Under the leadership of Christine Lagarde, the IMF endorsed the Sustainable Development Goals (SDGs) and portrayed itself as a champion of inclusive growth. However, little changed in IMF loan agreements, which continued to push the same harmful austerity and deregulation measures of the past. The next leader of the IMF needs to change the core operations of the institution to promote sustainable economic growth, full employment and decent work.
The IMF has not meaningfully supported the SDGs, and its policies undermine the ability of countries to achieve the 2030 Agenda. To illustrate this point, let’s take a look at SDG 8: “promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work.”
In a recent report, the International Labour Organization (ILO) shows that the world is not on track to achieve SDG 8 by 2030. For that to change, a major shift in macroeconomic policies is needed.
Orthodox economic policy models, like those promoted by the IMF, focus on supply-side measures and assume that growth will eventually trickle-down. Reality has shown that this is not the case. Furthermore, these models have failed to bring sustained growth the developing world.
Under the guise of “efficiency” the IMF has worked at odds with a decent work growth agenda, often undermined labour market institutions, pushing for cuts in public wage bills, deregulation and weakening of workers’ rights. This approach, along with sharp spending cuts, lead to a downwards spiral in which the economy shrinks, unemployment grows, poverty soars, and aggregate demand in the economy collapses. The IMF itself admitted that most loan programmes fail to meet growth targets.
As the ILO points out, an approach that puts decent work at the centre and supports productive investment can create a virtuous cycle of sustained and inclusive growth. The higher earnings for workers increase demand, which in turn boosts economic growth. The success of this approach can be seen in the case of Portugal, which cast aside the austerity policies of the IMF after exiting a loan. Portugal increased its social protection spending, minimum wages, and investment. These policies not only helped economic and social recovery but strengthened its finances too – the stated but elusive goal of austerity.
Christine Lagarde understood that the IMF needed to change in order to maintain its credibility. However, new rhetoric without substantive action can only be a viable strategy for so long. There are alternatives to the IMF’s approach which have shown much greater promise in achieving inclusive growth and bringing the world closer to meeting the goals of the 2030 Agenda. The IMF’s new leader should listen to the ILO and change the macroeconomic policy model that is promoted through policy advice and lending. This means moving beyond talk about policies that benefit the many toward actually supporting economic policies for inclusive, job-rich growth.