Introduction
The IMF was founded in 1944 with the purpose of assisting the
economies of its member’s countries, reduce poverty and secure financial
stability. However, it has caused greater exploitation of the developing world by
the Northern hemisphere for corporate gain, undermined democracy and increased
poverty and inequality.
The IMF makes loans to poor nations for development providing
they adopt Structural Adjustment Policies, or SAP’s, with the pre-text of
guaranteeing the loans are paid back and re-structuring to ensure economic
stability. However, this includes introducing the neo-liberal doctrine to that nation,
allowing the countries of the Northern hemisphere to enforce trade conditions
favourable to themselves, and to “liberalise” and focus their markets on
resource extraction, as well as exports to provide a plentiful flow of cheap commodities
to the Northern hemisphere. When the developing countries export their
resources and commodities they do gain some revenue, but when they import the
processed goods made from their exports, they will lose it, as the products are
more expensive as they have required additional labour. Countries that also
produce commodities to export as well extracting resources will gain revenue to
pay off their debts, and keep their currency stable. However, as result of the
large number of other countries forced into the global markets, a price war
scenario is created, which pushes prices down, and hence the value of exports
of the poor countries is reduced. Many will be given a focus on a single or few
resources and/or commodities, and the saturation of the markets with the
products also pushes down the prices. This leads to a further fall in revenue
from, making it even more favourable to buyers in developed countries. An
example of such saturation is that around fifty of these developing countries
depend on exporting three or fewer commodities to generate over half their
revenue from exports, and twenty are dependent on exporting commodities for 90
percent of all revenue from foreign exchanges. The lack of revenue generated
from exports leaves the countries unable to import processed commodities, or
food to feed their population, or to fund development programs. Also, the focus
on production of cash crops can lead to starvation, as land needed for growing
food is used to grow crops purely for export, such as coffee, sugar, cotton
etc. rather than to feed people.
The adjustments made result in countries having to increase
exports of their raw resources and/or commodities in order to be able to pay
off their debts. The large number of other poor nations that have entered or
been forced into the global markets with a focus on the export of raw resources
and commodities, results in a price war which forces these countries to lower
their prices, which is favourable to the richer countries as they make large
savings when they import. The reduced prices of raw resources and commodities
then forces the poor countries to increase exports to pay off their debts and
keep their currency stable, which is expensive, and so are forced into
austerity in order to pay off their debts, which keeps the countries in poverty
or increases poverty. This reduces the value of labour, and hence workers’
wages, often generating social unrest, with protests and riots against the IMF
taking place in these countries. The flow of capital from investors into these
countries becomes more unstable over time, but they are easily able to pull out
if they become concerned about their interests and assets, and this can results
in a major economic collapse. An example is the Asian Crisis in 1997, when
Western corporations withdrew from many countries in Asia, which sent millions
into poverty, increased debt, devaluated currencies and created major decreases
in GDPs in the affected countries. The resultant unrest in Indonesia resulted
in a regime change when the President was forced to step down.
The lack of revenue from exports makes paying off debt very
difficult, or even impossible. This can become useful for the developed
countries who import goods from the developing countries, as they can keep them
in a state where they can get access to their exports on the terms that are
most beneficial to themselves. This is brought about by the price wars and competition
between the developing countries, and so can force them to accept their terms,
or lose all trade, and hence income, with which to pay off their debts. The
lack of revenue means that the developing countries cannot import advanced
technologies for development, or fund programs, such as improving
infrastructure, education or housing.
Below is a description of these SAP’s, and the negative
effects they can have.
Privatisation
Sate-owned services, assets or industries are sold off at low
prices to the corporate elites of the country, or to corporations based in the
Northern hemisphere, which results in the government losing revenue and
national output from its formally owned industries (e.g. Russia’s national
output fell by 50% when it privatised its utilities), and public services being
inefficiently run as they become focused on the accumulation of private profit.
This includes the hideous situation of the American healthcare system, which
generates enormous profits whilst being inefficiently run, and leaving many
patients who struggle to pay their bills in poverty, or letting those who
cannot pay suffer and die. Privatisation has severe consequences for the
population, as vital services such as water, healthcare and education etc.
become financially crippling or impossible to use, causing more suffering and
deaths in the population, and leaving them without education, healthcare,
sanitation, utilities and water. This leaves many unable to work due to illness,
or unable to get better jobs from a lack of education or skills, leaving them
in poverty. In Africa, efforts to deal with the HIV/AIDS crisis are being
undermined by a privatised healthcare system, as effective delivery of
treatments are made unavailable to many, creating greater inequality as
healthcare become an exclusive commodity for the rich, rather than a necessity and a right.
