Civil Society letter to the International Monetary Fund

The PHM is strongly supporting a letter opposing the policies of the International Monetary Fund (IMF) that continues to have a harmful role in hindering countries' efforts to increase investments in life-saving health, education, HIV/AIDS and other social programs.

Dear Managing Director,

In the context of the significant global campaign to increase foreign aid to achieve the Millennium Development Goals (MDGs), and achieve universal access to HIV treatment, care and prevention, the undersigned civil society organizations were alarmed to find that the April 2007 report by the International Monetary Fund’s Independent Evaluation Office (IEO), “The IMF and Aid to Sub-Saharan Africa,” confirms the long standing claims that IMF policies undermine developing nations’ ability to increase health and education spending. To date the IMF’s response to this finding has not been satisfactory.

During the first 100 days of your leadership at the IMF, we call on you to take the following steps to enable impoverished nations to direct sufficient resources to meet pressing human needs.

1. The IEO report finds as much as 74% of additional foreign aid to 29 countries in sub-Saharan Africa between 1999-2005 has been diverted from its intended purposes and allocated to domestic debt payment and international currency reserves because of IMF policies regulating macroeconomic and monetary policies.

Citizens in donor and recipient countries never meant for so much of the annual aid increases to go unspent.

The IMF must change these policies and must not stand in the way of increased spending on health, HIV/AIDS and education.

2. The IEO report concluded that aid spending was curtailed due to IMF insistence on specific deficit-reduction and inflation-reduction targets which impact the size of the overall national budget. These IMF policies are unnecessarily restrictive and prevent increased public spending, particularly for health and education. The IMF must not stand in the way of policy makers in borrowing countries exploring and adopting more expansive fiscal and monetary policy options.

3. Budget and wage bill ceilings undermine impoverished countries’ ability to provide adequate salaries for health and education workers, hire additional needed health workers and teachers and scale up and improve the quality of the health and education sectors. The IMF must publicly state that it will cease and desist with its demands for wage bill ceilings.

4. Impoverished countries that have benefited from initial debt cancellation are challenged to make use of the savings because restrictive IMF policies limit spending. Further, countries that continue to strive towards debt cancellation are compelled to implement these harmful policies in order to complete the Heavily Indebted Poor Country (HIPC) initiative. The IMF must provide immediate debt cancellation for all impoverished nations without harmful and unnecessarily restrictive policy conditions attached.

We note that IMF staff have responded to some of these concerns in two policy papers from June 2007 (available at http://www.imf.org/external/np/pp/2007/eng/071907.htm"), and that the IMF Executive Board has responded to these papers. In these documents, the IMF commits to some changes, including increased fiscal and monetary flexibility with an overarching purpose of maintaining macroeconomic stability.

However, this response is unsatisfactory; the IMF does not address either the parameters of alternative policies or how “stability” will be defined.

In the preparation, presentation, and democratic discussion of alternative pro-health, pro-education, and pro-development scenarios, the IMF must ensure that there is broad consultation and public debate among all stakeholders, including key legislative committees, civil society, health and education officials, and independent economists, in which the short and long term impacts of more expansionary fiscal and monetary options are weighed before official decisions are taken.

We look forward to your reply to this request, and to further discussion on these issues.

Sincerely,