International Monetary Fund
The IMF has responded to an article by Evatt executive members, social historian Christopher Sheil and political economist Frank Stilwell, which queried its sincerity on reducing inequality, published by the Conversation. The article was largely based on new research by British political economists, Alex Nunn and Paul White, titled 'The IMF and a new global politics of inequality', published in the current Journal of Australian Political Economy. Irrespective of whether the IMF has satisfactorily addressed the issues raised in the article, the response supplies a useful summary of the Fund's research and related activity on inequality.
Your article claims that we do not 'walk-the-talk' on inequality. This is incorrect. It is true that, over the last six years or so, IMF staff have carried out an increasing amount of research on issues related to inequality and inclusive growth. Researchers have discovered, for instance, that:
Reducing inequality can help to support durable growth, while well-designed redistributive policies do not hamper but can even support growth if appropriately designed .
Increasing the income share of the poorest can boost growth, but raising the income share of the richest can actually harm growth. Moreover, annual economic growth in sub-Saharan African countries could be 1 percentage point higher if inequality was reduced to levels observed in ASEAN countries.
Boosting the proportion of women in the formal labor market not only boosts growth, but also reduces income inequality and supports economic diversification.
But inclusion is more than a research agenda for the IMF—it also falls under our mandate to promote domestic and global economic stability. So we are making a concerted effort to pay more attention to these issues in the course of our practical work with member countries.
A good example of this is our increased emphasis on supporting the vulnerable in our programs with low-income country members:
We have introduced floors for social spending on priorities such as health care and education. In a 2014 study , for example, the Independent Evaluation Office of the IMF found that 29 of 30 recent programs incorporated these social spending floors.
A 2013 study found that over a ten-year period (2003-2012) real health spending per person grew by an average of 6.5 percent in low-income countries where the IMF has a program, versus 4.5 percent in countries without IMF programs.
More broadly, in our capacity building efforts with members including—but not limited to—low-income countries, our fiscal technical assistance has focused on the distributive aspects of policies. In particular, our policy advice on energy subsidy reform normally includes an assessment of distributional effects and mitigating measures to protect the poor.
In an effort to further operationalize and mainstream issues such as income inequality, financial inclusion, gender and climate change in the Fund’s annual “health-check” of country economies (Article IV surveillance), we took the initiative in 2015 to work with a number of our member countries on a series of pilot cases.
On inequality, for instance, our first wave of pilots has now been completed and covered 10 countries: Bolivia, Colombia, Denmark, Ethiopia, Israel, Korea, Kyrgyz Republic, Malawi, Mauritania, and Republic of Congo. These pilot cases were on top of the analysis already underway in our regular country work—we have, for example, also looked at income polarization in countries including the United States, and highlighted how it can, among other things, lessen social mobility and add to economic insecurity.
In Ethiopia , we reviewed the evolution of inequality and quantified the distributional impact of growth-enhancing policy measures. Our recommendations for reducing inequality included making income tax thresholds more progressive, promoting financial instruments targeted to rural savers, and revamping indirect subsidies to better target low-income households.
In Bolivia , we examined the large declines in inequality and poverty and looked at how to make further progress in the face of declining commodity prices. Given the tighter revenue envelope, we emphasized the need to ensure that social transfers were well-designed and targeted, alongside a focus on the quality of education and healthcare.
On another essential aspect of inequality—gender—we have carried out 13 country pilots: Chile, Costa Rica, Guatemala, Germany, Hungary, India, Italy, Jordan, Mali, Mauritius, Nigeria, Pakistan, and Sweden. Again, these have complemented our existing advice to many other countries on raising female labor force participation—in Japan and Korea, for instance, among other measures, we have also been calling for higher wages including for women and non-regular workers, in addition to other steps to reduce labor market duality.
In India—as noted here and here —we have examined the large gap in the labor participation rates of men and women. To address this, one of our recommendations has been to invest more in transport that promotes women’s safety and mobility, easing their transition to formal employment.
In Germany—where female labor participation rates are relatively high but average working hours are relatively low—we highlighted the need for high-quality and affordable childcare and steps to move towards a system of individual taxation that does not penalize secondary earners (mostly women).
To build on the progress of these pilots—as well as others focusing on climate change/energy, infrastructure, international taxation, and revenue administration—we are now in the process of conducting another round in 2016/17. This second wave of country studies includes:
15 on inequality: China, Bolivia, Brazil, Guatemala, Honduras, Korea, Lithuania, Mongolia, Myanmar, Poland, Republic of Congo, Singapore, Togo, USA, Zambia.
9 on gender: Austria, Canada, Guatemala, India, Japan, Morocco, Niger, Poland, Rwanda.
15 on climate change/energy: Cambodia, China, Dominican Republic, Euro Area, Jamaica, Jordan, Myanmar, Saudi Arabia, Seychelles, Sri Lanka, St. Lucia, UAE, Ukraine, Vietnam, Zimbabwe.
By taking this approach, the IMF is, in fact, 'walking-the-talk' on the crucial issue of inequality.
'Response to Article: "The IMF is Showing Some Hypocrisy on Inequality"', issued by the IMF Comunications Department 16 February 2017. Press Officer Angela Gaviri. Email: media@imf.org
Suggested citation
International Monetary Fund, 'IMF: 'we are walking-the-talk'', Evatt Journal, Vol.16, No.1, February 2017.<https://evatt.org.au/imf-we-are-walking-the-talk>
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