Soren Ambrose (2006-06-01)
Compared to 20 years ago in Kenya, people live for ten years less on
average, more children die in infancy and a greater proportion of those who
survive face stunting. Why? Soren Ambrose makes a case for holding the
International Monetary Fund (IMF) responsible, arguing that the
institution's obsession with low inflation rates - one of the foundations of
trade liberalization - starves economies and hurts the poor.
On March 6, Kenya's Assistant Minister for Health, Enock Kibunguchy, told
the press that Kenya urgently needs to hire 10,000 additional professionals
in the public health sector, blurting out: “We have to put our foot down and
employ. We can tell the International Monetary Fund and the World Bank to go
to hell.” [1]
These are strong words for a high-ranking government official to put on
record regarding the most powerful international financial institutions
(IFIs), and in particular the IMF, a body whose power extends to being able
to call for the withdrawal of virtually all external assistance to a
country.
Minister of Health Charity Ngilu had in fact been rumored to have made
similar accusations in meetings with IMF officials and civil society
representatives; since Kibunguchy's declaration she has confirmed she shares
his view. Similar allegations have also been made by several civil society
organizations focused on the IMF and on health rights. Indeed, in the last
two years a number of organizations have identified IMF restrictions as a
serious disincentive to hiring desperately-needed health professionals not
only in Kenya, but in many other African and Global South countries as well.
Specific IMF policies, in particular the low ceilings it sets for inflation
rates and wage expenditures in borrowing countries, are demonstrably
illogical and detrimental. Together with the dubious defense the IMF mounts
for maintaining such restrictions, cases like Kenya's provide a strong
argument that those controlling the IMF should re-examine the restrictions
it places on borrowing governments. The logic of demanding continual
decreases in public wage bills is likewise suspect, as are the IMF's routine
inflation targets. With increased funding from new sources, improved
standards of living are within reach of even the most impoverished
countries, if only the IMF would allow it.
The Health Care Crisis
Kenya's health care crisis has been 20 years in the making. Its dimensions
are spelled out in the 2004 Poverty Reduction Strategy Paper (PRSP) - a
government document written in consultation with the IMF and World Bank and
approved by both bodies' boards. Life expectancy declined from 57 in 1986 to
47 in 2000; infant mortality increased from 62 per thousand in 1993 to 78
per thousand in 2003; and under-five mortality rose from 96 per thousand
births to 114 per thousand in the same period. The percentage of children
with stunted growth increased from 29% in 1993 to 31% in 2003, and the
percentage of Kenya's children who are fully-vaccinated dropped from 79% in
1993 to 52% in 2003.[2]
Why this deterioration? As in most African countries, Kenya's health care
system was hit hard by the “structural adjustment” policies imposed by the
IMF and World Bank as conditions on loans and as prerequisites for getting
IFI approval of the country's economic policies. Those policies were
introduced in the 1980s, and have left a lasting mark on Kenya's health. As
usual with such programs, the emphasis was on cutting budget expenditures.
As a result, local health clinics and dispensaries had fewer supplies and
medicines, and user fees became more common. The public hospitals saw their
standard of care deteriorate, increasing pressure on the largest public
facility, Kenyatta National Hospital in Nairobi. As a consequence, that
hospital, once the leading health facility in East Africa, began, like so
many other African hospitals, to ask patients' families to provide outside
food, medicine, and medical supplies. Most beds at Kenyatta and the regional
and local hospitals accommodated two patients. Professional staff have taken
jobs - some part-time, some full-time, at private healthcare facilities, or
migrated to Europe or North America in search of better pay.
An October 2005 communication from an NGO coalition to the November 2005
“High Level Forum on Health MDGs (Millennium Development Goals)” notes that
“between 1991 and 2003, the [Kenyan] government reduced its work force by
30%” - cuts that hit the health sector particularly hard.[3] For the period
between 2000 and 2002 alone, the government was scheduled to lay off 5,300
health staff.
