The IMF and the search for policy alternatives in transitional settings

By Paul Gready

tunisia-economyThe International Monetary Fund (IMF) often looms large in transitional politics, which provide a window of opportunity for external interventions in sectors as diverse as the economy and transitional justice. External interventions share certain core characteristic, three of which will be addressed in this blog: the dominance of top-down, prescriptive approaches; a tendency to dismantle before rebuilding; and the considerable challenge of puncturing the dominance of such approaches with real, more radical alternatives.

In addressing these three issues the blog reviews a recent publication entitled ‘Arab Uprisings and Social Justice: Implications of IMF Subsidy Reform Policies’ written by Zaid, Sherry, El-Badrawi and Haber and sponsored by the New American Foundation, the Arab NGO Network for Development and the Egyptian Centre for Economic and Social Rights.

The IMF’s Structural Adjustment Policies (SAP) have changed in name, but not in nature, over the years. The IMF’s prescription to the Arab region (and elsewhere) has been very similar across countries and time. It represents an archetypal top down, policy prescription, focusing on fiscal austerity measures such as debt reduction, decreased spending and the rolling back of government subsidies. As the report outlines, the IMF’s main policy recommendation in the region has been cuts in subsidies, and specifically reform of food and fuel subsidies, and their replacement with social protection schemes (such as cash transfers to the poor, and targeted subsidy and social welfare programmes). While energy subsidies are regressive in nature, cuts in both energy and food subsidies hit the poor.

Egypt and Tunisia have both pre- and post-uprising experience of working with the IMF – most recently, Tunisia reached agreement with the IMF in June 2013 on a major loan, accompanied by subsidy cuts. As elsewhere in the world, cuts in subsidies to basic goods have been met with popular backlash and protest. In Egypt, the decision to implement cuts in food subsidies in 1977 was met with riots, while attempts to cut subsidies in 2012 were reversed in the face of popular resistance. Tunisia’s repeal of bread subsidies in December 2010 triggered unrest and helped build momentum for the January 2011 Jasmine Revolution. Post-uprising discussions and agreements with the IMF have been met with protests in both countries, indicating that such measure run the risk of further destabilising fragile political arrangements.

In theory, the phased removal of subsidies would be compensated for by the implementation of broad and targeted social protection measures, providing a more efficient and pro-poor allocation of public funding. The report argues that the reality has been cuts in subsidies without viable social protection schemes being in place – hence duplicating the transitional tendency to dismantle before rebuilding. The challenges associated with implementing social protection measures in the region include inadequate funding, weak institutions and bureaucratic structures, the lack of national records and databases to inform targeting, and corruption. Such challenges, notably institutional weakness, are exacerbated in transitional contexts. But the IMF does not allow the context to inform the template in any meaningful way. The outcome is that what the left hand takes away is not replaced by anything in the right hand – and the poorest are hit hardest.

The third issue relates to the search for radical alternatives. Thus far this blog has outlined valid critiques of the IMF made by the report. I want to end with a critique of the report. What is its alternative? The authors appear to essentially support the IMF’s policy, but to argue that social protection measures need to be in place before subsidies are cut. This would arguably be a more pro-poor and efficient use of public funds, but it is not transformative. As with the long line of attempts to provide the IMF prescription with a ‘human face’, it may slightly ease its more egregious effects but is also likely ensure its sustainability and longevity.

The report contains ad hoc elements that gesture towards a rather different economic philosophy: it acknowledges that people are calling for more effective and capable government, rather than smaller government; registers that popular movements are advocating a more participatory approach to decision-making and recommends that home grown development visions are taken into account; and calls for greater emphasis on safeguarding socio-economic rights. Each element is mentioned briefly, but the ideas are not drawn together into a coherent alternative.

The IMF has a clear and consistent policy framework. To have any hope of puncturing its dominance its critics need to go beyond critique and come up with an equally clear, transformative alternative.

A. Zaid, H. Sherry, M. El-Badrawi and J. Haber, ‘Arab Uprisings and Social Justice: Implications of IMF Subsidy Reform Policies’ (New American Foundation, the Arab NGO Network for Development and the Egyptian Centre for Economic and Social Rights, February 2014). Available at http://www.newamerica.net/publications/policy/arab_uprisings_social_justice

 

 

 

One Comment

  1. Eric

    This is an interesting post, Paul. I’m wondering whether you’ve had the chance to see a (slightly older) report by IFPRI (‘Beyond the Arab Awakening: Policies and Investments for Poverty Reduction and Food Security’) and if you had any thoughts on it.

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