Ecuador’s new loan program: a tale of two IMFs
The IMF as it presents itself during the annual meetings is not the same IMF as the one putting together loan programs. Ecuador’s case is a sheer example.
In her speech opening this year’s Annual World Meetings, IMF Managing Director Kristalina Georgieva warned of the dangers of an uneven recovery and increasing inequality and talked of the need for an inclusive recovery. Otherwise, Georgieva warned, we are at risk of recreating the dystopian world of Charles’s Dickens novel “A Tale of Two Cities”.
Just days before this speech, the IMF released its latest loan agreement with Ecuador. In it, we find the exact same policy prescriptions Georgieva warned against.
The gap between IMF rhetoric and its actions is not new. For years, the research department of the IMF has shown that austerity and many of the reforms imposed by the IMF worsen inequality, while leadership talked about an IMF that now supports “inclusive growth.”
As the world finds itself in the midst of the worst crisis in a century, Georgieva along with IMF Chief Economist penned a blueprint for an inclusive recovery that argued for policies that support an inclusive, job-rich recovery and against austerity. The IMF also released research touting the benefits of public investment.
The loan program for Ecuador includes the same failed policies of the past: austerity, cuts in public investment, wage suppression, privatizations, and deregulation.
Yet, the loan program for Ecuador includes the same failed policies of the past: austerity, cuts in public investment, wage suppression, privatizations, and deregulation. In the documents, phrases such as “protect the most vulnerable” can be found alongside policies that will most certainly not achieve that goal.
To make matters worse, by the IMF’s own description, the program aims to “advance the structural reform agenda initiated under the previous [agreement]”. Last year’s agreement fell apart after deadly protests and being rejected by the people of Ecuador.
The main exception in the new loan is allowing for some COVID-19 related temporary additional spending, which is unlikely to make up for the previous cuts on healthcare spending that occurred under the IMF’s watch. There is no acknowledgment from the IMF on how those cuts severely impeded Ecuador’s ability to handle the COVID-19 pandemic.
Austerity is still at the core of the new agreement, with the IMF demanding rapid fiscal consolidation, with both tax increases, mostly in the form of higher sales taxes, and spending cuts directly targeting public investment and public sector workers.
The structural reform agenda consists of typical Washington Consensus advice to “eliminate rigidities in wages and prices, improve the reliability and efficiency of the energy sector and capital markets.” The agreement has also pushed Ecuador to establish legislation to facilitate public-private partnerships, despite mounting evidence they often result in services that are lower quality and more expensive.
The new loan program targets the working people of Ecuador, with the explicit goal of wage suppression, which the IMF claims will “boost competitiveness.” Public sector workers are targeted directly: the program demands “wage bill rationalization” to be implemented through both layoffs and wage cuts. For those in the private sector, “labor reform” aims to put workers in a precarious position, and further depress their wages.
The program claims these measures will make Ecuador attractive to foreign investors that will swoop in and help the country recover. These are the same assumptions that have failed to materialize time and time again.
These measures are supposed to be mitigated through increased social spending. However, the targeted schemes the IMF proposes in collaboration with the World Bank often leave the most vulnerable out. Furthermore, they are unlikely to keep up with sharp increases in poverty and unemployment.
Despite the IMF’s newly published research touting the benefits of public investment and the positive impact, it can have on both employment and growth, particularly during a crisis, the IMF asks Ecuador to cut its public investment and capital spending.
The program claims these measures will make Ecuador attractive to foreign investors that will swoop in and help the country recover. These are the same assumptions that have failed to materialize time and time again, even before the entire world was in the midst of a pandemic and economic crisis. Argentina’s 2018 IMF program is a recent example of how these reforms play out in the real world: a crushed economy and soaring poverty.
Ecuador’s program is just a sign of what we can expect to see in further loan programs. The IMF has stepped up to provide emergency lending as a response to the COVID-19 crisis. Those loans, relatively small in scope, did not carry conditions. However, the loan documents paint a clear picture of what future programs may entail and the plans of governments in collaboration with the IMF. A detailed report from Eurodad, documents how the IMF projects that fiscal consolidation will take place in 72 out of 80 countries that received emergency funds as soon as next year, and all 80 within three years.
The IMF should be focused on averting this disastrous scenario by assisting governments with the expansion of progressive and corporate taxation and helping all countries coordinate stimulus measures for jobs and sustainable development, not continuing to push harmful austerity that drives up inequality.
The IMF as it presents itself during the annual meetings is not the same IMF as the one putting together loan programs.
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