The IMF and World Bank: Aiding and abetting inequality in Asia

Oct 16, 2018

by Asian Peoples’ Movement on Debt and Development

Asia continues to draw attention as the “most important engine of global growth,” according to IMF Managing Director Christine Lagarde. Yet, as growth on the continent intensifies, countries are also experiencing deepening income and wealth inequality. Income disparities in 11 economies – about four-fifths of the region’s population – are widening, and while inequality gaps within countries are closing elsewhere, they have been growing in Asia. By the World Bank’s own account, “inequality in Indonesia has reached historically high levels,” with the wealthiest 10 per cent consuming as much as the poorest 54 per cent in 2014, which is an increase from 42 per cent in 2002.

Inequality, however, is not a recent phenomenon. In contexts of already sharp inequalities in the 1980s, the World Bank and the IMF extended loan packages with stringent repayment conditions that compelled borrowing countries to align their economic policies with market-based approaches. Deeply encroaching on national economic policy, structural adjustment programmes (SAPs) called for the unfettered cross-border flow of goods, services and capital, privatisation of state facilities, broad-based taxes and social spending cuts as part of austerity measures.

SAPs failed to attain their avowed aims of increasing industrial capacity and competitiveness, among others. Much-touted export growth was found very narrowly based on resource extraction and cheap labour, and was eventually eroded by deteriorating terms of trade and costlier imports. Trade and current account deficits swelled as this extractivist model was imposed, aggravating the external debt situation that the international financial institutions (IFIs) sought to solve in the first place with SAPs.

One is reminded of the emperor insisting he is wearing new clothes, as the IFIs essentially pursue the same neoliberal path that brought us to where we are now

Domestic production deteriorated and triggered lay-offs and closures of local business enterprises. In Bangladesh, the rapid removal of tariffs, “opened a floodgate of imports from better-financed transnational corporations.” Import-substituting industries such as cotton and sugar waned, as industry-led employment substantially shrunk, especially in manufacturing. In the Philippines, a formerly booming garments sector contracted as cheaper goods flooded the global market, leading to a fall in export demand. SAPs’ promotion of market flexibility and wage caps dealt harsh blows to labour rights. In addition to promoting wage stagnation, they impeded the protection of collective bargaining and freedom of association rights. Labour flexibilisation brought greater job insecurity, especially for women who were already marginalised in insecure, low-paid employment. Thus, even without specific reference to labour conditions, SAPs “[represented] a substantial shift in the political balance of power between organized labour and business in recipient countries, as labour groups [lost] influence to the benefit of capital,” according to research in the journal International Union Rights. The persistence of the IFIs’ support for labour market flexibilisation is most recently evidenced by the World Bank’s draft 2019 World Development Report on the changing nature of work, which has attracted much criticism (see Observer Summer 2018).

The biggest winners of these policies, then and now, are wealthy, politically well-placed elites and multinational corporations. As these issues manifest in more contemporary accounts of inequality, they highlight the persistently adverse outcomes of neoliberal policy on the working poor. A third of the region’s workers still remain below the international poverty threshold of $1.90 per day in purchasing power parity. Wage workers were paid only $73 per month in Nepal in 2008, $119 in Pakistan in 2013 and $121 in Cambodia in 2012. For Southeast Asia, wage growth has been noted by the International Labour Organization as even slower than in South Asia and East Asia.

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