IMF Budget Rules Threaten Health Funding

Vol. 7, No. 3

September, 2004

-- Grants from Global Fund for AIDS, Malaria, & Tuberculosis in Danger

by Soren Ambrose
50 Years Is Enough Network

IMF Budget Rules Threaten Health Funding
Grants from Global Fund for AIDS, Malaria, & Tuberculosis in Danger
By Soren Ambrose
50 Years Is Enough Network

For two years since its momentary eruption onto the world media stage, the
question has been left unresolved: can IMF budget rules prevent countries
from accepting large grants for expanding services to people with HIV/AIDS?

This is clearly one question where the IMF does not want to be caught looking
heartless. Since the controversy first arose in Uganda, in May 2002, the IMF
has insisted that it would never actually insist that countries reject grants for
health care. But it also qualifies its statements – “there is a level at which the
management of aid flows, and their impact on the economy, needs to be
monitored,” or “very occasionally, there are ceilings that affect total
government employment” – in ways that kindle suspicions among those
accustomed to the IMF’s ways.

The Question Arises in Uganda

In the case of Uganda, a struggle between the health and finance ministries
broke out when the Finance Minister insisted that the country could not accept
a $52 million grant from the Global Fund for AIDS, Malaria, & Tuberculosis
(GFAMT) because doing so would exceed the established health budget for
2002. The IMF, he said, would not tolerate such a move -- meaning it would
cut off funds and possibly the all-important “seal of approval” that most other
donors use to decide whether to assist a country. The reasoning was that
exceeding budgeted expenditures risks encouraged inflation (with a sudden
injection of cash into the economy) or an unsupportable rise in the value of
the national currency (because demand for skilled workers and certain
products would rise suddenly). It was a catch-22: to accept the GFAMT grant,
Uganda would have to cut an identical amount from its existing health budget,
but the GFAMT requires that its funds supplement, rather than substitute for,
budgeted national funds.

The IMF’s resistance to increased spending, even when the money is “free,”
as with the GFAMT grant, comes largely from its notorious insistence on very
low inflation rates. While economists debate how much inflation a country
can tolerate without threatening growth, many, including some at the World
Bank, say that a growing economy can sustain an inflation rate of up to 20%
(others say 40%). The IMF almost always requires that countries maintain an
inflation rate of 5% or less in order to stay “on-track” with their programs.

When one looks at the economy abstractly, it’s easy to say that currency
fluctuations should be avoided. But when those determinations are applied to
real life, it means that you end up prioritizing a stable currency value over
thousands of lives.

When Ugandan activists learned that they might be denied the GFAMT funds,
they took steps to expose the controversial priorities of the IMF, as related by
the Ugandan Finance Minister. The perfect opportunity soon presented itself:
U.S. Treasury Secretary Paul O’Neill and rock star Bono were touring Africa,
and were due to stop in Kampala. The activists secured a detailed letter from
the prominent U.S. economist Jeffrey Sachs denouncing the IMF’s alleged
prescriptions, which was read at public forums. O’Neill, in his usual blunt
manner, termed the IMF’s concerns both “bogus” and “baloney,” and
discussed the issue with President Yoweri Museveni. The IMF representative
in Kampala at the time declined to comment. In December 2003, the
Ugandan Finance Ministry finally broke the stalemate by agreeing to accept
the first $18 million of the grant on GFAMT’s terms. But the ministry has yet to
clarify if it will accept the remainder as “additional” to the health budget.

Although no analogous situation has come to light since the Uganda
example, the issue has not been put to rest. The IMF’s policies, as normally
stated, would require that many countries forego significant grants for health
care. In response to critics of its policies, the IMF says that ways can be found
to accept funds without creating inflation risks, but it has so far declined to
make a policy statement that would eliminate the concern that its policies will
be applied literally – thus leaving health care systems to rot in Africa and
other places hard-hit by the HIV/AIDS pandemic.

This is not, of course, the first time that the IMF has been accused of
undermining health care systems in the Global South. For many years it was
standard practice for countries forced to impose the IMF’s structural
adjustment programs (SAPs) to look for ways to cut budget spending, with
“soft” functions like health care taking significant hits. In African countries,
people speak of health care in two phases – pre-SAP and post-SAP. In
Kenya, for example, the national hospital was a showpiece which attracted
patients from around Southern and Eastern Africa with care comparable to
that in Europe or North America. Today it is short of beds (often each bed is
now shared by two patients) short of doctors, and completely unable to
provide medications and food. In many African hospitals, patients’ families
must provide water for surgical procedures. In Zimbabwe, a health care
system considered the best on the continent was decimated by the early
1990s – just two or three years after the introduction of structural adjustment.
Not surprisingly, Zimbabwe for a time had the highest rate of AIDS deaths on
the continent.

