The Human Balance Sheet : Too Late, We’re Seeing Price of Banking Policy in Third World

The joint annual meeting of the International Monetary Fund and the World Bank is the bankers’ jamboree, and the sea of dark-gray suits is for the visitor quite overwhelming.

The talk, too, is often narrow and arcane. Nevertheless, in recent years there has been a frisson of drama as the banks felt the wash of vulnerability when their Third World investments hit the rocks. But the drama for the bankers is first and foremost their balance sheets, their corporate competitiveness, and what likelihood there is of an export surplus in the client countries to enable them to meet the banks’ repayment schedules. Only a minority of bankers dig into the depths of what’s going on in the heartland of the debtor countries, where the poor disproportionately bear the brunt of adjustments forced by lenders.

The world is still recovering from the great recession of 1980-83. Only in the last month, thanks to UNICEF, are we getting detailed facts of what exactly has been going on.

There is now, reports the United Nations’ children’s agency, evidence of rising malnutrition in Africa, in Latin America--in Belize, Bolivia, Brazil, Chile, Jamaica and Uruguay--and in Asia, in parts of the Philippines and Sri Lanka. (Most of Asia has done well--the great exception.)

Infant mortality, after decades of decline, has been rising in Barbados, Brazil, Ghana and Uruguay, and the trend toward improvement has been halted in more than 20 countries. The proportion of low-birth-weight babies increased in at least 10 countries, including Barbados, Guinea-Bissau, Jamaica, Malaysia and Tanzania.

Education, too, has been badly affected. In Sri Lanka school attendance fell; in Jamaica the percentage of children passing examinations dropped sharply. Education expenditure declined in one-third of the African countries and in 60% of the Latin American countries.

Diseases that seemed to have been eliminated have reappeared--yaws and yellow fever in Ghana, for example, and malaria in Peru. At the same time, expenditure on health services fell by 50% in Africa--by 80% in Ghana--and by 60% in Latin America--by 80% in Bolivia, 30% in El Salvador.

Unemployment has risen sharply. In Jamaica it is 50% among young people; in Chile it rose from 15% to 24%, in the Philippines from 9% to 11%.

And wages are down sharply--by 30% in Mexico, 18% in Sri Lanka, 16% in the Philippines, 22% in Ghana.

This is the horror of the recession--a recession made worse by the often rigid process of deflationary adjustment urged by the banking community on Third World countries in trouble. What’s needed, Richard Jolly argues in a UNICEF publication, “Adjustment With a Human Face,” is to come up with policies that “protect and even improve the well-being of the vulnerable during adjustment.”

Adjustment with a human face takes a different time prospective from the conventional bankers’ approach. Short-term stabilization takes a lower priority. Adjustment is carried out in a more measured way, even though it might require more bank lending and more aid, since the trade balance will not improve so quickly.

It is also the wiser course. Policies that are undermining the health and educational standards of children are undermining a country’s most valuable asset, its human resources, thereby weakening its future economic capacity.

At a time of acute emergencies like drought and famine, brought on by climatic hazards, it is widely agreed that there should be direct ways of protecting nutritional standards and child health. We need the same approach for this “quiet crisis.” The economic hazard has slowly but painfully produced the same kind of suffering as the climatic. Yet those affected have had as little say over the economic failure as they would have over the failure of the rains.

Of course, it is not just up to the bankers, although they have wielded a disproportionate influence on the well-being of the poor. Third World countries can use what maneuvering room they have to minimize hardship. For example, in the Philippines during 1985 the government subsidy to four sophisticated hospitals for the well-to-do was nearly five times the total government expenditure on primary health care. Burkina Faso, in contrast, one of the poorest countries in the world, managed to vaccinate 60% of its children at a time of drought and adjustment.

South Korea also shows the way. During the recession it moved to reduce its trade deficit from $14 billion to $1.3 billion and its budget deficit from 3.47% of national income to 0.4%. Yet at the same time the government spent more on social-welfare programs, and nutrition improved, maternal and infant mortality fell and the proportion of people in absolute poverty declined.

Slowly, some of this debate has of late edged itself into the discussions of the dark-gray men and women at the bankers’ annual fest. But it has come too slowly, too late and only after their over-simplistic policies have wrought enormous damage.