IMF and Social Indicators : A Story of Love or Hate ?

The International Monetary Fund (IMF) is an international organization that was initiated in 1944 at the Bretton Woods Conference and formally created in 1945 by 29 member countries, in order to assist in the reconstruction of the world's international payment system post–World War II. The IMF presently has 188 member countries, and its stated goals are to ensure the stability of the international monetary and financial system, resolve crises and work with its member countries to promote growth and alleviate poverty. The tools that IMF uses are lending, economic surveillance, technical assistance and training, underpinned by research and statistics. During the years, the IMF has lent funds in various developing and developed countries around the world. IMF effectiveness, however, in achieving its goals is in question. There have been many cases of countries where the IMF has lent funds and people’s lives have actually gotten worse. Social indicators like health, education, employment, poverty and income inequality statistics can be used in order to test the validity of this statement. Consequently, the goal of the current article is to examine the course of social indicators in countries where the IMF has intervened, and assess its effectiveness in achieving its goals.


Introduction
The International Monetary Fund (IMF) is an international organization that was initiated in 1944 at the Bretton Woods Conference and formally created in 1945 by 29 member countries, in order to assist in the reconstruction of the world's international payment system post-World War II.The IMF presently has 188 member countries, and its stated goals are to ensure the stability of the international monetary and financial system, resolve crises and work with its member countries to promote growth and alleviate poverty.The tools that IMF uses are lending, economic surveillance, technical assistance and training, underpinned by research and statistics.
Social indicators are used to assess the well being of a country's population.In the economics literature there has been a number of Social Indicators (SI) definitions.Bauer (1966) described them as forms of evidence that help in the assessment of present position and future directions.The Organisation for Economic Co-operation and Development (OECD) (1976) stated that a SI is a "direct and valid statistical measure which monitors levels and changes over time in a fundamental social concern" (p.25).Atkinson et al. (2002) saw SI as "a parsimonious set of specific indices covering a broad range of social concerns" (p.2).This set includes statistics similar to economic statistics of the national accounts which are intended to provide a basis for making concise, comprehensive and balanced judgments about the conditions of major aspects of society as accurate measures of a good society.
During the years, the IMF has received many criticisms about its effectiveness in achieving its proclaimed goals and IMF loan conditions have been blamed for negatively affecting social indicators in many borrower countries.IMF's loan conditions may include structural adjustment policies like increasing taxes, cutting off health, education and social protection expenditures, lowering wages, firing civil servants and various other austerity measures, as well as privatizations of national industries, resources and assets and increased support for private financial institutions.As mentioned by Munevar and Toussaint (2013)"in many cases, the living conditions of hundreds of millions of people in the World have been degraded as a result of the debt based policies forced on them by the World Bank and the IMF with the complicity of their own governments" (online).Shuh (2013) claims that "many developing nations are in debt and poverty partly due to the policies of international institutions such as the International Monetary Fund (IMF) and the World Bank.Their programs have been heavily criticized for many years for resulting in poverty" (online).A Center for Economic and Policy Research (CEPR) study of IMF advice in Europe found "a focus on other policy issues that would tend to reduce social protections for broad sectors of the population (including public pensions, health care, and employment protections), reduce labour's share of national income, and possibly increase poverty, social exclusion, and economic and social inequality as a result" (p.5).Also Griffiths and Todoulos (2014) in their study conclude that "if countries are genuinely facing protracted and serious debt problems, then IMF lending only makes the situation worse" (p.5).
The goal of the current article is to examine the course of social indicators in countries where the IMF has lended funds and assess its effectiveness in achieving its goals.The research starts by giving information about the International Monetary Fund, its activities, the lending process and loan types.The research then uses a random sample of 9 countries that have borrowed funds from IMF, presents their IMF loans from 1884 onwards and makes an analysis of the following social indicators: health, education, employment, poverty and income inequality.Following there is a discussion of the results.Conclusions and policy recommendations are drawn in the final part of the study.

Description
The IMF was initiated in 1944 by 29 member countries.Presently it has 188 member countries and its goals are to ensure the stability of the international monetary and financial system, resolve crises and work with its member countries to promote growth and alleviate poverty.The tools that IMF uses are the following (IMF, 2014): A. Lending: The IMF provides loans to countries that have trouble meeting their international payments and cannot otherwise find sufficient financing on affordable terms.This financial assistance is designed to help countries restore macroeconomic stability by rebuilding their international reserves, stabilizing their currencies, and paying for imports-all necessary conditions for relaunching growth.The IMF also provides concessional loans to low-income countries to help them develop their economies and reduce poverty.

