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COVID-19 | Ecuador, COVID-19 and the IMF: how austerity exacerbated the crisis by Ana Lucía Badillo Salgado and Andrew M. Fischer

Ecuador is currently (as of 8 April) the South American country worst affected by COVID-19 in terms of the number of confirmed cases and fatalities per capita. While even the universal health systems of Northern European countries are becoming severely frayed by the nature of this pandemic, Ecuador serves as a powerful example of how much worse the situation is for many low- and middle-income countries, particularly those whose public health systems have already been undermined by financial assistance programmes with international financial institutions (IFIs). The IMF and other IFIs such as the World Bank must acknowledge the role they have played and continue to play in undermining public health systems in ways that exacerbate the effects of the pandemic in many developing countries.


The recent IMF Extended Fund Facility (EFF) Arrangement, signed in March 2019 with the Government of Ecuador, was already the subject of massive protests in October 2019 given the austerity and ‘structural reforms’ imposed on the country (aka structural adjustment). It has also directly contributed to the severity of the pandemic in this country given that health and social security systems were among the first casualties of the austerity and reforms. In particular, the government’s COVID-19 response has been severely hindered by dramatic reductions of public health investment and by large layoffs of public health workers preceding the outbreak of the virus.

From this perspective, even though the IMF has recently moved to offer finance and debt relief to developing countries hit by the COVID-19 pandemic, a much more serious change of course is needed. For this, it is vital to understand its own role ­– and that of other IFIs such as the World Bank – in undermining health systems before the emergence of the pandemic in various developing countries, lest similar policy recipes are again repeated.

The baseline

It is clear that the pre-existing national healthcare system in Ecuador has been replete with problems even in ‘normal’ times. As in most of Latin America, the weaknesses of the healthcare system in Ecuador stem from its segmented and stratified character, with a distinct segregation between three main subsectors – the public, social security, and private sectors. The Ecuadorian Ministry of Health has a weak coordinating and regulatory role over these three subsectors, each of which caters to different beneficiary populations and with clearly distinct quality of services. The public system is the lowest quality and the one accessed by most poor people. Despite claims of universal health, the national system is a far cry from anything approaching genuine universalism.

Moreover, there has been a progressive privatization and commodification of healthcare since 2008. For instance, the building of capacity within the social security system has been undermined by the channelling of health funding via contracts to the private sector, where pricing is also mostly unregulated [1]. More generally, Ecuador has consistently exhibited one the highest out-of-pocket (OOP) health expenditure shares in South America, despite a government discourse and constitutional mandate to deliver free, high quality, public healthcare for all citizens. OOP payments – or direct payments by users at the point of service – reached 41.4% per total health spending in 2016 [2]. They include, for instance, payments for medicine or medical supplies by poor people in public hospitals, as well as payments by middle- and upper-class people for consultations and surgeries. The COVID-19 crisis puts pressure on precisely these aspects of healthcare provisioning, rendering the system prone to systemic failure for the majority of the population, especially in times of economic crisis when the ability of users to pay is severely curtailed.

Crisis and IFIs

These problems in the healthcare system have been exacerbated by the austerity measures of the current government of Lenín Moreno. The measures were introduced in the context of the protracted economic crisis that started in 2014 and have been endorsed by the IMF and other IFIs. Public health expenditure plateaued at 2.7% of GDP in 2017 and 2018, and then fell slightly to 2.6% in 2019, when GDP also slightly contracted (see figure). This was despite the constitutional goal that established an increase of at least 0.5% of GDP per year until 4% was to be reached, which is still far below the 6% of GDP recommended by the Pan American Health Organization [3].

pic

Source: elaborated from the Fiscal Policy Observatory data (last accessed 7 April 2020 at https://www.observatoriofiscal.org/publicaciones/transparencia-fiscal/file/221-transparencia-fiscal-no-163-marzo-2020.html)
* The main component of this expenditure is on non-contributory social protection (social cash transfers).
** It excludes health expenditure of the social security system.

However, the collapse in public investment in the health sector has been far more dramatic, falling by 64% from 2017 to 2019, or from USD 306 million in 2017 to USD 110 million in 2019 [4]. Such reductions would have been largely borne by the public health system and constitute expenditures that are vital for a COVID-19 response, such as the construction of hospitals and the purchase of medical equipment.

It was in this context that the IMF Extended Fund Facility (EFF) was agreed and signed in March 2019. Within the framework of this programme, the government implemented a large layoff of public healthcare workers (including doctors, nurses, auxiliary nurses, stretcher-bearers, social workers, and other healthcare workers). The layoffs continued throughout 2019, despite protests by the National Syndicate of Healthcare Workers of the Ministry of Health [5], [6], [7]. It is difficult to know the exact number of layoffs because of the fragmented functioning of the health system, although within the Ministry of Public Health alone, 3,680 public health workers were laid off in 2019, representing 4.5% of total employment in this Ministry and 29% of total central government layoffs in that year [calculated from 8]. Similar reductions in the social security sector were announced in 2019 for 2020, although we have not yet been able to find any data on these reductions.

Thus, it is not a surprise that Ecuador is currently doing so poorly in handling the COVID 19 crisis. The retrenchment of the public health system together with an already weak and retrenched social protection system coupled for the perfect storm. But even more worrying is that, in the face of the pandemic, the government paid 324 million USD on the capital and interest of its sovereign ‘2020 bonds’ on 24 March instead of prioritizing the management of the health crisis. This decision was taken despite a petition on 22 March by the Ecuadorean assembly to suspend such payments, along with a chorus of civil society organizations lobbying for the same [9] [10]. The government nonetheless justified the payment as a trigger for further loans from the IMF, World Bank, Inter-American Development Bank, and Andean Financial Corporation [11]. This is especially problematic given that Ecuador has been hard hit by the collapse of oil prices and, as a dollarized economy, its only control over money supply and hence hope for economic stimulus rests on preventing monetary outflows from the economy (and encouraging inflows).

The payment is also paradoxical given that the IMF and the World Bank are currently calling for the prioritization of health expenditure and social protection and for a standstill of debt service, and have announced initiatives for debt relief and emergency financing [12] [13]. Nonetheless, despite such noble rhetoric, it appears that the precondition for such measures continues to be the protection of private creditors over urgent health financing needs.

Atoning for past and present sins on the path to universalism

The COVID-19 pandemic undoubtedly exposes the inadequacies of existing social policy systems in developing countries and the urgent need of moving towards more genuinely universalistic systems. Ecuador is exemplary given that it has until recently been celebrated as a New Left social model even while its national health system has remained deeply segregated and increasingly commodified.

However, while the IMF and other IFIs have emphasised the importance of placing health expenditures in developing countries at the top of the priority list in the context of the COVID-19 pandemic [12], they have not acknowledged their own continuing roles in undermining these priorities. Indeed, their messaging is often contradictory, given that both the IMF and the World Bank have also repeatedly insisted that developing countries must persist with ‘structural reforms’ during and after the pandemic [13] [14]. In other words, there is no evidence that the course has been reset. As one way to induce a reset, it is important that they acknowledge the roles they have played and continue to play in undermining public health systems and universalistic social policy more generally, lest they continue to repeat them despite the switch to more noble rhetoric.


Sources:
[1] http://cdes.org.ec/web/wp-content/uploads/2016/01/privatizaci%C3%B3n-salud.pdf
[2] https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(19)30841-4/fulltext
[3] https://www.cepal.org/es/publicaciones/45337-america-latina-caribe-la-pandemia-covid-19-efectos-economicos-sociales
[4] https://coyunturaisip.wordpress.com/2020/03/28/los-recortes-cobran-factura-al-ecuador-la-inversion-en-salud-se-redujo-un-36-en-2019/
[5] https://www.eluniverso.com/noticias/2019/03/06/nota/7219694/trabajadores-publicos-salud-denuncian-despidos-masivos
[6] https://www.elcomercio.com/actualidad/recorte-personal-contratos-ocasionales-ecuador.html
[7] https://www.elcomercio.com/actualidad/despidos-trabajadores-ministerio-salud-evaluacion.html
[8] https://www.observatoriofiscal.org/publicaciones/estudios-y-an%C3%A1lisis/file/220-n%C3%BAmero-de-servidores-p%C3%BAblicos-del-presupuesto-2018-2019.html
[9] https://www.elcomercio.com/actualidad/asamblea-suspender-pago-deuda-coronavirus.html
[10] https://ww2.elmercurio.com.ec/2020/03/24/la-conaie-pide-al-gobierno-suspender-el-pago-de-la-deuda-externa/
[11] https://www.bourse.lu/issuer/Ecuador/34619 (first link under the notices section)
[12] https://www.imf.org/en/News/Articles/2020/04/03/vs-some-say-there-is-a-trade-off-save-lives-or-save-jobs-this-is-a-false-dilemma
[13] https://www.worldbank.org/en/news/speech/2020/03/04/joint-press-conference-on-covid-19-by-imf-managing-director-and-world-bank-group-president
[14] https://www.worldbank.org/en/news/speech/2020/03/23/remarks-by-world-bank-group-president-david-malpass-on-g20-finance-ministers-conference-call-on-covid-19

This article is part of a series about the coronavirus crisis. Read all articles of this series here.


About the authors:

Ana LucíaAna Lucía Badillo Salgado is a PhD researcher at the ISS focusing on the political economy of social protection reforms in Ecuador and Paraguay, in particular the role of external actors in influencing social policymaking. She is also a Lecturer at Leiden University College. mug shot 2

Andrew M. Fischer is Associate Professor of Social Policy and Development Studies at the ISS and the Scientific Director of CERES, The Dutch Research School for International Development. His latest book, Poverty as Ideology (Zed, 2018), was awarded the International Studies in Poverty Prize by the Comparative Research Programme on Poverty (CROP) and Zed Books and, as part of the award, is now fully open access (http://bora.uib.no/handle/1956/20614). Since 2015, he has been leading a European Research Council Starting Grant on the political economy of externally financing social policy in developing countries. He has been known to tweet @AndrewM_Fischer

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Food security, agricultural policies and economic growth through the eyes of Niek Koning by Dorothea Hilhorst

One of the pleasures of summertime is that I get to read some of the books that have piled up over the years and this is how I came to read Niek Koning’s monumental monograph on: ‘Food security, agricultural policies and economic growth: Long-term dynamics in the past, present and future’. For someone like me, who usually finds herself working around the immediacy of crises, disaster and displacement, the book gives me a solid reminder of how the critical moments of emergencies are interlinked with each other and emerge from global histories and contexts.


Food security is today increasingly linked to climate change but this book spells out how throughout history it is especially interlinked with agricultural policies and economic growth. If there is one lesson the book brings out, it is that policy matters! Good or bad policies make a crucial difference for whether people have or have not enough to eat to sustain themselves. Economics – to say it once more – is not a value-free science and requires clear policy goals and values behind them.

Niek Koning is driven by some pertinent questions, such as “Why has Asia surpassed Africa in economic development? Why have social reform experiments failed in Latin America? Why has communist China achieved miracle growth whereas the Soviet Union collapsed?” Unlike most authors that focus on such big questions, Koning does not provide a monocausal explanation (such as the absence or presence of a ‘Protestant’ ethic, the inclusivity of institutions or different leadership styles), but he puts together a framework that covers several aspects of world history. He starts with secular cycles and techno-institutional change. Looking through that lens, he zooms in on the fossil fuel revolution that has enabled modern economic growth and has entailed a demographic transition. He analyses how the socio-political fabric of societies, international power relations and changing political tides have induced different policy responses to the problems that were involved in modern growth, with vast consequences for both the fate of nations and global population growth. And yes, he also talks about what may happen when fossil fuels will be exhausted. A major message of the book is that agricultural policies have failed to ‘use’ the springboard that was created with the fossil fuel revolution to transform the global economy for a sustainable future.

This is not a book review and I am skipping some major parts of the book, showing how different ideologies and histories have created different outcomes. They are a good read – often more like a novel than an economic textbook – with among other a long conversation between Thomas Malthus and Karl Marx. Browsing through the chapters, one realises that indeed politics matter, and the political views of the author shine clearly through. In his view, supporting self-employed farmers are indispensable for obtaining and maintaining food security. Agricultural and industrial development going hand in hand would be an effective approach, coupled to more explicit pro-poor politics, including social safety nets. He is clearly opposing the neo-liberal trade models and analyzes how these are driven by self-interest of strong countries.

The book is not just an amazingly resourced piece of scholarly work, it is also in many ways a long essay. In the eyes of Koning, the impending exhaustion of fossil fuel create major risks to forge global food scarcity that will exacerbate the food insecurity of the poor. In his view, several things are needed to mitigate this threat. Claims on farmland for luxury foods and urbanization should be limited. New breakthroughs should make the economy less carbon-dependent to prevent a dramatic increase in the demand of the affluent for bio-energy and bio-materials. Biological and ICT-based innovations should overcome limits in land productivity. However, a vital overall condition is that global food and energy markets are stabilized to enable timely investment in innovations that enable poor countries to protect their farmers while securing economic growth. The propositions coming from the book may be agreeable or disagreeable, but coming from decades of deep scholarly work, they merit a lot of discussion.


Koning, N. (2017). Food security, agricultural policies and economic growth: Long-term dynamics in the past, present and future. Routledge.

 


Thea
About the author:

Dorothea Hilhorst is Professor of Humanitarian Aid and Reconstruction at the International Institute of Social Studies of Erasmus University Rotterdam.

She is a regular author for Bliss. Read all her posts here