In 2001, lenders demanded interest rates on Argentine government debt that were ten percentage points higher than comparable loans elsewhere. If our team was behind by late 2000, the game was a rout in the first half of 2001. Deposits in the banks and international reserves collapsed. By August 2001, as Mussa put it, “prospects for a favorable outcome were pure fantasy.” The IMF should have curtailed its scheduled payouts under the January 2001 package.
Instead, in August 2001, the IMF increased its payout to Argentina by more than five billion dollars and offered three billion dollars more to support Argentina’s rescheduling payments to its private creditors. As Mussa put it, there was “a failure of moral courage, to decline substantial additional support for policies that no longer had any reasonable chance of success.”
The only effect of the August 2001 package was to postpone by a few months the Argentine default on eighty-one billion dollars owed to foreign bondholders. Argentina defaulted on its debt in stages in November–December 2001. Riots in late 2001 spread from the provinces to Buenos Aires. Rioters smashed store windows and looted. The president resigned. Political farce ensued, as three interim presidents took office and resigned in the space of ten days.
After much bluster on both sides in the wake of the default, Argentina put out a take-it-or-leave-it offer to pay bondholders thirty-five cents on the dollar in February 2005, a loss for creditors of unprecedented scale in recent experience. The majority of bondholders took the offer. The IMF in past debt crises has often played the role of referee between creditors and borrowing governments. Perhaps scarred by its own Argentine miscalculations, this time it stayed on the sidelines.22
International Monetary Paradise
The IMF sometimes plays a useful role in the world’s financial system—it helps countries facing a temporary shortage of cash get off their backs. The world needs some kind of an international financial crisis manager like the IMF.
But the IMF fudged its mission beyond short-term crisis bailouts to be a repeat lender to deadbeat governments, with the idea that it was promoting “structural adjustment.” Even worse, it became a long-run lender to the poorest countries through its loans with the Orwellian name “Poverty Reduction and Growth Facility” (PRGF)—the new name for structural adjustment loans. The IMF is now getting involved in programs to broaden “country ownership” of its adjustment loans, to strengthen “popular participation,” and to put a “more explicit focus on poverty reduction.23 No amount of rhetoric can paper over the contradiction between the IMF dictating conditions and “popular participation.” We will tell you what to do, as well as promise you that you are doing it of your own free will.
The participation fad indicates that the disease of bureaucratic babble is spreading to the IMF. The Fund is even concerning itself with environmental policy, which is about as far from its central mission as you can get.24
The extremely long list of conditions the IMF attaches to its PRGF loans, as exemplified by the Ethiopia example at the beginning of this chapter, makes each loan an attempt to engineer paradise rather than do piecemeal reforms. The IMF seems more and more to be trying to do everything, a lot like the aid bureaucracies we looked at in the previous chapter.
Conclusions
Although the IMF has benefited from having a narrower mandate than other development agencies, it, too, suffers from lack of accountability to its intended poor beneficiaries as it seeks to reform the economy from the top down. The simplicity of its mandate is outweighed by the heavy-handed way it is applied. The IMF’s confident pronouncements about what governments should do has some patronizing echoes of the White Man’s Burden, in which (in the words of William Pfaff) “the native peoples of Asia, Africa, and the Americas were expected to acknowledge Western truth against native error.25
The IMF needs to find a way to drastically simplify its dealings with poor countries in ways that reduce its intrusion. First, there are some poor countries that are so politically and institutionally dysfunctional that the IMF should not be involved with them at all. The fiasco of low-income debt has shown how ineffective the IMF conditions were at ensuring repayment of loans in the poorest countries. The IMF’s natural niche seems to be the emerging markets, not the poorest countries. The latter includes most countries in Africa, where the IMF should just head for the exit and let traditional aid agencies operate.
Second, the IMF needs to find a way to get rid of its intrusive and complex conditionality. We have seen that its conditions are not effective in making sure the loans are repaid anyway, so it’s hard to argue that they are essential for the functioning of the IMF. One possibility is that the IMF could just make bailout loans when it judges—as any lender does—that the loan is likely to be repaid. How the borrower manages to repay the loan is up to it, just as how I spend my money is of no interest to my Visa company. The IMF has an enforcement mechanism in that it can refuse to lend in the future to a country that fails to pay it back. Also, the IMF has the leverage that it is the creditor that is paid first, and so private creditors will not lend if a country is not serious about repaying the IMF. (This didn’t work to prevent the HIPC debacle, but that was because the poorest countries—which I have argued the IMF should not lend to anyway—did not have access to private creditors.) Suppliers’ credits are the lifeblood of trade, and having these cut off is a very effective threat. This is a lot like the multilateral punishment strategy for networks of merchants that chapter 3 discusses. This is the same as the enforcement mechanism in the private market—if you fail to repay your creditors and declare bankruptcy, you won’t be able to get new loans for a long while. If all this is not enough, the IMF may need to sup-plement the refusal-of-new-lending sanction with some other market-based device, such as requring that some kind of collateral be put up by the government. The movement away from intrusive conditionality and toward simple credit payment enforcement would prevent the IMF from getting involved in poor-country politics, which has been so disastrous, as shown by the IMF riot phenomenon.
