Policies of the IFIs: A trade union view

1. Policies of the IFIs: A trade union view Peter Bakvis, Director ITUC/Global Unions - Washington Office ITUC-FES Seminar on “Challenging the IFIs in CEE” Warsaw, 4-5 October 2011

2. 2. International financial institutions (IFIs) • All of the IFIs (International Monetary Fund, World Bank, regional development banks such as the European Bank for Reconstruction and Development) are multilateral public institutions, created and run by governments • International Monetary Fund (IMF) and World Bank (WB) were founded in 1944 in Bretton Woods, New Hampshire, USA to contribute to financial stability and economic growth throughout the world

3. 3. IMF and World Bank • IMF’s original mandate: Help maintain stable exchange rates between national currencies and offer loans to countries encountering temporary balance of payments problems • World Bank’s original mandate: Offer low-cost loans for the post-Second World War reconstruction of Europe through the International Bank for Reconstruction and Development (IBRD)

4. 3. Changed focus towards developing and transition countries • Starting in 1950s, World Bank’s original division, IBRD, finances projects in developing countries • Creation of two additional branches of WB: • International Finance Corporation (IFC) in 1956 to stimulate development of private sector with loans to private enterprises • International Development Association (IDA) in 1960 to provide concessionary (0% interest) loans to poorest countries

5. 5. Creation of the EBRD • The European Bank for Reconstruction and Development (EBRD) is created in 1990 “to support the development of market economies in the [CEE] region” • EBRD, like the other regional development banks founded earlier, is separate from IMF and WB to but works in close harmony with the Washington-based IFIs • IMF also focuses more on developing countries, especially after collapse US dollar-based fixed exchange rate regime in 1971, and on transition countries starting in 1990s

6. 6. Structural adjustment programmes (SAPs) • Structural Adjustment Programs (SAPs): Programmes for reforming an entire sector or economic structure of a country • Starting in early 1980s, IMF, WB and regional development banks require the application of SAPs as loan conditions • SAPs originally promoted as solution to external debt crises, esp. in Latin America, motivated by supply-side economics promoted by Reagan and Thatcher governments in the 1980s; later became known as the “Washington Consensus” • In Central and Eastern Europe, most countries apply SAPs as part of transition process starting in 1990s

7. 7. Typical elements of a SAP • Reduction of government expenditures and interventions in the economy, such as cutting food and fuel subsidies and privatizing state-owned enterprises and services • Liberalization of international trade and foreign investment • Reduction of workers’ protection, such as elimination of employment regulations, to make labour markets more “flexible” • According to the IFIs, all of these policies are supposed to make economies more competitive, attract investment, increase growth and reduce poverty

8. 8. Failure of structural adjustment to bring shared prosperity and reduce poverty (i) • In general, inequality increased after countries introduced SAPs – WB found that income inequality increased in 46 out of 59 developing countries surveyed between 1990 and 2004 • Number of extreme poor (less than $1.25/day) in Sub-Saharan Africa, where most countries applied SAPs: 1981: 211 million , 2005: 388 million • Number of extreme poor (less than $1.25/day) in East Asia-Pacific, where many large countries reject SAPs: 1981: 1,072 million , 2005: 316 million

9. 9. Failure of structural adjustment to bring shared prosperity and reduce poverty (ii) • Annual rate of economic growth in Asia (where many large countries reject SAPs), 1980-2003: 7.7% • Annual rate of economic growth in Latin America (where almost all countries apply SAPs), 1980-2003: 2.2%

10. 10. Growing resistance against structuraladjustment policies • Protests against structural adjustment or austerity policies recommended by the IFIs took place in many developing and transition countries starting in late 1990s • In several countries, trade union and popular opposition led to major changes or cancellation of IFI-sponsored reforms (See 2006 ITUC report, Fighting for Alternatives: Cases of successful resistance to policies of the IMF and World Bank)

11. 11. Reduction in borrowing from the IMF before financial crisis • In the latter half of the 2000s, many countries in Asia and Latin America stop borrowing from IMF and some alternative regional financial arrangements are developed: Chiang Mai Agreement & Banco del Sur • By 2007 the IFIs, and particularly the IMF, suffer a serious loss of credibility, with a large part of world public opinion questioning their purposes or even their existence

12. 12. Responses from IFIs to trade unions’ and civil society demands in recent years (i) • IFIs have adopted new transparency policies, releasing project documents and agreements previously kept secret, but some important exceptions remain • IFIs have increased country-level consultations with unions and IMF has accepted to meet with unions in countries receiving emergency loans, but in most cases notbefore loan is finalized • WB and IMF have declared poverty reduction to be their “overarching goal” and cancelled or reduced debts of 35 countries, but on condition that they apply SAPs

13. 13. Other responses from IFIs to trade unions’ and civil society demands in recent years (ii) • WB and IMF have encouraged protection of social expenditures, but in the context of overall spending reductions they have advised countries to eliminate “non-targeted” programs • WB and IMF have reduced loan conditions requiring privatization, deregulation and trade and capital market liberalization, but substantial economic policy conditions remain • WB and IMF have increased developing-country voting power in their governing bodies, but only marginally so

14. 14. Evolving attitude within IFIs to workers’ rights (i) • Several measures taken by IFIs follow campaigns by the international trade union movement that began in late 1990s urging the IFIs to follow in the path of ILO’s Declaration on Fundamental Rights at Work (1998) • Since early 2000s, WB & IMF endorse the promotion of ILO’s core labour standards (CLS): prohibition of child labour, forced labour, discrimination; protection of right to organize and bargain collectively • WB includes obligation to respect CLS as standard requirement for IFC (private-sector) loans starting in May 2006

15. 15. Evolving attitude within IFIs to workers’ rights (ii) • In November 2008, EBRD introduces CLS requirement for all loans • In 2010, WB and regional development banks introduce CLS requirement in contracts for major public infrastructure projects, but no implementation has not been monitored • In 2008 & 2009, IMF and WB instruct staff to stop using labour indicator of Doing Business, which advised reducing labour regulations, minimum wages and severance pay

16. 16. Further trade union proposals regarding the IFIs and labour • Any IFI intervention that may have an impact on labour must be submitted to the ILO for review to ensure consistency with CLS and other ILO conventions ratified by the country • IFIs must ensure full compliance with CLS in all activities, i.e. those financed by so-called policy loans and grants as well as by project loans; WB should include a labour standards safeguard in the policy revision to be completed in 2013 • Thus, no IFI funding should be provided for restructuring or privatization where freedom of association and collective bargaining rights are not respected