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Increased Support for Developing Countries Urged from the International Monetary Fund

Development activists are calling on the International Monetary Fund and World Bank to improve support to the poorest countries by reforming economic policies on loans and by increasing transparency on deals made between the two institutions and national governments. The Fund says those improvements are well underway.

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William Eagle

For International Monetary Fund (IMF) officials, the past week’s annual meetings were part of efforts to improve dialogue with the developing world.

Caroline Atkinson, the IMF’s Director of External Relations, says "we’ve funded representatives from civil society organizations to come to the [annual] meetings to tell us of their concerns, to hear from us about what we are doing and why, and promote an exchange. We’ve also funded a number of journalists and other media to come from Africa and Asia."

But non-governmental organizations say the Fund needs to do more.

Demonstrators compared the IMF to a "loan shark" and urged an end to what they called unjust economic policies
Demonstrators compared the IMF to a "loan shark" and urged an end to what they called unjust economic policies

The group ActionAid says IMF programs have generally prohibited the type of government-supported stimulus used by the industrialized countries to help weather the international financial crisis. Instead, it says they emphasize austerity measures that often call for cuts in government spending, including social services needed to help poor nations meet UN Millennium Development Goals. The MDG’s call for drastic reductions in poverty as well as vast improvements in education and child and maternal health by 2015.

Melinda St. Louis is the deputy director of Jubilee USA Network, which includes over 70 religious, labor and humanitarian groups supporting lower-income countries.

Critics say austerity measures mean less money for education and other social services
Critics say austerity measures mean less money for education and other social services

For example, in Burundi, she says "even though public sector wages are well below average for the region, the IMF used its influence to ensure the government reduce its spending on public sector wages – having hiring freezes and cutting subsidies for fuel and reinstate a 20 percent fuel tax affecting the poorest.

"Ghana had to raise utility prices, and have a wage freeze. They needed to increase salaries for health care workers to keep them in Ghana, but the IMF said they were not able to increase salaries to the level they needed to, which could affect the brain drain of health care workers forced to leave the country to make a living."

Smaller budgets and reductions in public expenditures may be continuing. She says IMF programs are projecting that countries tighten their fiscal and monetary policies in 2010 and 2011.

Some IMF and World Bank projects aim to boost developing countries' exports to niche markets, including flowers from Africa to Europe
Some IMF and World Bank projects aim to boost developing countries' exports to niche markets, including flowers from Africa to Europe

Development groups are also concerned about the effect of budget tightening on the poor.

Activists say many countries try to attract foreign investment with consumption taxes on lower income groups, instead of closing loop holes on the wealthy. Some governments favor free trade zones with minimal taxes on corporations.

Melinda St. Louis says governments also lower tariffs and import taxes, sources of funding for health and education services. Jubilee USA says an IMF requirement to lower trade barriers in Zambia made the country’s textile industry less competitive, and led to the loss there of 30,000 jobs.

Besides calling for reforms on loans and policies for less developed countries, Jubilee USA is also calling for greater transparency regarding deals signed between national governments and the Washington-based financial institutions.

Last week, Jubilee USA demonstrators urged the IMF to break the chains of debt and end unjust economic policies
Last week, Jubilee USA demonstrators urged the IMF to break the chains of debt and end unjust economic policies

"[Some] governments borrow from the IMF or World Bank," says St Louis, "without the knowledge or understanding of the population. Basically, they are getting money up front from projects that may be good, or even wasteful, but the country and citizens are saddled with that debt for decades to come."

She says in some cases, the Ministry of Finance in a given country signs with the IMF loan agreements whose details are not made public for scrutiny by the parliament, media or voters.

Caroline Atkinson of the IMF disagrees with the criticism. She says the Fund has tripled financing to low income countries with zero interest rate loans. She says money has been made available to the poorest countries on favorable terms so they are not crippled with the burden of repayment.

And, she says conditions on loan agreements have been streamlined.

"One of the reasons for conditionality," she says, "is that we lend when countries are sick, when they have a problem. So like any doctor we advise steps they should take to get better. The medicine is the money that supports them with symptoms and helps them get better, but they also need lifestyle changes. If they have got into crisis because the government is spending too much, or they can’t borrow any more, then they probably need to adjust that over time. That is part of what we do."

The global downturn exacerbates the struggle to improve sanitation and other services by 2015, a part of the UN Millennium Development Goals
The global downturn exacerbates the struggle to improve sanitation and other services by 2015, a part of the UN Millennium Development Goals

Atkinson says the IMF does not prescribe policies that place tax burdens on the poor, or that single out corporate interests for tax breaks.

"One of the things we feel strongly about," she says, "is the tax burden needs to be spread fairly and fall on those best able to pay. We give a lot of technical assistance and advice on how to make sure that people with high incomes or wealth pay the vast bulk of tax.  Also, there is no IMF policy in support of lower corporation taxes or free trade zones. Many countries may have them because they have a view about what will encourage exports and growth."

As for transparency, Atkinson says the IMF publishes a large number of loan agreements. She denies there are any private deals between the Fund and clients.

The IMF official says health and education spending was higher last year in countries with Fund support for initiatives that protect nutrition or provide cash to poor families. Some clients, she says, even have intensive public works programs.

Atkinson says it’s evidence the Fund is listening to its critics, and helping to protect the most vulnerable.

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