B. Surveillance:
The IMF oversees the international monetary system and monitors the financial and economic policies of its members.It keeps track of economic developments on a national, regional, and global basis, consulting regularly with member countries and providing them with macroeconomic and financial policy advice.

C. Technical Assistance:
The IMF assists mainly low-and middle-income countries in effectively managing their economies, provides practical guidance and training on how to upgrade institutions and design appropriate macroeconomic, financial, and structural policies.

D.
Research and data: Supporting all three activities outlined above is the IMF's economic and financial research and statistics.

Conditionality
IMF conditionality is a set of policies or conditions that the IMF requires in exchange for financial resources.When a country borrows from the IMF, its government agrees to adjust its economic policies to overcome the problems that led it to seek financial aid from the international community.These loan conditions also serve to ensure that the country will be able to repay the Fund so that the resources can be made available to other members in need.Lending reforms approved in 2009 streamlined IMF conditionality in order to promote national ownership of strong and effective policies.

Quota System
The IMF's quota system was created to raise funds for loans.Each IMF member country is assigned a quota, or contribution, that reflects the country's relative size in the global economy.Each member's quota also determines its relative voting power.Thus, financial contributions from member governments are linked to voting power in the organization.Each member has a number of basic votes, plus one additional vote for each Special Drawing Right (SDR) of 100,000 of a member country's quota.The Special Drawing Right is the unit of account of the IMF and represents a claim to currency.It is based on a basket of key international currencies (Euro, Japanese yen, pounds sterling and U.S. dollars).The basic votes generate a slight bias in favour of small countries, but the additional votes determined by SDR outweigh this bias.The United States are the largest contributor in IMF funds (17,69%) and this gives the US increased voting power and influence in the organization's decision making process.Following is Japan and Germany with 6%, France, the UK and China with 4%, Italy with 3% and Saudi Arabia, Canada and Russia with 2%.Actually the quota system follows the logic of a shareholder-controlled organization: since decision making at the IMF reflects each member's relative economic position in the world, wealthier countries that provide more money to the fund have more influence in the IMF than poorer members.

IMF Lending
A core responsibility of the IMF is to provide loans to member countries experiencing actual or potential balance of payments problems.The volume of loans provided by the IMF has fluctuated significantly over time.The oil shock of the 1970s and the debt crisis of the 1980s were both followed by sharp increases in IMF lending.In the 1990s, the transition process in Central and Eastern Europe and the crises in emerging market economies led to further surges of demand for IMF resources.Deep crises in Latin America and Turkey kept demand for IMF resources high in the early 2000s.IMF lending rose again in late 2008 in the wake of the global financial crisis.

The Process of IMF Lending
Upon request by a member country, IMF resources are usually made available under a lending "arrangement," which may, depending on the lending instrument used, stipulate specific economic policies and measures a country has to implement to resolve its balance of payments problem.The economic policy program underlying an arrangement is formulated by the country in consultation with the IMF and is in most cases presented to the Fund's Executive Board in a "Letter of Intent."Once an arrangement is approved by the Board, a cooperation memorandum is signed and IMF resources are usually released in phased instalments as the program is implemented.Some arrangements provide strong-performing countries with a one-time up-front access to IMF resources and thus not subject to policy understandings.

IMF Lending Instruments
Over the years, the IMF has developed various loan instruments that are tailored to address the specific circumstances of its diverse membership.The main loan types are concessional and non-concessional loans.
A  the Stand-By Arrangements (SBA): Historically, the bulk of non-concessional IMF assistance has been provided through SBAs.The SBA is designed to help countries address short-term balance of payments problems.Program targets are designed to address these problems and disbursements are made conditional on achieving these targets ('conditionality').The length of a SBA is typically 12-24 months, and repayment is due within 3¼-5 years of disbursement.SBAs may be provided on a precautionary basis. the Flexible Credit Line (FCL): The FCL arrangements are approved, at the member country's request, for countries meeting pre-set qualification criteria.The length of the FCL is either one year or two years with an interim review of continued qualification after one year.Disbursements under the FCL are not conditional on implementation of specific policy understandings as is the case under the SBA.There is flexibility to either draw on the credit line at the time it is approved or treat it as precautionary.The repayment term of the FCL is the same as that under the SBA. the Precautionary and Liquidity Line (PLL): The PLL is addressed to countries that face moderate vulnerabilities and may not meet the FCL qualification standards, but they do not require the substantial policy adjustments normally associated with SBAs.The PLL combines qualification (similar to the FCL) with focused conditions that aim at addressing the identified remaining vulnerabilities.Duration of PLL arrangements range from either six months or one-to two years.Access under six-month PLL arrangements is limited to 250 percent of quota in normal times, but this limit can be raised to 500 percent of quota in exceptional circumstances where the balance of payments need is due to exogenous shocks, including heightened regional or global stress.One-to two-year PLL arrangements are subject to an annual access limit of 500 percent of quota, and all PLL arrangements are subject to a cumulative cap of 1000 percent of quota.
There is flexibility to either draw on the credit line or treat it as precautionary.The repayment term of the PLL is the same as for the SBA (3¼-5 years)  the Extended Fund Facility (EFF): The EFF was established in 1974 to help countries address medium-and longer-term balance of payments problems reflecting extensive distortions that require fundamental economic reforms.Its use has increased substantially in the recent crisis period.Arrangements under the EFF are typically longer than SBAs-normally not exceeding three years at approval.However, a maximum duration of up to four years is also allowed, predicated on the existence of a balance of payments need beyond the three-year period, the prolonged nature of the adjustment required to restore macroeconomic stability, and the presence of adequate assurances about the member's ability and willingness to implement deep and sustained structural reforms.Repayment is due within 4½-10 years from the date of disbursement. the Rapid Financing Instrument (RFI): The RFI was introduced to replace and broaden the scope of the earlier emergency assistance policies.The RFI provides rapid financial assistance with limited conditionality to all members facing an urgent balance of payments need.Access under the RFI is subject to an annual limit of 50 percent of quota and a cumulative limit of 100 percent of quota.Emergency loans are subject to the same terms as the FCL, PLL and SBA, with repayment within 3¼-5 years.
All non-concessional facilities are subject to the IMF's market-related interest rate, known as the "rate of charge" and large loans (above certain limits) carry a surcharge.The rate of charge is based on the SDR interest rate, which is revised weekly to take account of changes in short-term interest rates in major international money markets.The maximum amount that a country can borrow from the IMF, known as its access limit, varies depending on the type of loan, but is typically a multiple of the country's IMF quota.This limit may be exceeded in exceptional circumstances.The Stand-By Arrangement, the Flexible Credit Line and the Extended Fund Facility have no pre-set cap on access.

IMF's Current Loans
Outlined below are the countries have currently borrowed funds from IMF under each concessional and non-concessional funding scheme.Currently 18 countries have borrowed funds from the IMF under the ECF scheme, and 2 under the SCF.Currently 6 countries have borrowed funds from the IMF under the SBA scheme, 3 under the FCL, 1 under the PLL, 7 under the EFF and zero under the RFI.

Selected Countries: IMF Loans
Currently 37 countries have open loans with IMF.The 9 countries that will be used as a sample, have been randomly selected and come from different parts of the world.They are the following: Honduras, Georgia, Greece, Liberia, Bangladesh, Romania, Ghana, Jamaica and the Democratic Republic of Congo.The sample includes both developing as well as developed countries.IMF loans in each country will be presented below in Tables 4 to 12.
The loans presented start from 1984 due to availability from the IMF database.

Selected Countries: Social Indicators
The Social Indicators that will be examined for the 9 sample countries are related to health, education, employment, income inequality and poverty.In specific they are the following: The data were gathered from a variety of sources, as the WorldBank, the United Nations, Eurostat, various national agencies etc.Data presented refer to the latest available year.Data about the United States will be mentioned also in the tables, in order to act as measure of comparison with the country with the highest number of IMF quotas and voting power.Unemployment rate ranges from 3,7% in Liberia, to 24,2% in Greece.It is strange that both Honduras and Liberia, the countries where 60% of the population lives below the national poverty line, present low levels of unemployment, and this has to be attributed either to wrong national statistical measurement methods or the fact that people work for meagre wages.The income share held by the richest 10% of the population ranges from 21,4% in Romania (2011), to 42,4% in Honduras ( 2009).Georgia, Liberia, Ghana, Jamaica and DR Congo present concentration of wealth by the richest 10% of the population of over 30%.The Gini coeffient in the 9 sample countries varies from 30 in Romania to 57 in Honduras.The Gini coefficient value is 45 for the US.The average value for the 9 countries is 40.8, which means that there is significant income inequality in all the countries of the sample.Health expenditure per capita in US $ ranges from only 15$ per year per person in DR Congo to 2.044 $ in Greece.

