Transcript of an IMF Book Forum, The Macroeconomics of HIV/AIDS

December 1, 2004

Transcript of an IMF Book Forum
The Macroeconomics of HIV/AIDS
Wednesday, December 1, 2004
Washington, D.C.

Ms. White : Thank you very much for being here today, International AIDS Day. We're here for a Book Forum to launch the just-published IMF book, "The Macroeconomics of HIV/AIDS." The purpose of our Economic Forums and Book Forums is to have a healthy exchange of ideas and a discussion, a debate among specialists, among members of civil society, among the public generally on issues of great concern. And today the topic is HIV/AIDS.

I invite all of the audience members, both the ones sitting in the auditorium and those who are watching via live webcast to join other such forums that we organize. If you would like to sign up for electronic notification on our website, we welcome that. It's So you can learn about future events.

Copies of "The Macroeconomics of HIV/AIDS" will be available for you afterwards outside, and we invite you to stay after the panel discussion to have an informal exchange among yourselves, and, of course, join us for a light lunch afterwards.

The moderator of our superb panel is Keith Hansen, the World Bank's Manager of the AIDS Campaign Team for Africa. Thank you, Keith, for being here and making the extra effort to be here. Keith will shortly introduce the other panelists.

At this point it's my great pleasure to introduce the head of the International Monetary Fund, our Managing Director, Rodrigo de Rato, who has some opening remarks to give to us. Thank you.


MR. DE RATO: Thank you. Good morning. Welcome to the IMF, and I'm very pleased to welcome you to this IMF Book Forum to launch "The Macroeconomics of HIV/AIDS."

Today marks World AIDS Day when we take stock of progress in the battle against the epidemic and reinforce our efforts in the fight against AIDS. But first and foremost, we recognize that this human tragedy that destroys or undermines lives, leaves orphans, and creates destitution. And I think that we also recognize, all of us, that this is a human tragedy, but it's also an economic tragedy, not just for the individuals' households but for the entire societies and the economies that are mostly affected.

One year ago, on World AIDS Day, my predecessor, Horst Kohler, now President Kohler, in a letter to the UN Secretary-General, emphasized the strong support of the Fund for the fight of the United Nations community against AIDS. Much has been achieved since then. For instance, the World Health Organization's work, supported by steep discounts in the prices of antiretroviral drugs, has provided a road map to an extension of access to treatment to large numbers of people living with HIV/AIDS in low- and middle-income countries.

The Fund is most encouraged by these international efforts and within its ability lends its full support to the agencies primarily responsible for formulating and implementing the response to HIV/AIDS.

At first sight, "The Macroeconomics of HIV/AIDS" is an unusual book. It represents cooperation across a wide range of international organizations and other institutions, including the Center for Global Development, the International Labor Organization, the International Monetary Fund, UNAIDS, the U.S. Bureau of Census, and the World Bank. It is also the first book published by the Fund, that focuses on public health or on a public health issue.

However, HIV/AIDS is not just a public health issue. Through its social and economic effects, it has become a key issue in economic development. In many member countries, HIV/AIDS is now directly relevant to the work of the IMF, because of its implication on economic and fiscal policies. At the same time, the consequences of HIV/AIDS and the response to the epidemic are very complex issues, going far beyond the core expertise of any single organization.

From this perspective, this book could not have been done, sorry, without the diverse expertise of others from many different organizations who contributed to the volume. So "The Macroeconomics of HIV/AIDS" appears not so unusual after all.

Let me now remark on the Fund's role in the fight against the epidemic. With its mandate of promoting sustainable economic growth, the Fund assists member countries on a broad range of economic policies. Specifically in the context of HIV/AIDS, the IMF country teams have tried to take account of the epidemic's adverse effects in their economic analysis, policy advice, and, where applicable, program design. More generally, concessional lending by the Fund through the Poverty Reduction and Growth Facility and debt relief under the Heavily Indebted Poor Countries Initiative, the HIPC Initiative, has supported poverty reduction policies in many countries. These programs increasingly include measures to fight HIV/AIDS and mitigate its effects.

The IMF's role in the fight against HIV/AIDS has changed, and it has continued to change as the international response evolves. Initially, our staff focused on the adverse social, economic, and fiscal effects of the epidemic. This emphasis has shifted as the national response to HIV/AIDS in member countries has taken shape and as external assistance available to fight the epidemic has increased very substantially.

Increasing external financing for HIV/AIDS programs is creating new challenges for member countries, and the Fund is increasingly called upon to assist member countries in managing these grant flows. We are committed to working with member governments and donor agencies to ensure that adequate and predictable financing of HIV/AIDS programs is available and that these funds are used in effective and macroeconomically sound ways.

The growing national and international effort means that there is now a real chance to contain the epidemic and mitigate its adverse effects. A window of hope has been opened for many people living with HIV/AIDS in low-income and middle-income countries. However, with HIV prevalence rates still on the rise in many countries, there is no room for complacency. In the critical period that lies ahead, it is essential that international agencies and national governments collaborate closely.

Against this background, I'm very pleased to open this Book Forum on "The Macroeconomics of HIV/AIDS." This is a very timely and useful contribution to the international effort to fight the epidemic, and I want to thank its editor, Markus Haacker, and the many collaborators who have made it possible.

Thank you very much for being here.


MR. HANSEN: Thank you, Mr. de Rato, for a very excellent opening and for taking the time to open this very important forum.

Welcome to all of you here today here in the audience, and even more to those who are watching on the Web who greatly outnumber those of us in the auditorium today. This is truly a global event today, and one of the benefits of globalization is that so many can be watching.

AIDS, of course, is one of the costs of globalization, a global challenge that is going to require global action to combat, and that is why the emergence of this book is so important. And I would like to add my voice in congratulating Markus on having produced it and congratulating the IMF on having brought this forward.

Today is World AIDS Day, a day when every year we commemorate the epidemic, those we have lost to it, and those who are continuing to fight it. Every year that we need to commemorate this is, of course, a small loss because it means the epidemic is still with us, and there's just three sentences I would like to read on this day:

"For the sake of our common survival, we must act with courage and urgency. With every passing day, HIV claims thousands of lives. The only possible answer to the AIDS challenge lies in global solidarity."

That's what WHO said in 1992, 12 years ago, when we had fewer than 13 million people infected. Today that number has more than quadrupled. Nearly 20 million have died; nearly 40 million are now living with the epidemic. And if we failed to produce global solidarity in the last decade, it is in large part because we failed to appreciate the breadth of the challenge that we were faced with, and, in particular, its challenge to development itself and its roots in the development process. And that's why the emergence of this book and the attendance of so many great minds on this panel in the effort is so important.

I'm fond of saying that when the AIDS community says something, it is advocacy; when the IMF says something, it is orthodoxy. And so we are very happy today to have such orthodox minds on development here to speak about this issue, which is indeed very pressing.

