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IMF loan conditions detrimental to local policies in poor countries, says report

March 21, 2019

From the article:

Structural reforms enforced by the IMF prevented state bureaucrats from implementing essential policies in service such as health, education, and national security, according to a report by social scientists from universities including Oxford and Cambridge.

The IMF rejected the findings, pointing to other research that found the implementation of structural reform conditions had in fact helped spur public investment.

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Sanjeev Gupta, a senior policy fellow at the Centre for Global Development thinktank and a former IMF official, recently published research based on conditions covering 115 countries between 1992 and 2016. It found that conditions relating to structural public financial management, such as on budget execution and control, had proven to be effective in boosting the long-term level of education, health and public investment expenditures.

Implementation of structural conditionality helped spur public investment by 10%-19%, the research found. “In fact, the conclusion is that it helps countries build capacity over time and, for somebody who has spent 30 years in the business, I have seen the capacity of countries improving,” he said.

Gupta, who was deputy director of fiscal affairs at the IMF, said he did not find the AJS paper’s conclusions “tenable” and that he had written rebuttals to similar papers the same authors had produced recently.

“You cannot have stabilization without structural reform. You don’t just say ‘cut spending and raise revenue’ and that’s it. You have to go deeper into the analysis and see what policies to implement,” he said.

“All stakeholders, whether countries or financial institutions, have to ensure that critical spending, whether social spending or public investment, is taken care of and doesn’t get slashed.”

 

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Senior Policy Fellow