How the IMF messes up Africa

#financebill2024 #kenya #williamruto

Imagine you are in a supermarket looking to buy something to take home. There’s lots of products, you’ll have to pay for them in several years’ time. They also come with conditions. This supermarket will demand a say in your household budgeting if you shop here. Your son might have to stop taking a minibus to football practice. Your husband will have to stop buying medication for his sore back.

But times are desperate. So, you keep coming. Other customers have loyalty cards which give them better deals. But after 50 years shopping here you still don’t have one. 

For many African governments this is what taking loans from the International Monetary Fund feels like.

In the 2020s, Kenya owed a $4 billion debt to the IMF. Consequently, IMF staff pressured the government to raise taxes and cut spending. In 2023, IMF criticised President Ruto for listening to protestors and withdrawing some cuts. In 2024 they instructed Ruto to ignore protests over new taxes. Advice which led to a march on Parliament. Kenya’s story is dramatic but familiar. Governments which follow IMF advice often suffer political instability and increased poverty.

This is how the International Monetary Fund messes up Africa.

What is it?

The IMF was founded by Britain and America in 1945 to help rebuild global trade after World War II. From the start Britain and American dominated the organisation. Members all contributed money to a pot and then could borrow from it during a crisis. The more you contributed, the more you could easily take out without interest.

Members could vote to control the actions of the fund. But votes were weighted to donations. The more you put in, the more say you got.

Today, the IMF still uses this quota system. America has the largest vote share: 17%. European nations, Japan, China and Russia each enjoy 2-6%. The entire African continent only has 5%. This means even if all African nations united their vote, they would only have the same voting power as one European state: for example, Germany.

And then there are the staff employed by the IMF. For a long time, the Managing Director post was reserved for an American or Western European. In 2019 the Fund appointed their first Eastern European Director. Some senior staff are Asian or African. But the majority have worked or graduated from universities in America and Europe.

True power, however, lies in the quota vote system. Diverse staff will not change the imbalance at the heart of IMF. An imbalance which often prioritizes American interests at the cost of developing countries. A good example of this can be seen in the Congo.

Mobutu and the IMF

Instated with the support of Europe and America, Joseph Desire Mobutu oversaw a ruthless regime in the Congo. For America he was a close ally in the fight against communism. But many Congolese lived in fear and poverty.

Mobutu and his cabal treated government assets as their personal property and looted the nations resources. The IMF was well aware of this corruption. Their representative, Erwin Blumenthal, was sent to Zaire to stabilise the situation. But in Kinshasa the German banker only discovered how deep the corruption went. Disorientated, harassed and intimidated by Mobutu’s government, Blumenthal delivered a brutal report to the IMF in Washington. ‘Mobutu shows no concern about the question of paying off loans and the public debt. There was, and there still is, one sole obstacle: the corruption of the team in power.”

But America remained the IMFs most influential voter. And Mobutu their trusted ally. IMF staff were instructed to avoid disagreements with the dictator where possible. Mobutu for his part promised ‘greater strictness in management’. In 1983 the IMF supplied another loan to Zaire. To comply with the IMF requests the government devalued the local currency by 78% plunging millions of Congolese into poverty. Meanwhile US dollars from the IMF loan were funnelled into Mobutu’s Swiss bank accounts.

From 1977-87, at the same time Mobutu had Concord on standby and was drinking Taittinger champagne, the IMF launched 8 stabilisation programmes in Zaire. Truly the definition of insanity.

But the IMFs priority was not to free Zaire of the debt trap. Or to stop poverty and corruption. Mobutu was an anti-communist. And exports of raw minerals flowed to Europe and America. These were the most important things.

Economic Policemen

The IMF actually worked well in a dictatorship like Zaire because Mobutu trusted the police and army to crush dissent arising from the IMF’s harsh guidance. In Tanzania the relationship between the government and Fund was very tense.

The IMF was happy to offer loans on a series of conditions. But loanees had to follow IMF economic advice. The currency had to be devalued. Taxes raised. Health and social care spending cut. For Nyerere these demands were unacceptable. ‘If African governments are really representing their people, they cannot accept conditions which would lead to more hunger, to social chaos, to civil war, or to the use of armies against their own people’. Nyerere’s words proved prophetic.

In the 1990s the IMF imposed its conditions on Africa through a programme called structural adjustment. This aimed to make countries more economically competitive by cutting debt and privatising services. Today these programmes are viewed as unnecessarily harsh. In many countries healthcare declined as nurses and doctors’ salaries remained low. IMF guidance in Ghana saw the number of doctors halve. The IMF forbid governments from spending loans on services like hospitals. Many qualified Africans left the continent and found better employment elsewhere. Structural Adjustment helped create the African brain drain.

Nevertheless, for Western creditors Structural Adjustment achieved its purpose. From 1980 to 2004 $230 billion followed from Africa to the West in debt repayments. But debt payments played on the conscience of Western activists.

Messed up again

The Jubilee 2000 campaign came out of the Catholic and Anglican Churches in Europe and America. Its goal was to pressure Western governments into writing off the debts owed by developing countries. In the end $100 billion of debt was cancelled for 35 countries.

The campaign provided much needed relief for African governments suffering under the demands of structural adjustment. The Western activists were delighted. But the core problems remained.

Western creditors continued giving loans to corrupt African governments at high interest rates. Politicians continued taking out 10 years loans leaving the next president to worry about the issues. And the USA and Europe remained the most influential block in the IMF.

A series of bad decisions have led countries like Kenya back into the debt trap. Now almost a third of Kenya’s state revenue is wasted on interest payments each year. 300 out of every 1000 shillings paid in tax goes overseas to foreign creditors.

For President Ruto one of the biggest issues has been communication. His sweet sounding promises during election have transformed into austerity politics. The 2024 taxes targeted Kenya’s poorest. If MPs had taken a 50% pay cut as part of the finance bill the situation might have been a little different. Instead, they appeared as cruel and out of touch cronies of the IMF. And so, the protests escalated to a crisis point where Ruto had to withdraw the bill or operate like a dictator. Some might say he did both.

But nothing has really changed. Nyerere could have told him this would happen 40 years ago. ‘The IMF may be economic experts; I am the political expert in my country. I am not going to sign and then have the police of Tanzania turn against the people.’

Changing the cycle

The IMF has contributed to a messy cycle of debt and despondency in Africa. And changing the cycle is difficult because many powerful people, in Africa and the West, benefit from the way the IMF messes things up. The answer is not just another Western activist debt relief programme.

Voters need to increase their political consciousness. Governments must be held to account for taking short term loans with bad interest rates. In Kenya Uhuru Kenyatta’s second term was partly won on the strength of rushing forward the Chinese railway project. Its now estimated Kenya overpaid at least 100% on the project. A debt that generations of Kenyans will have to pay back. This kind of irresponsibility should be punished by the electorate.

Africa also needs a new supermarket. The African Union has been planning to create an African Monetary Fund for a decade now. The situation in Kenya shows how much that institution is needed. ‘It will dawn on the poor countries that an instrument like the IMF has become the substitute for a colonial Empire.’ Prophesized Nyerere. And as long as America has three times the voting power of the entire African continent, this will continue to be the case.

This article is listed as CC BY-NC-SA 4.0 under Creative Commons. https://creativecommons.org/licenses/by-nc-sa/4.0/