A South African government handout photo shows Southern African Development Community (SADC) chairman, South African President Jacob Zuma (L), hugging Zimbabwean President Robert Mugabe on June 20, 2009 in Johannesburg.
Originally uploaded by Pan-African News Wire File Photos
By Retlaw Matatu Matorwa
Courtesy of the Zimbabwe Herald
THE United Nations conference on the global economic and financial crisis was convened in Xinhua, China, recently bringing together 119 countries from the Third World.
This was in an attempt to discuss the effects of the crisis and strategise on ways to combat and manage it.
However, the two major resolutions emanating from the conference were calls from the Third World countries to reform the multilateral financial lending institutions and the establishment of a commission to investigate and analyse the current financial crisis.
The same call was made by President Mugabe in his address to the Non-Aligned Movement’s Heads of State and Government Summit in Sharm El-Sheikh, Egypt, recently.
This is not the first time that developing countries have called for the reform of the international monetary system, the International Monetary Fund and the World Bank, in particular. This has been a bone of contention for some time and it’s high time Third World countries acted decisively on this matter.
The reform of the international monetary system is a noble initiative, given the exploitative and racist nature of these international institutions. Developing countries should bear in mind that the original mandate of the IMF and WB was to deal with the economic problems of Europe in the aftermath of the Second World War.
These included, among others, the destabilising of capital flows, exchange controls, ‘beggar thy neighbour’ policies, and trade protection in Europe.
With the collapse of the Bretton Woods regime, IMF redefined its role, becoming a world economic advisor, crisis manager, a provider of credibility and a type of donor agency - but at a profit at the expense of the poor.
Concerns have been raised about the conditions of the IMF and the World Bank when lending to Third World countries.
Structural adjustment programmes have been top on the critics’ list. In countries where structural adjustment programmes have been initiated, they have left these countries worse off than they were before the implementation of IMF reforms.
Above all, SAPs have lead to poverty and social instability. For example, under SAP recipient countries are urged to cut down on social services spending, like health care and education.
When the state relinquishes its involvement in these strategic areas, privatisation takes effect, resulting in access to education and health care rising beyond the reach of the poor.
In Kenya, the IMF aggravated the problem with their adjustment programme. Before the IMF was involved in Kenya, the central bank oversaw the currency movements in and out of the country.
The IMF advised the Kenyan central bank to allow easy access to currency movements. However, the move resulted in very little foreign investments and allowed Manusuklal Damji Pattni, with the help of corrupt government officials to siphon billions of Kenyan shillings in what became known as the Goldenberg scandal.
This left Kenya worse off than it was before the IMF reforms were implemented in 2004.
African agriculture is another area of concern; it is a case study of how doctrinaire economics can destroy a whole continent’s productive base.
At the time of decolonisation in the 1960s Africa was not just self-sufficient in food production but it was a major exporter. Its exports averaged 1,3 million tonnes a year between 1966-70.
Today, the continent imports 25 percent of its food, with almost every country becoming a net food importer. Hunger and famine have become recurrent phenomena with the last three years alone seeing food emergencies break out in the Horn of Africa, Sahel, central and Southern Africa.
The causes are many, ranging from civil war and the spread of HIV/Aids. But the problem can be attributed to the phasing out of government controls.
There are also support mechanisms under the structural adjustment programmes, of which most African countries are subjected to as the price for receiving IMF and World Bank assistance to service their external debt.
Instead of triggering a virtuous spiral of growth and prosperity, SAPs saddled Africa with low investments, increased unemployment, reduced social spending and consumption and low output, all continuing to create a vicious cycle of stagnation and decline.
The IMF and WB encourage several economies undergoing adjustment on export production of the same crop simultaneously, leading to overproduction, resulting in prices collapsing.
For example, the very success of Ghana’s programme to expand cocoa triggered a 48 percent drop in the international prices of cocoa in 1986-89, threatening cocoa on the world market, as one account put it, "to increase the vulnerability of the entire economy to the vagaries of the cocoa market".
In 2002-3 the IMF contributed to the collapse in the prices of coffee on the world market resulting in another food emergency in Ethiopia.
Liberalisation of trade has also compounded the negative effects of the IMF and World Bank adjustment programmes.
The unfair trade practices on the part of the European Union and the United States allowed low-priced subsidised EU beef to enter and drive African cattle raisers to ruin with their subsidies legitimised by the World Trade Organisation agreement on agriculture.
