IFIs labour pains

17 February 2011

Critics say IMF policy contributed to fuelling unrest in Egypt and Tunisia, while the IFIs reiterate concern about growing inequality and global unemployment. At the same time, unions accuse the World Bank’s Paying Taxes report of condemning tax and social contributions.

In late January, an IMF staff mission visiting Egypt as part of its annual review stressed the problem of high unemployment. Fund staff blamed labour market regulations, including high costs of hiring and firing workers. This was only a few days before mass protests erupted in the country leading to the collapse of the government in mid February. Egyptian unions contributed to the presence in the streets, as workers protested low pay, demanding an increase to Egypt’s minimum wage, which has remained unchanged at $56 per month since 1984. Mustapha Said, former chief technical advisor on Egypt to the International Labour Organisation (ILO), said “liberalisation policies blindly promoted by the IMF without looking at their social dimension are precisely those that have led to Egypt’s high poverty and unemployment level.”

In Tunisia, high unemployment helped fuel street protests that toppled the government in late December. The IMF staff mission visiting the country in August called for budget cuts, an ending of food and fuel subsidies, a “reduction in profit tax rates offset by an increase in the standard [value added tax] rate” and reform of the social security system. Basel Saleh of Radford University called it the “greatest hypocrisy” that the IMF promotes these “cut-and-paste” austerity measures in the name of employment and growth.

Impacts on inequality

A November 2010 IMF working paper, Inequality, leverage and crises, illustrates the links between the “empirically observed rise in income inequality … and the risk of a financial crisis”, an argument several academics have made for years. It finds that increasingly unequal wealth distribution in favour of the very rich, and decreasing wages for middle- and low-income groups has led to the creation and growth of household debt that ultimately increased the fragility of the global financial system.

At a meeting with a high-level trade union delegation in Washington in late January, IMF managing director Dominique Strauss-Kahn and World Bank president Robert Zoellick agreed on the importance of employment, social protection, working with trade unions and broadening the distribution of economic growth. Strauss-Kahn committed to mitigate the social impact of IMF conditionality in crisis-hit countries such as Romania, Greece, Pakistan, Latvia and Jamaica (see Update 73, 72, 71).

At a late January speech at the monetary authority in Singapore, Strauss-Kahn reiterated the Fund’s commitment to job creation and social protection, saying “inequality can even make it harder to recover from shocks: more equal societies tend to grow for longer.” With fiscal consolidation well underway in advanced and developing economies (see Update 73), he called for “fiscal policy [to remain] as job-friendly as possible.”

The Bank has also drafted a concept note for developing a new social protection and labour strategy. Stakeholder consultations to inform the strategy will be held through May. The ten year strategy is planned to be finalised by December.

Italy-based journalist Vittorio Longhi noted the declarations of intent, but said “with their focus on public sector cuts and business-friendly deregulation, it remains to be seen how sincere the World Bank and the IMF can be in their ambitions to help workers.”

Paying taxes and labour

In late November, the Bank, the International Financial Corporation (IFC, its private sector lending arm), and multinational accountancy firm PricewaterhouseCoopers released Paying Taxes 2011, an expanded version of one chapter of the Bank’s controversial Doing Business report (see Update 73) .

The report formally acknowledges the social importance of taxes, but Erin Weir, senior economist at the International Trade Union Confederation (ITUC), said “the paying taxes indicator is constructed to award the best scores to countries where businesses do not pay any. … Indeed, the top paying taxes score for 2011 went to the Maldives, which is widely regarded as a tax haven. The World Bank calculates that all of its business taxes and social-security payments amount to below 10 per cent of profits.”

ITUC General Secretary Sharan Burrow critiques that “The World Bank has caused enormous damage to workers by advising borrowing countries that labour standards should be dispensed with, and it is simply irresponsible to promote the idea that companies should not have to pay one cent of tax or social contribution.”