The International Monetary Fund and World Bank in Africa: a ‘Disastrous’ Record

THIS YEAR MARKS the 60th anniversary of the International Monetary Fund
and the World Bank. Through their propaganda machines, both institutions
will attempt to highlight their ‘assistance’ to Africa. But in reality, since the
1970s, these institutions have gradually become the chief architects of policies,
known as ‘the Washington Consensus,’ which are responsible for the worst
inequalities and the explosion of poverty in the world, especially in Africa.

Yet, when they began to intervene on that continent in the late 1970s and
early 1980s, their stated goal was to ‘accelerate development’, according to a
World Bank document, familiarly known as the Berg Report, published in
1981. But as the following editorial will show, the actual record is disastrous.

The main pretext for their intervention was to ‘help solve’ the debt crisis that
hit African countries in the late 1970s, following the combination of internal
and external shocks, notably sharp fluctuations in commodity prices and sky-
rocketing interest rates. The remedy they proposed, known as stabilisation
and structural adjustment programmes (SAPs), achieved the opposite, and
contributed to worsening the external debt and exacerbating the overall eco-
nomic and social crisis.

In 1980, at the onset of their intervention, the ratios of debt to gross domes-
tic product (GDP) and exports of goods and services were respectively 23.4 per
cent and 65.2 per cent. Ten years later, in 1990, they had deteriorated to respec-
tively 63 per cent and 210 per cent! In 2000, the debt to GDP ratio stood at 71
per cent while the ratio of debt to exports of goods and services had
‘improved’ somewhat, at 80.2 per cent, according to the World Bank’s Global
Development Finance.

The deterioration in debt ratios is reflected in the inability of many African
countries to service their external debt. As a result, accumulated arrears on
principal and interests have become a growing share of outstanding debt. In
1999, those arrears accounted for 30 per cent of the continent’s debt, compared
with 15 per cent in the 1990s and 5 per cent for all developing countries. To
compound the crisis, African countries are getting very little, in terms of new
loans, except to pay back old debts. As a result, since 1988, the part of accu-
mulated arrears in ‘new’ debt is estimated at more than 65 per cent.

Between 1980 and 2000, sub-Saharan African (SSA) countries had paid more
than $240 billion as debt service, that is about four times the amount of their
debt in 1980. Yet, despite this financial haemorrhage, SSA still owes almost
four times what its owed more than 20 years ago! One of the most striking
illustrations of this apparent paradox is the case of the Nigerian debt. In 1978,
the country had borrowed $5 billion. By 2000, it had reimbursed $16 billion,
but still owed $31 billion, according to President Obasanjo.

The Nigerian case is a good example of the structural nature of Africa’s debt
crisis and of the power imbalance that characterises world economic and
financial relationships. It is this general context that allowed the IMF and
World Bank to increase their influence in African countries. One good illustra-
tion of this has been the rapid rise in the share of the World Bank and its affil-
iate, the International Development Association (IDA), in SSA’s debt. The
combined share of both, which was barely 5.1 per cent of SSA’s total debt in
1980, had jumped to 25 per cent in 1990 and to more than 37 per cent in 2000,
according to the World Bank. In other words, the World Bank group has
become the principal ‘creditor’ of many sub-Saharan countries, which
explains the enormous sway it holds over these countries’ policies.

One way they exercise this influence is through the imposition of stiff condi-
tionalities on African countries in exchange for loans and credits. Financial lib-
eralisation, aimed at attracting more foreign investments to compensate for
shortfalls in export revenues, instead fostered more instability, due to the
volatility of exchange rates resulting from speculative short-term capital flows.
This, combined with higher interest rates, crowded out both public and private
investments. For instance, investments as a percentage of GDP fell from an
annual average of 23 per cent between 1975 and 1979 to an average of 18 per
cent between 1980 and 1984 and 16 per cent between 1985 and 1989. They
recovered somewhat in the 1990s, but averaged only 18.2 per cent between 1990
and 1997, according to UNCTAD. These statistics are consistent with those
given by the World Bank, which show that the annual investment ratio aver-
aged 18.6 per cent and 17.2 per cent in 1981-1990 and 1991-2000, respectively.

