IMF urged to reform loan conditions to address inequality and sustainability

6 Jul 18

The IMF must rethink its loan conditions to put stronger focus on protecting human rights, tackling inequality and backing sustainable development, according to a coalition of economists, academics and civil society groups.

In a joint letter, they called for the Washington-based lender to “revisit and investigate” the impacts of policy lending practice on human rights and inequalities in the past two decades.

The open letter has been signed by a broad range of stakeholders, including academics, churches, civil society organisations, economists, trade unions, think-tanks and women’s groups from around the world.

It said: “Restrictive fiscal and monetary policies prescribed in IMF loan conditionality squeeze the fiscal space for public investment and too often results in devastation consequences – particularly for marginalised groups – a high political costs.”

Fighting inequality should be integrated into loan programmes and conditions, and there should be regular monitoring of the progress, the letter said.

Chiara Mariotti, inequality policy manager at Oxfam, which was one of the signatories, told PF International: “The IMF is clear about the damaging impacts of excessive inequality and is starting to recommend policies to help countries tackle it yet is still too often imposing loan conditions such as cuts to social spending and public services that do the opposite, because they hit the poorest hardest.

“The IMF should follow its own advice and ensure its lending programmes are designed to reduce the gap between rich and poor from the start so that the most vulnerable people are the main beneficiaries of reforms, not the unfortunate losers who must be compensated by means of targeted safety nets.”

The letter also called for the implementation of gender budgeting in the design of IMF loan conditionality and ongoing gender impact assessments to analyse policies, track the impact of reforms and propose alternative policies that have a more positive gender impact.

This should be done through the IMF’s conditionality review, which is used to evaluate IMF-supported programmes since the financial crisis, the letter said. 

Miriam Brett, international development finance project manager at the Bretton Woods Project, which challenges the power of the World Bank and IMF and brings together civil society organisations, told PF International: “The last financial crisis witnessed the widespread implementation of austerity, privatisation and damaging labour reforms, led by governments and international financial institutions alike. 

“The conditionality review offers an opportunity for the IMF to reassess the current approach to conditionality instead replacing it with a framework that protects human rights, backs inequality reduction and supports the sustainable development goals.

“The significance of the IMF in shaping the response to crises cannot be overstated.”

The letter said loan conditions should be designed so that they do not compromise countries’ ability to achieve adequate levels of spending, especially in health, education and social protections, but supports the levels of spending, such as through the design of fair tax systems. 

Last year, the UN issued a call for the IMF to reform, as its promotion of “failed” policies of privatisation and austerity were undermining human rights and development.

IMF loan programmes have often undermined internal structures, held down wages and led to drastic job cuts in the public sector, the letter said.

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