The IMF and the World Bank: Poverty Reduction and Growth? Or the Same Old Formula?
Knight-Ridder/Tribune Information Services, April 10, 2003
As the IMF and World Bank officials convene for their annual Spring meetings this week amidst Washington's blooming cherry and magnolia blossoms, they will be breathing a sigh of relief. Unlike in 2000, when thousands of angry protesters converged on Washington, or the Prague street demonstrations the following fall that caused them to fold up early, their meetings will take place in relative calm.
The Fund and the Bank claim to have heard and answered their critics, and in 1999 they created a new lending program called the Poverty Reduction and Growth Facility. Its previous incarnation was the Enhanced Structural Adjustment Facility, and the words "Structural Adjustment" had become a catch-all phrase for the pain inflicted on poor people in developing countries by faceless bureaucrats based in Washington.
But the new lending facility was supposed to be more than just a name change. "Central to the PRGF is the principle of broad public participation and greater country ownership," said the IMF, "…with active participation by civil society--including the poor..." In addition, the Fund was now committing itself to poverty reduction as an explicit goal of its lending and macroeconomic policies.
Now let us look at this project in practice. As a requirement for lending, the government of Sri Lanka -- with considerable help from the IMF and the World Bank -- drew up its Poverty Reduction Strategy Paper (PRSP) last year. The paper is chock-full of the IMF/World Bank's standard policy prescriptions. These include an increased role for the private sector in education and health care, labor law reform to make it easier to fire workers, and land-law reform designed to help bring millions of Sri Lanka's mostly rural population into the cities.
The Fund and Bank's plans for the rural population are potentially catastrophic, reminiscent of the enclosure movement during England's industrial revolution. The PRSP anticipates increasing the country's urban dwellers to 50 percent of the population, from the current 23 percent -- over the next 8 years! Where will all these refugees from the countryside be employed?
The Sri Lankan case is also striking because the country has been relatively successful in its social as well as economic progress -- as compared to other countries at its income level -- over the last two decades, in spite of a terrible civil war since 1983 (currently there is a cease-fire and peace negotiations are proceeding). Life expectancy in Sri Lanka is 73.1 years and literacy is 91.6 percent. This compares to 65 years and 68.6 percent in Guatemala, which has slightly more income per person.
Over the last 20 years of IMF and WB-directed reforms, the vast majority of low-and-middle-income countries have suffered a drastic slowdown in economic growth. Sri Lanka has not: income per person grew by 91 percent from 1980-2000.
Given Sri Lanka's success relative to the IMF and World Bank's main clients, it is strange to see the Fund and Bank economists so eager to transform the country's economy according to their textbook models.
As for the required consultations with civil society, these appear to have been very minimal, with organized labor excluded entirely. And the PRSP document was only available in English, which is not spoken by the majority of the people (especially the poor).
The IMF has good reason to think they will not be held accountable if their experiment in Sri Lanka fails. Over the last decade the Fund's economists have presided over some of the worst economic collapses in world history. Russia lost half of its national income under IMF programs in the nineties (and resumed growth after the Fund-supported currency regime collapsed in 1998). Argentina went from IMF poster child to basket case and has yet to pull out of its deep depression.
In these and many less prominent failures, Fund economists were able to wash their hands of the whole mess and blame it on the locals, even when their own prescriptions were followed diligently. So who is going to notice what they do to Sri Lanka, a country the size of West Virginia with 19 million people?
The IMF and World Bank are among the most powerful institutions in the world, because of their ability to cut off credit -- not only from themselves, but from other sources as well -- to countries that do not accept their advice. The case of Sri Lanka illustrates how dangerously unaccountable they remain, and how little they have traveled down the road to reform.