These low investment ratios resulted in a contraction of output. Real GDP
growth, which averaged 3.5 per cent in the 1970s, fell to 1.7 per cent, between
1981 and 1990, according to the World Bank. However, this masks the sharp
declines recorded in the 1980s, dubbed ‘the lost decade’ for Africa. This is bet-
ter illustrated by the negative growth rates of both GDP and consumption per
capita. They fell respectively by 1.2 per cent and 0.9 per cent a year between
1981 and 1990. It is estimated that in 1981-1989, the cumulative loss of per
capita income for the continent as a whole was equivalent to more than 21 per
cent of real GDP.

In a report released in September 2001, UNCTAD indicated that the average
income per capita in SSA was 10 per cent lower in 2000 than its 1980 level. In
monetary terms, average income per capita fell from $522 in 1981 to $323 in
1997, a loss of nearly $200. The same report said that rural areas experienced
an even greater decline in income. These statistics were confirmed by the
World Bank, which says that income per capita in SSA contracted by a cumu-
lative 13 per cent between 1981 and 2001.

The 2004 edition of the World Development Indicators says that SSA is the
only region in the world where poverty has continued to rise since the early
1980s, that is at the onset of the IFIs’ intervention. According to that document,
in 1981, an estimated 160 million people lived on less than $1 a day. In 2001,
the number had risen to 314 million, almost double its 1981 level. This means
that approximately 50 per cent of Africa’s population lives in poverty. When
the threshold is $2 a day, the numbers rise from 288 million to 518 million, during the same period.

The Costs of Trade Liberalisation

According to the IMF and World Bank, one of the sources of Africa’s crisis is
its inward-looking trade system, characterised by the protection of domestic
markets, subsidies, overvalued exchange rates and other ‘market distortions’
that made African exports less ‘competitive’ in world markets. In place of this
system, they propose an open and liberal trading system in which tariff and
non-tariff barriers are kept to a minimum or even eliminated. Such a system,
combined with an export-led growth strategy, would put Africa on a solid
path to economic recovery, according to both institutions.

The costs associated with trade liberalisation have largely offset any poten-
tial ‘benefits’ African countries were supposed to derive from that liberalisa-
tion. First of all, trade liberalisation has translated into substantial fiscal loss-
es, since many countries depend on import taxation as their main source of fis-
cal revenues. Therefore, the elimination of, or reduction in, import tariffs has
led to lower government revenues.

But one of the most negative impacts of trade liberalisation has been the col-
lapse of many domestic industries, unable to sustain competition from pow-
erful and subsidised competitors from industrialised countries. In fact,
Africa’s industrial sector has been among the biggest victims of structural
adjustment.

From Senegal to Zambia, from Mali to Tanzania, from Cote d’Ivoire to
Uganda, entire sectors of the domestic industry have been wiped out, with
devastating consequences. Not only has the industrial sector contribution to
domestic product continued to fall, but also the industrial workforce has con-
tinued to shrink dramatically. In Senegal, more than one third of industrial
workers lost their jobs in the 1980s. The trend was accentuated in the 1990s,
following sweeping trade liberalisation policies and privatisation imposed by
the IMF and the World Bank, especially after the 50 per cent devaluation of the
CFA franc, in 1994. In Ghana, the industrial workforce declined from 78,700 in
1987 to 28,000 in 1993. In Zambia, in the textile sector alone, more than 75 per
cent of workers lost their jobs in less than a decade, as a result of the complete
dismantling of that sector by the Chiluba presidency. In other countries, such
as Cote d’Ivoire, Burkina Faso, Mali, Togo, Zambia, Tanzania, etc, similar
trends can be observed.

In several annual and special reports, the International Labor Organisation
(ILO) has documented the devastating impact of SAPs on employment and
wages. The African Union seems to have come to grips with that devastation.
It organised a special summit on employment and poverty, in the capital of
Burkina Faso, on 9-10 September 2004. It was revealed during that summit
that only 25 per cent of the African workforce is employed in the formal sec-
tor. The rest, 75 per cent, is either in the subsistence agriculture or in the infor-
mal sector. In light of this reality, the summit issued a plan of action aimed at
exploring strategies to foster job creation. But such a plan will only be credible
if African countries are ready to move away from IMF and World Bank
recipes, which were harshly criticised during the summit.

UNCTAD has reported that more than 70 per cent of Africa’s exports are still
composed of primary products, more than 62 per cent of which are non-
processed products. This helps justify the need for more liberalisation and
deregulation to make African exports more ‘competitive’. The second objec-
tive is to help justify the need for more liberalisation and deregulation to make
African economies more ‘competitive’ and ‘attractive’ to foreign direct invest-
ments. This also explains the push for more privatisation.

