Re: More on Argentina

["Charles Jannuzi" <jannuzi@xxxxxxxxxxxxxxxxxxxxxxxxx>]

Then consider this analysis, which is spot on in its analysis of the
merchant bank mentality that pervades the WB and IMF. Really, more and more,
I think Argentina is supposed to be the Enron of IMF/WB economics. We are
supposed to take it as an isolated case rather than indicative of the
systemic problems. (Sorry for character set problems, the web pages read
fine at the multinational monitor site, but my Japanese language MS OS has
made a mess of things.)

CJ

http://multinationalmonitor.org/mm2001/01september/sep01corp1.html

Against the Workers How IMF and World Bank Policies  Undermine Labor Power
and Rights

By Vincent Lloyd and Robert Weissman

After a decade of economic reformãalong lines advised by the International
Monetary Fund (IMF) and World Bank, Argentina has plunged into a desperate
economic crisis.

The economy has been contracting for three years, unemployment is shooting
up, and the country is on the brink of defaulting on its foreign debt
payments.

To avoid default, Argentina has negotiated for a new infusion of foreign
funds to pay off the interest on old loans and obligations, and to forestall
a pullout by foreign investors.

Traveling down that road took Argentina to the gatekeeper for such loans:
the IMF. In August, the IMF agreed to provide a new $8 billion loan for
Argentina, intended to forestall default. That followed a nearly $40 billion
January bailout package with a $14 billion IMF loan as its centerpiece.

But like the loans Argentina has negotiated with the IMF and World Bank over
the last decade ãand like all other such loans from the IMF and Bank ãthe
new monies came with conditions.

Among them are requirements that Argentina: promote labor flexibility
removing legal protections that inhibit employers from firing workers;
revamp its pension system to generate new savingsãby cutting back on
benefits for retired workers; slash government worker salaries; privatize
financial and energy operations of the government.

These requirements, and others, infuriated the Argentine labor movement,
which responded in March with general strikes that stopped economic activity
in the country. In August, with the latest loan package, tens of thousands
of workers took to the streets in protest.

That the IMF would demand such terms is no surprise. A Multinational Monitor
investigation shows that the IMF and World Bank have imposed nearly
identical mandates on dozens of countries. Based on reviews of hundreds of
loan and project documents from the IMF and World Bank, the Multinational
Monitor investigation provides detailed evidentiary support for critics of
the international financial institutions who have long claimed they require
Third World countries to adopt cookie-cutter policies that harm the
interests of working people.

Multinational Monitor reviewed loan documents between the IMF and World Bank
and 26 countries. The review shows that the institutionsãloan
conditionalities include a variety of provisions that directly undermine
labor rights, labor power and tens of millions of workersãstandard of
living. These include:

ãCivil service downsizing;  ãPrivatization of government-owned
enterprises, with layoffs required in advance of privatization and
frequently following privatization;  ãPromotion of labor flexibility ã
regulatory changes to remove restrictions on the ability of government and
private employers to fire or lay off workers;  ãMandated wage rate
reductions, minimum wage reductions or containment, and spreading the wage
gap between government employees and managers; and  ãPension reforms,
including privatization, that cut social security benefits for workers.

The IMF and Bank say these policies may inflict some short-term pain, but
are necessary to create the conditions for long-term growth and job
creation.

Critics respond that the measures inflict needless suffering, worsen poverty
and actually undermine prospects for economic growth. The policies reflect,
they say, a bias against labor, and in favor of corporate interests. They
note as well that these labor-related policies take place in the context of
the broader IMF and World Bank structural adjustment packages, which
emphasize trade liberalization, orienting economies to exports and
recessionary cuts in government spending ãmacroeconomic policies which
further work to advance corporate interests at the expense of labor.

The Incredibly Shrinking Government Workforce Perhaps the most consistent
theme in the IMF/World Bank structural adjustment loans is that the size of
government should be reduced.

Typically, this means that the government should spin off certain functions
to the private sector (by privatizing operations), and that it should cut
back on spending and staffing in the areas of responsibility it does
maintain.

