Tuesday, August 09, 2005

Tsunami Aftermath: Reconstruction or Economic Opportunism?

From Foreign Policy in Focus:

"Beyond the issue of aid delivery, there is concern over the role of international financial institutions in tsunami reconstruction efforts. The IMF, World Bank, and Asian Development Bank were already troubling Indonesian and Sri Lankan civil society groups before the tsunami. In both countries, there is widespread opposition to the economic policies of these institutions due to their flawed and unsustainable polices, such as weaker labor market protections and privatization of necessary government services. Farmers’ organizations, women’s groups, fisherfolk, and trade unionists also oppose the undemocratic means by which those policies have attempted to be carried out by their governments under pressure from international institutions.

It’s unclear what useful role the IMF in particular can play in this situation. Its economic policy prescriptions are especially ill-suited for emergencies given that their overarching economic advice is always one of limited government spending and low inflation through high interest rates. This is evidenced by a recent IMF staff report: “[IMF] Staff has advised the authorities to be mindful of the limits to implementation capacity and potential inflationary pressures as reconstruction efforts proceed.” In other words, in the midst of this immense tragedy the IMF is warning against higher levels of government spending because this may lead to increased inflation in the future.

The combination of misguided policy and undemocratic implementation explain why civil society coalitions have long opposed IMF, World Bank, and Asian Development Bank policy in Indonesia and Sri Lanka. These policies have encouraged cuts in government spending on health care, education, and food and farm subsidies, privatization of essential services including water, and reduction of government revenue from tariffs. In Indonesia, the civil society alliance, the Anti-Debt Coalition, has been campaigning to compel their government to not continue with IMF programs."

No comments: