The Ethics of Conditionality in International Debt

For purposes of this paper, I shall use the terms 'economically least well off' and 'very poor' interchangeably.

If a theory or proposition is normative, then it is action-guiding, or as moral philosophers often say, 'prescriptive'. This excludes mere factual assertions, including ones that certain means will achieve (or maximise) certain ends. Hence the statement, 'Pull the trigger and you will kill Jones', is a descriptive statement, not a normative one, whereas the statement 'You should pull the trigger and kill Jones', qualifies as normative. In contrast to descriptive statements, normative statements need not reflect a present, past or future state of affairs. For example, one may espouse a normative theory of democracy for the world's nations without believing that all nations will eventually embrace democracy. I use the term 'empirical' as the opposite of 'normative'. Empirical concepts are meant to reflect actual facts (the word 'empirical' derives from the Gree empeirikos, meaning experienced).

John Williamson , 'Reforming the IMF: Different or Better?', in Robert J. Myers (ed.), The Political Morality of the International Monetary Fund. Ethics and Foreign Policy, Vol.3 (New York: Transaction Books, 1987), pp. 1-12.

Irving S. Friedman , 'The International Monetary Fund: A Founder's Evaluation' in Myers, op. cit, in note 3, pp. 21-22.

Henry B. Schechter , 'IMF Conditionality and the International Economy: A U.S. Labor Perspective ', in Myers, op. cit, in note 3, p.5.

Williamson , op. cit, in note 3, pp. 1-12.

From Economic Commission for Latin America and the Caribbean , reported in New York Times, 11 February, 1990, p. 3E.

Cheryl Payer , The Debt Trap (New York: Monthly Review Press, 1975). See also Samir Amin , Unequal Development: An Essay an the Social Formations of Peripheral Capitalism, ( 1976).

Special concern for the poor is evident in the US Catholic Conference Administrative Board in its 'Statement on Relieving Third World Debt', Origins (Vol. 19, No. 18, 1989), pp. 307-14.

For example, in 1983, the IMF program for Brazil implied revision of the Brazilian wage adjustment law before it could be adopted. Against the objections of the Brazilian congress, the military government in power dropped the wage adjustment from 100 per cent to 80 per cent of the inflation rate, a shift that led to rioting in Brazil. And in early 1985, rioting also occurred in Jamaica, when fuel prices were raised to meet IMF conditions. See Schechter, op. cit., in note 5, p. 53.

While the IMF and World Bank are known sometimes to tolerate violations of the spirit, if not the letter, of loan condition, K.M. Matin has noted that, 'More than half of the thirty extended arrangements initiated up to June 1983 were suspended and/or cancelled due to noncompliance with demand-based performance criteria, notwithstanding the proclaimed emphasis on structural adjustment ... The use of a pinpointed quarterly credit ceiling as the chief performance criterion can, and has, led to suspension of extended Fund facility programs, even when the mode of expenditure management and implementation of structural measures are quite satisfactory. This was the case in Bangladesh.' (suspended June, 1981). K.M. Matin , 'Comments', in Paul Streeten Beyond Adjustment: The Asian Experience ( Washington, DC: International Monetary Fund, 1988). p. 54.

The goals of such programmes are said to be threefold: 1) to lower inflation; 2) to achieve a better trade balance; and 3) to create a healthy and growing economy along free market lines. Lance Taylor, 'IMF Conditionality: Incomplete Theory, Policy Malpractice', in Myers, op. cit., in note 3, pp. 34-35. A recent accounting of such objectives is similar and specifies: 1) the reduction or elimination of a balance of payments deficit; 2) the resumption of higher rates of economic growth; and 3) the achievement of structural changes that would prevent future payments and stabilisation problems. Streeten, op. cit., in note 11, p. 1. Streeten acknowledges that there can be more 'fundamental' objectives, including the elimination of hunger and malnutrition; the alleviation of poverty; or development of cultural autonomy, self-reliance or greater national strength and military power, while noting that these objectives can sometimes conflict with one another.

Some countries took steps to protect the poor. For example, Chile and Sri Lanka utilised food rationing and Chile and Kenya changed social expenditures toward those benefiting the poor. Peter Heller , 'Fund-Supported Adjustment Programs and the Poor', Finance & Development (Washington, DC: The World Bank, December 1988 ), pp. 2-5. See also the original study, Heller , Bovenberg , Lans , Catsambas , Thanos , et. al., 'The Implications of Fund-Supported Adjustment Programs for Poverty. Experiences in Selected Countries' (Washington, DC: International Monetary Fund, May 1988).

The Extended Fund Facility was established in 1974 expressly for the purpose of helping with balance of payments problems caused by structural problems associated with price and cost distortions. Because structural issues are long term, the repayment period was originally extended from one year and a 100 per cent quota (in the traditional stand-by arrangement) to three years and the equivalent of 140 per cent of a member's current quota.