The IMF/Bank support for government downsizing is premised, first, on the
notion that the private sector generally performs more efficiently than
government. In this view, government duties should be limited to a narrow
band of activities that either the private sector cannot or does not perform
better, and to the few responsibilities that inherently belong to the public
sector.

In its June draft Private Sector Development Strategy,ãthe World Bank
argues that the private sector does a better job even of delivering services
to the very poor than the public sector, and that the poor prefer the
private sector to government provision of services.

A second rationale for shrinking government is the IMF and Bank's priority
concern with eliminating government deficits. The institutions seek to cut
government spending as a way to close and eventually eliminate the shortfall
between revenues and expenditures, even though basic Keynesian economics
suggests that slow-growth developing nations should in fact run a deficit to
spur economic expansion.

In most countries, rich and poor, the government is the largest employer. In
poor countries, with weakly developed private sectors, the government is
frequently the dominant force in the nation's economy. Sudden and massive
cuts in government spending can throw tens or hundreds of thousands out of
work, and contribute to a surge in unemployment, and to a consequent
reduction in the bargaining power of all workers.

In Nicaragua, for example, the Chamorro administration that followed the
revolutionary Sandinista government worked with the IMF to slash the public
sector. In the first three years of the new regime, the number of government
employees plummeted from 290,000 to 107,000 (resulting in loss of employment
for more than 9 percent of the Nicaraguan labor force). Through 1999, the
government eliminated more than 18,000 additional jobs. The closure or
downsizing of state-owned banks åielding a total reduction from 9,100
employees in 1990 to 3,500 in 1993ãwas the first in a series of financial
sector reforms resulting in smaller government payrolls and greater foreign
ownership of Nicaraguan businesses, according to a Nicaraguan report to the
IMF.

The dramatic two thirds reduction in the size of government was driven in
part by a concerted government effort to strip out the Sandinistas from
government jobs,ãaccording to Marie Clarke of the Quixote Center, but was
also directed and required by the IMF and World Bank in a series of loan
agreements through the 1990s and in the present decade. A 1991 World Bank
Economic Recovery Credit was designated to assist with downsizing and
restructuring the public sector.ãContinually reducing the size of
government has been a consistent benchmark criteria included in IMF and
World Bank loans, with specific cutbacks designated as evidence of
Nicaragua's adherence to structural adjustment conditions.

Nicaragua is presently undergoing a second generationãof structural reform
programs, including yet another round of government cutbacks. Unemployment
now stands at 14 percent, but combined unemployment and rampant
underemployment totals 50 percent.

Other countries have witnessed similar emaciation of the public sector under
IMF and World Bank tutelage:

ãIn Kenya, the government plans to cut nearly 50,000 employees from
2000-2002.  ãIn Uganda, by early 1997, the size of the civil service was
cut in half to 150,000, and the government set a target of 58,100 by June
1997.

ãIn Yemen, a 1999 IMF document reported plans for a civil service reform
initiative expected to reduce public payrolls by 20 percent.  ãIn Zambia,
20 percent of the public sector was laid off in 1998 and 1999. IMF loan
documents set a goal of reducing government employment from 110,000 (in year
2000) to 10,000 to 12,000.

Privatize, Privatize, Privatize The civil service downsizing included in IMF
and World Bank conditionalities is frequently bound up with privatization
plans: under IMF and Bank instruction, governments agree to lay off
thousands of workers to prepare enterprises for privatization. But
privatization itself is frequently associated with new rounds of downsizing,
as well as private employer assaults on unions and demands for wage
reductions.

Privatization is a core element of the structural adjustment policy package.
Blanket support for privatization is an ideological article of faith at the
IMF and Bank.

