Foreign Aid : IMF Undermines developing nations...

[Abu-Salman]

Having witnessed the so-called Structural Adjustment Program consequences in Djibouti, it seems even the IMF itself has finally somehow recognized the obvious fact that this despotic institution (unjustly dominated by Americano-European interests) contribue tremendously to the current nightmare faced by ill-governed poor citizens across the world by arbitrarily cutting down already scarce yet vital expenditures on Health & Education sector, hence why countries who quitted it are faring better.

 

Already well-known was that the WFP or USAID were suffocating local pesants and economy by dumping the West agricultural surplus into poor countries, thus both pleasing their own rural lobbies while allowing brutal regimes to continue using what has been termed as "food weapon" against populations deliberetly kept hungry when perceived as potential political/ideological enemies (the main trigger of Ethiopia's historical famines, for instance).

 

Aren't we therefore clearly better off focusing on our own resources for achieving basic Health, Education & Food Security milestones, as cornerstones of sustainable development?

 

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The Lancet* 2007; 370:1749-750

DOI:10.1016/S0140-6736(07)61734-6

World Report

 

 

Experts call for reform of the International Monetary Fund, Rhona MacDonald

 

 

Dominique Strauss-Kahn took over as the new head of the International Monetary Fund this month, amid calls for reform of the organisation's governance and restrictive policies, which, say experts, hinder health and development in low-income countries. Rhona MacDonald reports.

 

On Nov 1, the French economist Dominique Strauss-Kahn began his 5-year term as head of the International Monetary Fund (IMF)—the tenth successive European to hold this position. Unlike the change of leadership at the Fund's sister institution, the World Bank—where Paul Wolfowitz was forced to resign amidst a scandal—the mainstream media barely took any notice. But this silence does not mean Strauss-Kahn's appointment was uncontroversial.

 

There is an unwritten, but apparently binding, rule that the head of the World Bank will be an American, chosen by the USA, and the head of the IMF will be a European, chosen by Europe. And, despite a last ditch attempt by Russia to open up the process by nominating a Czech candidate, Josef Tosovsky, the appointment of Europe's nominee, Strauss-Kahn, was a fore-gone conclusion. Many commentators and non-governmental organisations (NGOs) criticised the closed process and argued that such undemocratic action seriously undermines the commitment of the IMF to reform. “The IMF has chosen to ignore the demands of developing countries such as Brazil and South Africa, who called for an open and merit-based selection process for the leadership. [strauss-Kahn] must be the last IMF Director to be selected from Europe”, said Specioza Kiwanuka from NGO Action Aid Uganda.

 

Kiwanuka is not alone in calling for IMF reform. Conceived in 1944 at a UN conference in Bretton Woods, USA, the 45 governments represented sought to build a framework for economic cooperation and set out Articles of Agreement about the IMF's main responsibilities—namely, to ensure the stability of the international monetary and financial system, to promote economic stability and prevent crises, to help to resolve crises when they occur, and to promote growth, and to alleviate poverty. 63 years on, with membership from 185 countries, the principles, responsibilities, and structure of the IMF have barely changed since its inception.

 

One of the main criticisms levelled at the IMF is the anomaly in its quota systems, which can affect how much say developing countries and emerging economies have in their financial future. When a country applies for membership of the IMF, the executive board recommends that country's quota—a measure that determines the country's subscription, voting weight, and access to financing. Quotas are decided by formulas that include many variables such as the size of a country in the world economy. But this system has resulted in emerging economies, such as China, having similar quotas to Canada, the G7's smallest economy.

 

In recognition of this problem, in April last year the International Monetary and Finance Committee of the IMF adopted a programme of reforms, to be completed by Autumn, 2008, aimed at adapting quotas. However, according to a recent briefing paper by the think-tank, the Overseas Development Institute based in the UK, “Negotiations on how large developing countries should be represented in the IMF are still on-going after almost a year”. The briefing paper concludes: “The support of member countries for reform is likely to increase dependent on the international economy—conditions which might be more favourable in 2007 than 2008, particularly in European economies which have the most anti-reform positions at present.”

 

Strauss-Kahn acknowledged the quota problem in a meeting with journalists on the second day of his new job. He responded to a question about quotas by saying, “the change in the quota question has to be significant, a shift has to be significant from the developed and rich countries to the low-income countries and emerging market countries, that is clear”.

 

Simon Maxwell, director of the Overseas Development Institute says that Strauss-Kahn needs to act fast on this issue because “a strong, credible, representative and accountable IMF is in all our interests. Without governance reform, the IMF will fail”.

