Abstract
Multilateral organizations, such the International Monetary Fund, play a major role in our society, working in the areas of technical and financial assistance through structural adjustments in developing countries, as well as funding and sector-specific policy guidance. This domain has an inherent dynamism, and must be understood by analyzing the historical trajectory of these organizations and understanding that their actions are guided by the ideology that sustains the society we live in, which is rooted in the capitalist mode of production. This led me to ask the simple question: to what extant has the IMF been a force for good in the in developing countries in Africa? In order to attempt to answer this question my research has included online and print resources, the official website of the IMF itself, and up-to-date assessments of all the countries sub-Saharan Africa, The research increasingly forced me to take a bigger historical perspective in order to understand the dominance that the INF has had as the years have gone by. I also discovered the complicated and arcane world of American foreign aid institutions which effectively compete for their budgets from the US Congress, but which all take their instructions from the US Treasury. The inescapable conclusion was that the IMF is an ideological tool used to manipulate developing counties and to keep them economically weak, that it has largely not been a force for good, and that, been where it appears to have benefited a particular country there are other economic contexts which have helped that country far more than the IMF. In fact, as we shall see, some critics argue that the IMF has a malign influence on developing countries as it can be seen as merely another method of extending American imperialism.
The International Monetary Fund was first proposed in 1944 at the United Nations Monetary and Financial Conference on July 22nd. It came into bring the following year, on December 27th. The date of its foundation is vital to understanding the argument of this essay and to appreciate the current criticism of IMF practices. It was originally established in order to bring coherence and to re-build the world economy in the aftermath of the Second World War. Its original aim (which it claims it still follows) was to support the economies of its member states when their economies were experiencing financial difficulties. Its function was and still is to provide funds to a member countries if their balance of payments becomes too large and they find it impossible to borrow from other sources. Its other function has always been reform, so that loans were given on condition that certain reforms, primarily economic, but potentially political too (or at least with potential political repercussions), would be implemented by a country as a condition of the loan. The money for loans comes from a huge pool of cash donated by member countries. All this sounds very laudable, but the world and the world economy has changed radically since 1945, and it is important to examine the past in order to understand the current economic position of the IMF
Membership of the IMF has expanded hugely since its inception. Only 27 countries signed the first accord, but now 187 countries are members of the IMF. Only handful of countries are not members. The reasons for this huge expansion are clear. As developing countries, which had been European colonies in 1945, became independent during the post-imperial decades up to 1970, they applied for membership. The other big surge of membership came in the 1990s after the breakup of the Warsaw Pact and the Soviet Union – and so new members included former allies of the Soviet Union in Eastern Europe and newly independent states in the old USSR. Only a handful of countries or territories remain outside the IMF. This matters for two reasons: firstly, the IMF now dominates global finance in a way that it could not hope to do in the 1950s when membership was much smaller. Secondly, although the size and composition of the IMF have altered radically sine 1945, the voting system has hardly changed at all to reflect either the needs of new members or the new economic realities. In1945 the balance of voting power lay with the USA and Western Europe, and it remains so to this day, despite proposals to give developing countries more votes. Even China only has as many votes as a country like Belgium! This is importnat because some critics of the IMF, as we shall see, argue that the organization is not receptive enough to the needs of developing countries and, despite its rhetoric, takes its orders from the US Treasury and serves the interests of the USA and western European countries which have been members from the start.
Another key change that the world has seen since 1945 is that the prevailing economic consensus has changed. The IMF was instigated at a time when Keynesian reflationary policies were favoured and practised themselves by the countries of the developed world, but now the neo-conservative consensus is fashionable in the developed world and, crucially for the developing world, its conditionalities have changed to reflect monetarist economics. The roots of the rise of the neo-conservative consensus can be traced to the almost simultaneous election at the end of the 1970s and in the early 1980s of Reagan and Thatcher who were both strong on the monetarist approach to economic development. Indeed, their elections were partly, it could be argued, dependent on the oil crisis of the mid-1970s which sent shock tremors through the global economy. The end of communism in eastern Europe in 1989 and the breakup of the Soviet Union in 1991 seemed at the time to be a vindication of the monetarist policies of the West, but may be seen as independent, external factors – just as the Oil Crisis of the 1970s had been. Nonetheless, the neo-conservative consensus still holds sway and is implemented through the IMF, an organization founded on Keynesian principles. This paradox will be explored in detail later in this essay.