The range of IMF and Bank-supported or -mandated privatizations is
staggering. The institutions have overseen wholesale privatizations in
economies that were previously state-sector dominated ãincluding former
Communist countries in Central and Eastern Europe, as well as many
developing countries with heavy government involvement in the economy ãand
also privatization of services that are regularly maintained in the public
sector in rich countries, such as water provision and sanitation [see
Privatization Tidal Wave,ãpage 14], healthcare, roads, airports and postal
services:

ãIn Argentina, according to the World Bank, virtually all public services
and federally owned enterprisesãhave been privatized, including postal
services.  ãIn Ecuador, the government reports that bids have been or are
being invited for private operation or ownership of urban sewage and water
systems, seaports and oil refineries, among other facilities.  ãIn Malawi,
a massive privatization effort has included the outsourcing, privatization
or liquidation of specific services and agencies of the four largest
ministries (Health and Population, Education, Transport and Public Works,
and Agriculture and Irrigation,ãaccording to a government submission to the
IMF, and the government also intends to increase private sector
participation in the roads sector.ã ãIn Nigeria, public enterprises set
for the auction blocks have included the national airways, power generators,
and oil refiners.

In a 1999 IMF document, the government stated it would study privatization
of customs clearance at major ports.

ãIn Uruguay, ports and roads have been privatized.

Labor unions do not offer blanket opposition to all privatization.
Particularly in the case of Central and Eastern Europe, but also in many
developing countries, unions have agreed that privatization of some
government operations may be appropriate. But they have insisted on
safeguards to ensure that privatization enhances efficiency rather than the
private plunder of public assets, and insisted that basic worker rights and
interests also be protected.

But those safeguards by and large have not been put in place.

Unfortunately, trade unionsãproposals regarding the form of privatization,
the regulatory framework and treatment of workers were usually not listened
to during the massive privatization wave in Central and Eastern Europe,ã
notes the International Confederation of Free Trade Unions (ICFTU) in a
report published in advance of the fall 2001 IMF and World Bank meetings.
The IMF and Bank acknowledge some of their mistakes in Central and Eastern
Europe, ICFTU notes, but éimilar mistakes may well be repeated in Central
and Eastern Europe and in other regions.ã

The ICFTU report highlights the case of Pakistan, where the military
government is planning, with World Bank assistance, a major privatization
initiative. The Bank's support for the initiative comes despite the
potential for abuse in privatizing natural monopoly services, especially
given the lack of democratic control, and the refusal of the authorities to
negotiate with trade unions affected by the privatization program,ãICFTU
notes. The Bank does candidly admit that a risk exists that Pakistan's
economic reform and devolution plan could be hastily implemented and
captured by powerful interest groups,ãbut makes no suggestion as to how to
avoid such an eventuality.ã

The Freedom To Fire Another core tenet of IMF and Bank lending programs is
the promotion of labor flexibilityãor labor mobility,ãthe notion that
firms should be able to hire and fire workers, or change terms and
conditions of work, with minimal regulatory restrictions.

The theory behind labor flexibility is that, if labor is treated as a
commodity like any other, with companies able to hire and fire workers just
as they might a piece of machinery, then markets will function efficiently.
Efficient functioning markets will then facilitate economic growth.

Critics say the theory does not hold up. Former World Bank chief economist
Joseph Stiglitz described the problem to Multinational Monitor: As part of
the doctrine of liberalization, the Washington Consensus said, Make labor
markets more flexible.ãThat greater flexibility was supposed to lead to
lower unemployment. A side effect that people didn't want to talk about was
that it would lead to lower wages. But the lower wages would generate more
investment, more demand for labor. So there would be two beneficial effects:
the unemployment rate would go down and job creation would go up because
wages were lower.ã

The evidence in Latin America is not supportive of those conclusions,ã
Stiglitz told Multinational Monitor. Wage flexibility has not been
associated with lower unemployment. Nor has there been more job creation in
general.ãWhere labor market flexibility was designed to move people from
low productivity jobs to high productivity jobs,ãaccording to Stiglitz, too
often it moved people from low productivity jobs to unemployment, which is
even lower productivity.ã

Indeed, some of the IMF and Bank documents treat labor flexibility almost as
code for mass layoffs. For example, a étructural benchmarkãin Nicaraguaç
dealings with the IMF is that the country çontinue to implement a labor
mobility program aiming at reducing public sector positions.ãBut the
essence of the problem from the point of view of labor is that the IMF and
Bankç version of labor flexibility is synonymous with stripping away legal
protections for workers. In Honduras, more labor flexibility is being
introduced because çollective contracts at large enterprises often act as
straightjackets,ãaccording to a World Bank document. In Ecuador, the use of
temporary contracts is touted in an IMF document as a means to improve labor
flexibility.

