In recent weeks, shocking images of corpses abandoned in the street emerged from the city of Guayaquil in Ecuador. The city was unprepared to even remove bodies during the COVID-19 pandemic. Left unsaid in most international media coverage was that before this pandemic, Ecuador had cut its healthcare spending and conducted a series of layoffs in its Ministry of Health. Between 2019 and 2020, approximately 8 per cent of the staff were terminated. With cuts of this scale, it is not surprising that public health authorities were unable to coordinate a timely response. Ecuador is a prime example of how the international financial institutions have created vulnerabilities and increased inequalities.
The aggressive cuts were part of an International Monetary Fund (IMF) loan programme which led to a US$1 billion reduction in spending on public employment over three years. Before this crisis, an aggressive crackdown on protests against the measures already claimed many lives. Adding salt to the wound, the outbreak in Ecuador is closely connected to the large numbers of Ecuadorians living in Spain that travelled back for holidays. Many of those who left for Spain did so during a previous economic crisis linked to IMF programmes in the 1990s and 2000s, which eventually led to the dollarisation of Ecuador and wiped out the savings of most people. The collapse of Ecuador’s economy during that time resulted in about 700,000 people leaving the country, mostly for Spain.
The policies pushed by the IMF in Ecuador are part of a larger pattern. While the Fund and the World Bank have somewhat changed their rhetoric from the Washington Consensus era, the institutions continue to push the same type of policies that demand austerity, deregulation and privatisations.
An overview of all IMF programmes in 2016 and 2017 showed that 23 out 26 pushed for austerity measures, while a majority of countries were asked to reduce their public wage bill. These ‘wage bill’ reductions translate to layoffs and even pay cuts for healthcare professionals.
Both the Bank and the Fund have promoted targeted social protection schemes that leave people without an adequate safety net.
Leaving no one behind in responding to the pandemic is more than an aspiration: unless every country can stem the virus, no one is safe. Unfortunately, the interconnected problems of inequality and lack of trust have led to nationalism instead of a cooperative effort to reform multilateralism to better serve people and planet.
The Spring Meetings of the IMF and World Bank took place in mid-April against this backdrop of weak multilateralism and a legacy of blindly deregulatory interventions. Important agreements occurred, including a breakthrough as the Group of 20 countries (G20) pledged to suspend debt repayments from low-income countries if requested. Governments also replenished the IMF Catastrophe Containment and Relief Trust, which can be used to cover repayments from low-income countries on debt owed to the IMF. An initial round of relief eliminates six months of payments from 25 countries. This was an important action jointly promoted by trade unions and business in the leadup to the meetings. The World Bank created a new Health Emergency Preparedness and Response Multi-Donor Fund to raise additional resources for response and future public health resilience, and both institutions are providing rapid financing to shore up developing country preparedness. The leadership of the IMF spoke in emphatic terms about measures to protect incomes, jobs and health, in a departure from normal messages.
Held virtually due to health concerns and travel restrictions, the 2020 Spring Meetings will be remembered as one step in crisis response. But it will not join the 2009 London Group of 20 summit as a moment when international coordination rose above chaos. Based on calculations from the United Nations Conference on Trade and Development (UNCTAD) and the IMF, the needs of developing countries amount to US$2.5 trillion. The decisions at the Spring Meetings are a crucial first step in ensuring that countries do not need to choose between debt servicing and savings lives. However, it is only a temporary reprieve from the debt owed to G20 countries, and lower middle-income countries were not eligible for the cancellation of payments to the IMF. Many of these countries are dependent on commodity exports, putting them in an acute position. Looking beyond the immediate horizon, a new round of debt relief and a binding process for restructuring sovereign debt will be needed to exit the crisis and achieve the Sustainable Development Goals by 2030.
Special Drawing Rights
One of the fastest and most effective routes to addressing this is an issuance of IMF Special Drawing Rights (SDR), an international reserve asset. New SDRs were issued as part of the global financial crisis, and today would be an essential tool for developing countries to put out the fire caused by massive outflows of capital as investors seek safer ground. Bolstering reserve assets would help countries avoid currency, employment and economic collapse. Developed countries could transfer some of their SDRs to developing countries to further support jobs, health and the real economy. The Spring Meetings ended without forward movement on SDRs due to opposition from the United States, which has the voting power at the IMF to veto the move.
The global labour movement called on the Spring Meetings to coordinate both immediate response and to create a reconstruction plan to coordinate economic stimulus, public health action and debt relief. This is about rebuilding a better world that can withstand threats from disease, climate and economic disruption. If inequality, weak consumer demand, wage stagnation, under- and unemployment, lack of health coverage and social protection, and other underlying issues are not addressed, then recovery will not be possible.
It is time to turn the page on austerity, structural reform and privatisation. Although quieter than normal, these elements were still indelibly present at the Spring Meetings. The IMF encouraged countries to “spend what you can but keep the receipts”, supporting urgent measures to contain the pandemic and crisis while preserving employment and firms. Still, it signalled that spending cuts are expected in the medium term. The world has already lived through this once, when the spirit of the G20 London summit collapsed and the IMF helped lead a premature end to stimulus measures over trumped-up warnings about debt-to-GDP ratios.
World Bank President David Malpass has already made clear that structural reforms to reduce supposedly “excessive regulations” will be a part of the Bank’s recovery strategy.
Development Policy Financing, which has supported measures including cuts to public services and increases in regressive taxation, stands to increase as a result. The Republic of Georgia demonstrates how these measures undermine resilience. The Georgian Trade Union Confederation observed that: “The situation created by the spread of COVID-19 in Georgia has once again revealed the problems associated with years of neo-liberal policy and market fundamentalism in the country.”
The World Bank has promoted private involvement as the answer to development. Most recently, it has used Country Private Sector Diagnostics to push private involvement in health and education, despite acknowledging mixed outcomes of public-private partnerships in health. In Georgia, the World Bank was involved throughout the 1990s and 2000s in health reform, including a loan in which the ‘educational’ subsidiary of American private insurance company Kaiser served as a consultant on a Hospital Master Plan. The loan included an objective to improve “the efficiency of the health care system by reducing the number of hospitals and personnel in the city of Tbilisi”.
Georgia embarked on a radical experiment with privatisation and deregulation beginning in 2006. A revamped Hospital Master Plan launched full-scale privatisation to keep only five of 437 public hospitals. The latest data shows 2.6 hospital beds per 1,000 people, compared to 5.9 across Europe and central Asia.
In 2007, Georgia was named by the World Bank’s Doing Business report as the ‘top reformer’, in part thanks to labour law reforms that violated fundamental International Labour Organization (ILO) standards. This included eliminating the labour inspectorate because it was an obstacle for business, leading to a deterioration of health and safety conditions. Workplaces fatalities markedly increased.
Important reforms have been taken at the World Bank around private involvement and labour market deregulation following the intervention of Maxine Waters, chair of the House Financial Services Committee in the United States Congress. Among other changes, the World Bank Group ended the infamous labour indicator of the Doing Business report and froze investments in for-profit education.
Georgia and Ecuador demonstrate the dangers of a failed policy mix promoted by the international financial institutions and regressive governments. The support of the World Bank and IMF for action on debt burdens and immediate crisis response measures is welcome, but does not indicate a significant shift away from the austerity, privatisation and deregulation that has increased inequality and failed to produce sustained growth. An ambitious reconstruction plan should reform multilateralism by prioritising stimulus measures for full employment, collective bargaining and wage policies to raise incomes and demand, social protection to leave no one behind, and fully staffed public health and services.
