Protesters in Tahrir Square in February this year

Hot on the heels of last month’s blog about a confidence crisis at the IMF, this month we bring you news of shaky knees at its sister institution, the World Bank, which – amid the cacophony of views about what exactly has triggered the revolutions of the “Arab Spring” – seems to be preparing to re-cast its role in the region.

The spreading IFI confidence crisis

Evidence comes from discussions at a conference sponsored by the World Bank in Washington last month, addressing the organisation’s policy in the Middle East following recent upheavals in the region. In his opening remarks to the conference, the World Bank’s president, Robert Zoellick, described his organisation’s record in the region as “spotty”, and admitted that “like others, we…have much to learn”.[1]

These admissions have no doubt been prompted partly by embarrassment at the adulation heaped on some regimes in the region by the Bretton Woods institutions right up to the revolutions. In September 2010 – a mere two months before unrest broke out in Tunisia – the IMF had this to say about the country’s response to the global economic downturn:

“Executive Directors noted that Tunisia weathered the global crisis well, largely reflecting its sound macroeconomic management and structural reforms over the last decade, and timely policy responses since the onset of the crisis. … Amid continued uncertainties for the external environment, they [IMF Directors] emphasized the need to maintain macroeconomic policies that support the recovery and to intensify structural reforms that would enhance competitiveness, diversify exports, and promote job creation.”[1]

Egypt was, if anything, regarded as an even better performer. An IMF review in 2008 described its liberalisation-backed growth figures as the “best in years”[2], and the World Bank’s 2010 Doing Business report had Egypt in the top 10 countries worldwide for business-oriented reform. Against a backdrop of predicted economic growth figures of over 5%, Egypt was widely viewed as a promising frontier market before the beginning of the unrest there in January.

A long history of failure…with serious consequences for health

This picture could not, of course, have been further removed from the reality of daily life for most Egyptian and Tunisian citizens. A striking feature of the revolutions has been the universally expressed desire for improved opportunities – with widespread anger at the spiralling cost of living and the sometime grotesque levels of corruption that characterised the Ben Ali and Mubarak regimes. The situation has been immeasurably worsened by extraordinarily high levels of unemployment among the vast youth populations in both countries.

Worryingly for the World Bank and IMF, IFI policies in the region have been directly implicated because Egypt and Tunisia were considered leaders in driving through neoliberal economic policies.[3] A particular grievance for the protest movements has been the emergence of gross inequalities between rich and poor. In Egypt, up to 40% of the population live below the poverty line at the same time as former President Hosni Mubarak was thought to have accrued a personal wealth of up to $70bn during his time in power – to say nothing of the vast fortunes gathered by senior business figures such as (now imprisoned) Ahmed Izz. The Egyptian and Tunisian experiences have recently been described as a “cautionary tale” for the IMF and World Bank.[4] But as some penetrating analyses of the situation in Egypt show, these problems have been years in the making.[5]

To some extent the effects of all this on health have been masked by the surprising success of health systems in the region. Between 1980 and 2003, for instance, there was an almost 10-year increase in life expectancy across the Middle East and North Africa.[6]

Nevertheless, there has been considerable concern at rampant health system privatisation in recent years. In Egypt, this was exemplified by heated debate over a health reform agreement signed by the government, with huge financial support from World Bank, in the late 1990s. The agreement provided for the gradual withdrawal of the state from health service provision, to be replaced by a combined private and social insurance system in which the state purchased services from private providers. Citizens were expected to pay a substantial proportion of cost-price for health interventions – in a country where many live on or below the bread-line. The most recent round of changes under this agreement – to the structure of the health insurance system – stalled amid acrimonious disagreement in the Egyptian Parliament and widespread civil society opposition in 2008, and had yet to be passed when the Mubarak government fell.

So what now?

In view of this history, there may well be consternation at Zoellick’s claim that “we need first and foremost to open up a genuine and deep dialogue with and between the different voices in the region”. Dominique Strauss-Kahn’s rhetorical questioning earlier this month will have similarly raised eyebrows: “what does it mean for most people around the world if you have a recovery in macroeconomic figures but it doesn’t produce jobs? The example is Tunisia.”[7]

Why, activists might reasonably ask, did it take so long for this simple realisation to be reached? While recent announcements from the Bank have talked of a new strategy of “inclusive growth”, the bottom line is that the IMF and World Bank’s policy of engagement with regimes in the region has long given the impression of propping up autocracy at the expense of citizens – a legacy that will be difficult to recover from in the short term.

One of the most intriguing themes to emerge from recent discussions on how IFIs should respond to the revolutions has been the potential of a Marshall Plan-style aid programme to help the region get back on its feet economically. This was proposed initially by the economist Nouriel Roubini – famous for his gloomy prognoses for the global economy in 2008 – who has suggested that finance should come from the IMF, the World Bank, the European Bank for Reconstruction and Development, as well as the US, the European Union, China, and the Gulf states. Fundamental goals for the package would be to tackle systemic problems of income inequality, and crony capitalism. This idea is now gaining ground across the political spectrum, and even from some figures in the region allied to broadly conservative regimes such as Dubai.[8]

As ever, though, the question is how to get there.

Recent discussions have been marred by familiar problems. A conference bringing together key IFI representatives in mid-April, for instance, concluded without a hint of irony that decisions about aid allocation to Egypt and Tunisia should be based on preliminary economic analyses by the IMF.[9] This has been met with some dissatisfaction by the two country governments, both of which are currently reviewing their options with a number of international donors – and have yet to formally approach the IMF for support. A key sticking point will probably be historical requirements on fiscal deficit reduction and market reforms in these countries, in the context of high unemployment and soaring food and energy prices, before aid is supplied.

But there is now also a question mark over how much aid can or will be given: the US would likely offset contributions against a reduction in support for other international institutions, and the conservative Gulf states – vastly wealthy but bitterly opposed to revolutionary change – have shown no signs of offering to make up the shortfall.

We will be watching this story closely over the coming months, so check back regularly for further analysis.

Sharif Ismail

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