Those requirements were externally imposed. A World Bank Group document from
November 2003, written to justify waiving a loan condition calling for a
workforce reduction, notes: “This condition required retrenching 32,000
personnel from civil service over a period of two years. In practice, 23,448
civil servants were retrenched in 2000/01 before the program was interrupted
by lawsuits. […] A specific commitment in the updated [agreement] is to
reduce the size of the civil service by 5,000 per year through natural
attrition.” [4] The very same document supports Assistant Minister
Kibunguchy's assessment of the sector's current needs - “the health sector
currently experiences a staff shortage of about 10,000 health workers.” The
document, however, draws no connection between the shortage and the
insistence on cutting more workers.
The impact of the layoffs and budget slashing in the health sector over the
last 15 years was cited recently by Member of Parliament Alfred Nderitu as
the primary motivation for his motion of censure against the IMF and World
Bank in the Kenyan Parliament. His initiative would insist that any future
loans from the institutions get Parliamentary approval. [5]
Clinics Without Nurses
Many African countries have shortages of medical staff because of lack of
training capacity; in Kenya this is not the case. Thousands are unemployed
or underemployed, eager to take up full time positions.
Both the Kenyan government and the IFIs regularly announce that health
spending will increase substantially. [6, 7] With all these promises of
increased resources for health care, with the World Bank's acknowledgement
of a staff shortage, and with all those unemployed nurses, one might expect
that the government would waste no time in hiring the thousands of nurses
Kenya so desperately needs. And indeed, frequent promises are made by
government officials to that effect. But the promises are almost never kept.
According to the Chief Economist in the Ministry of Health, S.N. Muchiri,
the reason is that while the IFIs support increased expenditures on health,
they forbid spending that money to pay staff wages. This is accomplished
through insisting on a ceiling on wage expenditures; in Kenya, the targets
are 8.5% of GDP in 2006 and 7.2% by 2008. [8] The IMF doesn't specify that
hiring in the health sector specifically must be limited, but when the
entire wage bill must be suppressed, the chances of hiring the personnel
needed are slim indeed.
So when IFI staffers call for more funding for clinics, as they do in their
critique of the government's draft PRSP, they mean buildings, equipment, and
medicine. [9] Unfortunately, personnel are required to run the clinics. It
is the choice by those institutions to prioritize targets for reduced
spending on public salaries and on inflation, says Muchiri, that prevents
Kenya from hiring health workers. [10]
Muchiri provides valuable “inside” confirmation of charges made with
increasing intensity by civil society organizations over the last two years.
Advocates point out that while recent funding initiatives like the Global
Fund for AIDS, Tuberculosis & Malaria and PEPFAR have made stemming the most
critical health crises in Africa more possible, the IMF's power over
borrowers' economic policy and its narrow focus on keeping inflation and
payrolls as low as possible is actively discouraging governments from
putting the available funds to use.
Numbers, Not People
On one level, it seems like commonsense for an organization like the IMF to
seek out ways in which governments can reduce the amount spent on salaries,
especially in countries like Kenya, which have had troubles with “ghost
employees” on public payrolls in the past. But the self-defeating nature of
this quest quickly becomes apparent. If the government were simply expected
to identify and eliminate ghost employees, that would obviously lighten the
government's burden and enable it to target its resources more wisely.
But the IMF's conditions deal with bottom-line expenditures, not with going
to the root of the problem. Kenya's PRSP spells out the implications:
“…achieving the 8.5 percent target by 2005/06 will require that any awards
to be provided to the civil servants or any additional awards […] will be
matched by a proportionate downsizing of the civil service.” [11] Any hiring
of nurses, for example, would require that some other public employees be
eliminated - regardless of how much the nurses may be needed, or how vital
the other positions may be. Indiscriminate targeting like this only
demonstrates the prioritizing of abstract economic statistical standards
over real-life outcomes, including those most likely to have a positive
material impact on poverty and on contributing to the overall health of both
Kenya's population and the economy.
So if the health budget is to rise - as both the IFIs and the government
repeat often - then the PRSP must remind us that: “The fiscal strategy
assumes that these health expenditures will be focused on non-wage
non-transfer expenditures and will thus enable the rapid increase in basic
health services.” [12] Indeed, Muchiri reports that funds are often
available for facilities or supplies, but not for staff. The result is that
more people may seek out health services, but the ministry will actually be
less able to provide them because of lack of personnel to administer the
drugs or operate the machinery.
