Since its establishment, the IMF has been perhaps the most controversial organization developed. It seeks to help nations in desperate need of fiscal relief. But the IMF’s loans seem to be doing a lot more damage than “relief.”
According to the IMF itself, “The International Monetary Fund (IMF) is an organization of 190 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” Established at the Bretton Woods conference subsequent to the US Great Depression, the IMF was designed to assist nations in dire financial crises to avoid global recession, through loans. But since its formation, IMF loans have not helped nations as stated in the mission statement with “high employment,” “sustainable economic growth,” and “financial stability.”
To hold nations that are getting loans from the IMF accountable, the IMF has adopted fiscal austerity, a type of conditionality that aims to reduce government budget deficits through spending cuts, tax increases, or a combination of both. The IMF imposing such conditions typically takes away government spending on government services, which vary based on each nation’s financial and political situation. IMF austerity measures can help instill measures to promote democracy, but can also take away funding from healthcare and education while also deteriorating human capital and small businesses.
Especially in times of emergent crises, such as the covid-19 pandemic, where nations find themselves in huge amounts of debts to nations that are only getting worse, the IMF can step in and offer loans at lower interest rates. Albania was given around $190.5 million US dollars in April 2020 in emergency financial assistance following the outbreak of the coronavirus, and the aftermath of the November 2019 Albanian earthquake. A source of immediate money when needed can help. In the short term. In the long term? Many nations aren’t able to pay back these huge loans leading to further economic trouble for specifically developing nations who don’t have operations and infrastructure to coin that kind of tremendous money.
And with valuable fiscal contributions thus voting power from the west, developing nations are evidently losing out through IMF foreign aid. Initial debts to nations may be paid off through the IMF, but the debts that follow result in far more than economic struggles— human rights are abused, the impoverished population is cut off from support from the government, and western nations making decisions in third-world nations that only benefit the west. Three main factors highlight the reason behind the disparity developing and developed nations face, in regards to long-term economic status after IMF intervention: income inequality that the IMF established, neocolonialism, and debt traps.
Primarily, the IMF’s harsh austerity measures imposed a policy that shifted economic incentive away from small businesses, and government services that provide aid to and maintain the security of the impoverished population in any given nation. As restrictions on trade are removed the income gap further increases. In this framework, the rich are only getting richer and the poor are only getting poorer. But the main consequence of IMF imposed income inequality is the impoverished getting vastly affected by unlawful austerity measures. In discussing the seizing of reproductive rights in Peru as IMF imposed austerity measures, e-international relations writes, “However, once entrusted as president, Fujimori quickly abandoned his economic policy and implemented the hard-nosed IMF package, full in the knowledge that it would have painful implications for the most impoverished members of society; thus his greatest body of public support. . . As the IMF Program manager and minister of Health summarized, ‘they are poor and are producing more poor people… the government cannot fight poverty without reducing poor people’s fertility.’” To summarize, women were sterilized by an external monetary organization, to attempt to fix an economy that the IMF’s intervention had exacerbated. Undeniably the poor are being affected here, as clearly stated by the IMF program manager and minister of health, and thus the severity of having such a huge income gap is now highlighted. Women are being stripped of the right to bear a child, while also being stripped of government services they once had, businesses they own to try and avoid being part of the impoverished population, and further, employment.
According to Forster et al. from the International Relations in The Conversation, “Policies promoting international economic openness can increase demand for skilled labour in developing countries. But low-skilled labour typically loses out.” They explained that this disparity in labor demand causes income inequality to increase, meaning while the rich get more opportunities, the middle and lower class that don’t have access to particular resources are losing out. Skilled labour is difficult to find in a nation where funding for education and healthcare has been cut. Only the upper class is getting access to employment opportunities in developing countries because of this. These austerity measures single-handedly foster unemployment, while the IMF promises to do otherwise in its mission statement.
Second, neocolonialism through the IMF. In Ismail- Sabri Abdala The Inadequacy and Loss of Legitimacy of the International Monetary Fund, he states “The ‘original sin’ of the IMF derives from the domination of these international institutions by the industrialized capitalist economies. . . the decisions endorsed as official I.M.F policies are made by the most powerful market- economy nations, represented by the group of Ten. . .” The most relevant fact about the IMF seems to be that the IMF has been founded, developed, represented, and funded by western powers, many of whom are in this Group of Ten. With major contributions, these western powers have the most voting power, making fiscal decisions for the rest of the developing world. Decisions that benefit themselves. Decisions that enforce western-stlye capitalism, that not all nations are equipped to sustain. As Howard Zin writes, “It is important to recognize that the capitalist West has decided for the whole world that international business and economics should be rooted in a market based system. They did so knowing that many of the countries affected by this system do not have the infrastructure necessary to negotiate on behalf of their people and protect them from exploitation.” The developing voice has lost their voice through IMF configuration, to the benefit of the West.
Third, debt traps in the form of IMF austerity measures. As previously mentioned, the IMF creates conditions to hold nations accountable to pay back their loans. Fully aware that they won’t be able to reimburse such large sums of money, developing nations are bound to ratify such conditions. And the debt trap has been created. in which reform with infrastructure development, economic policy, and government restructuring is implemented. Joseph Stiglitz, american economist, argues that “By the early 1980s the IMF and the World Bank had both become single-mindedly devoted to market liberalism, applying excessively harsh conditions that depressed the economies of developing countries and unwisely opened domestic markets to the vagaries of international competition.” This analysis points out that oftentimes developing nations are left vulnerable to greater economic damage after unfit austerical conditions have been applied. As mentioned before, transitioning to western style capitalism may benefit developed nations through the development of international trade, but does more harm than good to third-world countries. These conditions trap nations, leaving them in a worse state than they started off in long term.
The establishment of the IMF was with good intentions. But in the IMF, “loaning money” has never merely been about loaning money. There are holes in the IMF vision that are sizable enough to conceal the intended good. In the face of ideality, the IMF helps nations conquer financial and economic problems. But in the face of reality, the IMF is hurting developing nations much more than it’s helping it.
Written by Ruhi K.