What we will do today is we will hear from each of the panelists, who will speak for five to seven minutes each, and following which there will be a question-and-answer session. I promise after this I will say nothing else except to introduce and to be traffic cop. I do ask the panelists please to observe the time constraints. It is a very busy day here in Washington, and I'm sure elsewhere, because of all the events going on. And I will take groups of questions, probably in three or four. And I will ask you this and remind you: As you speak your question, please use the microphone at your chair and identify yourself out of respect to those watching on the Web who will not be able to see you nor know your affiliation.

So without further ado, let me begin by introducing first the editor of this very impressive volume, Markus Haacker, who is an economist in the African Department at the IMF. Before taking that position, he worked in the Research Department and the Swaziland desk of the Fund. After initial research in the area of economic growth and economic development, his work is now focused on the assessment of the economic consequences of HIV and AIDS. His publications in this area include "The Modeling of the Macroeconomic Impact of AIDS," "The Welfare Implications of AIDS," and "The Economic Consequences of AIDS in Southern Africa." He did his doctoral studies in economics at the London School of Economics. Most importantly, he is the editor and the godfather of this volume.

Markus, welcome.

MR. HAACKER: Thank you very much. As the editor of this book, I'm now in deep debt with some individuals, so I want to start by thanking those individuals and organizations who have contributed to this book: first of all, the authors, many of whom are here today; the many institutions who have taken part in these efforts; and the countless individuals who at some stage have provided comments or to draft or supported the work on this book in some other form.

Work on this book has grown out of providing economic policy advice in countries affected by HIV/AIDS, and this is simply not possible without taking into account the broad repercussions of HIV/AIDS on the economy or the capacities of the government. For example, what are the economic implications of losing over ten years 5, 10, or 20 percent of the available workers in the economy? What impact does this have on investment in the economy?

As the number of orphans grows and in many countries multiples, do social security systems, formal or informal, still work? However, some of the questions regarding the various impacts of HIV/AIDS, such as the impact on the household level, are not high up on the screen of macroeconomists looking at broad economic aggregates such as economic growth. So one of the purposes of this book, therefore, is bridging the gap between what we know about the epidemic's impact, which is mainly on the microeconomic level, but a perspective that looks at the macroeconomic aggregates such as GDP, economic growth, the fiscal balance, or the balance of payments. The general line of reasoning here is that the epidemic affects the economy as a whole through its impacts on the social and economic fabric. Broadly speaking, the first half of the book in some ways is focusing on these issues.

Second, and that is even more directly related with the work of the IMF, we aim to summarize what we know about the epidemic's fiscal effect or the broad implications for governments as they go beyond the specific response to HIV/AIDS. As an economist working with countries where HIV/AIDS is a serious issue, it was striking to find that the available literature in this area is very thin. There is, of course, a substantial body of work estimating the costs of HIV/AIDS programs, of formulating and costing the national responses to the epidemic. Also for some countries there are studies of how HIV affects government employees and the cost of benefits. From this perspective, the book aims at synthesizing and extending our knowledge of the fiscal effects of the epidemic and the broader policy aspects of managing the epidemic, something that we hope will be useful to policymakers in the affected countries, as well as the economic analysts, including those at the IMF providing fiscal policy advice.

Let me now highlight some of the findings that come out of the analysis in the various chapters collected in this book.

First, the book sketches some of the channels of how the impact of HIV/AIDS on households does affect the accumulation of human capital and thus growth. For example, drawing on the work of Shanta Devarajan, on the left on this panel, and others, the loss of family members has a very obvious direct effect on the well-being of the individuals affected. It also disrupts the transfer of knowledge to the next generation, and it results in losses in income so there is less money available to finance consumption, but also children's education. And in light of the uncertain outlook, the returns to education decline.

Amar Hamoudi and Nancy Birdsall from the Center for Global Development take a broader perspective. They look at the role of human capital in economic growth and also provide some empirical evidence linking life expectancy to the demand for education.

The link between the household effect and the macroeconomic issues also goes the other way around. For example, HIV/AIDS through its demographic impact and macroeconomic repercussions can result in increasing poverty and inequality, especially if poor households are disproportionately affected by the epidemic. This is discussed by Robert Greener of UNAIDS.

To close this discussion of the broad economic effects of HIV/AIDS, we also know that HIV/AIDS causes an increase both in risk to life expectancy, to health, but also an increasing risk to material living standards. And Nicholas Crafts from the London School of Economics and myself have tried to bring these different aspects together, looking at the welfare effects of increased mortality and estimating the impact of increased mortality risk on welfare. And what we find is that the overall welfare effect, if we try to cost them and express them as a percentage of GDP so that we can compare it to the impact on economic, are of a much higher magnitude than what we believe are the impacts of HIV/AIDS on growth. Expressed as a percentage of GDP, the welfare costs of increased mortality exceed well over half of total GDP in some of the worst affected countries, according to this study.

Turning to the fiscal effects of the epidemic and the government's response, we first note the very substantial increases in financing for the response to HIV/AIDS that have become available specifically over the last years. In this context, Mead Over, who is here today, discusses issues pertaining to the expanded response to HIV/AIDS and the WHO's 3 by 5 Initiative in terms of resource requirements, but also looking at the structure of the health sector and the incentives for health professionals.

However, the fiscal dimension of the epidemic is much broader. In particular, we look at the indirect costs by which we describe expenditures that are not directly HIV/AIDS line items related to the response to the epidemic, and the most important of these are personnel costs associated with increased turnover of government employees, and associated with the loss of government employees, costs of pensions and other benefits and some social expenditures. And what we find is that for many countries these costs are very significant. And in the context of low-income countries, as the indirect costs are not at least partly financed by external grants, they disproportionately contribute to the impact of HIV/AIDS to the fiscal balance.

More generally, as the epidemic has adverse economic and fiscal consequences, so does the response to the epidemic.  Iyabo Masha, who is also here today, my colleague here at the IMF discusses those links, and what she shows is that by reducing new infections and HIV/AIDS-related mortality, an effective national response, mitigates those adverse impacts along the same lines as the epidemic does have an adverse impact on the economy. And more specifically, it also generates substantial fiscal savings which eventually will contribute to financing the response to HIV/AIDS.

In conclusion, let me once again say how much I've enjoyed this cooperation. In terms of the work program, we have certainly not come to an end. As the international response to HIV/AIDS evolves, so do the economic and policy questions that need to be addressed. We hope that we have provided some useful contribution in terms of informing policymakers and analysts of the broader economic effects of HIV/AIDS and its adverse impacts on economic development. We also hope that by contributing to the economic and fiscal analysis of the epidemic we have provided some contribution to the international efforts to fight the epidemic.

Thank you.

MR. HANSEN: Thank you, Markus.

Let me turn now to Mr. Simon Johnson, who is going to put a bit of historical context on epidemics. In the mid-1960s, the U.S. Surgeon General made what may have been one of the stupidest statements of the 1960s, which is a high standard, when he said, "It is time to close the book on infectious diseases." Such was the hubris of the time when we were going to the moon to think that we could actually get rid of something that has been here for billions of years longer than we have. There's much to learn from that, which is what Simon is here to discuss.