In the name of ‘comparative advantage’, the export-led growth strategy
forces African countries to compete fiercely for market shares, leading them to
flood the same markets with more of their commodities. As a result, trade lib-
eralisation has accentuated the volatility of African commodities, whose prices
experienced twice the volatility of East Asian commodity prices and nearly
four times the volatility that industrial countries experienced in the 1970s,
1980s and 1990s. This has contributed to worsening Africa’s terms of trade.

According to UNCTAD, if Africa’s terms of trade had remained at their 1980
level:
■ Africa’s share in world trade would have been twice its current level
■ The investment ratio would have been raised by 6 per cent per annum in
non-oil exporting countries
■ It would have added to annual growth 1.4 per cent per annum
■ It would have raised GDP per capita by at least 50 per cent to $478 in 1997
compared with the actual figure of $323 during that year.

The Costs of Financial Liberalisation

One of the main objectives of financial liberalisation is to make African coun-
tries ‘attractive’ to foreign direct investments. But as the experience of devel-
opment shows, foreign direct investments follow development, not the other
way around. In addition, despite all ‘the right financial policies’, foreign invest-
ments continue to elude Africa, with less than 2 per cent of flows to develop-
ing countries, despite having among the highest rates of return on investments
in the world. And these flows are concentrated in a few oil-producing and min-
eral-rich countries, according to UNCTAD and the World Bank.

In reality, financial liberalisation has yielded little gains. For most African
countries, it has been associated with huge costs. First, it entails higher levels
of foreign exchange reserves to protect domestic currencies against attacks
resulting from speculative short-term capital outflows. Second, financial liber-
alisation has increased the likelihood of capital flight, in part as a result of a
greater volatility of domestic currencies. The high costs of trade and financial
liberalisation further weakened African economies and opened the way to the
privatisation of the continent.

The Privatisation of Africa

Privatisation, like financial liberalisation, is seen by the IMF and World Bank
as an instrument to promote private sector development, which has been ele-
vated to the status of ‘engine of growth’. The privatisation of state-owned
enterprises (SOEs), including water and power utilities, has been one of the
core conditionalities imposed by the two institutions, even in the context of
‘poverty reduction’.

Most of the foreign direct investments registered by African countries in the
1990s came as a response to privatisation of SOEs. No sector was spared, even
those considered as ‘strategic’ in the 1980s, such as telecommunications, ener-
gy, water and the extractive industries. In 1994, the World Bank published a
report assessing the process of privatisation in SSA. After complaining about
the slow pace of privatisation throughout the region, it issued a warning to
African governments to accelerate the dismantling of their public sector,
accused of being ‘at the heart of Africa’s economic crisis’. The process of pri-
vatisation peaked in the late 1990s and ever since has levelled off, despite
more deregulation, liberalisation and all kinds of incentives offered to would
be investors.

To date, it is estimated that more than 40,000 SOEs have been sold off in
Africa. However, the ‘gains’ from privatisation, projected by the World Bank
and the IMF, have been elusive. In fact, many privatisation schemes have
failed and contributed to worsening economic and social conditions. Almost
everywhere, privatisation has been associated with massive job losses and
higher prices of goods and services that put them out of reach of most citizens.

Building a Neo-liberal State

The concept of ‘good governance’ was promoted by the IMF and World Bank
to explain the failure of SAPs. It tends to convey the idea that SAPs have
failed, in large part, because African States are ‘corrupt’, ‘wasteful’ and ‘rent-
seeking’ and because of the ‘poor implementation’ of policies. In other words,
SAPs were basically ‘sound’; it is the combination of ‘rampant corruption’ and
lack of qualified personnel that led to the failure of these policies. Thus, ‘good
governance’ means nothing else than the need to build a neo-liberal state, sub-
servient to the IFIs, able to effectively implement, ‘sound policies’ and to pro-
tect the interests of foreign investors.

Indeed, one of the main goals of the IMF and World Bank has been to dis-
credit state-led development strategies in favour of market-led strategies. This
is why one of the main targets of these institutions has been the role of the
African state in economic and social development. To discredit that role, a two-
track strategy was adopted. The first track was to attack the credibility of the
African state as an agent of development. To achieve that goal, an abundant lit-
erature has been published by the two institutions, highlighting the ‘corrupt’,
‘predatory’, ‘wasteful’ and ‘rent-seeking’ nature of the African state. To justify
these epithets, the IFIs pointed to the ‘mismanagement’ of the public sector,
accused of being an obstacle to economic growth and development. These
attacks helped make the case for the sweeping restructure of the public sector,
which, in many cases, led to its dismantling in favour of the private sector.

