IMF boss issues Davos call for poor countries to curb consulting spend

24 January 2019 5 min. read
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The head of the International Monetary Fund has raised eyebrows by warning poor countries against spending heavily on global consulting firms. Speaking at the annual World Economic Forum in Davos, Christine Lagarde voiced criticism of ‘inefficient’ spending on consultancies drafting development strategies for developing countries, but faces accusations of hypocrisy for the IMF’s own past in those nations.

Formed in 1945 after the end of the Second World War, the International Monetary Fund (IMF) is an international organisation headquartered in Washington, D.C. It consists of 189 countries, and its mission statement says that it was founded to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. While the entity continues to paint itself in these benign colours, however, what manner of society it actually facilitates is a debate that continues to rumble on.

The most commonly cited criticism of the IMF is its favouring of neo-liberal economic policies. When the IMF makes loans to countries in need of investment, it often makes them on the condition of certain economic policies being implemented. These policies tend to ultimately be geared toward structural adjustment. By making the terms of a loan the reduction of governmental spending, nation states are often unable to continue supplying vital public services, leading to privatisation and deregulation, which predatory companies in wealthy nations rapidly take advantage of.

IMF boss issues Davos call for poor countries to curb consulting spend

The problem is that these policies of structural adjustment and macro-economic intervention can make difficult economic situations worse, as was seen over the last decade in Greece, or for decades across the continent of Africa. At the same time, as long as countries favour these economic parameters, the IMF has little to say when it comes to the treatment of citizens residing there. The body has subsequently propped up a number of military dictatorships across the world, particularly in South America, with notable examples including Pinochet’s Chile receiving a $900 million loan, with the brutal regime promising to sell off the democratic socialist state which had previously been assembled by ousted President Salvador Allende, years earlier.

As a result of this, it is undoubtedly difficult for the Fund’s opponents to take it on good faith that the organisation’s Managing Director has the interests of developing nations at heart, when advising on spending plans. During the World Economic Forum (WEF) in Davos, Switzerland, Christine Lagarde, the head of the IMF, told poor countries to stop using global consultancy firms to write development strategies. The warning from the senior IMF figure has undoubtedly caused many a raised eyebrow, both outside and inside the gathering of the world’s most wealthy and powerful people.

Consistent with the long-term economic policies favoured by the IMF, Lagarde argued the private sector had a key role to play if poorer countries were to ever achieve the 17 development goals set by the UN. However, she singled out one aspect of private sector intervention – inefficient spending on consultants – for criticism at an event on funding the sustainable development goals at the WEF in Davos, Switzerland. During the speech, she also ordered any representatives of “the McKinseys and Boston Consulting Groups”, and any consultants in the room, to listen to her uncomfortable message about the way their work is perceived.

Lagarde then warned, “I see many, many low-income countries and emerging-market economies spend millions of dollars commissioning consultants to build their strategy plan. I would recommend some saving be made by taking the 17 principles, the actionable items, and start with that. From there, the consultants can actually do their job of putting it into reality. But don’t reinvent it – it’s right there. So much is wasted. That’s part of the inefficient spending that can actually be saved.”

‘Financial discipline’

Consulting spending in the public sector has increasingly come under the spotlight in the past few years, both in developing and leading economies. As such, comments in line with Lagarde’s would be relatively uncontroversial, were they not coming from one of the chief drivers of privatisation – and champions of market solutions over state intervention. 

Lagarde was similarly accused of hypocrisy following comments at the same event one year ago. She said “I hope people will listen now”, in allusion to the wave of reactionary populism currently sweeping developed economies, and harking back to another speech she made at Davos in 2013, when she warned that economic “inequality is corrosive to growth; it is corrosive to society.” The IMF has been expressing public concern about inequality since 2010, but without translating this into concrete action within the IMF’s own policies and programs, according to research by British political economists Alex Nunn and Paul White.

Nunn and White analysed 11 countries, including all seven member states that have struck new borrowing arrangements with the IMF since its guidelines were updated to reflect mounting concerns on inequality. In every case, the IMF continued to recommend fiscal discipline, while very few of the policies that could be used for reducing inequality were even mentioned.