by The Ecumenical Coalition for Economic Justice

Developed country governments have been applying IMF-advised policies similar to those imposed upon their indebted southern neighbours. The Canadian Ecumenical Coalition for Economic Justice (ECEJ) has long documented the negative social impact of many of these policies. Recently a sister coalition, the Halifax Initiative, secured copies of IMF reviews of Canada’s performance. ECEJ details the picture they reveal.

The actual text of Article IV of the IMF’s Articles of Agreement only refers to a mandate to “exercise firm surveillance over the exchange rate policies” of its members. However, over time Article IV reviews have become far more wide-ranging. The wide scope of these consultations constitutes a prime example of the IMF’s “mission creep,” that is, the expansion of its powers far beyond what was envisaged by its founders. An Article IV consultation is more like a complete physical exam from the doctor than a diagnosis of a particular ailment.

The IMF’s prescription for Canada is identical to the policies it enjoins indebted less developed countries to pursue: anti-inflationary monetary policies; fiscal austerity; more flexible labour markets and privatization of publicly owned enterprises.

A Fixation on Fighting Inflation

As one reads through these statements and many other IMF policy documents, one invariably finds a fixation on fighting inflation through fiscal and monetary policies. The IMF’s December 1994 Article IV statement to the Minister of Finance begins by restating the Fund’s preoccupation with preventing “pressures that would re-ignite inflation.” This advice was proffered despite the fact that inflation in Canada, as measured by the Consumer Price Index, had already declined from 5.6% in 1991 to just 0.2% in 1994. At the time many economists were saying that the real threat was deflation - that is falling, rather than rising prices. While Canada has sometimes deviated from the IMF’s standard prescription, both Conservative and Liberal governments have followed the Fund’s advice for a strict anti-inflationary monetary policy.

The Finance department and the Bank of Canada pursue an IMF-approved monetary policy that deliberately keeps unemployment high as a means of curtailing inflationary wage demands. The principal beneficiaries of this policy are wealthy financial investors who profit from high real (that is, inflation adjusted) interest rates. Employment and income distribution in Canada have been particularly hard hit by these monetary and fiscal policies.

Eviscerating national social standards: Following IMF Advice

The Article IV statement from the IMF delivered to Finance Minister Paul Martin in December 1994 contained a detailed plan for what was to become the crucial 1995 federal budget. The document reflects the Fund’s fixation on spending cuts. The Fund economists then appended a detailed list of measures that could be used to achieve the desired fiscal adjustment. Subsequently, in February 1995 Martin announced $29 billion in spending cuts over three years for various branches of government. Martin’s 1995 budget included the following:

• The Canada Health and Social Transfer (CHST) replaced Established Program Financing for provincial health and post-secondary education programs and the Canada Assistance Plan which not only provided money but also set standards for provincial welfare programs. The Federal government gave up its ability to implement many of its international economic and social rights commitments.
  
  
• The reduction in federal transfers to the provinces for health, post-secondary education and social assistance amounted to $7.4 billion over 2 years.
  
  
• The CHST’s formula for block funding also reduced the federal role in setting social policy.
  
  
• 45,000 public sector jobs were eliminated.
  
  
• There was a 19% funding cut for all federal departments.
  
  
• A proposed national child care program was canceled.
  
  
• The Unemployment Insurance program was cut by a minimum of 10%.
  
  
• A $950 fee levied for immigration applications became known as “the head tax”.
  
  
• Privatizations included Air Navigation System; all airports; Canadian National Railways; the remaining 70% public share in Petro-Canada.

In his budget speech Martin (1995:6) said he intended to “redesign the very role and structure of government itself.”

IMF Intrusion Redesigns Social Policy

What is shocking about the IMF’s 1994 statements is not the predictable direction of the Fund’s advice but the specificity of its prescriptions. For example, the 1994 review even contains a recommendation that the government eliminate regional programming and other television services by the Canadian Broadcasting Corporation. The IMF’s pro-free market bias blinds it to the role that the CBC plays in binding together Canadians spread out over vast distances. The cultural importance of enabling Canadians to tell their own stories in the face of the dominance of US media means nothing to the IMF.

The accompanying table shows how closely the Liberal government followed the IMF’s structural adjustment advice in the 1994, 1995 and 1996 federal budgets. These proposals affect not only the amount of social spending but also the nature of our social programs. For example, in the statement of its 1993 mission to Canada, the IMF bluntly accuses Canada’s Unemployment Insurance system (UI) of reducing “incentives to work” and calls for “cuts in the UI benefit rate and regional extended benefits”.

Still Not Satisfied

But the IMF was still not satisfied. A May 18, 1995 letter to Finance Minister Martin, signed by Managing Director, Michel Camdessus, summarizes an IMF Executive Board discussion. Camdessus (1995) “commends” Martin for his “political courage.” However, he adds that “a more fundamental correction of the fiscal situation was warranted.” He calls for more changes to benefits for the elderly which Martin did attempt when he introduced a Senior’s Benefit in his 1996 budget that later had to be withdrawn. Camdessus also calls for further reforms to UI, more cuts in transfers to Crown corporations and cultural subsidies. Camdessus calls the CHST “a first step” saying there were opportunities to “achieve further saving.” He also says the “potential for increasing tax revenues may be limited given that the effective tax rates are already high compared to the United States.”