The second track in weakening the role of the state in development was to
deprive it of financial resources. Trade and financial liberalisation achieved in
part that goal. As already indicated, trade liberalisation not only led to a greater
loss of fiscal revenues, following lower tariff barriers, but it also led to huge
trade losses. This was compounded by financial liberalisation which entailed
further fiscal losses resulting from tax holidays and low income tax rates. To
make up for these losses, the African state had to resort to more and more mul-
tilateral and bilateral loans and credits, which further alienated its sovereignty.

As a result, many African states have been stripped of all but a handful of
their economic and social functions. Cuts in spending mostly fell on social sec-
tors. State retrenchment primarily aimed at eliminating subsidies for the poor,
removing social protection, and abandoning its role in fighting for social jus-
tice through income redistribution and other social transfers to the most dis-
advantaged segments of society. This explains, among other things, the degra-
dation of many basic social services and the explosion of poverty in Africa
since 1981, as the World Bank itself has acknowledged.

While dismantling or weakening the economic and social roles of the state, the
IMF and World Bank have sought to build or strengthen the functions most use-
ful to the implementation of neo-liberal policies and the promotion of private
sector development. This explains the insistence on ‘capacity building’ or on
‘institution building’, heard over the last few years. However, the institutions
that the IMF and World Bank talk about are not for development, but for mar-
kets. In other words, they propose building institutions supportive of neo-liber-
al policies and in the service of the private sector, especially foreign investors.

Thus, the ‘institution building’ agenda promoted by the IMF and the World
Bank has nothing to do with promoting democracy and protecting human
rights. In fact, the neo-liberal conception of governance undermines both since
it deprives representative institutions of their role in formulating public poli-
cies following open and democratic debates. They are reduced to implement-
ing what the IMF and World Bank and their G8 masters decide for African
countries and their people.

From Structural Adjustment to Poverty ‘Reduction’

After producing poverty and deprivation on a massive scale in Africa and
elsewhere, the IFIs’ focus on ‘poverty reduction’ since 1999 could not be more
suspect. But to make this shift a bit more credible, the IMF’s Enhanced
Structural Adjustment Facility (ESAF) was renamed Poverty Reduction and
Growth Facility (PRGF) and the World Bank has set up a Poverty Reduction
Support Credit (PRSC).

There is no doubt that the shift in the rhetoric of the IFIs amounts to an
admission of failure of past policies, which put too much emphasis on cor-
recting macroeconomic imbalances and ‘market distortions’ at the expense of
economic growth and social progress. The disastrous record of SAPs and the
continued deterioration in the economic and social situation of countries sub-
jected to IMF and World Bank programmes put into question the credibility
and even the legitimacy of these institutions. Their crisis of legitimacy was
exacerbated by stepped up attacks by the Global Justice Movement and grow-
ing criticism from mainstream economists, especially from Joseph E. Stiglitz,
former World Bank chief economist.

The Nature of the Poverty Reduction Strategy Papers (PRSPs)

The PRSPs are supposed to provide more freedom to developing countries in
formulating their policies. This is what the bank and the fund call ‘national
ownership.’ Representatives from the government, the private sector, civil
society organisations - and even the poor - are supposed to ‘participate’ in
drafting the PRSP of each country to decide on how to use the proceeds
released by ‘debt relief’ to achieve ‘poverty reduction’.

In reality, the macroeconomic framework that underpins the PRSPs is the
same as that which underpinned the now discredited SAPs. That framework
is non-negotiable and includes fiscal austerity, trade and financial liberalisa-
tion, privatisation, deregulation and state retrenchment, etc. In essence,
despite the disastrous outcome of their past policies, the IMF and the World
Bank still believe that those policies are in the ‘interests of the poor’. In partic-
ular, they think that trade liberalisation and openness are the best - if not the
only - road to growth, which they see as a ‘prerequisite’ for poverty reduction.
Hence the export-led growth strategy advocated by the two institutions, but
which has been a big failure in African and other developing countries.

