IMF, Deregulation and The Tobacco Industry

Blind adherence to ideology can get you in some sticky places.

That’s where the International Monetary Fund (IMF) — the Washington, D.C.-based agency which makes loans to developing countries facing balance-of-payment and fiscal difficulties — now finds itself.

The IMF believes in unregulated markets, and pushes for policies of deregulation, privatization and marketization without regard to specific context. In nearly every country, in nearly every sector of the economy, the Fund’s message is always the same.

More often than not, however, markets do need to be regulated. Sometimes, privatization has harmful consequences. Some matters should not be left to the market (like people’s right to education, healthcare and clean water).

One area where it turns out privatization has deleterious consequences is tobacco.

Although the tobacco industry has been firmly in private hands throughout U.S. history, in many countries, including in the developing world as well as in Eastern Europe and the former Soviet Union, state-owned enterprises have had responsibility for tobacco product manufacturing and distribution.

If these enterprises are privatized, they will likely be sold to Philip Morris, BAT or other giant multinationals. These companies swoop in, gain dominant market share, crank up their slick marketing machines to replace the sleepy marketing operations of the somnolent state-owned enterprises, bulk up their political leverage to block implementation of anti-smoking policies, and introduce flavorings and product manipulations that make smoking more appealing.

Nonetheless, the IMF supports tobacco privatization around the world. In recent years, according to a new report, “Needless Harm,” issued by the group Essential Action, the IMF has supported privatization of tobacco enterprises in Bulgaria, Korea, Mali, Moldova, Thailand and Turkey.

All this comes despite an abundance of research from the World Bank, the IMF’s sister institution, on the economic costs of smoking and the economics of tobacco — including research which is strongly suggestive that the privatization pushed by the IMF will lead to increased smoking rates.

The World Bank has recognized that tobacco use is an impediment to development. The health costs of tobacco are severe, and lost work time due to illness and death saps societies of labor power. Its econometric reviews have reiterated that excise taxes work to reduce smoking rates and advance public health. The Bank has also published important information on tobacco trade liberalization, finding that reduced tobacco tariffs and freer trade in tobacco products has dire consequences, raising smoking rates and increasing preventable death and disease.

Of crucial importance, the bank has examined the results of the opening of tobacco markets in East Asia. In the late 1980s and early 1990s, the United States threatened trade sanctions and forced open tobacco markets in Korea, Japan, Taiwan and, to a lesser extent, Thailand.

Following the U.S.-forced opening of East Asian markets to foreign tobacco imports in the late 1980s and early 1990s, smoking rates in the region surged. World Bank studies estimate smoking rates rose by 10 percent as a result of the tariff reductions. A GAO study found smoking rates among teenage girls quintupled the year after the market opening in Korea.

Now the IMF seems intent on repeating the market-opening disaster in East Asia. Privatization will replicate and deepen the harms from market opening, as the multinationals are able to entrench themselves. Reduced tariffs enable the multinationals to compete on price the World Bank points out. Privatization will enable Big Tobacco to avoid tariffs altogether. After market opening, the Bank finds intensified advertising by multinationals which post-opening gain enough market share to justify increased marketing expenditures. After privatization, with a giant gain in market share, the multinationals have even more incentive to step up their advertising and marketing campaigns. Privatization confers other benefits on Big Tobacco: the ability to take over local brands and enhance them with new flavorings, to operate a full product line and exert control over a full-fledged national distribution system, to gain expanded political influence.

There is no reason to believe that the IMF wants to promote smoking, or advance the interests of Philip Morris — though that is the impact of its policies.

The IMF seems to be completely oblivious to these matters, simply not giving attention to the public health ramifications of its policies.

With tobacco, however, the public health consequences could not be higher. The stakes are life and death. So far, the IMF has put itself on the wrong side of this equation, recklessly endangering millions of lives.

For more information, see www.essentialaction.org/tobacco.