He is the Assistant Director in the Research Department here at the Fund, as well as the Ronald A. Kurtz Professor, Sloan School of Corporate Finance Management at MIT. He's a faculty research fellow in the NBER research groups on corporate financing and international macroeconomics, a member of the International Advisory Board of Case in Warsaw, and a non-resident scholar at the Asian Institute for Corporate Governance of Korean University. He's also on the Global Advisory Board of Endeavor, an organization that promotes entrepreneurship in emerging markets. In 2000 to 2001, Professor Johnson was a member of the U.S. SEC's Advisory Committee on Market Information. He holds a Ph.D. in economic from MIT and a BA from Oxford and an MA from the University of Manchester. Simon?

MR. JOHNSON: Thank you, Keith.

My role is to take a very few minutes to try and put this book and HIV/AIDS into a little bit of historical perspective. I apologize for compressing a lot of material into such a small amount of time, but I think there's at least three lessons we can take away from this historical comparison.

The first point is that recently—I mean over the last 50 years—we've grown accustomed to the idea that infectious diseases are controlled or even eliminated by the advance of technology, for example, miracle drugs, and learning about how to apply that technology, how best to administer drugs. This is an absolutely amazing achievement that sort of takes your breath away when you think about human history.

For example, tuberculosis, which was a major killer around the world in every country almost without exception in 1940, this disease, while obviously it's still with us and has a very unfortunate manifestation and interaction with people who have HIV/AIDS, this disease was driven down in terms of its importance by the invention of streptomycin and related antibiotics from the mid-1940s. This is a fantastic achievement, and it's not the only example. I could talk about many others. And it really affected our way of thinking about disease and how you handle disease and how you react to disease, and that I think is exactly what the Surgeon General was talking about. That was where he was coming from in the 1960s in Keith's initial quote.

Now, these health improvements, in the last hundred years have been central to the advancement of human welfare. In fact, without those improvements it's very hard to imagine that there would have been much progress in the last hundred years. Unfortunately, health by itself and improving health is not sufficient for sustained, rapid economic growth, but that's another matter. I think human welfare, which is the key issue and the bottom line in all of this, is very much about health and very much about controlling and learning to deal with disease. And I think on this day, it's particularly appropriate to acknowledge and to emphasize the immense contribution of the World Health Organization and the United Nations more broadly in terms of helping us think about these diseases, spreading technology and ideas. This was something which the League of Nations began to do in a very small way. And, again, perhaps we've forgotten how remarkable the last 50 years have been in terms of sharing of ideas and best practices led by the WHO.

For uncontrolled pandemics and for thinking about the pandemics, diseases that spread around the world and effect everyone, diseases that really strike fear into the heart of every household, however rich or however poor, you really have to go back to probably 1918 to 1919 and the influenza epidemic. Now, of course, we still worry about another flu coming, and that was terrible, the last catastrophic flu, and it would be terrible again. But it was relatively short-lived and relatively well understood. There have been other episodes, regional episodes. We could talk about typhus, for example, and particular outbreaks of malaria, particularly associated with war and forced movement of population. These things don't go away.

But in terms of global pandemics, you have to go back a long way. You have to go back probably to cholera in the 19th century for something that was huge, initially misunderstood, had a really devastating effect on everybody's expectations about their life and whether it was worth making investments in human capital.

The second point, though, to take from history is that if you go back a little bit earlier, before the 19th century, the story is quite different. The most remarkable or memorable episodes are, of course, plague, the particularly the Black Death, and the effect of smallpox on many societies. But these were not isolated examples. In fact, infectious disease for most of human history, since at least the beginning of urbanization, human history has been dominated by the spread of these diseases between societies. Now, obviously, modern globalization is different and perhaps everything moves more quickly around the world. But if you go back and have a look at this wonderful and very important book by William McNeill, published in the 1970s, called "Plagues and Peoples"—it's referenced in Chapter 3 of today's book by Shanta and his colleagues. Professor McNeill made this very important point, that actually human disease and human societies co-evolve, and if you want to think about this right, in HIV view—and I think this would be my view, too—the history of human civilization is exactly one and largely one of struggling against—and if you want to say, call it this—co-evolving with diseases.

Now, diseases emerge and evolve continually. Sometimes they appear very fast. This is not unusual in the longer historical record. And, unfortunately, whether you like it or not, unless human societies adapt appropriately, there can be massive deaths, a derailment of development—and this is the historical record, not my opinion—the collapse of civilizations. This is the norm. The last 50 years have been a wonderful aberration that we really hope can continue. But if you think, for example, about smallpox, you see many vivid examples of this.

Could this kind of catastrophe be the consequence of HIV/AIDS? Well, read the book. Think about it. If you look at Markus' very impressive Chapter 2, I think you will come away profoundly convinced that we have to take HIV/AIDS very seriously on this global scale. This is not a problem for any one country or society or region. It is a truly global problem, just like plague, just like smallpox historically.

Now, I'm not an alarmist, and this is a very important point. Again, comparing with history, history warns us against complacency. It also offers inspiration and hope. We have much more global scientific capability than we had even 50 years ago. We have many more places in the world where clever scientists and public health administrators are thinking hard and working every day to deal with these problems. Information also flows much faster around the world than ever before. It is very hard to ignore good ideas. You can, but it is getting harder.

However, I would like to emphasize that my reading of the historical record is either we collectively and individually deal with HIV/AIDS—and this means adapting what we've done before—or the disease will have first-order consequences for human development. Now, this book is one, obviously small but I think significant step in the right direction, and it shows you, I hope, that the IMF for one is adapting. We have changed our thinking. We continue to change our thinking. We do this in part by engaging with others, for example, the people who wrote papers from this book who came from a broad cross-section of people thinking about these issues.

As Mr. de Rato mentioned in his introduction, the IMF has a particular responsibility in helping countries manage the inflow of resources. That's one of the things which we have to learn to be better at. But we all, I think, need to further learn, talk, adapt, and, if necessary, change what we do if HIV/AIDS is to be defeated. And I hope that today is part of that conversation.

Thank you.

MR. HANSEN: Thank you, Professor.

We turn now to Rachel Gesami, who is Advisor to the Executive Director in the Africa Group 1 Constituency here at the Fund. She is a highly recognized professional in the fields of macroeconomics and policy development and has published in several issues central to economic development, including poverty analysis, health economics and policy, regional integration and poverty reduction strategies in developing countries. She holds a BA in economics, sociology, and government from the University of Botswana and Swaziland, an MA in health economics from the University of Leeds, and she did her doctoral studies in economics at the University of Nairobi. She also spent ten years at the AERC, so she has firsthand experience with many of the crucial issues here.

MS. GESAMI: Thank you. I will just go ahead and give a little brief message.

