Contention 1: Austerity
According to oxfam.org, the IMF has enforced austerity measures in 76 out of the 91 loans they gave since the beginning of the COVID-19 pandemic, undermining the health, education, and pension systems. The IMF found that for every dollar saved due to austerity measures, $1.50 is lost. According to scholars.org, austerity measures do not work because they reduce federal wages and pensions. This in turn leads to poorer businesses, and lower tax revenue. The government is then unable to pay their debts and has to enact even more austerity in a vicious cycle which spreads throughout the economy.
There are three impacts and the first is recession:
During a recession, countries are eager for money. Therefore, they loan from the IMF. According to Investopedia, In 1985, the IMF came to a broke Tanzania intending to make it richer. One of the first steps was to cut government programs. But in the period from 1985 to 2000, the per capita GDP income dropped from $309 to $210. According to Upenn.edu, since austerity measures in 2009, Greek GDP fell by 30%, unemployment reached 26%, 50% for young people, and ⅓ of Greeks were under the poverty line. According to the University of Helsinki, austerity in recessions isn’t effective because more people rely on government handouts, but austerity cuts handouts.
Second is healthcare:
According to an NIH study, higher healthcare expenditure leads to higher GDP, income, and productivity. This is because people work better when they are healthier. According to another NIH study, there is a strong correlation between life expectancy and health expenditure in poor nations. According to health affairs.org, a 10% increase in health spending would result in up to a 6.9% decrease in infant mortality rates. Going back to the Tanzania loan mentioned before, Investopedia finds that by 2000, due to austerity, the once-free healthcare industry started charging patients, and the HIV rate in the country shot up to 8%.
Third is education:
Ourworldindata finds that on average, less educated countries gain 1% of their GDP for a 1% growth in years of schooling. According to ac.uk, a 10% increase in education spending results in a 3.4% increase in GDP. In addition, according to ipr.edu, that same increase in education spending would lead to a 7% higher graduation rate. A more educated population is more skilled, improving welfare. According to the NIH, students with a high school diploma live, on average, for 9 more years than their uneducated counterparts. Looking back once again at the Tanzania loan, the school enrollment rate, which was at 80%, dropped to 66% because school stopped being free. As a result, the illiteracy rate of the country increased by nearly 50%.
Contention 2: Inequality
According to the Social Science Research Journal, the IMF increases income inequality in a span of 3 years by 6.5 percent. Princeton University finds every extra condition in an IMF loan increases inequality by 1.6%. Theconversation.com finds two reasons why the IMF creates income inequality.
First is austerity:
According to econstar, after austerity measures in Ireland, the lowest 10% of the population lost 20% of their GDP, compared to the average of 13%. As stated before, austerity worsens government services, which impacts the poor adversely.
Second is Trade Liberalization:
According to the Review on World Economics, a 10% decrease in tariffs would lead to a 3.8% increase in the wage gap. This is because an increase in trade liberalization would mean a higher demand for high paying jobs, and a lower demand for low paying jobs, according to the Swiss Journal of Economics.
There are two impacts and the first is the economy:
The IMF’s own research shows that inequality can lead to financial crises. This happens because when people are richer, less money is spent, worsening the economy. In addition, according to the UN, inequality is one of the major causes of economic stagnation. The OECD finds a 1% increase in inequality lowers GDP by 0.6% to 1.1%.
Second is crime:
When the poor get poorer, more people get pushed to the point of crime. According to LSE, violent crime rates and inequality are positively correlated. According to a paper by the World Bank, reducing inequality from the level found in Spain to that in Canada (1%) would reduce homicides by 20% and lead to a 23% reduction in robberies.