IMF Macroeconomic Fundamentalism and the AIDS Pandemic

By Brook Baker

The IMF is deeply implicated in the intensification of the AIDS pandemic and in the weakness of health systems to respond to it. The IMF imposed structural violence on developing countries in the 1980s and 1990s through neoliberal and macroeconomic reforms that exacerbated individual and communal vulnerability to infection and dismantled already weak health systems. Those same policies, now repackaged but fundamentally the same, continue to prioritize low inflation, constricted government spending, robust currency reserves, and prompt repayment of debt at the expense of needed investments in health and more expansionary, pro-growth, and job-creation economic policies.

Although this is not the place to document the entire story of failed post-colonial “development,” it is appropriate to trace some of the key impacts of neoliberal and macroeconomic policies promoted by the IMF that have intensified the global health crisis in general and the AIDS pandemic in particular. These impacts include: (a) maintaining colonial patterns of ownership; (b) consolidating control of a crushing debt burden; (c) deforming economies and trade toward exploitation of natural resources, production of low-cost exports, and importation of high-cost finished goods; (d) liberalizing capital controls, currency exchanges, and financial markets, resulting in currency devaluations, market volatility, and net outflows of capital; and (e) enforcing structural adjustment programs, including (i) fiscal austerity and reduced government spending, particularly in health and education, and (ii) privatization of public resources, goods, and services.  The resulting political economy destabilized rural economies, increased male migration, and further feminized poverty – all of which contribute to the virulence of a sexually transmitted disease.

More recently, there is proof that the IMF’s macroeconomic policies continued to constrain spending on health and education even before the global financial crisis. The IMF’s Independent Evaluation Office examined IMF loan programs in 29 sub-Saharan African countries between 1999 and 2005 and found that 37 percent of all annual aid increases was diverted to building currency reserves and that another 37 percent was devoted to domestic debt repayment. That left only 27 percent of annual aid increases for actual spending on health, education, infrastructure, or other pro-development needs.

The Center for Global Development assessed the IMF’s macroeconomic restraint policies during this same time period and their impact on developing countries’ health spending. It found that the IMF had not done enough to explore more expansionary, but still feasible options for increased public spending, that it had overused wage-bill ceilings that restricted the size of the public workforce and/or its overall compensation, and that empirical evidence did not justify reducing inflation to the 5 percent level in low-income countries.  The CGD assessment also concluded that the IMF should consider the pro-growth benefits of more expansionary spending on health, education, and infrastructure, spending that would increase production of underutilized capacity and that would expand employment.

One might hope that the deepening global recession would have caused the IMF to rethink its policies, especially in Africa, so that Africa, too, might be able to pursue more expansionary fiscal policies to offset precipitous declines in export earnings and aggregate demand and to address additional demands for social spending. However, an early 2009 report from the IMF on the impact of the financial crisis on Africa continued to prioritize macroeconomic fundamentalism. Although a few countries with low debt and no financing constraints might be permitted to spend more, the IMF said that most African countries must “preserve hard-won gains in economic fundamentals” by avoiding excessive borrowing that crowds out the private sector or fiscal measures that might exacerbate the loss of foreign exchange reserves. Indeed, the IMF suggested that “to support growth and create fiscal space, all countries would be well-advised to persevere with structural fiscal reforms.” The IMF paper also prioritized efforts to prevent inflation.

Multiple reviews of the most recent evidence show that the IMF continues to prioritize mid-term “macroeconomic stability” over other development and health needs. Assumptions that the IMF had turned in new directions because of food, fuel, and recessionary shocks imported into developing countries have proven illusory at best. The IMF’s recent short-term adjustments allowing higher inflation rates and larger fiscal deficits were only after-the-fact accommodations to the external shocks of 2008 and 2009.  However, the IMF’s policy advice that countries quickly return to pre-crisis targets by 2010 or 2011 shows that the IMF’s temporary accommodations do not evidence even a modest reform of the IMF’s persistent macroeconomic fundamentalism.

Global health activists are pursuing new channels of domestic and donor resources for health so that Millennium Development and other health goals might be reached.  On the domestic front, development and health activists are urging that expansion and diversification of formal sector business activity, increased investments in health, education, and infrastructure, and improved revenue collection will all help to expand the public resource envelope.  On the global scale, development and health activists are advocating for adequate and sustained donor financing for health and other development needs by enforcement of donor country promises to commit .7% of GDP to foreign aid and to tap innovative financing mechanism such as a proposed financial speculation tax of .05% that could raise hundreds of billions of dollars annually.

AIDS activists, in particular, are campaigning for the tens of billions of dollars needed to fulfill the promise of universal access to AIDS treatment and prevention, now postponed from 2010 to 2015, and perhaps derailed entirely. If the IMF persists in constraining increased fiscal expenditures, then developing countries will continue to undermine expansion of donor health financing via substitution (decreasing domestic health funding as donor funding increases), by refusing to invest in recurrent costs for medicines and health workers, and by neglecting needed investments in health infrastructure and health system strengthening.  If flat-funding and constrained spending persist, life-saving AIDS treatment will stagnate at 30% of those in need, and 2-3 million people living with HIV will die needlessly each year.

Brook K. Baker is a Professor at Northeastern University School of Law and is co-chair of and policy analyst for Health GAP (Global Access Project).  He is also a long-time Guild member.