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World: Bloated Civil Service, Wasted Aid Programs Top IMF List

Washington, 26 February 1997 (RFE/RL) - A bloated civil service and excessively generous social assistance programs are the two largest elements of waste the International Monetary Fund (IMF) says it finds as it works to help countries around the world adjust and stabilize their economies.

Almost every economic reform program worked out with the fund contains a requirement for significant budget cutting to remove what the fund calls "unproductive public expenditures."

But almost every country believes the IMF is demanding too much of it, asking for the end of long-cherished government organizations and programs. In the early days of its program, Russian leaders complained that the IMF experts did not understand the "uniqueness" of Russia and its need for "special" consideration.

It is a common complaint, sometimes voiced more for local political advantage. IMF leaders have always accepted that kind of public criticism as a price of doing what the IMF is designed to do.

Now, an internal study by the fund's Fiscal Affairs Department shows that no single country, large or small, developed or developing, is being singled out. Almost every country has elements of unproductive spending, but it is far worse in those nations with economic difficulties.

More than 80 percent of countries currently in IMF programs have an over-staffed civil service compared to just over 40 percent for countries which are not taking IMF loans, the study found. More than 60 percent of the countries seeking help from the fund have excessively generous social benefits or assistance programs which are not targeted specifically to the poor. That compares to around 45 percent of countries not in IMF programs which have such problems.

The fund defines unproductive public expenditures as those which can be reduced without affecting normal government functions, such as the provision of law and order and basic education and health services. This spending, says the fund, stems from a number of political and economic influences, including such things as using the public sector as an employer of last resort, inadequate budgetary mechanisms, and outright corruption.

The fund says unproductive spending can trigger large fiscal deficits, a correspondingly lower level of public sector output and a tax burden that is heavier than necessary.

The study covered 11 countries which are in IMF-support programs, including Albania, Kyrgyzstan and Poland. It surveyed six countries without IMF programs, including Belgium, Canada, Chile, and Germany.

The study found that government wages and salaries were the major source of excessive public spending, a reflection of inappropriate wage policies and simple overstaffing. In fact, in all 11 countries with an IMF program, fund experts had recommended a lower wage bill, usually by significantly cutting the civil service.

Even in countries without IMF programs, the study found at least three which should cut employees as well. "IMF staff specifically identified an excessive number of ministries, duplications of functions or the existence of ghost workers as major instances of unproductive spending," the study reported.

The other major area of unproductive spending the study found was in subsidies and payments of social assistance which was not targeted to the poor or needy. It said these programs were "riddled with inefficiencies" and were usually in the form of generalized consumer subsidies, inefficient producer subsidies, untargeted welfare programs and subsidized credit to inefficient public enterprises.

The fund says it points out to countries that a viable social security system is necessary for an effectively functioning labor market, which is why it often recommends a completely revamped, cost-effective program of social safety nets.

Excessive military expenditures also impose a heavy fiscal burden on developed and developing countries alike, says the study, and the fund routinely encourages nations to cut defense budgets.

The study checked on the success rate in implementing the IMF advice, and found a mixed picture.

It said that in the countries with IMF programs, slippage did occur in civil service reform, public investment programs and public enterprise restructuring. Of the 24 program periods examined -- a measure of months in an active program -- 17 called for expenditure reductions, and cuts were actually carried out in 15 such periods.

The study did not identify specific countries, but did note that the countries in transition to market economies had one area of good success -- generalized consumer subsidies and producer subsidies in these countries "fell significantly" during the study, it said.