The IMF itself remains tied to the rhetoric of the past. Its website claims that it works “to foster global monetary co-operation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty”. The Economist recently reported that the IMF forecasts for growth in sub-Saharan Africa were almost twice the rate of growth in the world economy. Why then is the IMF so reviled in so many parts of the developing world?
One argument that its critics put forward is that the data it uses to measure growth are limited and flawed and that it ignores the long-term infrastructure needs of sub-Saharan countries in order to pursue short-term solutions. Klein, writing in The Nation in 2007, argues that the IMF actually causes poverty by withholding funds from countries that spend too much on education and health care for their populations, and also clams the IMF either turns a blind eye to or actively colludes in corruption: “Almost everywhere that mass seate pillage has taken place over the last four decades the IMF [has] been first on the scene.” The short-termism of IMF policies is also mentioned by Ghosh, writing this year in The Guardian, when he accused the IMF of forcing “pro-cyclical policies” on countries whose debt was simply unsustainable. He also notes that the organization “did nothing to alleviate the effects of the fuel and food price rises” because it pursued policies “whose only beneficiaries are the “German, French, Dutch and British banks”. Pal acknowledges this assessment writing that IMF conditionality policies “keep these countries [the developing countries] economically weak and dependent” (223). Stiglitz (122) also criticizes what have come to be known as “austerity measures”, claiming that they are not always right for the needs of developing countries and reflect “the interests and ideology of the Western financial community”. Rowden (57) even accuses the IMF of directly exacerbating the developing world’s health problems: its emphasis on low inflation and even lower state budget deficits has meant that sub-Saharan public health services are hugely underfunded and that this has even contributed to the migration health professionals to the developed world, thus worsening the situation even more. The IMF remit is limited, according to Elliot, writing in his March’s issue of Red Pepper. She argues that that what she terms the “informal economy” in sub-Saharan African countries is always larger than the economy measured by the IMF and that this “informal economy” has blossomed sin the last twenty years – in other words when the neo-conservative monetarist position really came into its own following the breakup of the USSR. She attributes this expansion to the fact that the “informal economy” operates outside the constraints of the IMF watchdogs.
During the Cold War period there were frequent criticisms that the IMF favoured military dictatorships simply because of their pro-American and anti-Soviet stance, so that many critics have dismissed the IMF as a way of implementing US foreign policy through economics. Along with the observations mentioned above about the exacerbation of health problems in developing countries, many critics have noted that the IMF does little to respond to green issues in eh countries it lends money to: Rowden (149) argues that such environmental issues could easily be incorporated into the IMF’s conditionalities – if it chose to prioritize such issues. Similarly, it has been argued that in the developing world ordinary people are getting less and lees access to food because the food they need is no longer being grown locally. The SAPs (Structural Adjustment Programs), which are now part and parcel of the conditionality of any IMF loan, usually insist on the removal of trade barriers. Therefore, the governments of developing countries can no longer subsidize basic food products to ensure that their populations are fed, and they are at the mercy of foreign investment corporations. What this has actually meant in the last ten years or so is that huge areas of land in sub-Saharan Africa have been sold to Western corporations. Ninety per cent of this land is now devoted to the production of bio-fuels. Sub-Saharan Africans may now longer be subsistence farmers, but now they are merely tenants for rich western corporations and are told what crops to grow. Pal (189) argues that the current and on-going global food crisis is directly traceable to IMF policies – so even the price of products in the supermarkets we use in the West are influenced by this ideologically-driven institution.
Another general criticism is that the IMF insists on dealing with each country on an individual basis rather than in a Pan-African way. At first this notion – dealing with a country on an individual basis – sounds good, but it ignores external actors which may cause a national balance of payments deficit. For example, the 1970s Oil Crisis was disastrous for all the countries in sub-Saharan Africa, but rather deal with the problem on a continental basis, as it were, the IMF, Pal (312) argues “virtually apportioned blame to individual countries and used SAPs as a political weapon to enforce economic changes that it favoured”. Senegal (which we will return to later) faced an internal economic crisis in 1980 which was directly the result of the Oil Crisis and the collapse in commodities prices – Senegal’s main export was peanuts. It could be argued that neither eventuality was the fault of the country’s politicians or its people, but a stringent SAP was imposed on Senegal. Looking at this objectively, one can see that it is good for a country to diversify and be less dependent on one crop, but such diversification takes time and political will, not necessarily the short sharp shock of monetarist fiscal policies.