Today we join others around the globe to commemorate World Aids Day and to celebrate progress made in the battle against the epidemic, and to bring into focus remaining challenges. This years World Aids Day focuses on women, girls and HIV/AIDS, which is also the theme for the World Aids Campaign 2004. While much progress has been made in the fight against HIV/AIDS, it is sad to note that the number of women living with HIV/AIDS have increased in every region of the world. According to UNAIDS, in East Asia the number of women living with HIV/AIDS increased by 56 percent over the past two years, and in Eastern Europe and Central Asia by 48 percent. In sub-Saharan Africa it is estimated that 13.3 million women between the ages of 15-49 are living with HIV and in the United States of America it is reported that there are 40 000 new infections each year, translating into 250 new infections every hour. Similarly, in Central Europe and Latin America, the number of new infections is on the growing trend. According to the latest UN report on HIV/AIDS, there are now close to 40 million adults (between the ages 15 and 49) living with HIV worldwide.

While sub-Saharan Africa could be the worst affected region, not a single region in the world has escaped the epidemic. In his latest report, Peter Piot, the executive director of UNAIDS notes that "There is no single AIDS epidemic world wide. Many regions and countries are experiencing diverse epidemics, some still in the early stages. These latest trends firmly establish AIDS as a unique development challenge. The time of quick fixes and emergency responses is over. We have to balance the emergency nature of the crisis with the need for sustainable solutions." As acknowledged by the authors and others, low national infection rates often disguise serious regional epidemics, as is the case in countries such as China, and India. According to UNAIDS, India may already have the world's largest population living with HIV/AIDS, and the number of people infected in China could reach 10 million by 2010. The enormous size of the Asian population means that the Asia Pacific region could account for a very substantial share of new infections in the coming years, and given a further increase in prevalence rates most HIV/AIDS positive people in the world may very soon be living in these countries. In fact, experience shows that regional epidemics can spread to the general population very fast.

It is against this backdrop that we regret the picture on the front cover of the book that portrays HIV/AIDS as an African phenomenon only, downplaying its global nature and its much wider ramifications not only on the affected countries but also on the work of the IMF and the World Bank. This portrays the IMF, the authors of the book and the book itself in bad light in the eye of an African reader. In this connection, the title of the book "Macroeconomics of HIV/AIDS" is misleading and a more appropriate title would have been the Economics of HIV/AIDS in Africa. Even then, one would wonder what exactly the picture is telling the reader. The saying goes that a picture says more than a thousand words, but in the minds of the authors of this book as depicted by the cover page, it is apparently not the case. Some of the questions that come to mind when looking at the cover page include: Is the woman and her baby sister typical AIDS patients? Could it be that they are suffering from malnutrition? The bottom line is what does a HIV/AIDS person look like at every stage of the disease. We now know that HIV/AIDS does not discriminate against gender, race, color or creed, any one can contract the virus. In this connection, therefore, profiling Africa is in bad taste and carries a racial tone. It is rather unfortunate and regrettable. It spills a dirty stain on an otherwise good cause.

Having said this, we welcome the book, and think that the authors present a compelling argument for redefining various frameworks for assessing the various impacts of HIV/AIDS thereby widening the debate about ways to approach the epidemic menace and its analysis. The papers are both analytical, rigorous and substantively contribute to the growing literature on the economics of HIV/AIDS. More and more governments, especially in sub-Saharan Africa acknowledge that HIV/AIDS is a multi-dimensional developmental issue. In this connection, the book presents valuable frameworks and models for understanding the linkages between HIV/AIDS at the micro level and its impact on the macro-level. These models are, however still in their infancy stage and one would hope that over time they could be developed to capture more accurately the development challenges and dynamics of developing countries. For example, one critical issue in most developing countries is the lack of reliable macroeconomic data, including socio-demographic statistics. How do we deal with it? What are the underlying assumptions regarding the pool of unemployed labour in developing countries, and how do we model the ever expanding informal sector in these countries. As the authors rightly put it, the fiscal consequences, particulary HIV/AIDS related expenditue and its impact on domestic tax bases is real as is the AIDS related attrition rates.

Given the data limitations and other constraints of the models, the impact of HIV/AIDS on economies may never be fully known. HIV/AIDS is but one of many influences on economic development, and it may not be entirely correct to treat it in isolation. However, the importance for policy makers to understand the mechanisms by which HIV/AIDS will affect the different levels of the economy and to have some sort of estimate on how large impacts are likely to be cannot be overemphasized. Such knowledge would enable policy makers to design macroeconomic and fiscal policies to mitigate the anticipated impacts on government budgets, private companies and households. Understanding how HIV/AIDS will affect the macroeconomy could also motivate policy makers to commit the resources to prevention and mitigation of the disease. However, it would also require a more determinant stance on the side of the international organizations.

Another issue that needs to be elaborated on is the interlinkage between HIV/AIDS, poverty, inequality and the role of the International Financial Institutions in low-income countries. In this connection, the IMF's role is to promote economic and financial stability in member countries and at the global level, as basis for sustained economic growth, which is essential for raising living standards and reducing poverty. Promoting macroeconomic and financial stability is largely a matter of avoiding economic and financial crises, which can destroy jobs, cut incomes, and cause great suffering. It is also a matter of avoiding large swings in economic activity, high inflation and excessive volatility in exchange and financial markets. Any of these types of instability can increase uncertainty and discourage investment, impede economic growth, and hurt living standards of any country.

Most developing countries today find themselves facing these dynamic forces and HIV/AIDS pandemic not only impoverishes individuals and communities but also erodes the capacity of the socio- economic system through losses of human resources. The relationship between poverty and HIV AIDS which include the spatial and socio-economic distribution of the HIV infection in populations, and poverty-related factors that affect household and community coping capacities lead to an intensification of poverty. To make sense of these relationships there has to be an understanding of the complex socio-economic processes at work in different societies, together with a conceptualization of poverty, which is multi-dimensional. The analysis of these issues will have to encapsulate:

(i) The gender dimension of poverty, in particular that the poorest households are often female headed;

(ii) The intergenerational aspects of poverty - the importance of seeing poverty as part of the dynamic social, economic and political processes;

(iii) the qualitative as well as quantitative measures of poverty - giving appropriate weight to those aspects of poverty which delineate and define capacities and contributions by individuals and house holds to socio-economic and political processes and;

(iv) How these are changed by the pandemic.

The characteristics of the poor are known, as are some of the causal factors at work, which contribute to a `culture of poverty' the fact that the children of the poor often become the poor of succeeding generation. However, in Africa what are poverty and HIV/AIDS associated with? Is it weak endowments of human and financial resources, such as low levels of education and low levels of literacy and poor health status and low level of productivity? Africa too follows IMF advice of promoting the stability of international financial system through it primary functions of surveillance, lending and technical assistance; so why is there a disconnect when it comes to poverty, income inequality and HIV/AIDS? In this regard chapter 5 of the book dealing with the issue of the impact of HIV/AIDS on poverty and income inequality is,welcome.

The question about what can be done to mitigate or moderate the adverse macroeconomic impact has not been sufficiently analyzed. In this connection, chapter 5 illustrates convincingly that an effectively managed AIDS intervention program, like the one in Botswana, could result in a significant moderation of the adverse economic impact of the disease on the labor force, capital accumulation and economic growth. However, even for Botswana which is a relatively rich country as measured by GDP per capita, the costs of implementing such a comprehensive intervention plan is astronomical and without donor support probably not feasible. This raises the question of alternative cheaper intervention programs, which could be more effective. We, therefore, would encourage further research into effectiveness of alternative intervention programs, including the case of Uganda and Thailand.

