More Austerity for Developing Countries: It’s Bad News, and It’s Avoidable

As the West questions damaging austerity policies, it is becoming the new normal for the rest of the world, write Isabel Ortiz and Thomas Stubbs.

Anti-austerity protesters in front of the Greek parliament in 2011. (Kotsolis, CC BY-SA 3.0, Wikimedia Commons)

By Isabel Ortiz and Thomas Stubbs
from Washington and London
Inter Press Service

After years of austerity, a number of Eurozone countries are now considering expansionary fiscal policies. And in the U.K., government spending is set to return to levels last seen in the 1970s. But austerity abounds elsewhere in the world, including in some of the poorest countries.

Since 2010, governments around the world have been cutting public expenditure. New research found that about 75 per cent of the global population, or 5.8 billion people, will be in countries undergoing austerity by 2021.

This new wave of austerity will commence next year and will affect 130 countries, most of which are in the developing world. As many as 69 countries will undergo “excessive contraction,” cutting expenditure below levels achieved prior to the global financial crisis of 2007. The list includes countries with dire development and human needs, such as Burundi, Djibouti, Eritrea, Iraq, the Republic of Congo and Yemen.

Market in Burundi, 2012. (EC/ECHO/Martin Karimi)

Rather than investing in a robust recovery to bring prosperity to citizens, governments are cutting pensions, public sector wages (including those of teachers and health workers), social assistance, and labor protections. Yet, the social consequences of austerity policies are already painfully clear. Millions of people will be pushed into poverty as a result, many of them women, children and persons with disabilities.

Austerity Adviser 

In the developing world, the International Monetary Fund (IMF) advises governments to undertake austerity reforms either as part of its regular surveillance missions, or when countries have to sign up to its structural adjustment programs to borrow money.

While the IMF claims to protect social spending in these programs, independent research proves otherwise. IMF-mandated policy reforms led to cuts in government education and health (pdf) spending, increased income inequality (pdf), reductions in labor rights (pdf), declining access to healthcare, and a rise in neonatal mortality in developing countries.

Beyond these direct effects on social protection, there is another less-recognized problem. By shedding qualified civil servants, IMF austerity prescriptions have undermined the administrative ability of governments (pdf) to deliver effective public services in the future. Recent evidence also shows IMF-imposed tax reforms do not result in greater government revenues (pdf). It simply reshuffles where revenues come from: more from regressive goods and services taxes, and less from other sources. This represents a passing of the buck onto the poorest members of society.

Protesters in Ecuador, October 2019. ( Noticias, CC BY 3.0, Wikimedia Commons)

The recently completed annual meetings of the IMF and World Bank presented an opportunity to take stock of the damaging consequences of austerity. In the wake of widespread protests over Ecuador’s ongoing IMF program, continuing from earlier protests in Argentina, the need for an alternative path was especially pressing. Critical observers hoped for intellectual leadership and concrete commitments away from austerity. What they got was more of the same: trumped-up statements on the need to strengthen social spending, but with a bottom-line of fiscal belt-tightening.

Austerity does not need to be the “new normal.” One of the most disturbing conclusions after the past decade of austerity is that these budget cuts were never actually necessary. Governments could — and should — have pursued alternative policy options. These would have brought prosperity to citizens and avoided the current wave of social discontent.

Even in the poorest countries, governments can create fiscal space. Public services and investment can be funded through progressive taxation, a crackdown on illicit financial flows, improved debt management, more accommodative macroeconomic frameworks, and — in the case of the poorest countries—lobbying for more aid. For example, more than 60 countries have renegotiated sovereign debt in recent years, allowing governments to spend less in debt service and more in necessary development expenditures.

These strategies for increased funding are consistent with the Sustainable Development Goals, agreed upon by 193 countries in September 2015 at the United Nations, with specific commitments for universal education, health, and social protection.

Meeting these internationally agreed development goals means putting-to-bed the damaging austerity policies of the past decade. Most importantly, it entails recognition that an austere future is an avoidable catastrophe.

