF and EU altogether.

Meanwhile, protests persist in Greece. Greek transport workers held a one-day strike in December at the time of passage of the 2011 budget and again in mid January, followed by doctors and health workers in early February, with all public sector workers to follow at end February. The Greek privatisation plan, required by the IMF and EU, was published in mid December and includes the sell-off of state railway and transport companies, the Athens airport, real estate assets, water supply and utility firms, the postal service and hundreds of port and highway concessions.

In contrast, the IMF approved an increase in Mexico’s conditionality-free Flexible Credit Line (FCL, see Update 65) from $47 billion to $72 billion in early January. In late January, Poland also upped its credit line, from $21 billion to $30 billion. Rumours abounded that European leaders were pressuring Spain to also take out an FCL at the turn of the year, but the Spanish prime minister was adamant that he would not turn to the IMF. The new Precautionary Credit Line (see Update 72), which is supposed to have less-onerous conditions than a standard programme, also saw its first client in mid January with Macedonia agreeing to a €475 million ($650 million) programme. The IMF said that they did not actually expect Macedonia to draw on the resources, but the country still faces conditionality on its fiscal deficit and level of foreign exchange reserves.