The IMF routinely responds to such complaints by saying that it did not tell
governments where to cut budget expenditures. But the austerity demands
were so extreme that the attack on health care was inevitable.

Pressuring the IMF to Commit to HIV/AIDS Treatment & Prevention

Concerted efforts by non-governmental organizations during the summer of
2004 have put the IMF on the defensive again. In response it arranged a
large “off-the-record” meeting between high-level IMF officials,
representatives of UN agencies, and a range of NGO representatives, and
widely circulated a long interview with their top expert on health budgets (the
source for one of the quotes cited at the beginning of this article).

On August 13, the same day the interview was published, a large
international coalition of organizations representing people with HIV/AIDS in
38 countries wrote to IMF Managing Director Rodrigo Rato and World Bank
President James Wolfensohn demanding assurances that concerns about
inflation and adherence to budget ceilings -- issues where the IMF generally
takes the lead role – will not block funds which would otherwise be available
to fight HIV/AIDS. The demands of the letter are urgent, and should provoke a
response from the IMF soon. But you never know with the IMF.

Excerpts from the civil society letter:

The World Health Organization (WHO) has estimated that 6 million of us living
in the developing world need antiretroviral therapy now, yet only 440,000
people living with HIV/AIDS in these countries receive these medications.

[…]macroeconomic concerns are interfering with the ability of many African
and other countries in Asia, Latin America, the Caribbean and the former
Soviet Union to increase their health sector spending, including urgently
needed funds for HIV/AIDS and human resources. The policies include
ceilings on countries' overall spending, resulting in caps on health sector
spending, and restrictions on the civil service budget, which may lead to
freezes in health worker hiring and salaries. The ceilings may limit the ability
of countries to accept large amounts of financial assistance, especially
unexpected assistance.

We recognize that your organizations might not be directly involved in setting
ceilings on health sector spending, that these are national decisions.
However, these national decisions are the inevitable consequence of the
need to keep spending within the overall budget ceilings that your institutions
do promote. As a result of these decisions, funds that might otherwise be
channeled to the health sector are unavailable. Consequences are
measurable in ill health and even death. We appreciate your desire to ensure
macroeconomic stability, and do not doubt that it is driven by a genuine
concern for the well-being of the poor, of ordinary people. Macroeconomic
stability will not nourish us or treat our illnesses, however. We need firstly,
strong, well-funded, health systems. Macroeconomic policies are making this
more difficult to achieve.

Thus, we are asking that the IMF, World Bank, ministries of finance of
developing countries, and other partners develop new policies to ensure that
macroeconomic constraints do not limit effective and productive spending of
developing countries on health, education, and related sectors, or salaries
and hiring of workers in these areas. One possibility would be to increase
flexibility around spending limits and the macroeconomic targets, such as
inflation and fiscal deficits, upon which those limits are based. The flexibility
would enable whatever limits or targets exist to expand to accommodate
unexpected external assistance or domestic spending in these sectors that is
higher than originally planned. Another possibility would be for your
organizations to revise any economic targets -- such as overall government
spending or overall spending on civil servants -- to exclude these sectors.
Insulating these sectors from overall budget targets would prevent these
targets from conflicting with the imperative to increase spending for health,
education, and related areas. Targets for these sectors would remain to assist
in planning. The changed policies should be publicized among all
stakeholders, including finance, health, education, and other national
ministries.

If this new policy cannot be designed and implemented immediately, we
ask that your organizations take the following steps at once. We believe your
organizations should immediately issue joint or separate statements
announcing that the IMF and World Bank will not withhold loans or grants,
suspend or cancel programs, or otherwise penalize countries that break
overall spending ceilings because of increased spending in health,
education, and other sectors and activities needed to promote human
development. Such activities include increasing salary and benefits to health
staff and hiring new health personnel. We also would hope that these
statements reiterate your support for additional spending in these sectors,
including on human resources.

[…]Even before a new policy is adopted, we urge you to immediately
encourage flexibility in budget ceilings in health, education, and other sectors
central to human development, as well as to urge that countries implement a
moratorium on any restrictions on hiring, salary, and benefits in these sectors.
We hope that your staff will actively share these statements - and the
understandings of the importance of increased funding in these areas that
they represent - with key government officials, including in finance ministries.

[…]We understand that making exceptions in spending for health or
education-related programs or the acceptance of foreign assistance in these
areas would represent a departure from the IMF's and World Bank's current
policies and strategies, but we believe that such exceptions are necessary if
these countries are to adequately respond to the HIV/AIDS epidemic.

A policy briefing on the impact of IMF policies on health budgets is scheduled
for release on September 30 by ActionAid International USA, Global AIDS
Alliance, Student Global AIDS Campaign and RESULTS Contact
RickR@actionaidusa.org for more details.

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