On November 16, 1999 the IMF delivered its most recent annual statement to the Minister of Finance. The IMF is pleased with the Bank of Canada’s success at keeping inflation low. It qualifies the changes to unemployment insurance (which prevent two thirds of the unemployed from receiving benefits) as “improvements” because they have increased “the flexibility of the labor (sic) market.” Nevertheless, it calls for additional changes to the UI system such as “phasing out the system of regional extended unemployment insurance benefits... to reduce the disincentives to labor (sic) mobility.”

The IMF also approves of the “restructuring of provincial social assistance programs” without any recognition of the human cost of massive cuts to welfare benefits. The IMF advises making “debt reduction and income tax reform... the top priorities in allocating the prospective fiscal surplus.” While acknowledging that “some additional moderate spending ... [on] education and health care would be useful,” the IMF emphasizes the need to devote more than $3 billion a year to debt reduction and to lower personal and corporate income tax rates which it identifies as high by international standards.

Market Income Gap Growing

Canada’s experience underlines the fact that the IMF’s prescription for reduced government transfers and letting the market rule leads to a widening gap between the rich and the poor. Social researcher Armine Yalnizyan shows how growing inequalities in market income (that is, wage and investment earnings before taxes and government transfers) are increasing the gap between the rich and the poor in Canada rather than narrowing it. Whereas in 1973 the richest 10% of families earned 21 times as much market income as the poorest, by 1996 the richest tenth earned 314 times as much!

Yalnizyan shows how the doubling of the number of part-time jobs over the last 20 years and the “casualization” of the work force through temporary work, contract work or self-employment, have contributed to deteriorating market incomes for working people. One in five workers, mostly women, has a part-time job and earns just two thirds of the equivalent wages of full-time workers. For the IMF this is a sign that the labour market is becoming more “flexible.”

The increasing market wealth of the rich in Canada is taking place at the expense of the poor and the middle class. Since 1990 (roughly the period since Canada embarked on structural adjustment) the average market incomes for the poorest 10% of families declined due to “creeping unemployment, the increasing casualization of work and decline in real wages paid to men under 35.”

Armine Yalnizyan’s research unmasks the ideology of unfettered market rule for what it is – a device to further enrich the already wealthy.

Conclusion

IMF structural adjustment advice, whether dictated to countries having difficulties making their debt payments or voluntarily swallowed as in the case of Canadian governments, involves an unacceptable intrusion into national self-determination.

Tragically, the harsh spending cuts used to fight Ottawa’s deficit could have been avoided had Canada disregarded the IMF and pursued a less restrictive monetary policy. In fact the federal deficits could have been eliminated without social spending cuts had the federal government cut interest rates sooner to promote employment and revenue generating economic activity.

Our Canadian experience adds an important dimension to the argument for abolishing Structural Adjustment Programs altogether. It demonstrates the inappropriateness of allowing international financial institutions to meddle with social policies. They have no business telling Canadians, or any other sovereign country, to dismantle social programs that took generations to build, or to eliminate our cultural icons, all in the name of market efficiency.

The Ecumenical Coalition for Economic Justice (ECEJ) is a research, education and action organization founded in 1973 by Canadian Protestant and Catholic Churches. This article is excerpted from their Economic Justice Report (Vol. X/4). ECEJ, 208-947 Queen St. E., Toronto, Ontario, M4M 1J9 Canada.

IMF Advice & Canadian Social Policy IMF Advice (1994 except for UI in 1993) Canada Assistance Plan: “Consideration could be given to placing the CAP on a block basis.” Established Program Funding – Health: “Cuts in EPF – Health transfers to the provinces could encourage greater efficiencies or cost recovery in the health sector.” EPF – Post Secondary Education (PSE): “Federal transfers for PSE could be reduced in order to encourage a more efficient use of education resources.” Elderly Benefits: “A major reform would involve replacing the existing OAS (Old Age Security) and GIS [Guaranteed Income Supplement] transfers... in favor [sic] of a means-tested benefit that would be recovered on the basis of family income.” Unemployment Insurance: “Reform of the UI System – including cuts in the UI benefit rate and regional extended benefits...” (IMF 1993 Statement of Mission) Housing: “Cuts [to Crown Corporations] could involve... eliminate transfers... to the CMHC.” [Canada Mortgage and Housing Corporation] Other spending: “In many areas there may be a limited need for an extensive federal regulatory or supervisory presence. Such areas include agricultural policy, labor [sic] market policies, natural resource policy, Indian and Inuit affairs, and social policies. There would also seem to be scope for reductions in outlays... [for] fisheries and industry... [and] research. There would seem to be scope for rationalizing these services with a view to increasing the private sector’s responsibility for such activity. Changes to Canadian Policy 1995 budget eliminated the Canadian Assistance Plan, replacing it with reduced block transfers to the provinces under the Canada Health and Social Transfer. (CHST) 1995 budget replaced Established Program Funding for Health with reduced block transfers to the provinces under the CHST. 1995 budget replaced Established Program Funding for Post Secondary Education with reduced block transfers to the provinces under the CHST. 1996 budget proposed to replace Old Age Security and Guaranteed Income Supplement with a new means-tested Senior’s Benefit. These plans were abandoned in 1998 under public pressure. 1994 budget raised minimum qualifying period for UI from 10 to 12 weeks; cut regional benefits from 32 to 26 weeks; introduced two-tier benefits – rates dropped from 57% to 55% of insurable earnings except for low income claimants; and cut UI premiums. 1996 budget eliminated federal role in building new social housing after years of budget cuts beginning in 1989. 1995 budget included a 19% funding cut for all departments and a plan for eliminating 45,000 public sector jobs.