Famine in Africa: Unelected and unaccountable

25 May 2004 by Charlotte Denny


The International Monetary Fund IMF
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.

http://imf.org
and the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

have assumed the role of assisting the poorer nations, but now their policies are being criticised for being unhelpful and out of date

Pick up a copy of the local newspaper in most African capital cities and you could be forgiven for thinking that the International Monetary Fund was a branch of government. Fund staff issue warnings that public sector pay claims are unaffordable, admonish ministers over their failure to cut trade barriers and advise central banks to keep a strict rein on inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. . Meanwhile the World Bank instructs cash-strapped local health ministries to introduce hospital fees despite the fact that African households simply cannot afford to pay for their treatments. For a westerner, it is almost unimaginable that a foreign bureaucrat would dare to instruct an elected politician on how to run the economy. The last western economy forced to submit to the Fund’s strictures was Britain, more than a quarter of a century ago.

The reason why two institutions wield so much power in Africa is simple: money. Cash-strapped African governments have no choice but to go cap in hand to the Washington duo because few commercial banks would risk lending to them. With the loans come a cat’s cradle of conditions on how to run their economies.

The close watch the two cast over Africa today would probably surprise John Meynard Keynes, one of the leading lights at the Bretton Woods conference where the two institutions were born in the dying days of the second world war. Their original tasks were nothing to do with Africa: the Bank was set up to help reconstruct the shattered economies of war-torn Europe while the Fund’s job was to help countries facing balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. -of-payments crises.

With the breakdown of the fixed exchange rates in the early 1970s and the development of Europe, the twins’ original role became gradually redundant. But by then, they had turned their attention to other regions, notably Africa.

Confusingly, their names should probably be reversed. The Fund acts more like a bank: lending at concessional rates to support countries facing balance-of-payments troubles. Because it is more concerned about short-term economic management issues, its loans come with conditions about things like controlling inflation and budget deficits. Without a Fund programme other donors won’t consider helping a country, giving it an even more crucial gatekeeper role.

The Bank is really a development fund. It lends for long-term investment projects at even more concessional rates than the fund; for the poorest countries, its loans are practically free. The strings it attaches deal with longer-term structural issues such as privatisation, regulation and trade tariffs.

Today the Bank and Fund’s sweeping remits give them enormous powers over the day-to-day running of the average African country. But the voting structure of the two institutions reflects their post-war role rather than today’s reality: western governments who foot the bills control the votes. While the United Nations is based on one country one vote, in the Bank and the Fund, it is more like one dollar one vote, and the US has enough votes to have an effective veto.

“They are rather like latter-day proconsuls with huge influence across the region,” says Duncan Green of the Catholic Agency for Overseas Development. “The problem is that along with that comes a circa-1980s view of economics.”

Their critics charge that the Bretton Woods twins prescribe a simplistic recipe of privatisation, deregulation and liberalisation to vulnerable economies which has resulted in many African countries being poorer today than they were 30 years ago. “Economic thinking has moved on in the countries that run the Bank and the Fund, but the two are still pedalling the same old snake oil to developing countries,” says Green.

“In the last two decades Africa’s least developed countries Least Developed Countries
LDC
A notion defined by the UN on the following criteria: low per capita income, poor human resources and little diversification in the economy. The list includes 49 countries at present, the most recent addition being Senegal in July 2000. 30 years ago there were only 25 LDC.
have seen their share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of world trade fall from 0.6% to 0.3%,”
says Concern’s chief executive Tom Arnold. “We deny them the means to earn a living and condemn them to the welfare of aid.”

Telling governments with no money to cut their spending programmes may make sense from the point of view of keeping the budget deficit under control, but it is a disaster for social programmes. Health and education ministries have been forced to introduce fees which cash-strapped African households can’t afford.

The Bank has reversed its policy on user fees in education, after it caused a disastrous fall off in school enrolment rates, but it continues to advocate “cost-sharing” in health. The Fund’s big failing according to Kevin Watkins of Oxfam is that it gives economic policy advice without any regard for how this will affect their ability to reach internationally agreed goals for poverty reduction. “They continue to set fiscal targets which are inconsistent with millennium development targets,” he says.

A recent paper by Oxfam argues that while the immediate cause for the crisis is a succession of poor harvests caused by bad weather, the region has been made more vulnerable to food shortages by the advice doled out by donors in the early 1990s.

Mozambique, Zambia and Malawi all undertook radical reform of their agriculture sectors, abandoning state controls and moving to a system of minimal intervention. The state marketing boards that, although riddled with corruption, provided a vital source of support and advice to farmers, were abolished. In previous famines, these boards prevented the prices of staple crops like maize from spiralling and imported supplies to fill the gaps. Now price controls have been removed, prices are highest when the poor can least afford to pay them.

Under fire from aid agencies, anti-globalisation protestors, and a few more enlightened donor governments, the two organisations argue that they are changing their ways. The Bank now champions a new approach to dealing with client countries which, it argues, puts them in the driver’s seat. Countries prepare poverty reduction strategy programmes (PRSPs) in consultation with local 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. groups, advised by the Bank and the Fund. The buzz-word is “country ownership” but opinions differ as to how much difference PRSPs really have made. Like good exam candidates, when they prepare their PRSPs, countries know what the IMF and the Bank want to see. The big macro-economic decisions are still made by finance ministries rather than social spending ministries. Finance ministries in most African governments are staffed by officials who hold very similar views to Bank and Fund staff.

Further, while there is an increasing openness to debate in the headquarters of the two institutions, out in the field there is less evidence of change.




Source: The Guardian (UK), November 30, 2002.

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80
info@cadtm.org

cadtm.org