Accompanied by exaggerated rhetoric and after months of haggling, the International Monetary Fund has agreed to try and boost the finances of low- and middle-income countries as they struggle to cope with the COVID-19 pandemic amid lack of access to vaccines and already insufficient public health services.
Last week, it signed a $ 650 billion extension to its Special Drawing Rights (SDR) program. SDRs are unconditional and do not have to be repaid, allowing countries to use them without making compensatory cuts in public spending. But this decision will not change much in the face of the worsening situation facing many countries facing a continued slowdown in the growth of their national income.
This has been acknowledged, at least indirectly, by the IMF itself in its latest update of its global economic outlook. He lowered growth forecasts for emerging and less developed countries, reversing the trend that had prevailed over the past two decades and more.
However, that didn’t stop IMF Managing Director Kristalina Georgieva from talking about the SDR expansion when she announced it.
She said it was a “historic decision – the largest allocation of SDRs in IMF history and a boost to the world economy at a time of unprecedented crisis.
“The SDR allocation will benefit all members, meet the long-term global need for reserves, build confidence and promote the resilience and stability of the global economy. This will especially help the most vulnerable economies struggling to cope with the impact of the COVID-19 crisis, ”she continued.
These assertions are contradicted by the very structure of the allowance. The expansion of the SDR, the equivalent of the newly printed currency, will be allocated to the 190 members of the IMF in proportion to their share in the world economy. This means that only $ 275 billion will go to emerging and developing economies, with the rest going to the world’s major economies.
In addition, it is estimated that only 8% of the new money will go to countries classified as “highly vulnerable to debt”.
Debt is a pervasive problem. According to the Institute of International Finance, average public debt in major emerging market economies rose from 52.2% of gross domestic product to 60.5% in 2020, the largest increase on record.
The IMF itself has reported that more than half of emerging and developing countries have insufficient finances to deal with the pandemic and have been forced to exhaust their foreign exchange reserves to fight it.
Many of these countries operate under threat that tighter financial conditions in the United States and other major economies will reverse capital inflows, further exacerbating their economic and financial woes.
There were calls for rich countries to channel their SDR allocation to poorer countries, and Georgieva said the IMF was looking to push those efforts forward. But given the track record of the coronavirus vaccine allocation, which shows that the poorest countries have received only a tiny fraction of what is needed, there is little chance of seeing a significant move on. this front.
The tourism industry is one of the most significant effects of the pandemic on less developed countries.
According to the UN World Tourism Organization, global international arrivals for the first five months of this year were, on average, 85% below their 2019 levels, compared to a 65% reduction for the same period in 2020.
In the Asia-Pacific region, now hard hit by the Delta variant, there has been a 95% drop in arrivals from 2019 levels. Chinese tourism to the region has all but ceased. The dependence of many of these countries on foreign visitors is exemplified by Thailand, where 20 percent of GDP and employment is generated by tourism.
Luiz Eduardo Peixoto, emerging markets economist at BNP Paribas in London, told Financial Time that the situation this year was worse than expected.
“Last year it was assumed that in 2021 we would see a rebound,” he said. But the drop in the number last year was close to the most pessimistic scenario because “we have not had a recovery during the [northern] winter, quite the contrary. This year, things do not turn out as expected.
Viewed from a longer-term historical perspective, the IMF’s latest SDR intervention could well be described as the case of a criminal returning to the scene of the crime and seeking to erase vital evidence.
One of the main reasons health services in less developed countries are so precarious and why debt levels are so high – limiting spending on vital health services – is the impact of programs so-called “structural adjustment” which were imposed on them in the past. period by the IMF.
First imposed in the 1980s, then in the 1990s and into the present century, countries seeking IMF assistance were required to adhere to strict conditions, including privatization of public services, deregulation of financial markets, and reducing social spending, particularly in the area of health.
Between 1980 and 2014, 109 out of 137 developing countries had to embark on at least one structural adjustment program.
A recent article by Adele Walton in the UK Tribune The magazine noted that some 25 countries were spending “more on debt than health care, education and social protection combined in 2019, meaning that the intense tension of an international health care crisis has left swaths behind. entire population without access to essential services and resources “.
The measures imposed by international finance capital through the IMF have had a particularly significant impact on two of the countries hardest hit by the pandemic, South Africa and India.
According to Walton’s article, a study in South Africa found that “privatization is the main cause of deprivation of access of most of the population to health care”.
In India, the privatization of health care “has dramatically reduced the government’s ability to prioritize public health needs over private interests”. And the lack of coordination of resources had “cataclysmic consequences for the country when it experienced oxygen shortages at the height of its second wave”.