[stop-imf] Weisbrot/Kar: The IMF and World Bank: Poverty Reduction and Growth? Or the Same Old Formula?

[Robert Weissman]

The IMF and World Bank: Poverty Reduction and Growth? Or the Same Old
Formula?

By Mark Weisbrot and Debayani Kar

As the IMF and World Bank officials convene for their annual Spring
meetings this weekend amidst Washington's blooming cherry and
magnolia blossoms, they will be breathing a sigh of relief. Unlike in
2000, when thousands of angry protesters converged on Washington, or
the Prague street demonstrations the following fall that caused them
to fold up early, their meetings will take place in relative calm.

The Fund and the Bank claim to have heard and answered their critics,
and in 1999 they created a new lending program called the Poverty
Reduction and Growth Facility. Its previous incarnation was the
Enhanced Structural Adjustment Facility, and the words "Structural
Adjustment" had become a catch-all phrase for the pain inflicted on
poor people in developing countries by faceless bureaucrats based in
Washington.

But the new lending facility was supposed to be more than just a name
change. "Central to the PRGF is the principle of broad public
participation and greater country ownership," said the IMF,
"=85with
active participation by civil society--including the poor..." In
addition, the Fund was now committing itself to poverty reduction as
an explicit goal of its lending and macroeconomic policies.

Now let us look at this project in practice. As a requirement for
lending, the government of Sri Lanka -- with considerable help from
the IMF and the World Bank -- drew up its Poverty Reduction Strategy
Paper (PRSP) last year. The paper is chock-full of the IMF/World
Bank's standard policy prescriptions. These include an increased role
for the private sector in education and health care, labor law reform
to make it easier to fire workers, and land-law reform designed to
help bring millions of Sri Lanka's mostly rural population into the
cities.

The Fund and Bank's plans for the rural population are potentially
catastrophic, reminiscent of the enclosure movement during England's
industrial revolution. The PRSP anticipates increasing the country's
urban dwellers to 50 percent of the population, from the current 23
percent -- over the next 8 years! Where will all these refugees from
the countryside be employed?

The Sri Lankan case is also striking because the country has been
relatively successful in its social as well as economic progress --
as compared to other countries at its income level -- over the last
two decades, in spite of a terrible civil war since 1983 (currently
there is a cease-fire and peace negotiations are proceeding). Life
expectancy in Sri Lanka is 73.1 years and literacy is 91.6 percent.
This compares to 65 years and 68.6 percent in Guatemala, which has
slightly more income per person.

Over the last 20 years of IMF and WB-directed reforms, the vast
majority of low-and-middle-income countries have suffered a drastic
slowdown in economic growth. Sri Lanka has not: income per person
grew by 91 percent from 1980-2000.

Given Sri Lanka's success relative to the IMF and World Bank's main
clients, it is strange to see the Fund and Bank economists so eager
to transform the country's economy according to their textbook models.

As for the required consultations with civil society, these appear to
have been very minimal, with organized labor excluded entirely. And
the PRSP document was only available in English, which is not spoken
by the majority of the people (especially the poor).

The IMF has good reason to think they will not be held accountable if
their experiment in Sri Lanka fails. Over the last decade the Fund's
economists have presided over some of the worst economic collapses in
world history. Russia lost half of its national income under IMF
programs in the nineties (and resumed growth after the Fund-supported
currency regime collapsed in 1998). Argentina went from IMF poster
child to basket case and has yet to pull out of its deep depression.

In these and many less prominent failures, Fund economists were able
to wash their hands of the whole mess and blame it on the locals,
even when their own prescriptions were followed diligently. So who is
going to notice what they do to Sri Lanka, a country the size of West
Virginia with 19 million people?

The IMF and World Bank are among the most powerful institutions in
the world, because of their ability to cut off credit -- not only
from themselves, but from other sources as well -- to countries that
do not accept their advice. The case of Sri Lanka illustrates how
dangerously unaccountable they remain, and how little they have
traveled down the road to reform.

Mark Weisbrot is Co-Director of the Center for
Economic and Policy Research, in Washington
D.C. (www.cepr.net). Debayani Kar is a CEPR Research
Associate, who recently returned from Sri Lanka.