In its recommendations to the new Mexican government of Vicente Fox, the
World Bank has spelled out just how far-reaching its promotion of labor
flexibility is. The Bank encourages Mexico to phase out a wide array of
worker rights and protections: éhe current system of severance payments;
collective bargaining and industry-binding contracts; obligatory union
memberships; compulsory profit-sharing; restrictions to temporary,
fixed-term and apprenticeship contracts; requirements for seniority-based
promotions; registration of firm-provided training programs; and liability
for subcontractorsãemployees.ã

Spreading The Wage Gap Few things more clearly run contrary to workersã
interest than wage reductions. Wage freezes, wage cuts and wage rollbacks
are all commonplace in IMF and World Bank lending programs, as is åage
decompressionããincreasing the ratio of highest to lowest paid worker.

These initiatives usually occur in the public sector, where the government
has authority to set wages and salaries, and where the rationale is to
reduce government expenditures. (A different logic is applied to managers,
however, where the assumption is that higher salaries are needed to attract
quality personnel and to provide incentives for hard work.)

Sometimes the IMF and World Bank-associated wage freezes or reductions do
apply to the private sector, as in cases where the minimum wage is frozen or
reduced.

Sometimes the overarching policy is referred to as åage flexibilityãand is
undertaken in connection with labor market reforms.

ãIn Argentina, the August 2001 bailout monies was conditioned on a 13
percent wage reduction in the public sector.  ãIn Belarus, according to IMF
documents, the government is working at æiberalizingãthe labor market in
order to åncrease the flexibilityãof wages, particularly at state-owned
enterprises.  ãThe Nigerian government reported in an 1999 IMF document
that 1998 wage increases åad been partially rolled back.ã ãIn Turkey, the
government agreed in 1999 IMF loan documents to work to limit public sector
and minimum wage increases to the inflation rate. This position was
reiterated in 2000 and 2001.  ãWage decompression is pervasive in IMF and
Bank loan documents, and has been a condition applied in Ghana, Kenya,
Uganda and Zambia, among many others. In Mozambique, under IMF guidance, the
government highest-to-lowest government salary ration went from 9.6:1 in
April 1998 to 13.2:1 in August of that year, and the government announced
plans to éop upãcivil service salaries and expand the ratio to 17:1.

The institutions have elaborate justifications for opposing wage supports.
An April 2001 World Bank policy working paper, for example, concludes that
minimum wages have a larger effect in Latin America in the United States ã
including by exerting more upward influence on wages above the minimum wage
ãand promotes unemployment.

Pensions: Work Longer, Pay More, Get Less Pension and social security reform
has emerged as a high priority of the IMF and Bank in recent years, with the
World Bank taking the lead.

The thrust of the World Bank and IMFç proposals in this area has been for
lower benefits provided at a later age, and for social security
privatization.

In Nicaragua, for example, one of the performance criteria for continued IMF
support has been the adoption of drastic pension reforms, including raising
the retirement age, increasing the minimum contribution period to receive
benefits, and upping the level of employee contributions.

A 1999 informal World Bank report on Nicaraguaç social security system
concluded, åhe parameters of the system need to be re-defined and a
mandatory, defined contribution system based on individual capitalization
accounts introduced.ãThe Bank recommended these accounts be managed by
private companies determined through an ånternational competitive bidding
process.ã

Drawn up under World Bank supervision, Nicaraguaç new pension system is
designed to åncrease contribution rates, raise the retirement age,
standardize eligibility requirements, reduce replacement rates, increase
collection efficiency and tighten eligibility for disability benefits.ã
Under the new system, Nicaragua has satisfied its IMF performance criteria:
payroll contributions have nearly doubled, mandatory length of service to
receive a pension has been increased by nearly 10 years, and the retirement
age has been raised by nearly a decade.