Notwithstanding the weaknesses and limitations in existing methodologies and models for measuring the economic impact of disease burdens generally and of the impact of HIV/AIDS in particular, there is sufficient evidence that the overall economic impact of the epidemic is devastating. A full quantification of the overall economic effects of HIV/AIDS on economies will need to take account of the direct economic effects of adult HIV/AIDS on labor productivity. It should also take account of changes in household behavior attributable to the disease, as well as changes due to the very risk of HIV/AIDS. Thirdly, it should measure the economic effects at the national level, including effects on the fiscal situation and therefore on the stability of the macroeconomic environment, and effects on enterprise productivity and investments as well as related externalities flowing from lost skills.

Judging from the sheer scale of these costs, it is clear that the return on investment from scaled up efforts at prevention would be enormous. What is required is a comprehensive program for total national mobilization, backed by scientific and technological expertise, significantly enhanced levels of international donor support and improved access to drug therapies. The grim picture painted by the current statistics is worrisome. It may well be the case that there are some deficiencies in capturing data in terms of scope of coverage, methodological compilation, etc. It, maybe necessary to invest more in the statistical systems of the countries under consideration with a view to capturing more accurately HIV/AIDS statistics.

Finally, HIV/AIDS research, especially, research by African scientists and institutions ought to be given the highest priority. To the authors, we thank you for getting time to try and tackle this important human problem.

Thank you.

MR. HANSEN: Thank you, Doctor, and thank you in particular for the reminder that this is a global issue. Despite the fact that Africa has suffered first and worst so far, there is nothing in the epidemic to suggest that that will remain the case. And indeed that is why it is all the more urgent that this message get out to the rest of the world, that it faces a huge development threat and not simply another disease.

To wrap this up, we have Shanta Devarajan of the World Bank to talk now. One of the strengths of this book is the breadth of the authorship. There's a strong Fund presence, but there are also authors from academia, from leading development think tanks, from the UNAIDS family, and also from the World Bank, where I work.

Shanta is the chief economist in the World Bank's South Asia Region and the ex-chief economist of the Human Development Network in the Bank. He's the editor of the World Bank Research Observer and director of the 2004 World Development Report, which focused on making services work for poor people. His recent research has focused on aspects of public expenditures in developing countries, including the links with growth project appraisal and foreign aid. He's worked in the areas of trade, tax, real exchange rate and labor — [tape ends].

— modeling. In the interest of time, in the future we will list Shanta's achievements by the areas he has not worked on.


MR. HANSEN: Before joining the Bank, he was on the faculty at the John F. Kennedy School of Government at Harvard. He has an undergraduate degree in mathematics from Princeton and his doctorate in economics from Berkeley. In addition to his Bank position, he's a research person on the AERC and chair of the Board of Directors of the AEA's Economic Institute. Shanta?

MR. DEVARAJAN: Thank you. Thank you very much, Keith.

Everybody from Mr. de Rato to all my colleagues on the panel have been talking about how AIDS is more than a health problem, it's a development problem. So what I want to do is actually try to explain why I think it is a profound development problem, and it all starts with one very simple but undeniable fact, and that is, AIDS, unlike diseases such as malaria, kills young adults. Malaria tends to afflict small children, and other diseases like cancer tend to afflict older people. But this is a disease that's unique in the fact it actually afflicts young adults.

What that means it that the impact of AIDS is not just on its victims, the young adults who actually get the disease and then die, but also on their children. It has an effect on the next generation. And what it means is that when parents are afflicted with AIDS, there are at least two consequences for their children. One is the children are less able to go to school because there are fewer resources around to invest in their education, but it also robs those children of the love and nurturing and the life skills that parents give their children, which tend to complement the education they get in school.

The consequence of this is that you risk having a whole generation of the children of AIDS victims who will be undereducated, less educated in both ways, both in terms of formal schooling as well as in terms of the life skills that their parents teach them. The consequence of that is that that second generation of less educated children are then less able to provide for their children's education because they will be less educated so they're less productive. And you could actually get a vicious cycle occurring based on the disease that happened with the first generation of each generation being less educated than its predecessor. And what we're really observing here is that the process of human capital transmission, which is the engine of long-term economic growth, is being cut off, that it's much harder for parents to transmit human capital to their children and for the children to transmit it to their children.

Now, what we showed in this paper, in this work we've been doing, is that this mechanism, which starts from that very simple point that I started with, which is that it's a disease of young adults, this simple mechanism can have deep consequences for economic growth in the long run. This vicious cycle could lead an economy that was otherwise, say, growing at about 3 or 4 percent a year, the GDP was growing at 3 or 4 percent a year, to turn downwards and actually lead to an economic collapse. Some simulations show that an economy that was growing at 3 to 4 percent a year, if it gets hit with an AIDS epidemic, a serious AIDS epidemic, could actually contract to about one-third of its original size. Of course, the contraction occurs over two or three generations, over an 80-year period, but it's a profound difference in the development path that the economy will take.

And this has at least two important implications which relate back to the work of the Fund and the Bank and other institutions as well. The first is that the consequences, the long-term consequences of AIDS could happen many years into the future, even after a cure for the disease has been found, because it's the break in the human capital transmission that could be the main driver of the economic consequences. Put another way, you know, if we see bad effects on the economies today of, say, African economies that have been hit very badly by HIV/AIDS, it could be that the worst is still to come, which is very, very troubling indeed.

But the second and perhaps slightly more hopeful implication is that we can undertake action today to stop this potential calamity from occurring because if you believe that this is the mechanism by which we can have economic consequences, then we can try to do something about it. We can actually invest in both the prevention and treatment of AIDS victims—and the treatment is important because that keeps the parents alive longer so they can actually transmit some of these life skills to their children. But we can also invest in the education of those children, of those orphans, and we can have a major effort—and this again has implications for the foreign aid community as well, a major effort to try to stop this decline in human capital formation by educating the children of AIDS victims.

So I think this is really a call for early action because the consequences of erring on the side of caution I think are inexcusably large.

Thank you.

MR. HANSEN: Thank you very much. Thank you to all the panelists for excellent, concise presentations.

Since time is running, let's move directly to questions. Let me repeat, please introduce yourself and do use the microphone next to your chair. We'll take them in small clusters and then we'll farm them out as needed. I'll start with the first person I saw. Go ahead, sir.

MR. MUNOZ: Yes, Cesar Munoz with PFE News Service. It's an international news wire. There is a group of people outside right now that are protesting the policies of the IMF and the World Bank in relation to AIDS. They say that structural adjustment and reforms that, you know, imply or force reduction in education budgets and health budgets hurt the fight against AIDS. I wonder if you have a comment on that.

MR. HANSEN: All right. Thank you.

Other questions? Yes, ma'am?