Williamson , op. cit, in note 3, p. 9. In 1984, the Managing Director of the IMF, J. de Laroseire, stated that, 'the way ... costs are divided within the society is not a matter for the Fund to design, but a question of policy choice to be made by the countries themselves '. Quoted in Henry B. Schechter , 'IMF Conditionality and the International Economy: A US Labor Perspective', in Myers, op. cit, in note 3, p. 58. And in 1983, a Fund representative noted that the voting system of the Fund implied that the Fund provided no moral authority to oversee priorities of non-economic nature and that the Fund was not established 'to give guidance on social and economic priorities'. David C. Finch , 'Adjustment Policies and Conditionality', in John Williamson (ed.), IMF Conditionality (Washington, DC: Institute for International Economics, 1983).

The Fund's Managing Director recently proclaimed that 'adjustment does not have to lower basic human standards ... [and] the more adjustment efforts give proper weight to social realities- especially the implications for the poorest - the more successful they are likely to be.' And Fund executive Peter Heller, after noting that the principal mandate of the Fund is to help member countries to maintain, or restore, internal and external financial balance, notes that 'adjustment policies have implications for income distribution, and these are important considerations for any country in the formulation of its adjustment policies.' Heller, Bovenberg, Lans, Catsambas, Thanos, et. al., op. cit., in note 13, p. 2.

A recent Fund study notes, for example, that in at least some countries whose adjustment programmes were studied, the short term impact on the economically least well off appears to be favourable, not unfavourable. See Heller, et. al., op. cit., in note 13. See also note 7.

Heller, et. al., op. cit., in note 13, p. 32

'Adjustment' can arise in response to either favorable or unfavorable turns of events. The much discussed 'Dutch Disease' occurred in the wake of the large discoveries of natural gas in the Netherlands, which while increasing the amount of foreign exchange, increased competition with local industry, led to inflation and caused a decline in exports. Unfavourable events are the more common trigger for adjustment and include external or exogenous shocks such as a worsening in the terms of trade and indigenous or internal forces, such as a flabby public sector, a natural disaster, excess foreign borrowing or political turmoil.

Scott R. Sidell , The IMF and Third-World Political Instability: Is There a Connection? (Basingstoke: Macmillan, 1988).

See especially Chapter 5, Thomas Donaldson , The Ethics of International Business (Oxford: Oxford University Press, 1989).

Henry Shue , Basic Rights: Subsistence, Affluence, and U.S. Foreign Policy ( Princeton, NJ: Princeton University Press, 1980), p- 57.

Shue , ibid, pp. 20-23.

John Rawls , A Theory of Justice (Cambridge, MA: Harvard University Press, 1971).

More fully described, these conditions are: 1) Social dependence. According to Hume, individual human beings are not entirely self-sufficient. In addition to requiring nature's co-operation in the form of, for example, the provision of air, and water, they rely upon the co-operation of their fellows to achieve certain critical goods. 2) Moderate scarcity. Most people find themselves confronted neither by a dramatic material abundance, of a sort that would make a conflict of material interests impossible, nor by a dramatic scarcity of a sort that would make decent life impossible. 3) Limited generosity. Humans tend neither to be saints nor devils; they manifest generosity, but only to a point. While they frequently sacrifice on behalf of family, friettds, nation and humankind, they tend over the long term to reveal a deep-seated and resilient self-interest. 4) Individual vulnerability. Humans are relatively vulnerable to one another. No matter how powerful or intelligent, a single person is vulnerable to the attacks of her weaker fellows.

Rawls , op. cit, in note 24, pp. 126-28.

See Thomas Donaldson , 'The Conditions of Justice', in Lawrence C. Becker Encyclopedia of Ethics (New York: Garland Publishing Co., 1990).

Brian Barry , 'The Case for a New International Economic Order', in J. Roland Pennock and John W. Chapman (eds.), Ethics, Economics, and the Law: Nomos Vol. XXIV ( New York: New York University Press, 1982).

Beitz also notes that a common error prompting the denial of international distributive justice is the assumption that international mechanisms of community and enforcement must exactly resemble existing ones at the national level. Other arrangements, while different from those associated with nation-states, would be capable of giving substance to distributive claims . Charles Beitz , Political Theory and International Relations (Princeton, NJ: University Press , 1979), parts II and III; see also Charles Beitz , 'Cosmopolitan Ideals and National Sentiment', The Journal of Philosophy (October 1983), pp. 591-60.

Paul Streeten , 'Structural Adjustment: A Survey of the Issues and Options', World Development (Vol. 15, No. 12, 1987), p. 1474.

Ibid.

Raisuddin Ahmed , 'Agricultural price policies under complex socio-economic and natural constraints: The case of Bangladesh', IFPRI Research Reports No. 27 (Washington, DC: International Food Policy Research Institute, October, 1981), cited in Streeten, op. cit, in note 30, p. 1477.