US cotton growers are offloading their cotton on the world market at 20-55 percent of the cost production, bankrupting African farmers whose governments are not wealthy enough to provide subsidies.
Against this background, it is clear that the liberalisation preached by the World Bank and the IMF has no consideration for the Third World countries, but use it to expand their trade and economic interest on the globe.
Liberalisation is benefiting the rich at the expense of the poor nations and its people.
In some cases, before extending their support to trouble countries, they advise them to sell their national assets as much as they can. Coincidentally, these national assets will end up in the hands of Western corporations, as is in the case of Zambia copper mines which were sold at heavily discounted prices.
That said, the IMF sometimes advocates for "austerity programmes" - increasing taxes even when the economy is weak, in order to generate revenue and balance budget deficits.
Countries are also advised to reduce corporate taxes. Cutting down on corporate taxes deprives the state of revenue required to service other government projects.
This results in the state becoming bankrupt, in some cases. In Tanzania, the IMF recommended that the government sell the National Brewery as part of its reform prescriptions; this resulted in loss of jobs and protests by citizens over foreign ownership of the landmark asset.
If more people lose their jobs government loses tax earnings, which translates into a heavy burden on the national treasury.
In Africa, where they deal with weaker governments, the Bank and Fund macro-managed such decisions as to how fast subsidies should be phased out. How may civil servants have to be fired?
In the case of Malawi they went to the extent of involving themselves in deciding how much of its grain reserve should be sold and to who. These institutions control the economy of smaller and weaker states, exploiting them and taking advantage of them being in need.
Both the IMF and World Bank have joined the bandwagon of being another champion for justice and human rights, putting Third World countries on a democracy, good governance and human rights litmus test and have even put them under the special requirements for consideration to get funding. However, their history reveals that both the Fund and the bank have been supporting military dictatorships friendly to America and European corporations.
In the 1960s, the IMF and World Bank supported the government of Brazil’s military dictator Castello Branco with tens of millions of dollars in credits and loans that were denied to previous democratically-elected governments.
Other regimes that benefited from the Fund and bank include: Zaire under Mobutu from 1965-97, Syria under Assad from 1970 to the present day, apartheid South Africa 1948-92, Haiti under Jean Claude Duvallier from 1971-86 and Chile under Augusto Pinochet from 1973-89, to mention but a few.
This goes to show that issues to do with democracy and human rights are not genuinely part of their agenda; they simply raise these issues when it does suit them and at their expediency.
IMF and the World Bank have for long been using Africa and the Third World countries as a test ground for their economic theories at the expense of the poor nations and their people. In most cases these countries take long to recover from the effects of these experiments, as was the case with Zambia, Zimbabwe, Brazil and Chile, for example. The IMF and the World Bank have been consistently ruining the economies of Third World countries. Instead of assisting them reach their potential they nip the bud before it grows.
The former Romanian prime minister Tariceanu had this to say about the IMF: "Since 2005, IMF is constantly making mistakes when it appreciates the country’s economic performance."
Zimbabwe’s history with the IMF and World Bank surely qualifies under this statement. How much progress has Zimbabwe made after the implementation of the structural adjustment programme in 1990? To date, our country is still struggling to contain the disastrous effects of the IMF’s economic structural adjustment programme.
Overall, the IMF and World Bank success record is not that impressive, especially with the Third World countries.
Rather the Fund and the Bank contributed to the economic problems of the Third World countries, especially those who seek support from these institutions find themselves worse off than they were before IMF and World Bank reforms.
It is imperative for Africa to lobby for the restructuring of the World Bank and the IMF so that the Third World countries have a stake and say in the manner in which the bank and the Fund are administered.
At present, the IMF and World Bank structures are dominated by leading industrialised countries’ decisions and policies are implemented by them without much consultation with the developing countries. Third World countries should lobby for a review of the "Washington Consensus", removing the stringent conditions that are destroying the social and economic fabric of our nations.
Alternatively, Third World countries need to explore alternative economic solutions and borrow ideas from countries that are doing it alone without the IMF and World Bank financial assistance.
What African countries need to do as a matter of urgency is to examine their economies and design economic models that are consistent, relevant and compatible with the needs of the continent and its people, China and India can teach us something!
Africa needs to put its house in order. Given the abundance of resources on this continent, surely Africa can stop this exploitation and be self-reliant, through implementing well-co-ordinated "beggar thy neighbour" policies regionally. It’s high time that Africa, Asia and Latin America find a common ground in the spirit of brotherhood and fight for a just, equitable and peaceful world order.
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