MS. : How well are the donor agencies kind of coordinating among one another? And how well are they heeding this call that it truly is a global issue? You have UNAIDS. You have Bush's economic—or AIDS initiative. You have the global fund. You have a World Bank program. You have all these different agencies and then countless other NGOs and everyone. How well are they coordinating to kind of avoid donor overlap in these countries and exhaust local resources?

MR. HANSEN: Very good. Yes? Please identify yourself.

MS. : I'm Laura [inaudible, off microphone] Johns Hopkins University. I have a question about the economic impact of HIV/AIDS. Right now antiretroviral medications are only available to a small percentage [inaudible] percent in a country like Malawi to about 6 percent in a country like Uganda. Even though there are targets to scale up, it's going to take several years before [inaudible]. So just from a purely economic point of view, what is the best way to make use of [inaudible] resources for antiretrovirals [inaudible] government workers [inaudible] teachers on the agenda, and our last speaker talked about the importance of human capital. Does that mean we should prioritize [inaudible] like young adults, even though many countries actually focus most of their efforts on prevention [inaudible] transmission just in terms of the economic impact, leaving aside for the moment [inaudible].

MR. HANSEN: Thank you. Let's take one more. You, sir, in the back.

MR. : This question is for Mr. Devarajan. I understand you're trying to be as concise as possible, but the question is: Having made the—having said what you said about the vicious cycle or circle, you know, becoming a problem for future generations, and saying that we should do things now to avoid that happening, what exactly—how does that relate to our program, the IMF and World Bank program? I know we're always doing a little more in the social area. Are you advocating anything in particular that should happen with our programs to take care of that?

Thank you.

MR. HANSEN: All right. Let's take those. Let's start with the question about whether Fund and Bank policies have exacerbated the problem, and I'll give it to Markus, and others should feel free to weigh in on that. But, Markus, why don't you start.

MR. HAACKER: Well, I can't speak for the World Bank, but let me describe the role of the IMF, the operational side of the IMF, not as we come here together today, which is more in the—which is more (?) the work the IMF does in analytical terms. Let me talk about the operational work of the IMF.

In the broad area of HIV/AIDS, this issue became an issue for the IMF through its macroeconomic and fiscal consequences as the IMF's primary role in its member countries is to assist them in the management of macroeconomic and fiscal—in the context of HIV/AIDS, fiscal management in a broad sense. So the IMF is not providing funding for HIV/AIDS spending in particular. However, the Poverty Reduction and Growth Facilities that the IMF and the World Bank are supporting do make funds available for social spending in general, and while the design of the spending programs on the spending side is within the domain of the member governments, many of these programs do include and support specific measures to finance HIV/AIDS expenditures.

As the international response to HIV/AIDS increases, HIV/AIDS also becomes a more significant fiscal and macroeconomic management problem and issues that have been discussed mainly over the last year where the IMF also come into play through its broader mandate are the management of the fiscal—the financial management of the increased aid flows and the management of the impact on the balance of payments. And the IMF is assisting member governments by advising them how to best manage the flows coming in.

One issue that has been discussed in the public domain is the role of the IMF in financing—well, restricting financing on HIV/AIDS-related expenditures. I am not aware, working at the African Department, of any case in which the IMF would have objected to an HIV/AIDS program financed by some grants and the existing IMF—both the existing IMF programs in member countries to make provisions for grant finance expenditures, and the IMF is also discussing with the counterparts in member countries on how to best finance—the response to HIV and how to speed up the response to HIV within the particular situations in the country, taking into account the capacities of—well, the capacities the authorities start out with and the available donor financing.

Thank you.

MR. : While we're discussing the Bank and Fund—yes, go ahead, Dr. Gesami?

MS. GESAMI: Just to add on to what Markus has said, for policy formulation for the countries that are under the Poverty Reduction Strategy Facility, grant facility, this issue of the role of the IMF—the signaling the role of the IMF has been raised and its under discussion, if that helps. That is to say that the formulation of the policies at the country level and how the IMF steps in to give the advice. The fact that the IMF indicates that the countries can't have the funds that they desire from the other donors, that signaling role is being discussed about, and maybe soon you would have a position on that.

MR. HANSEN: While we're on the Bank and Fund, Shanta, do you want to field the question about what the institutions can better do?

MR. DEVARAJAN: Thanks. Thanks for that question, actually. It's a great opportunity to speak some more.

I think there are sort of three or four things that we can do. The first is—and this comes back to the point made by Markus before—really an exercise in persuasion. I think one of the hardest things that I've found in talking to policymakers is to get the Finance Minister's attention on HIV/AIDS. Even in countries with large high-prevalence rates of HIV/AIDS, there's still a tendency to think of it as, well, that's the Health Minister's problem, it's not my problem. And so one is just to focus the attention not just of the Health Minister but of the entire cabinet, the decision makers on this.

The second is, of course, the magnitude of the problem is such that you really can't do it by reallocating resources within a limited budget. We did some preliminary calculations that showed that if you want to avoid this kind of collapse, this collapse to one-third the size of the original economy, it would take additional expenditures of the order of 3 to 4 percent of GDP. So the question is now where is that going to come from.

Now, you know, there are countries that get over 3 to 4 percent of GDP in foreign aid. So then the next question is: How can you actually use foreign aid effectively to stop a disaster from occurring? And there I want to be very careful to say it's not just saying let's spend more money on health and education, certainly not just spend more money on health or even health and education, because what's critical in all of this is the efficiency of those expenditures. One of the problems is that many of these countries also have very weak systems with which they translate additional expenditures to results on the ground. So you find that if you increase spending on health, you don't necessarily get an improvement in the health standards of the population, or increase spending on education, you don't actually get more kids in school.

So we need to both focus on getting more resources but improving the effectiveness of those resources, particularly if we're concerned about those AIDS orphans, because you have to first find them, target them, and also come up with mechanisms by which they can go to school and stay in school.

MR. HANSEN: Thank you.

Professor Johnson, would you like to tackle the question, is there an optimum allocation of drug spending?

MR. JOHNSON: That is the hardest question. Thank you. I'd like to address Questions 2 and 3. So how well are agencies coordinating? And that relates to Question 3. What is the role of the IMF in this? Obviously, the IMF is not comprised of medical doctors, and we're not also people who have primarily focused on careers in understanding public health systems. The World Health Organization leads in terms of the medical thinking, and the World Bank knows much more about individual household issues than we do.

The role of the IMF is to think about the macroeconomics, and, of course, this makes us sometimes unpopular. The role of the IMF is to try and think carefully through the consequences of both the catastrophe, which we recognize, and to try and update—you know, try and figure out how much you can spend.

If people think there are ways that countries can spend more without destabilizing and upsetting their economies, we want to hear about it. I think the book is trying to lay out those issues for you, and we're trying to get concrete and really get into that.

So I don't—I mean, I think there is a division of labor here. It's very important to have this division of labor between everyone who's thinking about HIV/AIDS. And I think it is completely reasonable to give us specific instances where you think we're being too tight on a budget or if you think there are instances—again, I've looked and I haven't found them, but tell us if you know, and we can look into this more—instances where grants are available and we're telling countries they can't spend it. I don't think that happens, contrary to accusations, but tell us if you think differently or know differently.

