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Balancing between survival and IMF neocolonial conditions

Opinion & Analysis
In the absence of a stronger New Development Bank of the BRICS or the African Union creating its own financing system, the IMF remains the only available option.

By Tapiwa Gomo

THE International Monetary Fund (IMF) has been in existence since 1944 with the objective of helping re-establish economic co-operation in a world that was reeling from the aftershocks of conflict. Among its original mandates was to encourage international monetary co-operation, ratify the expansion of trade and economic growth, and discourage policies detrimental to economic growth. That made the IMF an authority on global monetary policies, lending and assisting economically stricken countries.

In the 1960s when African countries began attaining independence, facing destruction from many years of war, the IMF became the go-to institution for financial support to restore, repair and build their economies. This is despite that, when the IMF was established, its target clientele were Western countries and not necessarily regions outside Europe and the United States of America but the institution expanded its target to include non-Western countries.

For that reason, it meant that the financial assistance packages and the conditions for Western and other regions would differ. Accordingly, the IMF has been the target of many accusations of neo-colonialism for several reasons. Some of the conditions enabled Western countries to extract more than the IMF loaned to poor countries. Some of the Western countries have been enabled to retain control over their former colonies through continued IMF financial dependence or sizable political influence. Within the IMF decision-making corridors, Western States wield more power and influence than poor countries. This has been interpreted as a perpetuation of colonial hold on  African countries or neo-colonialism.

The second argument is that when African countries run into significant debt the IMF can provide loans but to deter governments from squandering this capital, the IMF sets conditions. Some of the conditions, mainly those in the form of economic structural adjustment programmes (SAPs), were seen as undermining the sovereignty of borrowing governments. This is simply because they impose conditions that curtail borrowing governments from implementing decisions deemed ideal but against the IMF conditions.

Common among these are austerity measures such as reducing  the number of civil servants, tax increases and budget reductions in areas the IMF may consider to be unimportant yet important for the governments’ economic growth agenda. Historically, these conditions have stripped poor governments of income-generating entities such as parastatals and State-run corporations.

In addition, what the IMF imposes as measures to improve transparency and accountability is seen as intrusive, interference and limiting the borrowing governments’ ability to explore their potential beyond what is prescribed by the IMF.

To sum up these conditions, most argue that while colonialism dominated countries militarily and politically, IMF policies are seen as doing the same through economic supremacy and enslaving borrowing governments with debts and conditions. However, the question remains; where can poor governments turn to for help to revive their economies without being weighed down by IMF conditions. In the absence of a stronger New Development Bank of the BRICS or the African Union creating its own financing system, the IMF remains the only available option.

That being the case, it means the only way to tame the IMF financial conditions is to negotiate the terms and conditions and ensuring the national interests of the borrowing governments are not undermined or compromised. At the onset of the global COVID-19 pandemic, the IMF lent nearly $170 billion in 2020 alone to countries in the Asian Financial Crisis, the Latin American Debt Crisis and Africa. The impact of these loans differed by region. In Asia, these loans were seen as having laid the conditions for what is appearing to be renewed economic growth which is helping to address unemployment and creating economic opportunities. While in Latin America, the results were similar to those in Africa where reduced government expenditure, privatisation of parastatals and other conditions threaten to lead to economic decline, poverty and unemployment.

The difference between the Asian and the Latin American blocs is in the terms and conditions and the intentions of the borrowing governments. The former negotiated the terms, while the latter accepted the conditions wholesomely.

The criticism of the IMF remains legitimate and there is evidence to back it up but it remains the only institution that focuses on addressing economic struggle because of its ability to help at the time of need. Some have described it as a necessary evil.

Perhaps African countries need to draw lessons from countries that have made it via the IMF lending facility. IMF loans helped to stabilise liquidity in Mexico and Greece and they were key in helping former Soviet countries establish market economies. It is vital for borrowing governments to set targets and timelines, while noting that real equitable development must start from the bottom, at community level.

It is one of the ways borrowing countries can avoid falling into debt trap by ensuring that loans finance liquidity, while the grassroots generate income that supplements and complements government economic efforts with the objective being of weaned from IMF debt.

The danger of not doing so is that if borrowing countries fail to service their debts, they are forced to return to IMF for more loans thus mortgaging their ability to achieve economic growth.

  • Tapiwa Gomo is a development consultant based in Pretoria, South Africa. He writes here in his personal capacity.

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