So far I have merely summarized the generality of criticism of the IMF. Further examination and analysis is needed before this essay focuses on one country in particular - Senegal. Having reviewed the evidence available to me, the history of economic ideas and fashions seems crucial to the current situation in sub-Saharan Africa and even more crucial in appreciating the critics make the criticisms they do. Stiglitz (111) argues that the IMF is not fit for its current purpose, because it was conceived as Keynesian institution committed to state-funding and state-solutions; therefore, its pursuit of monetarist policies is bound to be perceived negatively and, also in reality, to not solve the long-term problems that developing countries face. Pal (223) goes further: he argues that neo-conservative economics were a reaction in the West to decades of the Keynesian consensus, but that at least Western countries had a long period of Keynesian economic policies which, he argues, created the infrastructure to sustain an economy in difficult times; by contrast, Pal argues, developing countries need the investment in infrastructure which Western countries made for themselves when Keynesian economics prevailed. Therefore, what would most help developing countries now is a sustained period of Keynesian expansionism which may be anathema to neo-conservatives now, but which the developed world has benefitted from in past decades. By infrastructure, Pal includes health care and education alongside transpiration systems. In other words, Pal concludes that neo-conservative economics may be right for the developed world, but are destined to keep the developing world in poverty. As he puts it, “African countries have been forced to cut back or abandon the very policies which helped rich countries grow and prosper in the past” (211).
If we go back to 1980 and the Lagos Plan of Action drawn up by the Organization for African Unity we can see the start of this dilemma. Broughton and Lombardi (229) argue that African leaders were facing a continent-wide recession, caused by the Oil Crisis of the mid-1970s and the consequent drop in commodity prices. The Lagos Plan of Action was produced by African politicians based on their perceived needs for their countries’ collective economic problems. It is classically Keynesian in its approach and was rejected outright by the IMF, already responding to the monetarist dogma emanating from the White House and from London. Because of neo-conservative ideology, all the measures that the Lagos Plan proposed – basically greater state involvement in infrastructure, the creation of jobs to increase tax revenues, the rationing of credit, the state of control of key industries – were suddenly seen as the wrong way for Africa to progress - despite their previous popularity in the West. Broughton and Lombardi conclude (with astonishing equanimity and restraint given the human cost of monetarist policies in the poorest countries in the world), “after more than two decades of engagement, the IMF’s main borrowers in sub-Saharan Africa do not seem to have been well-served by the institution” (229).
Adepoju’s study (1993) of the impact of SAPs is interesting to introduce at this point because he takes along historical view of the situation. He presents data (63) which examines improvements in education and health during the period from 1965 to 1985; his focus is on all the countries of sub-Saharan Africa. In education he takes the percentage of the population enrolled in the different stages of education, class size, number of teachers, and the ratio of teachers to students; in health he examines life expectancy, infant mortality rates, the numbers of hospital beds as a percentage of the population, the numbers of trained doctors and nurses. In the twenty years he presents data for there is a steady and at times remarkable improvement in all these rates: the infant mortality rates fall in all countries by at least 50%; the number of students enrolled in education doubles – in some countries, looking at primary-age provision only, it quadruples; the number of doctors in most countries triples – one could go on. Adepoju’s point is simple: these improvements were due to state economic planning based on Keynesian models of reflationary practice. In other words the neo-conservative dogma that the market must always be right (the orthodoxy when Adepoju wrote his book), had not actually delivered the improvements in human infrastructure that the sub-Saharan countries had enjoyed: any improvements were in spite of the markets and wholly the responsibility of state economic planning and funding.
Broughton and Lombardi examine Senegal’s’ economic progress in the 1980s in detail. As we have already seen, Senegal was hit hard by the rapid fall in commodity prices. However, they argue (232) that this rapid fall was partly the fault of western economies which controlled the developing world’s access to markets; partly due to the general trend at the time in agricultural prices caused by global over-production (thanks to improved seed strands and new fertilizers developed - yes, of course – in the developed worl); it was partly due also to trade barriers that the developed world had erected to block the import processed or semi-processed goods from the developing world – this is an important point: it is easy to see in retrospect that Senegal should have diversified its export base, but by doing what exactly? It would have simply had the choice to grow a crop other than peanuts –and, as we have seen, the prices of all commodities were falling. It would have been pointless to move into processed or semi--processed goods, the economic competitiveness of which would have been wiped out by punitive western trade barriers.
