Africa, which has the lowest figures in most development indices, including health and education, has long been the poster-child for both the IMF (International Monetary Fund) and the World Bank, both created out of the UN Monetary and Financial Conference, or the Bretton-Woods Conference of 44 Allied Nations held in New Hampshire, USA on July, 1944. After the experience of the great depression of the 1930s, both these agencies were created with the objective of maintaining global macro-economic stability, while pursuing a reduction in world poverty. In reality, however, they were American-controlled agencies dedicated primarily to the rebuilding of a war-devastated Europe. This was to be done by forwarding loans to economies in distress, but essentially also attaching a few conditions alongside it. The banks were to be funded by its members, and the fund was to be distributed to the concerned areas along with an attached package of structural reforms. The age of globalisation (post-1970s), however, has ensured that the reach of the IMF and World Bank has grown far and wide. They, along with the WTO (World Trade Organisation), are now in supreme control of the world economy; while largely working in the interests of the industrialised nations. Currently, Africa is indebted to the IMF by $230 billion dollars, which is the greatest barrier to its economic recovery. Half of its people live in absolute poverty, and the condition in most states has been deteriorating for the past 20 years.
Since the main donors are the US, Europe and Japan, control effectively rests with these players. But this is just one of the many reasons why the functioning of the IMF through the decades has come under immense criticism, even from its sister concern, the World Bank. Unlike the Security Council, which has a five-member veto, only the US has a veto in the IMF. That means the US govt. has supreme control over any IMF action. For example, the IMF, as a requisite for providing loans, places a lot of regulations on specific countries, like trade liberalisation and credit market de-regulation. A country which desperately needs the money for development or an immediate crisis can hardly disagree on the terms. This nearly always works in favour of US and European interests, as businesses from the developed nations gain access to a new market. The argument is that reforms like opening up the economy are necessary to ensure a timely payback of loans to the IMF. But then the interest burden is often too much for a country, which then has to cut back spending from essential sectors like education and health. The experiences of Africa and even Asia, have shown that IMF policies tend to create a concentration of wealth among the rich few who own the industry, while making the larger population ever poorer. Real wages have come down in these countries, and credit availability has gone down, while unemployment has risen even further.
The people of Africa, originally grouped into various tribes have been, since the 17th century, subject to the onslaught of the European powers. From the early days of the slave trade, exploitation increased manifold with the industrial revolution in Europe. For sourcing raw materials and developing new markets, Africa was cut up and divided into colonies by the imperialist monarchs of Britain, France and Portugal, besides Spain, Italy and Belgium. Through subjugation of the people by forced cultivation and destroying the indigenous economies, the people were reduced to a state of acute poverty by their European masters. After the World Wars, when the European powers left, a vacuum was created in the power structure leading to a period of civil war and warlord-ism, practically destroying the social fabric of the continent. The fact that the continent was rich in precious resources, like diamonds and gold, only worked adversely for them. Instead of being used for commerce to bolster economic development, these were used by the independent rebels to finance war.
Much of the debt accumulated by African countries was built up during the 1970s, a time of reckless lending by banks and international agencies, and was agreed to by undemocratic governments. The population of the borrowing country realised little benefit from the loans as the money disappeared in failed infrastructure projects, corrupt schemes, or unwise investments. The debt has been growing since then as governments take out new loans to pay off old ones. Currently, of the forty-four countries in sub-Saharan Africa, thirty-three are designated heavily indebted poor countries by the World Bank. In 1996, sub-Saharan Africa (minus South Africa) paid $2.5 billion more in debt servicing than it got in new long-term loans and credits. The IMF alone has transferred over $3 billion out of Africa since the mid-1980s. Ethiopia has been one of the few countries to shrug off IMF intervention in their domestic economy.
The IMF has often argued that these so-called structural reforms would aid the country’s integration into the world economy, and the growth would eventually filter down to all levels. In most cases, however, they tend to destroy the domestic economy of the particular countries. Trade liberalisation and free markets sound good, but are only possible when all the world economies are at a similar level of competition. Availability of easy credit and technology make goods from developed countries more competitive than goods manufactured in the developing and poor countries. This is because, through mass production and automation of manufacturing, these big manufacturers can keep prices low. This then leads to a slow death for local industry, resulting in unemployment and a further increase in poverty levels, spelling disaster in both the social and political spheres of the country and often leading to riots and civil unrest. Since insecurity is hardly a favourable climate for any business, it results in capital outflow from the country as investors start to panic, bringing the economy even down then before. These attached social costs of macro-economic reforms, however, do not seem to find a place in the IMF’s equations, and are thus ignored.