The IMF needs to shed its excessive self-confidence that it knows in detail what is best for the poor, based on an analysis of the whole economy that shares the presumptions of utopian planning. It should go back to its narrow mandate of financial stabilization. The talented professionals at the IMF could play the simplified role of bailout creditor effectively, making a useful contribution to the well-being of emerging-market countries.
SNAPSHOT: WATER PIPE
IN THE GREAT RIFT VALLEY of Ethiopia, I visited a village far from the big dreams and Big Plans the West has for the Rest. A British nongovernmental aid organization called Water Aid, which receives funds from official aid agencies, had inaugurated a new project in this village. This agency seemed to be acting more like an explorer and less like a foreign aid planner. Water Aid had discovered a way to get clean water to some very poor villages in the Great Rift Valley. They built a water pipe to carry clean water from springs on top of the mountains bordering the Great Rift Valley to villages down in the valley. The project was run entirely by Ethiopians, with representatives from the villages sitting on the board of the agency.
At a bustling water tap in one village, the villagers watered their cattle and collected drinking water for a nominal fee paid to Water Aid, to be used for maintenance of the system. Previously the villagers had walked two miles every other day to collect water from a polluted river. Villagers, especially children, had been getting sick from the contaminated water—with some of them dying. Children had been kept out of school, farmers away from farming, all to pursue the all-consuming and backbreaking task of fetching water.
Now life was better. Some of the money of the rich had reached the desperate poor.
CHAPTER SEVEN
THE HEALERS: TRIUMPH AND TRAGEDY
Oh tear-filled figure who, like a sky held back grows heavy above the landscape of her sorrow….
RAINER MARIA RILKE, “O LACTIMOSA,” TRANSLATED BY STEPHEN MITCHELL, 1995
> IN 1989, A TEAM of field researchers in southern Uganda, near the Tanzanian border, stumbled on an older man living by himself in a thatched hut. The man himself was incoherent, but neighbors told his story: his wife and eight children had all died of AIDS. Asked about the man’s future, villagers said, “He will not marry again.”
Fourteen years later, I am sitting in a health clinic in Soweto, South Africa, talking to a sad young woman named Constance. Constance tells me she is HIV-positive and is too sick to work to support her three children. Even when she is feeling better, she cannot find a job. The father of her children is also unemployed, and she rarely sees him. Constance didn’t tell her mother that she is HIV-positive, for fear that her mother and stepfather would eject her and her children from the household. She says her stepfather complains bitterly about her not working and not contributing to the maintenance of her children. Left unspoken between us is Constance’s fate, and the fate of her three children when she succumbs to AIDS.
Southern Uganda was one of the places where AIDS first appeared in the early 1980s, but in the years since then, the epidemic has spread to most of southern and eastern Africa. South Africa is the most recent casualty of its spread. Thirty percent of pregnant women in their twenties test HIV-positive in South African antenatal clinics.
A third of the adult population is now HIV-positive in Botswana, Lesotho, Swaziland, and Zimbabwe. In other eastern and southern African countries, between 10 and 25 percent of the adult population is HIV-positive. AIDS is spreading also to African countries outside of the “AIDS corridor,” which now runs from Ethiopia to South Africa. In Africa as a whole, there are 29 million HIV-positive people. Tragedies like that of the man in southern Uganda and Constance have happened many times over the past decades, and will happen many more times in the future. More than 2 million people in Africa died from AIDS in 2002. Their places in the epidemic were taken by the 3.5 million Africans newly infected in 2002.
AIDS gets attention. Celebrities and statesmen—ranging from Bill Clinton and Nelson Mandela to Bono and Ashley Judd—call for action. The anti-globalization activists also focus on AIDS. Oxfam calls for access to life-saving drugs for AIDS patients in Africa. American activists at international AIDS conferences (such as American health secretary Tommy Thompson at a conference in Barcelona in 2002) shout down anyone not responding with sufficient alacrity, pour encourager les autres.
The foreign aid doyens have also woken up to the problem. The actors include the UN agency UNAIDS, the World Bank’s multicountry program to fight AIDS in Africa, the World Health Organization’s Commission on Macroeconomics and Health, and the Global Fund to Fight AIDS, TB, and Malaria.
In his 2003 State of the Union Address, President George W. Bush announced the release of fifteen billion dollars in foreign aid to fight AIDS. The initiative was passed by Congress, and Bush signed it into law on May 27, 2003.
It is great that public figures are publicizing the needs of AIDS victims. Many people feel compassion in the face of the death sentence of millions of HIV-positive people in Africa, and in the face of fear that the epidemic will keep spreading.
