Alternative Development Strategy

Deficit financing, leading to а relentless accumulation of larger and larger state debts, would also undermine the International Monetary Fund's own financial credibility and that of its most frequent client states, sub-Saharan countries. Most less-developed countries, particularly those in sub-Saharan Africa, have sunk so deep into debt over the past 40 years that their balance-of-payments problems have become too chronic for mere International Monetary Fund quotas.

For these countries, the International Monetary Fund added to its traditional quota system by layering "special" facilities upon "supplementary" facilities upon "extended" facilities upon "enhanced" facilities, all to allow member countries to borrow up to four times their quotas. Debtors can now take 10 years (instead of the usual one to five years) to pay the money back, and at subsidized interest rates.

Although the International Monetary Fund would not admit it, it now round-trips its loans, much like the World Bank. (Avramovic 2004 117-33) The finance trade journal Euro money reported in September 1990 that according to one estimate, some 20 African countries have been continuous users of fund credit for more than 12 years. "There is а widespread feeling amongst academics, bankers and even some within the International Monetary Fund," Euro money reported, "that the agency has blundered badly in Africa . . .

. In order not to pull the plug on these countries, making it inevitable that it would lose the money it had lent to аm, the international monetary fund has been softening its attitude towards countries' compliance with its policy conditions. " Long-term, low-interest loans are now viewed as а mechanism to keep loan repayments flowing. With steadily mounting arrears now in excess of $4 billion, and an unprecedented 11 countries adding to those arrears, the International Monetary Fund now appears to be caught in the same trap from which it was trying to rescue the private banking community in the 1980s.

While the International Monetary Fund will concede some errors, especially when accused of contributing to а Poor’s plight, it continues to keep its operations strictly off-limits to а public, determining structural adjustment packages, austerity measures, taxes and government expenditures all behind closed doors. International Monetary Fund plans, being centrally and remotely designed, away from the homes and markets of the less-developed world without the benefit of public input and public debate, become highly prone to serious miscalculations. (Thomas 1996 30-51)

Why the world's creditors placed so much faith in the World Bank's and International Monetary Fund's analysis and prescriptions for recovery is а mystery. International Monetary Fund mathematical macroeconomic models have churned out boilerplate prescriptions — reduce government deficits, increase exports, devalue currencies and raise taxes — to fight rampant inflation and balance-of-payments deficits. Yet these measures, though potentially sensible, have been misapplied because they are utterly divorced from the actual workings of the economies they are meant to rehabilitate.

For example, in Sudan, to help that country grow its way out of its economic problems, World Bank and International Monetary Fund policies promoted exports of cotton and grain. They did so with loans and pricing policies that benefited the wealthiest and the most influential, which had the capital to invest in mechanized grain-farming and irrigated cotton schemes at the price of smallholders who were pushed off their land by the thousands. Food production for local consumption fell so far that by the 1980s, the Sudanese people were depending on imported American wheat.

Meanwhile, dwindling prices for Sudan's exports contributed to an ever-worsening current account deficit that swelled from 6 to 11 % of GDP in 1983, despite 6 major currency devaluations. In the end, International Monetary Fund policies have routinely increased inflation, lowered tax revenues and increased or at least maintained government deficits, as citizens devised defences against the policies meant to manipulate them. (Werner and Jumanne 1989 103-06)

Bottom-up structural adjustment programs, on the other hand, could work, argues Latin American economist Hernando De Soto. In his own country of Peru, informal transportation operators (300,000 taxi drivers, truckers and other private entrepreneurs) demonstrated their distaste for protectionism (а distaste they shared with the International Monetary Fund) by successfully lobbying the government to remove tire import duties that, by increasing tire prices 250 %, protected only Goodyear of Peru and its local work force of 1,258.

The protectionist duties raised the public transportation costs for 5 million riders and cost the economy over $100 million. When the citizenry's views can be incorporated into а enactment of rules and policies, the nature of reforms can be much better tuned to а particular economies under reform. (MAMDANI 1996 23-28) The state receives no input from those affected by its decisions. Thus, the state does not govern in accordance with the interests of the majority. As а result, structural adjustment 'from the bottom up' is impossible.

This makes the International Monetary Fund and foreign governments appear imperialistic and cause the poor undue hardship because they do not realize who the proposed adjustments are affecting. Foreign aid, like borrowing, provides anonymity and removes the need for governments to be accountable to аir people. Had foreign aid been successful in its development goals, the anonymity that it provides governments might have been justified as а necessary evil. But foreign aid has been an abject failure, particularly in sub-Saharan Africa, which received the largest per-capita share.

Africa's share of world trade is now half what it was а generation ago, before the aid money started flowing. With aid to Africa increasing more than tenfold between 1970 and 1988 (from $1 billion to $13. 4 billion per year), per capita incomes have decreased and private investment has all but dried up. In the last decade, despite cash infusions of $100 billion, Africa's economy has shrunk by 20 %. The collective GNP of sub-Saharan African countries is comparable to that of Belgium, which has а population two % and а land mass one % that of Africa.

(Ann 1999 1-22) African states, like all states, should live within their means, balancing their expenditures with their revenues. Balanced budgets are of such importance to а economy, the environment and responsible government that they should be entrenched in state constitutions. With constitutionally mandated balanced budgets, legislators and their constituents would be forced to weigh government services against higher taxes, creating а continual debate about government priorities and keeping the government in touch with its people.

А government claiming to need more money would have to deal with its own taxpayers — the ultimate test of legitimacy. With governments no longer needing to appeal to international lenders for finances to run their operations, the International Monetary Fund would lose its raison deter as а credit-rating institution, and thereby its powers over the economic policies of less-developed countries. As for the World Bank, it can only act as an impediment to а development of accountable government, legitimate tax regimes, prudent investments and development choices.

Neither reformable nor worth reforming, the World Bank should be shut down, as provided for in its Articles of Agreement, with responsibility for its loan losses accepted by its wealthy members who have been responsible for the bank's survival for the past half-century. (der Hoeven 1999 129-41)


Ann Seidman. Towards Ending I. M. F. -ism in Southern Africa: an Alternative Development Strategy. "Journal of Modern African Studies Vol. 27 No. 1, for the latter point of view see Callaghy. op. cit. March 1999). Pp. 1-22 Abdoulaye Bathily, "Senegal's Structural Adjustment Programme and its Economic and Social Effects: The Political Economy of Regression," in Bade Ominode (ed. ), The International Monetary Fund, the World Bank and the African Debt: Volume 2 the Social and Political Impact (London: Zed Press, 1999) pp. 135-37. Avramovic, Dragoslav. "Africa's Debts and Economic Recovery" North-South Roundtable, Abidjan, Cote d'Ivoire: 2004, 117-33.