The Invisible Hand: How the IMF Undermines Health Systems in Developing Countries

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The Invisible Hand How the IMF Undermines
Health Systems in Developing Countries

• Paul Jensen
• RESULTS Educational Fund
• June 13, 2008
• Ottawa, Canada

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Overview

• Role of the IMF in Low-Income Countries
• IMF Programs Indirect but significant impact on
  health spending, including HRH
• Interest Advocacy
• Action Steps

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Context

• MDGs, Abuja, G8, Universal Access, Global HR
  Roadmap - will take sustained period of higher
  investment from both LICs and donors
• Higher health spending is esp critical in LICs
  most health systems cant provide basic package
  of interventions
• Recent increases have only offset previous
  reductions

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Disclaimer

• IMF policies do not DIRECTLY determine the
  quantity or the quality of health financing.
  However, they INDIRECTLY impact health spending
  by constraining the size of the national budget
  and by promoting policies that can slow the speed
  of economic growth at the cost of revenue.

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How Is the IMF Influential?

• 1. Advising countries on macroeconomic policy
  IMF programs help determine national economic
  policies
• 2. Signaling effect IMF program access to
  assistance
• Program negotiations are transparency-challenged
  

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Rules of IMF Programs

• Neo-liberal economic model
• Goals
• Small deficits
• Low inflation (5-7)
• Priority on macroeconomic stability
• Less emphasis on public investments for human
  needs
• Sees limited role for governments vs. the private
  sector

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IMF Program Targets

• Fiscal targets Impact budget size
• Fiscal space
• Fiscal targeting indirectly impacts health
  spending through impacting size of the national
  budget
• Fiscal policy thats too risk averse can
  eliminate options for key spending

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NY Times

• There is a desperate need for greater policy
  coherence in a period when many national
  governments, including Washington, are sensibly
  exhorting African governments to spend more on
  primary health care and education while
  international financial institutions largely
  controlled by those same Western governments have
  been pressing African countries to shrink their
  government payrolls, including teachers and
  health care workers.
•  
• -- The New York Times. Africa at the Summit,
  2005

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IEO Report

• Looked at 29 countries in SSA with IMF programs
  from 1999-2005
• Each new 1.00 in expected aid increases led to
  0.27 in additional spending
• Only countries meeting IMF program fiscal and
  monetary targets were permitted to program new aid

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IEO Report

• IMF paid almost no attention to sectors such as
  education, health or infrastructure
• No evidence that the IMF took into account
  possible trade-offs b/t financing constraints
  and opportunities

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CGD Report

• The evidence suggests that IMF-supported fiscal
  programs have often been too conservative or risk
  averse. In particular, the IMF has not done
  enough to explore more expansionary, but still
  feasible, options for higher public spending.

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IMF Program Targets

• Monetary targets Inflation reduced to 5-7
  range
• The IMF and other global policy-setting
  institutions strongly support low inflation
  targets, usually at about a 5 threshold. Yet
  there is almost no evidence that holding
  inflation at such a low level necessarily
  promotes economic growth.
• Pollin, Epstein Heintz (2008)
• Empirical evidence does not justify pushing
  inflation to these levels in low-income
  countries. - CGD

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Review of Inflation Literature Some empirical
studies on kinks in the relationship between
inflation and growth
   
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Pollin, Epstein Heintz, 2008
-- Pro-growth alternatives for monetary and
financial policies in sub-Saharan Africa.
International Poverty Centre, UNDP. Policy
research brief No.6
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Pollin et al (2008)

• Setting the inflation threshold at 5 creates
  by itself a slow growth bias since the primary
  methods recommended for dampening inflationary
  pressures are to raise nominal interest rates and
  cut government spending.

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Pollin et al (2008)

• Of course, policymakers need to be vigilant
  about controlling inflation. But they should
  address this problem by determining the sources
  of inflationary pressures and whether economic
  growth and employment expansion think HRH
  could, indeed, benefit from a less restrictive
  macroeconomic environment.