Health
The health expenditure per capita in the US is much higher than all countries that of the sample that have borrowed funds form IMF, and equals 8.895$.Total public spending on education of % GDP ranges from 2,2% in Bangladesh ( 2009) to 8,1% in Ghana ( 2009).However it is known that Ghana has very important educational problems, and the % of GDP is not equally distributed across the country (Exandas, 2013).In Ghana there are areas that are lacking both schools and teachers.
Education spending per capita in US $ in the 9 sample countries that have borrowed funds form IMF ranges from only 6,55$ per year per capita in DR Congo, to 920,6$ in Greece.The value for the US is 2.794,4$, which means that there is a very significant difference in education spending.

Discussion
The research has given some interesting results on the topic in question.Countries that have borrowed funds from the IMF, seem to have a variety of important social problems, as the following: • Poverty: in all countries of the sample a large part of the population lives below the national poverty line, ranging from 20%in Jamaica to 63,8% in Liberia.
• Unemployment: Unemployment rates are relatively low in the 6 out of the 9 countries of the sample.In Greece, which is the newest IMF borrower, unemployment has skyrocketed to 24,7% in 2012 (reaching 27,2% in 2013).It is also worth noting that in 2 of the countries with low unemployment rates, Honduras and Liberia, 60% of the population lives below the national poverty line.

•
Income inequality: The income share held by the richest 10% of the population in 5 countries of the sample (Georgia, Liberia, Ghana, Jamaica and DR Congo) is over 30%, and in Honduras is 40%.The Gini Coefficient average value for the 9 countries is 40.8, which means that there is significant income inequality in all the countries of the sample.

•
Health: Average life expectancy in DR Congo and Liberia is only 49 and 59 years respectively.In these two countries Infant Mortality Rate per 1000 births is 100 and 56 respectively.In Ghana this value is 49 and in Bangladesh 33.Health expenditure per capita, with the exception of Greece, varies between 15$ and 420$.On the contrary in the US this figure is 8.898$ per capita.

•
Education: With the exception of Ghana, Jamaica and the US, public spending on education as % of GDP is low in the other countries of the sample.However in Ghana there valid allegations that this budget is not dispersed equally across the country (Exandas, 2013).Regarding education spending per capita in US $ the values vary from only 6 dollars per year per capita in DR Congo, to 920$ in Greece.The value for the US is 2.794$.
One could easily claim that the IMF is neither responsible nor the root of these problems.The authors would tend to agree with this statement if there wasn't the issue of conditionality imposed by the IMF.IMF loan conditions include: privatizations of national industries, companies and assets, lands and resources, budget decreases for education, health and social protection expenses, firing civil employees like doctors, nurses and teachers (as it presently happens in Greece), cutting off wages, increases in taxes and various other measures which do not in any case assist in its proclaimed goals of resolving crises, promoting growth and alleviating poverty.
Regarding the IMF's other major goal, of "ensuring the stability of the international monetary and financial system", again the IMF, according to the view of the authors, is far from achieving its goals.Table 22 presents the top 10 countries by GDP and their government debt as % of their GDP.With the exception of Russia and China, all other countries and unions have huge amounts of debt.As their debt rises through the years, the world economic system is risking to collapse if one of them will not be able, in some point in time, to repay its debts.Taking also under consideration the fact that the stability of the dollar has began to topple, after years of borrowing and the two latest stimulus packages injected to the US economy in 2008 (700b$) and 2009 (787b$), one cannot escape wondering what will happen when interest rates start to rise and the heavily indebted countries start to struggle to repay their loans.
As a result, during the years the IMF has received various criticisms about its existence and effectiveness.Some of the most important are the following:  IMF works on the incorrect assumption that all payments disequilibria are caused domestically (ODI, 1980).The Group of 24 (G-24), on behalf of Less Developed Countries members, and the United Nations Conference on Trade and Development (UNCTAD) complained that the Fund did not distinguish sufficiently between disequilibria with predominantly external as opposed to internal causes.This criticism was voiced in the aftermath of the 1973 oil crisis.Then LDCs found themselves with payments deficits due to adverse changes in their terms of trade, with the Fund prescribing stabilization programmes similar to those suggested for deficits caused by government over-spending. Argentina, which had been considered by the IMF to be a model country in its compliance to policy proposals by the IMF and World Bank, experienced a catastrophic economic crisis in 2001.IMF-induced budget restrictions in crucial areas such as health, education, and security, and privatization of strategically vital national resources, contributed in the crisis. The IMF has little to no communication with other international organizations such as UN specialist agencies like UNICEF, the Food and Agriculture Organization (FAO), and the United Nations Development Program (UNDP) (Sachs, 2005). Almost all the countries were repeat borrowers from the IMF, suggesting that the IMF is propping up governments with unsustainable debt levels, not lending for temporary balance of payments problems (Griffiths & Todoulos, 2014). The IMF has cooperated with dictators (in Chile, Brazil, Indonesia etc) Oxfam International has blamed the IMF that "despite numerous commitments to reform, The World Bank and the IMF are still using their aid to make developing countries implement inappropriate economic policies, with the tacit approval of rich-country governments" (2006, p. 1).