But I as an IMF economist cannot tell you where you should target these—even in terms of the economic impact, where you should target the drugs. I think that falls to other people.

MR. HANSEN: All right. Thank you.

More questions? Yes, please identify yourself.

MS. : Hi, my name is (?) . I'm a student at George Washington University. I was wondering if one of you could speak towards the orphan crisis because it is pending, just in terms of the economic impact of the future orphan crisis. As these orphan babies become older, how will they assimilate into society and the like?

MR. HANSEN: All right. Thank you. Others? It's a little hard to see with the lights. Yes?

MS. WARD: I don't know who—

MR. HANSEN: Please identify yourself.

MS. WARD: Oh, I'm Joanna Ward. I am a student with Boston University studying down here. I was just wondering who could address the different positive policy reforms or lowering of corruption because of this negative crisis, but maybe just the positive side of different policy outcomes from the crisis.

MR. HANSEN: Very good. Thank you.  Anyone else?

[No response.]

MR. HANSEN: All right. While you think, why don't we field those two. Orphans, whither orphans? What can we expect or fear? Or what don't we know? Anyone want to field that?

MR. HAACKER: Let me start out on that. I've just come back from an IMF mission to Swaziland, and in the context of this mission, we also talked to the Ministry of Health and the National Emergency Response Committee on HIV/AIDS. And the response to HIV/AIDS in this country does have two elements. One is geared—or it had more elements, but it emphasizes, on the one hand, providing access to treatment, and there's very strong emphasis on the impact HIV/AIDS has on orphans and other vulnerable children living in families affected by HIV/AIDS, and the strategy that the Swazi Government is following is, rather than have the orphans drop out of school, not getting education, to make efforts to keep them integrated in society by keeping them within their community, by providing the help that they need within their community.

MR. HANSEN: And the question of what were the positives coming out of this. It's a very good question because AIDS has certainly led to a lot of behavior change at the individual and also institutional level.

Is our panel all doomsayers?


MR. HAACKER: Well, I'll try to take this question. Some of the—I think about the international response and on the response to the HIV/AIDS epidemic in the countries, what I find is that member governments, societies that—also as we are here now launching a book with a very extensive contribution from different international organizations, that institutions adapt to new challenges slowly, but that the threat of HIV/AIDS to societies affected has resulted in coordination of efforts on the national level, and also mirrored coordination of efforts on the international level to find solutions which may have been—which may have seemed impossible 10 years back. And while this is a process that takes time, I'm encouraged by the way that the national—not only authorities but by the way the affected societies, the governments, by the way the international community has responded to this epidemic.

MR. HANSEN: I would just add briefly to that. AIDS has cast a very harsh spotlight on a whole set of inequities and development issues that the world is now starting to address, even more broadly than the context of AIDS. The fact that African heads of state committed a fixed share of the budget to the Health Ministry several years ago, even if they haven't yet met that commitment, is unprecedented. The fact that there is a global fund that funds not only AIDS but also malaria has been very good news for malaria. The fact that there is now attention to women's status in many parts of the world I think is a positive offshoot of AIDS.

I'm not saying any of these things have been solved, but there's much greater fire underneath them than there was before AIDS began to wreak a terrible cost from what had long been sort of tolerated as standard practice.

Other questions? Yes?

MR. SILVERMAN: I'm Ron Silverman from the World Bank U.S. ED's office. I'd like to ask Mr. Devarajan to extend his remarks a little bit into the sort of manpower implications of trying to address the issues. You pointed out that the people that are hit by this are young adults. Often these are the teachers, the health workers, the administrators, and with them being the most affected and the ones dying, how do you ramp up activities to deal with these same issues.

MR. HANSEN: Thank you. Yes?

MS. GRIEGRABER: I'm Jo Marie Griesgraber with New Rules for Global Finance Coalition, and my question relates to the availability of drugs. The previous speaker addressed the manpower issue, and one of the earlier questioners indicated the small number of affected people with access to antiretrovirals. Is that because of the cost of the drugs? Is there something—is there a need for a greater push for using generic drugs instead of name brand drugs? Is it a cost factor?

MR. HANSEN: Thank you. Yes, sir?

MR. PAPPAS: Greg Pappas, Futures Group. I want to re-pose the question by the speaker from Hopkins, maybe in a little bit more of an acute way. The U.S. Government is spending $15 billion on combating the epidemic in 15 different countries. There's additional funds from other big donors. What can macroeconomists tell us about the best (?) program—I'm not saying give us public health solutions, but questions about—has anybody done any modeling looking at how to optimize prevention, care, treatment? There are many different issues here that need to be addressed, the issue of orphans, countries that have low epidemics versus high epidemics, and right now we're kind of looking at, well, you know, the number of people in the country that are HIV-infected tend to be—you know, draw the greatest amount of money. Have the economists thought through those to help us optimize how to at the global level channel those funds? I think that's the question she was asking.

MR. HANSEN: Anyone else like to add? We have a few minutes. Yes, go ahead.

MS. McLAUGHLIN: Patrician McLaughlin from the American—

MR. HANSEN: Could you turn the microphone on?

MS. McLAUGHLIN: Sorry. Patricia McLaughlin from the American Red Cross, and a true Luddite if I didn't even know where the button was for that.

Dr. Gesami mentioned some countries that were successful in scaling back the AIDS epidemic, and we mentioned Uganda, Thailand, there's also cases of Brazil and Botswana. I was wondering, since they adopt quite different health interventions that are focused on different aspects, if there were commonalities in the macroeconomic policies they adopted with the fiscal policies of those countries in dealing with the AIDS epidemic.

MR. HANSEN: All right. Thank you very much. Let's take these in order. Shanta, an invitation to speak some more.

MR. DEVARAJAN: You're absolutely right that the fact that AIDS kills young adults means that you're also losing a large part of the labor force, including the skilled labor force, which would be critical to stopping the collapse of the economy, although I still would say that that effect is not as important as the effect on the next generation. Crudely put, you know, in the old days we were doing this analysis where we were just modeling and looking at the impact of AIDS as simply a shock to the labor supply, that it was affecting people. And you find that the macroeconomic effects on that level are much smaller than the macroeconomic effects you get when you try to model the transmission of human capital across generations.

Now, that said, there's a very serious problem, which is, if you need to educate these orphans, as I was saying earlier, how do you it when the teachers are dying? But I think that there are possible solutions. Again, it's going to be very costly but there are—you can import teachers. You can actually—and there is a global market for teachers there, Indian teachers moving to Sub-Saharan Africa because of the shortage created by AIDS victims as well as just a general shortage of teachers.

And so that it's a definite problem, but it's one that I think with sufficient resources we can handle. The behavioral response of the next generation is the one that we really have to be vigilant about.

MR. HANSEN: Thank you.

