Wednesday, 22 January 2014

Social Spending Targets and the IMF

Liam Clegg reflects on post-Global Financial Crisis shifts in conditionality.[1] 

Government spending has long been a controversial issue for the International Monetary Fund (IMF). In laying out a roadmap for crisis-hit governments to move back towards balanced budgets, IMF lending programmes can often include exacting expenditure reduction targets. Broadly, two criticisms have been placed at the Fund’s door. First, it is suggested that these targets push countries – to borrow Shadow Chancellor Ed Ball’s favoured terminology – to cut ‘too far, too fast’, thereby damaging their long-term growth trajectory. Second, it is suggested that the social impact of cuts is often given insufficient attention, with the burden falling most heavily on the most vulnerable.

There is a large and growing literature examining the first issue.[2] Indeed, in their recent Working Paper, the IMF’s Oliver Blanchard and Daniel Leigh have suggested that the negative growth effects of spending cuts may have been under-estimated by policymakers when responding to the Global Financial Crisis.[3] There is also a notable body of work examining the second issue.[4] However, a recent operational shift at the IMF provides a timely opportunity for re-evaluation.

In July 2009 the IMF Executive Board approved new Guidelines on Poverty Reduction, setting out a series of practices that staff should endeavour to uphold. Amongst these standards, staff arranging loan conditions with low-income countries were directed to ensure that expenditure targets were included that allowed for levels of social spending (education and health expenditure) to remain stable or rise through the course of a programme. Prior to this intervention, the use of this type of ring-fence occurred rarely in arrangements with low-income countries; after this intervention, they became a near-ubiquitous feature. While on the surface this shift seems to represent unambiguously good news, deeper investigation is called for to more completely assess this shift.

First of all, there is a question of the volume of spending being protected. By comparing social spending targets with pre-programme patterns of education and health spending, we find that just over half of the targets are set higher than pre-programme levels. So, we can conclude that a majority of the targets – albeit a slight one – should be considered to be meaningful.

Second of all, what about the on-the-ground effects of these targets? Can we be sure that ‘good’ social spending that is effectively directed towards vulnerable groups and used efficiently is resulting, rather than ‘bad’ social spending that either redistributes upwards or is wasted? To this question, which is arguably the more important of the two, we currently have no answer. While the IMF has begun to draw on figures related to social spending as evidence of its increasing effectiveness as an agent of poverty reduction,[5] more detailed in-country research is needed before we can confidently judge the substance of this claim. 

Issues surrounding the IMF and international politics are explored in several modules in the Department of Politics, including the third year Governing the Global Economy and second year Politics of Development offerings.

[1] For a full version of the argument, see Clegg, L. (2014) ‘Social spending targets in IMF concessional lending: US domestic politics and the institutional foundations of rapid operational change’, Review of International Political Economy ifirst: 1-29. 

[2] See, for example, Vreeland, J. (2003) The IMF and Economic Development (Cambridge: University Press); Dreher, A. (2006) ‘IMF and Economic Growth: The Effects of Programs, Loans, and Compliance with Conditionality’, World Development 34(5): 769-88. 

[3] Blanchard, O. and D. Leigh (2013) ‘Growth Forecast Errors and Fiscal Multipliers’, IMF Working Paper WP/13/1: 1-43. 

[4] See, for example, Walton, J. and D. Seddon (1994) Free Markets and Food Riots (Oxford: Blackwell); Oxfam (2003) The IMF and the Millennium Development Goals: Failing to Deliver (London: Oxfam). 

Monday, 6 January 2014

Bob Goodin on Rough Justice - 29th January

Professor Bob Goodin from the University of Essex will be giving the first departmental seminar of the new term. His topic will be 'Rough Justice'. Professor Goodin is the founding editor of the Journal of Political Philosophy and is world-renowned for his work in political theory and public policy.

The seminar begins at 12:15pm on Wednesday 29th January in D/104. All are welcome.