The Great Depression and the post World War scenario caused great economic devastation all over the world, particularly in Europe and the United States. The countries were faced with the challenge of rebuilding their national economies and this sparked the desire to establish an international organization which would ensure the stability of the international monetary system. Out of this desire was born the International Monetary Fund, established in 1945.
The IMF has numerous functions but this article pays attention to one in particular: its lending facility. The IMF provides loans to member countries experiencing balance of payments problems. The loans assist the countries to pay their international bills, restore their international reserves, stabilize their currencies, and rebuild their economies simultaneously undertaking certain corrective measures to right the underlying problem.
The loans come with strings attached where the borrowing country is expected to take certain IMF approved structural adjustments or austerity measures. These austerity measures have a history of causing severe impediments to the economies, particularly in the developing and underdeveloped nations. These impediments affect the citizens of the debtor country the most.
Let us first look at what human well-being means. The scope of human well-being is multidimensional and hence there a lack of a universally accepted definition. However, from the various definitions out there three main elements can be gathered. Human Well-being can be said to exist when an individual is satisfied with the life that he leads, when the individual is able to work positively and when the individual is able to fulfill his goals.
The purpose of any state is to ensure the maximum well-being of its citizens. Be it the Universal Declaration of Human Rights or the Constitutions of the nations, promotion and protection of an individual’s welfare has been stipulated as of utmost importance. Hence, when a country is facing a severe economic crisis like an inability to pay international bills or a shortage of reserves, it is only natural that they turn to someone for help. International financing organizations like the IMF are the most popular sources of aid.
On paper, the IMF loans are meant to help member countries tackle balance of payment problems, stabilize their economies and restore sustainable economic growth. However, the austerity measures that come as part of the package do little to bail the countries out of the crisis. Rather it has a tendency to imprison them in another set of domestic hardships.
What are these austerity measures? Austerity measures mean actions that a government undertakes to reduce its budget deficit. It uses a combination of tax rises or spending cuts. The IMF mandated ones include cutting of subsidies, devaluation of the currency, removal of protectionist measures like tariffs, wage freezes, reduced government spending, etc. These measures have a history of causing severe inflation or unemployment in the countries.
The IMF austerity measures pose many challenges to human wellbeing. For instance, devaluation of currency is one of the most popular measures undertaken and it leads to inflation. High inflation results in reduced individual purchasing power which ultimately means a lowered quality of life. Requiring reduced government spending leads to the ending of subsidies like food, fuel or medical subsidies. These subsidies enhance living standards and cutting them off is cruel to the poorer citizens who heavily depend on these government programs. UNICEF coined the term ‘children in debt’ to emphasize the fact that these adjustments harm children programs the most.
In 1990s, Zambia witnessed intense anti-government rioting which was caused by a severe food price increase. The reason for this was that the Zambian government, pursuing the IMF austerity programme, cut food subsidies. The price of maize was increased by 120%. This affected the Zambians because Nshima, their staple food, is a product of maize. The increase in prices led to severe poverty among the maize cultivators and drastically decreased living standards of many citizens.
Unemployment is a grave issue. Wage freezes and reduced government employment leads to a drop in individual earnings and with the state being the largest employer, unemployment rises at unprecedented rates. Way back in 2010, in order to help Greece with its sovereign debt and prevent any contagion that could affect other euro nations, the EU with the IMF provided financial support to save Greece and austerity measures followed as well. Drawbacks of the measures were horrifying. Unemployment rose sharply, from 6.6 percent in 2008 to 27.6 percent in 2013. 58% of the unemployed were living below the poverty line. By targeting health and social schemes, there is an increase in health issues as well.
There have been several IMF riots that were triggered by the imposition of the austerity measures. It has been witnessed in Peru, Egypt, Sudan, the Dominican Republic, Morocco, Tunisia, and Brazil. The most obvious question to ask is why the IMF continues to follow the same procedure in spite of international criticism.
While the IMF admits that these measures create temporary hardship, it asserts that the debt crisis warrants such shock treatment. The IMF is a bank and not a charity or ad giving institute and therefore is bound to take steps to ensure that it receives its money back. Another more political perspective is that the major stakeholders of the IMF are the western countries. The IMF through its efforts helps to ensure the stability of the global capitalist system rather than the interest of the borrowing nation.
The major challenge is the third world’s dependency on the core nations. Circumventing the IMF or looking for alternatives is not an easy option and poor economies are compelled to accept the austerity measures. The concept of austerity measures has received backlash from many economists. Nobel Laurent Amartya Sen said, “The cause of reform, no matter how urgent, is not well served by the unilateral imposition of sudden and savage cuts in public services”. In a world of capitalism, there is a debate on economic welfare versus human wellbeing.
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