Why don't we cluster the two middle questions. One is whether cost is the primary barrier to drug access, and the other is a more pointed question about the optimum allocation of the billions of dollars that are now out there. The Washington Post this morning in its editorial said fairly bluntly that this attention to women, et cetera, is misplaced and really the money should all be going to those at highest risk because they generate the most infections, et cetera. Would anybody like to speak to these issues? Anyone? Go ahead, please.

MR. HAACKER: On the optimum allocation of funds to various—to prevention, to mitigation, to treatment, I'm a macroeconomist and a growth and development economist, so I cannot provide good answers to that. But I know of the work of other institutions, including the Futures Group, who have done very substantial work on how to optimally allocate these funds.

On the constraint to upscaled response to HIV/AIDS, I think the image that is emerging is that the financial constraints have become much less of an obstacle to substantially expand access to treatment for two reasons. One is that the costs of those drugs for developing countries have declined very substantially through multilateral or bilateral agreements with the main drug manufacturers and also through the much increased financing that is available for AIDS. But, still, for many poor countries even the financial implications of increasing, of very rapidly increasing the capacity of what the health sector can handle, and to make these investments, that still is a substantial challenge, as well as the availability of trained personnel.

I've just discussed with the IMF mission chief for Zambia, and they had discussions with the authorities there on how to best make, how to best increase, how to most—how to quickly increase resources and the response to HIV/AIDS there. And one of the constraints they were facing is that there were not enough qualified health personnel in the country to hire because of brain drain issues as health personnel from Zambia was going out into other countries to find higher-paying employment.

And the third question was?

MR. HANSEN: No, you got them both.

Simon, did you want to add to that?

MR. JOHNSON: Yes, I think, you know, of course, more money would help, and I think that the position of the IMF is very clear, that we support absolutely an increase in grant flows to all poor countries, and HIV/AIDS is obviously a key part of what you would spend the money on.

Just building on what Markus said, I don't think the answer is just more drugs. The health care system in these countries is obviously tremendously under pressure. When doctors and nurses are dying from this disease and when also they're emigrating because there are better and safer opportunities elsewhere, that's a huge problem, too. And there is a limit to how much money you can effectively spend in short periods of time or even over five years, and this is the point that Shanta made earlier. But, absolutely, more money could and would be spent sensibly, and the IMF wants to play a role in helping that happen. We're not the people who tell exactly what to spend it on, as I said, but we'll try our best to help you spend it.

Now, on the other question, the very good question about what works best, that is something which the IMF is on the record as saying that we're currently evaluating, looking at the technical aspects of this, and trying to figure out what works best also in terms of scaling up aid flows. That is currently underway, and I'm happy to—I don't want to comment on it because the study is being done at the moment. But it will be ready quite soon, and it will be presented to the public quite soon. If you would like more details, I'd be happy to talk off the record or aside about that and tell you who's working on that and where it is, but that's actually in progress. It's a key question that has to be addressed, and we're getting to that as soon as we can.

MR. HANSEN: Dr. Gesami, are there macro commonalities in the success stories?

MS. GESAMI: Actually, that vision begs for more questions. We are not very sure that these other countries managed their macroeconomic policies better than those that have not succeeded. We believe also that if countries manage to incorporate or to integrate their health policies, their HIV policies within their own budgets and programs, everyday programs, and put emphasis on HIV/AIDS and try to raise funds specifically within those frameworks, it might be possible. The case of Botswana is a case in point in this question where the government has conscientiously put together their policies to manage the HIV/AIDS. But when it comes to macroeconomic management, maybe the economists should tell us whether Uganda and the countries that have succeeded have really, done anything different from their advice in terms of macroeconomic management.

MR. HANSEN: Thank you very much.

We're nearly at the end of our time. Are there any burning questions anyone wants to pose at this stage?

[No response.]

MR. HANSEN: All right. Then let me try to wrap up very briefly here and say that to me I think one of the most important things about this book is that it exists at all. Again, I really want to commend the Fund, and Markus in particular, for producing this volume.

I think it is fair to say that the economics profession as a whole was late to HIV/AIDS, and possibly to other diseases as well. AIDS emerged in the early 1980s roughly at the same time as the international debt crisis. And I think if you compare which of them got the greater attention, certainly in the early years, it's no contest. AIDS didn't manifest itself as quickly, but by the early '90s we should have seen a great deal more work on this than we did.

I want to acknowledge Shanta and Mead Over of the World Bank, who was here earlier, because they were two of the few who actually ventured into this territory long before it's had the attention it does now, and the Bank also published one of the earliest books addressing this, in part on the economics of it. But on the whole I think economists could have done better by this, and I hope this will be a lesson to the future.

It's all the more urgent now, of course, because of the scale of the crisis and the scale of the response. UNAIDS says that this year there were $6 billion in aid money committed to AIDS programs in developing countries. That is 20 times the amount we had in 1997, so it is a vast amount of resources and a great commitment, but also a great responsibility.

I'm just going to sum up the key messages here and, again, echo one thing that Shanta said: The main reason we are in this fix is that we have not convinced enough of the world that this merits early and aggressive attention. This book demonstrates, I think persuasively beyond a doubt, that AIDS is a vast development issue. I'm going to quote just one section from one of the chapters by Markus that says, "HIV/AIDS through its numerous impacts on households and individuals on the productive capacity of the economy and on government finance is a serious constraint on economic development. In many countries with severe epidemics, it is the single most serious challenge today to maintaining and, where possible, improving living standards."

Although this book carries the usual disclaimers about the views not expressing the institution's, I think it's safe to say most people at the Fund and the Bank certainly would concur with that statement.

This is a development threat. Ministries of Finance in virtually every country should take note. It is a global issue. We heard that persuasively here as well. It works through multiple pathways. The fact that you don't see a two-quarter effect of this on the economy or that unemployment seems to be going in the right direction despite high rates is really quite meaningless in the short term. This is a long-term issue, and as Shanta demonstrated, the most negative effects could actually be over the much longer term.

And I think the book does a very good job of moving into new territory on AIDS, which is to discuss the welfare impacts, not just the micro or the macro impact but overall welfare. Welfare is far more than widget production, and I think that comes through very clearly in here.

This is a bilingual book. It is written in English for most people, but there is plenty of Greek for serious economists, so it should interest everyone.


MR. HANSEN: And the final message here, I think, is to touch on what Professor Johnson said, that historically we have co-evolved with microbes, and so it will be until the end of the species. And the question now is whether we can co-evolve in our society sciences, in economics, in politics, and in how we conduct public affairs on this. The chapter by Nancy Birdsall, ex the World Bank, says that AIDS justifies massive donor support, not just for AIDS but for all the other underlying development issue that are on the table, which in Shanta's chapter, these investments are described as "a bargain" compared to the alternatives. So you heard it here in the bowels of the IMF, this is a serious development investment.

Thank you to all our panelists for coming here. I thank all of you for being here. A reminder that if you go outside, you will get free copies of the book which you can have autographed by two of the authors, and you will be able to tell your friends that not only did you get a free lunch and there is such a thing, but you got it in the IMF.

Thank you.



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