Inflation, Inflation, Inflation
But why does the IMF, with its power to exclude a country from the global
economy by declaring it “off-track,” insist on reducing government payrolls?
Adding employees to the government payroll, especially if accomplished with
aid money, is considered by orthodox economists like those at the IMF to
increase inflationary pressures in a developing country. And an increase in
inflation is anathema to the IMF.
The IMF quite openly prioritizes inflation targeting over almost any other
factor in the countries where it works. Pressed on the question, as they
have been in the debate over health spending, its officials will invariably
respond that inflation is a “tax” that hits the poor the hardest.
But is that true? Anis Chowdhury points out that:
“The poor have very limited financial assets; they are largely net financial
debtors. Thus inflation can benefit the poor by reducing the real value of
their financial debt. Meanwhile, the IMF's cure for inflation - raising
interest rates - can actually harm the poor because this increases the
servicing costs of their current debts. […] The poor fare worse when
unemployment rises and persists, especially when there is no adequate safety
net or social security system. At the same time, the real value of their
household debt rises with falling inflation rates. Hence the poor have more
reason to be averse to unemployment and less averse to inflation than the
elite in society." [13]
After this seemingly obvious point is made, it seems only too easy to point
out that those who stand to lose the most from inflation are those who hold
large amounts of money - financiers, investors, bankers. Yes, there are
risks to the poor in high and/or persistent inflation, but increases in
inflation below a certain point are far more likely to cause pain to those
whose incomes depend on relatively minor fluctuations in currency values.
For the impoverished, as Chowdhury explains, such increases in inflation are
likely to be more beneficial than harmful.
As is so often the case, it is easiest to discern the interests of
policy-makers not from their rhetoric, but from whose interests are most
vigorously protected by their policies - by who “wins” as a result. The
IMF's longtime prioritization of inflation over all else lends weight to
those who accuse it of using its powers to protect the interests of the
wealthy over those of the impoverished, regardless of their rhetoric that
maintains the reverse.
IMF official Andy Berg recently admitted as much: “Higher inflation […]
tax[es] people who hold cash or whose nominal incomes are fixed.” But Berg's
next sentence restores IMF ideology, and at the same time exposes its
flimsiness: “And this tax discourages private investment and tends to fall
on those least able to adapt - in other words the poor.” [14] Berg relocates
the pain from the rich to the poor, but offers no logic for that move.
Drawing a Reasonable Line on Inflation
To challenge the IMF, the question must be where to draw the line - at what
point, to use Berg's phrase, is “inflation out of control,” or at risk of
spinning out of control? Berg says “in poor countries the danger point is
somewhere between 5 and 10 percent.” The good news is that this figure is
actually less conservative than the standard used in most IMF programs. In
most countries with IMF loans, the conditions call for inflation to decline
and stay below five percent. [15]
Few economists outside the IMF opt for a level as low even as 10% in
defining a healthy rate of inflation for a growing economy in a developing
country. Terry McKinley, an economist with the United Nations Development
Program (UNDP), declares: “As long as current revenue covers current
expenditures, governments can usefully borrow to finance [social]
investment. […] Fiscal deficits should remain sustainable as ensuing growth
boosts revenue collection. The resultant growth of productive capacities
will keep inflation moderate - namely, within a 15 percent rate per year.”
[16]
There is no room for neutrality in this debate. Adhering to IMF standards in
order to avoid trouble will, according to McKinley, likely sabotage any hope
of genuine development:
“Moderate inflation can, in fact, be compatible with growth. But low
inflation can be as harmful as high inflation. When low-inflation policies
keep the economy mired in stagnation or drive it into recession, the poor
lose out, often for years thereafter, as their meager stocks of wealth are
wiped out or their human capabilities seriously impaired. […] Without jobs
and income, people cannot benefit from price stability.” [17]
Tactfully avoiding mentioning the IMF by name, McKinley argues: “The new
'politically correct' justification for minimizing inflation is that it
hurts the poor. However, this misreads the facts: very high, destabilizing
inflation (above 40 per cent) definitely hurts the poor; and very low
inflation (below 5 per cent) can also harm their interests when it impedes
growth and employment.” [18]
Rick Rowden points out that Latin American countries and “East Asian tigers”
like South Korea grew rapidly despite inflation rates of around 20%. [19]
But that was before the IMF moved into the development world in the 1980s,
and re-wrote the rules - without any definitive evidence to support their
claim that doing so was advantageous to the poor.