Yet behind this recent Western attention to AIDS is a tale of two decades of neglect, prevarication, incompetence, and passivity by all those same political actors and aid agencies. By the time researchers found the incoherent victim in southern Uganda in 1989, and even years before that, the West had all the information it needed to predict (and virtually every expert did predict) that AIDS would kill tens of millions of people worldwide, above all in Africa, if nothing was done.
Paradox of Evil and the White Man’s Burden
Scholars of religion talk about the paradox of evil, which says you cannot have all three of the following conditions hold: (1) a benevolent God; (2) an all-knowing and all-powerful God; and (3) evil things happening to good people. If you have (1) and (2), then why would God (3) let bad things happen to good people?
Similarly, in the White Man’s Burden, you cannot have all the following hold: (1) the White Man’s Burden is acting in the interests of the poor in the Rest; (2) the White Man’s Burden is effective at resolving poor people’s problems; and (3) lots of bad things, whose prevention was affordable, are happening to poor people. If (3) happens, then either (1) or (2) must not hold. Religion is a matter of faith in an invisible Supreme Being, so the contradictions inherent in the Paradox of Evil are more easily tolerated by true believers. Foreign aid is not a faith-based area, however. It is a visible policy with visible dollars meant to help visible people.
The breakdown of the aid system on AIDS is a good test case of the paradox of evil in foreign aid. It reflects how out of touch were the Planners at the top with the tragedy at the bottom, another sign of the weak power of the intended beneficiaries. It shows how ineffective Planners are at making foreign aid work. It is hard to imagine anything more in the interest of the poor than preventing the spread of a fatal disease. Today, the Western aid community has finally woken up to AIDS. Now that community has moved from inaction to ineffective action. Aid for AIDS still appears mismatched to the choices of the poor.
Health Triumphs
The failure on AIDS is all the more striking when we consider that health is the area where foreign aid has enjoyed its most conspicuous successes.1 Maybe the part of the White Man’s Burden that addresses disease offers a more hopeful picture than the malfunctioning bureaucracy in other areas. The healers are working on an issue where the needs and wants of the poor are more obvious—they don’t want to die—and so feedback is less critical. The outcomes are more observable, as deaths tend to get noticed by others.
The successes may tell us about the ability of aid agencies to be effective when they have narrow, monitorable objectives that coincide with the poor’s needs and with political support in the rich countries for an uncontroversial objective like saving lives. As the previous chapters argue, areas with visible individual outcomes are more likely to put Searchers in charge—in contrast to the power of Planners in areas where nobody can be held individually accountable, such as economic growth. I also hypothesize that Searchers are more likely to succeed at their narrow goals than the Planners are to succeed at their more general goals.
A vaccination campaign in southern Africa virtually eliminated measles as a killer of children. Routine childhood immunization combined with measles vaccination in seven southern African nations starting in 1996 virtually eliminated measles in those countries by 2000. A national campaign in Egypt to make parents aware of the use of oral rehydration therapy from 1982 to 1989 cut childhood deaths from diarrhea by 82 percent over that period. A regional program to eliminate polio in Latin America after 1985 has eliminated it as a public health threat in the Americas. The leading preventable cause of blindness, trachoma, has been cut by 90 percent in children under age ten in Morocco since 1997, thanks to a determined effort to promote surgery, antibiotics, face washing, and environmental cleanliness. Sri Lanka’s commitment to preventing maternal deaths during childbirth has cut the rate of maternal mortality from 486 to 24 deaths per 100,000 births over the last four decades. A program to control tuberculosis in China cut the number of cases by 40 percent between 1990 and 2000. Donors collaborated on a program to wipe out river blindness in West Africa starting in 1974, virtually halting the transmission of the disease. Eighteen million children in the twenty-country area of the program have been kept safe from river blindness since the program began. An international effort eradicated smallpox worldwide. Another partnership among aid donors contributed to the near eradication of guinea worm in twenty African and Asian countries where it was endemic. Beginning in 1991, a program of surveillance, house spraying, and environmental vector control halted transmission of Chagas’ disease in Uruguay, Chile, and large parts of Paraguay and Brazil. Worldwide, as we see in chapter 3, infant mortality in poor countries has fallen and life expectancy has increased.
Many of these programs benefited from donor funding and technical advice
. In Egypt’s fight against childhood diarrhea, for example, it was a grant from USAID and technical advice from the World Health Organization (WHO). In China’s campaign against tuberculosis, it was a World Bank loan and WHO advice. In Morocco, the drug company Pfizer donated antibiotics to fight trachoma. Although the aid agencies have not calculated the aid impact in a scientifically rigorous way, the broad facts support the belief that aid was effective in many of the above health interventions. Alas, instead of expanding success in the many health areas where it had triumphed, the international health community was going to get bogged down in its equivalent of Vietnam: AIDS.
The Coming Storm
The health successes make the failure on AIDS stand out even more. As with any contagious disease, early action is far more effective than later action. A bucket of water is enough to put out a campfire; it takes more to put out a forest fire.
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