Conclusions
Upon initial formation, the IMF had two primary functions: to oversee the fixed exchange rate arrangements between countries and to provide short-term capital to aid balance-of-payments.This assistance was meant to prevent the spread of international economic crises.The IMF's role was fundamentally altered after the floating exchange rates post 1971.It shifted to surveilling the world monetary and financial system and offering loans attached to specific macroeconomic policies to member countries in need.
This research used a sample of 9 countries across the world that have borrowed funds from IMF and followed IMF policies (out of the 37 countries that have active loans), in order to examine the course of social indicators in them.The results showed the existence of a large and varying number of social problems.For example, Greece is faced with high poverty rate, income inequality and unemployment.DR Congo is faced with poverty, income inequality, low life expectancy, high infant mortality rate and very low expenses per capita for health and education.Bangladesh is faced with high poverty rate and very low expenses per capita for health and education.Georgia is faced with high poverty and unemployment rate, income distribution inequality and low health and education expenditures.Romania is faced with poverty for 20% of the population and low health and education expenditures.Ghana is faced with high poverty rate (27%), income inequality, low life expectancy, high infant mortality rates and low health and education expenditures.In Liberia 63% of the population lives below the national poverty line, and other social problems include low life expectancy (59 years of age), and low health and education expenditures.Jamaica is faced with poverty (20%), unemployment, income inequality and low health and education expenditures.Finally Honduras is faced with poverty for 60% of the population, high income inequality and low health and education expenditures.
One could easily claim that the IMF is neither responsible nor the root of these problems.And the authors would tend to agree with this statement if there wasn't the issue of conditionality.Most IMF loans are attached with the obligation to follow specific policies and conditions, most of which affect negatively social indicators.
According to the view of the authors, it is necessary for the IMF participating countries to examine from the beginning why the IMF exists, which are its goals, how it is managed, which methods it uses are and how effective it is in achieving its goals.


Poverty: Per cent of population below poverty line  Unemployment: Unemployment rate  Income inequality: Income share held by highest 10%, Gini Coefficient  Health: Life expectancy, Health expenditure per capita (current US$), Infant mortality rate per 1000 births  Education: Public spending on education, total (% of GDP), Education spending per capita in US $

Table 1 .
Table 1 presents the top 10 countries in IMF quotas.Top 10 countries in IMF quotas

Table 2 .
Current IMF concessional loans

Table 3 .
Current IMF non-concessional loans

Table 4 .
Honduras Transactions with IMF from May 01, 1984 to March 31, 2014 in SDRs

Table 5 .
Georgia transactions with IMF from May 01, 1984 to March 31, 2014 in SDRs

Table 7 .
Liberia transactions with the fund from May 01, 1984 to March 31, 2014 in SDRs

Table 8 .
Bangladesh transactions with IMF from May 01, 1984 to March 31, 2014 in SDRs

Table 9 .
Romania transactions with the fund from May 01, 1984 to March 31, 2014 in SDRs

Table 10 .
Ghana transactions with the fund from May 01, 1984 to March 31, 2014 in SDRs

Table 12 .
DR Congo transactions with the fund from May 01, 1984 to March 31, 2014 in SDRs The Democratic Republic of Congo has borrowed 1,5 billion SDRs from 1984 to 2014 and has repaid 1,8 b SDRs.Interest Paid sums up to 406 m SDRs.

Table 13 .
Social indicator category: poverty, variable: population below poverty Line

Table 14 .
Social indicator category: unemployment, variable: unemployment rate

Table 15 .
Social indicator category: income inequality, variable: income share held by highest 10%

Table 17 .
Social indicator category: health, variable: life expectancy

Table 18 .
Social indicator category: health, variable: health expenditure per capita (current US$)

Table 19 .
Social indicator category: health, variable: infant mortality rate per 1000 births Infant Mortality Rates per 1.000 births vary significantly between the sample.The highest mortality rate is met in DR Congo (100) and the lowest one in Greece (4).The fact that 1 out of 10 children in DR Congo will die before reaching 1 year of age is shocking, especially if we keep in mind that the country has a population over 75 million.

Table 21 .
Social indicator category: education, variable: education spending per capita in US $

Table 22 .
Top 10 countries by GDP and their government debt as % of GDP