Global Policy Forum

By Gumisai Mutume

The International Monetary Fund and World Bank may be doing harm to poor countries in times of recession through their structural adjustment programmes (SAPs), a new World Bank study reveals. ''The bad news coming out of the study is that the poor gain less during periods of economic expansion under structural adjustment programmes,'' says William Easterly author of the study 'The effect of IMF and World Bank programmes on poverty'. ''But the good news is that economic contraction hurts the poor less in countries pursuing structural adjustment,'' notes Easterly of the Bank's Development Research Group. ''The results could be interpreted to give support to either the critics or supporters of SAPs.''

In the report, presented at the Nov. 9-10 First Annual Research Conference of the IMF, Easterly speculates that the poor may be ill-placed to take advantage of new opportunities created by SAPs. They may also suffer less from the loss of old opportunities in sectors previously protected prior to reforms because they are mainly concentrated in the informal sector, while SAPs predominantly hit the formal sector. ''It is disappointing that the poor do not share fully in growth in those cases where there are recoveries that accompany adjustment lending,'' notes the study, which is part of an investigation on the effects of macroeconomic policies on growth and poverty. ''Since the Bank and Fund ultimately wish to restore growth in the economies to which they make adjustment loans, it is worrisome that positive growth has less of a poverty-reducing impact with high Bank-Fund involvement.''

In September 1999, the objectives of the IMF's concessional lending were broadened to include an explicit focus on poverty reduction and the Bretton Woods institutions jointly adopted the Poverty Reduction and Growth Facility (PRGF) in the place of the Enhanced Structural Adjustment Facility. For its part, the World Bank headquarters has built into its lobby wall the slogan ''Our dream is a world free of poverty''. But a series of recent economic crises and their aftershocks have generated intense concern about how the poor are faring under SAPs supported by the Bank and the Fund. Some SAPs have been going on for 20 years.

There has also been a long-standing criticism from activists that SAPs disproportionately hurt the poor. One of these critics is the 50 Years is Enough Campaign, which charges that when the institutions arrive in southern countries, ''corporate profits go up, but so do poverty and suffering. ''Decades of promises that just a little more 'short-term' pain will bring long-term gain have exposed the IMF and World Bank as false prophets whose mission is to protect those who already control too much wealth and power''.

Michael Kermer of Harvard University says it is important to realise that Easterly's study ignores the impact of adjustment lending on economic growth, which is highly disputed. He, however, describes the report as a ''valiant attempt to get at issues that are very difficult to get to, but it has not moved me from my original views''. Kermer says he believes that SAPS are good for the poor even though ''they are not necessarily the best way to help the poor''. He argues that rather than spend money on SAPs the international financial institutions could better improve the condition of the world's poor people by investing in ''international public goods'' such as the development of malaria and HIV vaccines and drought-resistant crop varieties. Easterly's study deliberately shies away from the heated issue of whether SAPs are good for economic growth. He says a brief venture into the area shows no systematic effect of adjustment lending on growth, in line with a long list of inconclusive literature on the subject.

But it remains an ongoing debate, punctuated by a series of studies from various think-tanks. One of these is titled 'The Emperor has no growth' and was released by the Centre for Economic and Policy Research (CEPR) in September. The CEPR study notes that during the last two decades when the Bank and Fund have been most active in developing countries, economic growth has slowed dramatically. Compared to the 1960-80 period when output per person grew by an average of 83 percent, the period between 1980 and 2000 saw average growth of output per person of 33 percent, the CEPR notes.

Easterly's study is based on data on all forms of IMF lending and on World Bank adjustment lending between 1980 and 1998. Another report published last month by the UK-based World Development Movement says that the IMF and Bank poverty reduction strategies are acting as barriers to policies benefiting the poor. For example, it blames the institutions for a series of demonstrations by millions of Argentineans this year following the approval of a 7.2 billion dollar three-year stand-by credit by the IMF in March. The approval was on condition that the government continues with key fiscal and structural reforms which raised taxes, reduced social spending and cut salaries. Subsequently the Argentine courts declared in August that the IMF was directly responsible for the country's debt.

In an unprecedented judicial ruling, Judge Jorge Ballestro condemned the illegitimate origins of the country's debt amassed during the military dictatorship of 1976-83 and said it was part of ''a damaging economic policy that forced (Argentina) on its knees through various methods, and which tended to benefit and support private companies - national and foreign - to the detriment of society''. The conditions associated with Bank and IMF loans include budget-deficit reduction, devaluation, and reducing domestic credit expansion, and structural conditions like freeing up controlled prices and interest rates, reducing trade barriers, and privatising state enterprises.

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