A survey of 27 African PRSPs by UNCTAD in 2002 has demonstrated that all
of them, without exception, contain the policies outlined above; policies which
are at odds with both the wishes and the interests of the poor, observes the
document. It is this straightjacket that ties up developing countries’ hands and
prevents them from achieving any substantial gain in poverty ‘reduction’.
Most of the time, countries have failed to implement these conditions, leading
to the suspension of their programmes.

In fact, the IFIs’ conception of poverty views it as an isolated aspect of over-
all economic and social development that should be dealt with by short-term
measures. Hence, the emphasis in the PRSPs on more spending for primary
education and health, among others. Thus, PRSPs contain some short-term
measures aimed at mitigating the negative impact of macroeconomic policies
and structural reforms on the most vulnerable groups, notably the poor.
However, the tools the World Bank and the IMF have proposed to achieve this
goal are the same as those already tested in the past and that have aggravated
poverty and deprivation in much of Africa.

In reality, PRSPs are SAPs with more conditionalities and less resources. As
already indicated, a new ‘generation’ of conditionalities have been added to
old conditionalities, with the concept of ‘good governance’, analysed above.
UNCTAD has revealed that between 1999 and 2000, 13 African countries had
signed programmes containing an average of 114 conditionalities, 75 per cent
of which are governance-related conditionalities. One can imagine the enor-
mous human and financial resources needed to deal with such a number of
conditionalities. For this reason, the degree of compliance with IMF and World
Bank-sponsored programmes has significantly declined since the mid-1990s.
For instance, the rate of compliance was estimated at about 28 per cent of the
41 agreements signed between 1993 and 1997, according to UNCTAD.

With the PRSPs, the IMF and the World Bank pursue three objectives. First,
mislead world public opinion, especially in Northern countries, into believing
that they are really serious about ‘reducing poverty’. And the World Bank
alone counts on a huge and sophisticated propaganda machine to achieve this.
With the more than 300 staff of its external relations department - propagan-
da department, one should say - the bank has all the means it needs to
‘explain’ effectively its policies. It has achieved some success, since some big
Northern NGOs, once very critical of SAPs, see the PRSPs as a ‘positive shift’
in the IFIs’ policies.

The second objective of the PRSPs is to enlist broad support within each
country to help rehabilitate discredited and failed policies. This is what
‘national ownership’ and ‘participation’ of civil society organisations are sup-
posed to achieve. While insisting on the ‘participation’ of civil society organi-
sations, their most vocal critics, the IMF and World Bank tend to sideline rep-
resentative institutions, like national assemblies. This is another illustration of
these institutions’ contempt for the democratic process in Africa. Finally, with
PRSPs, the IMF and the World Bank seek to shift the blame to African coun-
tries and citizens for the inevitable failure of these ‘new’ policies.

Conclusion

The IMF and World Bank have utterly failed in ‘reducing poverty’ and ‘pro-
moting development’. In fact, they are instruments of domination and control in
the hands of powerful states whose long-standing objective is to perpetuate the
plunder of the resources of the Global South, especially Africa. In other words,
the fundamental role of the bank and fund in Africa and in the rest of the devel-
oping world is to promote and protect the interests of global capitalism.

This is why they have never been interesting in ‘reducing’ poverty, much less
in fostering ‘development’. As institutions, their ultimate objective is to make
themselves ‘indispensable’ in order to strengthen and expand their power and
influence. They will never relinquish easily that power and influence. This
explains why they have perfected the art of duplicity, deception and manipu-
lation. In the face of accumulated failures and erosion of their credibility and
legitimacy, they have often changed their rhetoric, but never their fundamen-
tal goals and policies.

This is why they cannot be trusted to bring about ‘development’ in Africa. If
the experience of the last quarter of a century has taught Africa one funda-
mental lesson it is that the road to genuine recovery and development begins
with a total break with the failed and discredited policies imposed by the IMF
and the World Bank.

In fairness to both institutions, we must recognise, however, the complicity
of African leaders in the disastrous outcome of neo-liberal policies. Many gov-
ernments and senior civil servants have bought into the agenda promoted by
the IMF and World Bank. Therefore, they bear a great responsibility in the cur-
rent state of the continent. Thus, to put an end to the influence of these insti-
tutions, African social movements and progressive forces must explore strate-
gies aimed at promoting a new kind of leadership able and willing to chal-
lenge these institutions in favour of genuine alternative development policies.

Demba Moussa Dembele, coordinator of the Forum for African Alternatives, a Jubilee South member organization in Senegal.
Pambazuka News 175, 23 September 2004