Isabel Ortiz, a former director of the International Labour Organization and UNICEF, is director of the Global Social Justice Program at the Initiative for Policy Dialogue, Columbia University. 

Thomas Stubbs is a senior lecturer in International Relations at Royal Holloway, University of London, and a research associate in political economy at the Centre for Business Research, University of Cambridge.

This article is from Inter Press Service.

The views expressed are solely those of the author and may or may not reflect those of Consortium News.

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2 comments for “More Austerity for Developing Countries: It’s Bad News, and It’s Avoidable

  1. Jeff Harrison
    December 3, 2019 at 18:56

    The very first thing to remember about the IMF is that it is an AMERICAN institution. Capitalists to the core. They never heard of a gentleman by the name of John Maynard Keynes. They never met a socialist that they didn’t want to burn at the stake.

  2. MrK
    December 3, 2019 at 14:33

    “While the IMF claims to protect social spending in these programs,”

    That’s a total lie. The first targets of their structural adjustment programs are education, healthcare, infrastructure and the currency. They always demand currency devaluations, which of course punish any savers, and people who rely on fixed salaries.

    A quarter of a century ago, the IMF took apart the Zimbabwean economy, under a program called ESAP or the Economic Structural Adjustment Program.

    The Tragic Tale of the IMF in Zimbabwe.
    by Antonia Juhasz, The Daily Mirror of Zimbabwe
    March 7th, 2004

    “In essence, Zimbabwe was forced to implement every radical economic policy in the Fund’s arsenal immediately, without any concern for the impacts of those policies on the populace. In order to radically reduce government spending, the government fired tens of thousands of workers, gutted the pay of those who remained and drastically reduced spending on social programs. At the same time, taxes were reduced (the idea being to encourage both increased spending and businesses to locate to Zimbabwe), and the country was opened to foreign competition – hitting the manufacturing sector particularly hard. Because the Fund fundamentally underestimated the impact of these changes (in the words of the reviewers), the programs designed to address the social costs were completely inadequate.

    The impacts were devastating.

    Both employment and real wages declined sharply. During 1991-1996, manufacturing employment fell by 9 percent and wages dropped by 26 percent. Public sector employment fell by 23 percent, with wages dropping by 40 percent. While pocketbooks shrank, food prices soared, increasing by 36 percent. Private consumption levels declined by about one-fourth with urban households being particularly hard-hit. Worse still, the economy did not respond as the Fund had hoped and the government deficit increased. This put the country into a “debt trap” where it was losing money while simultaneously having to pay interest on its loans owed to the Fund and the World Bank. This created a losing spiral of increasing indebtedness and poverty.

    Health Care Crippled

    The impact on the health care sector was particularly severe, this after a decade of improvements prior to the entry of the IMF. As the report found, “There is no doubt that the previous trends of improving health outcomes were reversed during the period of the reform program.”

    During the 1980’s, the government put significant attention and resources into improving health services with remarkable success. For example, the infant mortality rate declined from 100 to 50 between 1980 and 1988 and life expectancy increased from 56 to 64 years. However, the entry of the IMF reversed this trend by imposing enormous cuts in public health spending which dramatically reduced access to services for the poor.

    Spending per person on health care fell by a third from 1990 to 1996 with cuts in services outpacing cuts in wages to health care workers. Thus, between 1988 and 1994, wasting in children quadrupled and maternal mortality rates increased. After many years of decline, the number of tuberculosis cases began to rise in 1986 and by 1995 had quadrupled. Friends of the Earth reports that prenatal care, which had previously been free, now required a fee, while primary care fees increased by over 500 percent. Low-income exemptions were all but eliminated, forcing the most vulnerable population to either pay for services they could not afford, or go without health care services altogether. The result was an easily anticipated decline in prenatal clinic attendance and an increase in the number of babies born before arrival at the hospital.”

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