Austerity
The IMF emphasises the balancing of budgets in the form of
austerity, by removing subsidies and cutting social programs, even when they
are desperately under-funded, and despite the important role that they have in
bringing development and reducing poverty. Cutting of these programs can have
negative long-term effects on economic growth. For example, cutting healthcare allows
AIDS to devastate workforces, or Tuberculosis to infect those living in poor
living conditions. If people have to cut back on spending due to job loss, demand
in an economy falls, and businesses suffer reduced revenue from fewer sales and
have to lay off members of its workforce. The government cannot collect as much
tax from business and its redundant workforce, and so is forced to cut more of
its social programs to save money, resulting in a vicious cycle of deeper austerity
leading to more poverty. At the same time, the country may be ordered to lower
taxes for the rich elites with no benefit to anybody but the rich, and raising
taxes on the poor, with no benefit to anybody at all, other than make the
country look more attractive to foreign investors. The social provisions that
are cut are the same that helped the industrialised nations of the world
develop as they are now, and kept them stable, yet are still cut, with highly
damaging results for development.
Deregulation
Deregulation is when a government reduces its role in the
private sector by a reduction or removal of regulations, and allowing greater
economic freedoms. The consequences of
such deregulation lead to lax state intervention in reducing carbon emissions
and pollution, increases in corporate power greatly influencing governments
through bribes and/or lobbying and the erosion of long term conditions for
production (such as by global warming from high carbon dioxide emissions causing
floods, droughts and crop failures). In addition it subverts labour rights, and
can lead to major financial crises as the state no longer intervenes in
preventing high-risk financial practices, such as credit default swaps or
high-interest debts and/or mortgages that can never be paid back.
Currency
Devaluation
The IMF may force some countries to devalue its currency
against the dollar and remove price controls, particularly for countries that produce
and export cash crops, or have plentiful natural resources. Devaluation makes
domestic goods and raw resources cheaper to buy for Northern countries, and aggravates
inflation for the poorer nations. The effects of simultaneous devaluation and
removal of price control can raise prices of products three or four times,
putting so many people into poverty that social unrest and riots become a
frequent occurrence.
Conclusion
Consider this:
“According to
UNICEF, over 500,000 children under the age of five died each year in Africa
and Latin America in the late 1980s as a direct result of the debt crisis and
its management under the International Monetary Fund’s structural adjustment
programs. These programs required the abolition of price supports on essential
food-stuffs, steep reductions in spending on health, education, and other
social services, and increases in taxes. The debt crisis has never been
resolved for much of sub-Saharan Africa. Extrapolating from the UNICEF data, as many as 5,000,000 children and vulnerable adults may have lost
their lives in the continent as a result of the debt crunch.” Ross P. Buckley
A real step forward in economic equality would be for the
neo-liberal doctrine to be thrown out completely (and ultimately capitalism,
which is discussed in another article by Daniel), as it only serves to
massively enrich the few at the expense of the many. I have listed some
alternative policies that developing countries could employ instead of the SAPs
enforced by the IMF.
Governments of developing countries should keep markets out
of their public services and infrastructure, to ensure that they are run to
benefit the people, not corporations. They should be run effectively and
efficiently to keep the population healthy, educated and literate without them
being forced to pay extortionate amounts to stop avoid and poverty, and prevent
divisions forming in the population, creating a more stable and equitable society. Austerity
measures should also be ended, as they only serve to slow or reverse
development, reducing the revenue a government can make from tax to use for
development and public services. Debt cancellation will also be very helpful,
as it keeps developing countries from being exploited by unfair trade
agreements, and allowing them to use their revenue for development. Currency
devaluation to the dollar should be ended, and price controls kept in place to
ensure that inflation does not rise, so people can more easily afford food and necessities.
Regulations should be kept in place, particularly on large corporations and
financial institutions, so that they do not exploit workers, cause long-term
growth prospects to be damaged or made impossible by pollution, or utilise
high-risk and/or exploitative financial practices which can cripple the economy.
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