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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