In the midst of the financial turmoil at the end of the 1970s, Abdou Diouf came to power in Senegal first as Prime Minister and then as President. He agreed to an IMF SAP and in return Senegal was granted an Extended Loan Facility in 1980. However, by the conditions of the SAP, government spending was slashed, health care and education provision was drastically reduced, unemployment rose sharply and tax revenues decreased; trade barriers were also relaxed so the government lost any tariffs that it might once have charged on imports or exports. The financial plight of Senegal got worse. It got so much worse that in 1984 Diouf had to apply a new IMF loan and three World bank loans in order to fund the repayments on the original Extended Loan Facility. There were, of course, conditions: more austerity measures, more cuts in government spending and more and more unemployment. The IMF was pleased with Senegal’s progress towards reducing its deficit. The people of Senegal were less happy and Diouf’s second wave of IMF-imposed cuts provoked student boycotts, school closures, a wave of strikes in what remained of the state sector and growing civil unrest. By 1988 a State of Emergency was declared. What Broughton and Lombardi (237) call “the IMF’s disturbing obsession with national deficit and unhealthy addiction to monetarist orthodoxy” had caused a deep political crisis in a country which had been relatively stable and prosperous country before the fall-out from the Oil Crisis. In terms so overall expenditure – further loans to service the repayment of existing loans – Broughton and Lombardi calculate that it would have been cheaper for everyone – and especially for the ordinary people of Senegal – if the IMF had simply given them some money in the first place - part of the original vision of the Keynesian architects of the IMF. In a final irony, two of Diouf’s cabinet, both US educated economists who had implemented the detail of their country’s monetarist economic policy, fled the country when the state of emergency was declared, having secured highly-paid positions in American banks and thereby contributing to the African brain drain which is a result of globalization and the punitive policies of the IMF. I noted earlier that the medical professions have been seriously depleted because of the cuts in state-funding of heath care across the redeveloping world – always part of an IMF SAP, it seems. From a strictly monetarist perspective, it could be argued that Senegal also suffered disproportionately because of its membership of the CFA zone (the Central African Franc zone) which meant that it could not devalue its currency – and evaluation is the neo-conservative cure-all. But this argument is not convincing – the cuts would still have happened and unemployment would still have rocketed. Devaluation might have delayed the civil unrest, but it would still have happened.
I would conclude that in the case of Senegal the IMF approach to the country’s debt problem lead to civil insurrection and a State of Emergency, and a sharp decline in standards of living for the ordinary citizens of Senegal. Therefore the IMF can hardly be seen as a force for good; in Senegal in the 1980s, overall, it was a malignant force which failed to take any account of the ordinary people of the country, provided its rulers implemented the IMF proposed reforms. But those reforms themselves were not part of the original IMF vision which has changed because of the global shift from Keynesian to neo-conservative ideology. The IMF is also implicated in a multitude of other ways: it encourages corruption; it fails to promote environmental or health issues; its voting structure is in desperate need of reform; it takes a very short-term view of a country’s economy; it insists on the removal of trade barriers but does nothing to protect weak economies from rapacious external investment – as we can see from the ongoing sub-Saharan land-grab and the growing food crisis that already affects us all.
However, all these individual criticisms come back to the trend for neo-conservative economic policies. The Keynesian architects of the the IMF must be spinning in their graves. Perhaps the current global financial crisis may lead, in time, to a re-evaluation of the efficacy of neo-conservative economic policies and a return to Keynesian orthodoxy – but by then it may be too late.
Bibliography
Adepoju, Aderanti. The Impact of Structural Adjustment on the Population of Africa. 1993. Oxford: James Curry Publishers. Print.
Anonymous. “Sub-Saharan Africa Growth Forecasts”. The Economist. October 22nd, 2011. Web.
Broughton, James M. & Lombardi, Domenico. Finance, Development and the IMF. Oxford; Oxford University Press. Print.
Elliot, Caroline. “Organizing on the Edge”. Red Pepper. March, 2011. Web.
Ghosh, Jayati. “The IMF Needs to Change, Whoever Becomes its Next Chief”. Poverty Matters Blog. The Guardian. Web.
International Monetary Fund. “Press Release No. 11/366”. October 19, 2011. Web.
Klein, Naomi. “Sacrificial Wolfe”. The Nation: May 14, 2007. Web.
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Stiglitz, Joseph E. Globalization and Its Discontents. 2003. New York: W W Norton. Print.