 

Robert Weissman, from the US NGO, Essential Action, believes that although governance reform is needed it should not draw attention away from policy reforms. “There is no justification for the IMF's voting-by-dollar system…or the customary European right to name the managing director. But all these flaws pale in importance compared with the need to create more space for developing countries to pursue people-oriented economic policies.”

 

As well as addressing the problems of the quota system, many NGOs want Strauss-Kahn to look at the economic restrictions that the IMF imposes on countries, since these have a negative effect on public services such as health and education. Essential Action was one of the many NGOs and civil society groups that jointly signed a letter to Strauss-Kahn, in the run up to his appointment, which stated, “the undersigned civil society organizations were alarmed to find that the April, 2007, report by the [iMF's] Independent Evaluation office, The IMF and Aid to Sub-Saharan Africa, confirms the long standing claims that IMF policies undermine developing nations' ability to increase health and education spending. To date, the IMF's response to this finding has not been satisfactory”.

 

The Independent Evaluation Office report found that, between 1999 and 2005, up to 74% of additional foreign aid to 29 countries in sub-Saharan Africa had been diverted from its intended purpose and allocated to domestic debt payment and international currency reserves because of IMF policies. The report concluded that aid spending was curtailed because of IMF insistence on specific deficit-reduction and inflation-reduction targets that affect the size of the overall national budget.

 

The IMF's restrictive policies—also known as structural adjustment policies—have been cited as being behind the catastrophic economic collapse of Argentina in 2001. Argentina and Indonesia have since left the IMF, preferring to go it alone rather than be subject to such restrictions. However, poorer countries, particularly in Africa and Asia, are not in a position to leave the IMF and so remain subject to IMF policies. One such policy that has received widespread criticism is the capping of public-sector wages, particularly in health and education.

 

A report, Does the IMF constrain spending in health in poor countries? Evidence and an agenda for action, published in June this year by a Working Group from the Center for Global Development based in the USA, found that almost half of recent IMF programmes (17 of 42) in low-income countries during 2003–05 included some form of ceiling on the wage bill. One of the recommendations of the report states, “wage ceilings should be dropped from IMF programs except in cases where a loss of budget control over payrolls threatens economic stability”.

 

David Goldsborough, lead author of the report said, “The effect of [iMF] programmes on health spending is controversial. Those who have worked hard in the past decade to mobilise unprecedented levels of funding and attention for health programs in developing countries have contended that the IMF's approach to macroeconomic management has constrained effective use of donor funds and therefore weakened efforts to improve health conditions in countries that are most heavily burdened by disease”.

 

The report also found that there was a striking lack of connection between macroeconomic and health sector policymaking. “Key fiscal decisions are taken with little understanding of potential consequences for the health sector and health ministries typically cannot make an effective case for increased budgetary priority”, wrote the authors.

 

The NGO letter to Strauss-Kahn requested that in the first 100 days of his leadership he should take several steps to enable poor countries to direct sufficient resources to meet pressing human needs, including that the IMF should not stand in the way on increased spending in health, HIV/AIDS, and education. According to Weissman, Strauss-Kahn has yet to acknowledge, or respond to, the letter. “Strauss-Kahn should prioritise through whatever powers are available to him, enhancing countries' rights to pursue expansionary macroeconomic policies. He must insist that the unwritten rigid rules that prevent poor countries from spending more on health care be ended”, he told The Lancet.

 

Rick Rowden from the NGO Action Aid International—another signatory of the letter—agrees. He says, “The economic literature and historical record clearly show that there is a middle range or ‘grey area’ of still feasible but more expansionary policy options that could be explored which would enable countries to greatly scale up public spending. Unfortunately, for the last 25 years the IMF has prevented countries from even considering such alternatives. This is not only unjust, it is also unnecessary, and Strauss-Kahn must act to make these changes at once.”

 

 

*: The Lancet is a leading Medical Journal, who occasionally investigate the impact on Health-related challenges of the wider Socio-Economical environment.

 

 

PS: I particularly expect our eminent Oxford-educated experts like Oodweyne or others to expose their own holistic vision for politico-economical self-sufficiency, wether applied to Somalia, Somaliland, Djibouti or the whole Somali-inhabited region in synergy, as we all are somehow related and interdependent (for exemple, a significant share of Djiboutian economy is reinvested in Hargeysa, which is itself important for Somali Galbeed's trade ect)...