The IMF appears to be caught in a classic case of “fighting the last
battle.” When the IMF started lending to developing countries in the early
1980s, they were afflicted with astronomical, runaway inflation. It still
apparently believes that hyperinflation is the most dangerous threat. But
hyperinflation has been eliminated almost everywhere (apart from crisis or
pariah countries like Zimbabwe); indeed most developing countries now have
inflation rates well below 10%, and many below 5%. [20] This is largely as a
result of the IMF's hyper-vigilance over the last 25 years. The problem
today is not hyperinflation, but IMF-induced stagnation.
More and more economists - outside the IMF - are taking a more complex view
of growth and inflation. Rather than insisting that a country have a
demonstrated “absorptive capacity” before increasing the flow of revenues,
they look at the likely impact of increased flows. In the case of increased
spending on health care, not only is employment created (if wage ceilings
are set aside), but the population's overall economic capacity improves, and
private-sector activity, rather than being discouraged by public funds, is
spurred by the increasing availability of resources.
Muchiri, in Kenya's Health Ministry, concurs with McKinley's positions on
inflation targeting, and with the view that public spending, especially on
healthcare, will encourage growth. He acknowledges that his government has
committed to a low inflation target - its “Letter of Intent” to the IMF
states: “The monetary program for 2004/05 is designed to reduce underlying
inflation to 3.5 percent.” [21] And thus far Kenya seems to be meeting that
goal.
But, says Muchiri: “3.5 percent is too low for an economy that is supposed
to grow by 5 percent. A certain level of inflation is healthy - you can't
grow otherwise.” This recognition moves Muchiri to criticize officials of a
nearby country who have told him they must limit expenditures on health care
- even refusing funds from the GFTAM - in order to prevent any risk of
inflation rising. That line of thinking is clearly reflected in the recent
statements by Kibunguchy and Ngilu.
But Finance Ministers who have committed to the IMF's inflation targets, and
in many cases made those targets the centerpiece of their macroeconomic
policy, are deeply reluctant to do anything that might raise that rate. Not
only would doing so risk IMF disapproval and blacklisting, but it would also
be seen as reversing a position they have publicly, and politically,
committed to. Until this logjam is broken, a higher quality of life - even
life itself - will continue to elude many thousands.
Muchiri counts as a significant victory the recent concession made by the
IMF, after substantial negotiations, that Kenya could hire more health
professionals if it could find donors willing to provide extra funds who
themselves were comfortable with the impacts - economic and otherwise - that
hiring additional health staff might have. It is this concession that
recently allowed Kenya to announce that it will use funds from the Clinton
Foundation, PEPFAR, and the GFATM to hire upwards of two thousand new nurses
and other health professionals. [22] Unlike with previous pledges,
advertisements for the positions are now appearing in newspapers.
But the very existence of these policies, and the fact that he must invest
so much in winning exceptions to them, cause Muchiri to reflect on his
experiences of watching mothers and children die in hospitals for lack of
surgeons or a lack of capacity to offer preventive care, and speculate that
the IMF and World Bank could reasonably be charged with genocide. “The only
difference from what happened in Rwanda is they don't use pangas [machetes].
They use policies.”
* Soren Ambrose is Coordinator, Solidarity Africa Network, Nairobi, Kenya.
He is also associated with the Washington-based 50 Years Is Enough Network,
which in April convened a meeting to launch an international campaign to
shrink or eliminate the IMF (for more information write [log in to unmask];
see related commentary, by Ambrose and Walden Bello, at
http://www.commondreams.org/views06/0524-22.htm)
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