IMF: No Sex, Still a Scandal

Because it did not come amidst a sex scandal and because the outgoing leader was not one of the architects of the Iraq War, the surprise June resignation of the International Monetary Fund's Managing Director Rodrigo de Rato did not garner the gleeful, gossipy headlines surrounding Paul Wolfowitz's disgraceful exit from the World Bank.

Last week, the IMF announced the selection of a new leader, Dominique Strauss-Kahn, a former French finance minister, with the world again barely taking notice.

But that doesn't mean there isn't scandal at the Fund, or that the Fund's policies are any less important than those of the Bank.

For decades, in various names, the IMF, along with the Bank, has imposed "structural adjustment" on developing countries--a set of corporate-oriented, market fundamentalist policies including slashing government budgets, sales of government assets to local elites and foreign corporations ("privatization"), deregulation of the economy, and promoting exports and trade at the expense of local needs.

IMF policies have left shattered economies around the world, consigned untold millions to poverty, and directly and indirectly destroyed social welfare systems, including healthcare and education systems, throughout much of the developing world.

In the last few years, the IMF has seen a remarkable, quiet revolt against its power, influence, and policies. Middle-income countries in Asia and Latin America have paid off their debts to the Fund, and announced they won't borrow from the Fund any more. That move follows a string of high-profile Fund failures--interventions in economic crises caused, in no small part, by IMF recommendations for countries to deregulate their financial systems.

But most African countries don't have the resources to pay off their debts to the IMF and other international lenders. They remain stuck in the debt trap, meaning they need new money from the IMF to pay off old loans, or at least the IMF stamp of approval to access capital from other sources. Which means they remain subject to IMF dictates.

Among other barbaric consequences, the IMF's obsession with conservative financial prescriptions have left the nations worst hit by the HIV/AIDS pandemic unable to mobilize resources--or even use donated monies--to address the pandemic or other excruciating health needs.

In March, the IMF's Internal Evaluation Office (IEO) issued a report far more scandalous than anything connected to the Wolfowitz drama at the Bank. The IEO found IMF policy was preventing African countries from spending increased foreign aid on its intended purposes. Instead, the IMF was forcing countries to use increases in foreign aid to pay down debts or build currency reserves. According to the IEO, thanks to the IMF more than 70 percent in increased foreign aid was being diverted.

Alongside this refusal to let countries spend aid for intended purposes, the IMF has capped countries' ability to spend more money on healthcare, including to hire more healthcare workers and pay higher salaries. These are the key steps needed to resuscitate countries' abilities to deliver basic health service to all and to address the healthcare infrastructure problem, currently the main impediment to better treatment for people with HIV/AIDS.

Underlying these restrictions on countries' ability to spend money on pressing health needs is the IMF fixation on what it terms 'macroeconomic stability,' by which it means very low inflation rates and no or limited deficit spending. Dressed up in the guise of technocratic economic advice, these are policy decisions that restrain economic expansion, preventing countries from generating more resources for their own needs.

These policies also take no account of the special circumstances of countries facing the HIV/AIDS pandemic.

"The IMF doesn't know what the hell it's talking about," says former UN Special Envoy for HIV/AIDS in Africa, Stephen Lewis, in his trademark direct manner. "It never sufficiently takes into account the damage that is done to a country when you strip the social sectors."

In other words, failing to invest in healthcare and education is not only immoral, it actually weakens economies. The costs are particularly high when a deadly but treatable disease is ravaging people in the prime of their working years.

Urging an abandonment of these failed policies, a letter backed by more than 100 health and development organizations called on Strauss- Kahn to change course. (My organization, Essential Action, was an initiator of the letter sent by the groups to Strauss-Kahn).

The civil society organizations call on Strauss-Kahn, in his first 100 days after assuming office November 1, to ensure that the IMF:

* Changes policies on foreign aid spending so that the IMF does not stand in the way of increased spending on health, HIV/AIDS, and education;

* Abandons low inflation and deficit-reduction targets, so that the IMF does not stand in the way of policymakers in developing countries from exploring and adopting more expansive fiscal and monetary policy options;

* Publicly states it will cease and desist with its demands for wage bill ceilings that prevent the hiring of more healthcare workers;

* Provides immediate debt cancellation for all impoverished nations without harmful and unnecessarily restrictive policy conditions attached.

The odds of Strauss-Kahn adopting this agenda, on this time-frame, are, of course, slim.

But there is a reasonable chance that a concerted push from civil society--especially if joined by developing country governments--can make a difference.

The decision by middle-income countries to end their dependence on the Fund has left the IMF with a crisis of legitimacy, not to mention its own fiscal crisis (the interest payments on loans from middle- income countries were a key source of revenue).

Strauss-Kahn, who comes from the left side of the French political spectrum, takes office as a self-proclaimed reformer with special interest in low-income countries. Most of his talk about reform has focused on giving developing countries greater say in the governing process, but not on the substance of Fund policy, however.

It is too much to hold out hope that Strauss-Kahn may assist with the transformation of the IMF--he won't have the power, even on the off chance that he secretly harbors the desire--but he might lessen the harm caused by the institution, and give the world's poorest countries more policy space.

Whether this happens will depend in no small part on whether the world pays attention and demands change. Can some fraction of the attention devoted to whether Paul Wolfowitz improperly helped deliver a big paycheck to his partner be devoted in the months and years ahead to the ways IMF policies impact the lives and well-being of hundreds of millions of people?