You are using an older browser version. Please use a supported version for the best MSN experience.

Do the IMF's actions worsen recessions and inequality?

ICE Graveyard 12/04/2016 Sharan Burrow
IMF EU © Brostock via Getty Images IMF EU

For decades, trade unions have denounced the privatization-deregulation-austerity loan conditions that have accompanied IMF loans since the 1980s, pointing out that they often did the opposite of what the Fund claimed they should do by deepening recessions and unemployment and pushing many below poverty lines.
The UN independent expert on external debt and human rights, Juan Pablo Bohoslavsky, recently presented a report focusing on the links between IMF lending in countries with financial crises and inequality. He looked specifically at the example of Latin America during the 1980s - the period often known as the region's "lost decade" - when the IMF had loan programs in 16 countries. As noted by the excellent Bretton Woods Observer, Bohoslavsky concluded that "the costs of the financial crises were not borne equally and most adjustment programs resulted in 'overkill' leading to increases in poverty and inequality beyond what was necessary."
It seems evident that the IMF has learned nothing from its inequality-inducing policies during the 1980s debt crises in Latin America, nor from its recession deepening response to the East Asian crisis of the late 1990s. In both regions, the IMF has become synonymous with making bad situations worse.
A quarter century after its Latin American debacle, the IMF seems intent on repeating the same errors, particularly in Europe where loans to countries in Southern and Eastern Europe have tried to force countries to make their labor markets more "flexible" though measures such as getting rid of employment protection regulations, reducing unemployment benefits and weakening collective bargaining.
A report published last week by the IMF's own research department concludes that these policies contributed to Europe's anemic economic recovery. The report found that measures taken to weaken employment protection or reduce unemployment benefits "can become contractionary in periods of slack because they can weaken aggregate demand". In particular, it states that "by triggering a wave of layoffs, reforming employment protections further weakens aggregate demand and delays economic recovery."
The IMF's research report concludes that these kinds of reforms "could be costly in the short term under current conditions." Europe, along with many other regions, was in recession in 2009 after the global financial crisis, but whereas most other regions began recovering in the following years, the Eurozone went into a double-dip recession in 2012. It is surely no accident that the IMF was heavily involved in pushing its austerity and deregulatory policies in Europe at the same time.
An earlier IMF research paper published last year also found that policies to weaken minimum wages and collective bargaining coverage, which have been a major feature of the IMF's European programs, were an important contributor to growing inequality.
Sadly, two research papers showing that IMF policies deepen recessions and increase, inequality don't mean, of course, that the institution's loan conditions and country-level policy advice have changed. On the contrary, the Fund leadership's rhetoric about concerns for high unemployment and increased inequality haves co-existed for some time with actions on the ground that actually exacerbate these problems.
And notwithstanding the urgency of some IMF actions that are consistent with the anti-inequality pro-jobs rhetoric, don't hold your breath about the outcome of the Spring meetings.

image beaconimage beaconimage beacon