IMF increasing its influence in sub-Saharan Africa

29 September 2016 by Bretton Woods Project

* IMF increasingly active in sub-Saharan African states
* New loan contemplated for Zambia
* Existing borrower countries struggling to adhere to strict deficit limits set by Fund

International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
is increasingly active in sub-Saharan states, with sixteen current loans to countries in the region and more being discussed. Despite endorsing an ‘Africa rising’ narrative just two years ago (see Observer Autumn 2014), the IMF set out grave concerns in its April Regional Economic Outlook for sub-Saharan Africa. It advocated cuts to spending and cautious fiscal policy to “prevent a disorderly adjustment” and countries being “vulnerable to a financial crisis if external conditions worsen further”. Concerns have centred on debt levels in the region, with a particular focus on the use of foreign-currency bonds to plug financial gaps.

Local civil society raised concerns in 2015 over the impact of conditionalities in Ghana (see Observer Summer 2016), one of the ‘Africa Rising’ countries which the IMF is now strongly pressuring to adhere to its policy conditionalities. In August, Ghana’s national media reported that a $300 million tranche from Ghana’s $918 million IMF loan in 2015 might be withheld due to concerns over a parliamentary bill relating to central bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

policy. In early September Ghana issued another foreign currency bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. , worth €750 million ($840 million) set to repay 9.25 per cent interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. over five years. A government statement reported by the Financial Times (FT) reassured the Fund and investors that “it was not ‘considering any spending that will not allow the country to meet the fiscal deficits set for the year’, as demanded by the IMF programme”. Finance minister Seth Terkper – a former IMF staffer – accompanied the bond announcement with a statement saying the bond issuance represented “vindication” of Ghana’s “turnaround story”.

Kenya is also contemplating bond financing, though under its $1.5 billion precautionary agreement with the IMF announced in May it was expected to reduce its “fiscal deficit by 3 per cent over the next two years”. In a September letter to the FT Tim Jones of UK-based NGO Jubilee Debt Campaign argued that the concern of investors and institutions like the IMF about increasing use of bonds, leading to demands for strict adherence to fiscal deficit limits, neglects the risk arising from “direct loans from banks, governments and multilateral institutions” which represent 60 per cent of the growth in debt burdens for developing countries. Jones cautioned that the continued “global failure to create debt restructuring processes” represented a “huge cause for concern” which institutions, such as the IMF, should instead be addressing.

Proposed IMF loan conditions to Zambia would “hurt the poor most”

The IMF’s focus on imposing strict limits on government spending was a major discussion point during Zambia’s recent elections in August. Following the polls, loan discussion with with the IMF were renewed. News agency Bloomberg suggested a $1.2-$1.5 billion loan was being negotiated that would require Zambia, according to re-elected president Edgar Lungu, “to either completely do away with subsidies or progressively reduce them” on energy products including fuel and electricity and in agriculture, in addition to requiring “controlled spending”. Kryticous Nshindano of Zambian NGO network Civil Society for Poverty Reduction commented that “The risk of reduced investment in key social public services is high; it’s imperative that sufficient and broad enough social safeguards are put in place to protect the vulnerable, especially Zambians living in absolute poverty”. Geoffrey Chongo of Zambia’s Jesuit Center for Theological Reflection added that “the proposed conditionalities of the IMF loan will certainly have significant social costs such as increased poverty and inequality, while public workers’ wage freezes and removal of agriculture and energy subsidies will worsen the social conditions of the poor who largely depend on them for survival. The IMF should tread softly on subsidies’ removal as this will hurt the poor most. Hospitals and schools that currently desperately need additional medical and school staff will not be able to provide social services to people especially the poor who cannot afford to access these services from private sources as they will be unable to recruit new staff due to austerity measures.”



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