Again, the policies foisted on Nicaragua have been pushed around the world:

ãIn Bolivia, under World Bank instruction, the government in 1996
privatized its pension system, replacing a defined benefit, publicly managed
system with a defined-contribution, privately managed system of individual
capitalized accounts.  ãA 1998 IMF document stated that in Turkey æ
sweeping reform of the social security system is obviously needed,ãand
detailed Turkish plans to raise the minimum age for retirement, extend the
minimum contribution period to receive a pension, and increase the level of
contributions required. In a 1999 IMF report, Turkey indicated its new
social security law achieved all of these goals, surpassing even the
proposals in the 1998 document. The 2000 report announced a plan to
undertake a new round of reforms, involving social security privatization.

The ICFTU reports that the World Bank has been involved in pension reform
efforts, increasingly driving toward privatization, in over 60 countries
during the past 15 years.

Dean Baker, co-director of the Washington, D.C.-based Center for Economic
and Policy Research, says the Bankç support for social security
privatization is not based on the evidence of what works efficiently for
pension systems. åhe single-mindedness of the World Bank in promoting
privatized systems is peculiar,ãhe says, éince the evidence ãincluding
data in World Bank publications ãindicates that well-run public sector
systems, like the Social Security system in the United States, are far more
efficient than privatized systems. The administrative costs in privatized
systems, such as the ones in England and Chile, are more than 1500 percent
higher than those of the U.S. system.ã

Baker adds that éhe extra administrative expenses of privatized systems
comes directly out of the money that retirees would otherwise receive,
lowering their retirement benefits by as much as one-third, compared with a
well-run public social security system. The administrative expenses that are
drained out of workersãsavings in a privatized system are the fees and
commissions of the financial industry, which explains its interest in
promoting privatization in the United States and elsewhere.ã

Wither Labor Rights? Few labor advocates argue that privatization should
never occur, or that no government lay off is ever necessary, though many
would argue in almost all cases against certain IMF and Bank policies, such
as reductions or mandated freezes on the minimum wage, and privatization of
Social Security. But among the most striking conclusions from the
Multinational Monitor investigation of IMF and World Bank documents is the
near-perfect consistency in the institutionsãrecommendations on matters of
key concern to labor interests.

None of the documents reviewed by the Monitor show IMF or Bank support for
government takeover of services or enterprises formerly in the private
sector; they virtually never make the case for raising workersãwages
(except for top management); they do not propose greater legal protections
for workers.

And on-the-ground experience in countries around the world shows little
concern that implementation of policies sure to be harmful to at least some
significant number of workers in the short-term is done with an eye to
ameliorating the pain. Worker safeguards under privatization, for example,
repeatedly requested by labor unions around the world, are rarely put into
force.

For former Bank chief economist Joseph Stiglitz, as well as unions and
worker advocates, the IMF/Bank record makes it imperative that basic worker
rights be protected. If there are to be diminished legal protections and
guarantees for workers, and if IMF and Bank-pushed policies are going to run
contrary to worker interests, they say, then workers must at the very least
be guaranteed the right to organize and defend their collective interests
through unions, collective bargaining and concerted activity.

But the Bank has stated that it cannot support workersãfreedom of
association and right to collective bargaining.  Robert Holzmann, director
of social programs at the World Bank, told a seminar in 1999 that the Bank
could not support workersãright to freedom of association because of the è
olitical dimensionãand the Bankç policy of non-interference with national
politics.

Holzmann also raised a second èroblemãwith freedom of association. åhile
there are studies out ãand we agree with them that trade union movements
may have a strong and good role in economic development ãthere are studies
out that also show that this depends. So the freedom by itself does not
guarantee that the positive economic effects are achieved.ã

Shortly after the 1999 seminar, labor organizations met with the World Bank
and IMF. According to a report from ICFTU, World Bank President James
Wolfensohn reiterated Holzmannç point, saying that while the Bank does
respect three out of the five core labor rights (anti-slavery, anti-child
labor and anti-discrimination) it cannot respect the other two (freedom of
association and collective bargaining) because it does æot get involved in
national politics.ã

ICFTU reports that éhis statement was greeted with stunned disbelief by
many present.ã

Vincent Lloyd is an intern with Multinational Monitor. Robert Weissman is
the magazineç editor. This article is based on a review of IMF and World
Bank documents. Full citations and excerpts from relevant documents are
posted at http://www.essentialaction.org/labor_report