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Further Support

• Getting inflation down from 40 to 10 is not so
  bad. Its getting inflation further from 10 to
  5 that really hurts.
• - Peter Howitt
• Policies that are overly concerned with
  macroeconomic stability may turn out to be too
  austere, lowering economic growth from its
  optimal level and impeding progress on poverty
  reduction. - GAO

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Further Support

• IEO The evidence points to inflation
  concerns as a major driver of cross-country
  differences in programmed spending of incremental
  aidcountries with inflation rates below 5 get
  to spend 79 of anticipated increases, on
  average, whereas countries with higher inflation
  get to spend only 15 of such increases, on
  average.

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Wage Bill Ceilings

• Place cap on hiring/wages of public employees
• CGD 17 of 42 IMF programs from 2003-2005
  included some ceiling on the wage bill have
  been overused
• June 2007 IMF board announcement
• IMF should desist from using wage bill ceilings
  as a means of influencing allocations

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Interest and Advocacy

• 1 Oct. 2007 CSO letter to DSK
• 120 signatories
• 5 points
• Allow greater use of foreign aid for its intended
  purpose
• Enable the exploration and adoption of more
  expansionary fiscal and monetary policies
• Publicly state that the IMF will cease its use of
  wage bill ceilings
• Provide immediate debt cancellation for all
  impoverished countries without harmful policy
  conditions attached
• Provide more robust consultation process with
  more stakeholders about the potential impacts of
  various policy options before actions are taken
• Described in Nov 2007 Lancet World Report
  Experts call for reform of the International
  Monetary Fund

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Interest Advocacy

• 14 Nov 2007 U.S. House Financial Services
  Committee Letter to DSK
• 9 committee staff signatories
• We are concerned by the IMFs adherence to
  overly rigid macroeconomic targets in
  low-income countriesIt is particularly
  troubling to us that the IMFs policy positions
  do not reflect any consensus view among
  economists regarding appropriate inflation and
  reserve targets.

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Interest Advocacy

• Gold sales provides critical opportunity
  Requires US Congressional approval
• WSJ Global gold diggers
• US CSO letter 80 signatories
• Requests sales conditioned on
• Eliminating restrictive fis. mon. targeting
• Aid used as intended
• Debt cancellation de-linked from conditionalities
• Improved transparency
• Democratic program negotiations

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Interest Advocacy

• CHOGM meeting UK, July 2008
• We recognize that sovereign states must have the
  capacity and freedom to determine national goals
  and implement national policies and strategies.
• We intend to pursue the redefining of the
  purposes and governance of the Bretton Woods
  institutions
• Developing Action Plan on Reform of International
  Institutions, w/CSO involvement
• Extraordinary meeting in Sept. 2008

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REF Project

• REF research and advocacy project
• 3 countries Kenya, Tanzania and Zambia
• Purpose analyze the impact of IMF program
  policies on budget process raise awareness of
  issue among CSOs and urge wider stakeholder
  participation in the negotiations of IMF programs
• Partnering w/ CEGAA to conduct research
• Approaching advocacy partners now

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Action Steps

1. Demand the IMF to revise and publicize the
   macroeconomic constraints implemented via IMF
   programs
2. Demand that costs and benefits of more
   expansionary policy options be more fully
   explored
3. Demand greater stakeholder involvement in IMF
   program negotiations
4. Call on government to raise this issue through
   representation on IMF Exec Board (which approves
   IMF programs)
5. See ActionAid International brief for more info

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Summary

• A transformation in development (e.g., toward
  MDGs) requires a major scaling up in public
  investment current rules limit this.
• There is mounting evidence that key IMF program
  policies are too conservative in light of
  national investments needed to meet health
  crises, pursue the MDGs, hire retain health
  workers.
• Advocacy is key to the promotion of more
  expansionary policies that enable a scale-up in
  health investment, including for HRH.

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Conclusions

• The worst of all worlds would be for the IMF to
  pretend that it can continue to play its current
  major role in low-income countries without
  adapting its way of doing business to the new
  challenges they face.
• - David Goldsbrough, CGD