Effect of International Monetary Fund policy in Sub-Sahara Africa

The International Monetary Fund (International Monetary Fund) has, almost single-handedly, put Africa on the location map. By reshaping the economies of many countries, conditions have improved dramatically since the early 1980s. However, the worsening poverty has led to criticisms of the International Monetary Fund that could threaten the new political and economic stability. January 1994's mass devaluation among French-speaking African countries demonstrated the bargaining muscle of the international monetary fund in the world's poorest continent.

However, despite claiming success in restructuring economies and opening them to foreign investment, the International Monetary Fund has had to rethink its blueprint for Africa. Camdessus and his team have been instrumental in reshaping the economic scenery in Africa. It has now taken over as the main world stage for the Fund. Asian countries are increasingly able to fight their own GDP and balance of payments battles, whilst developed countries have scarcely used the Fund since the 1970s.

Since the Extended Fund Facility (EFF) gave them the means to enter, developing nations have been the mainstay of the International Monetary Fund's work. The EFF allowed International Monetary Fund members 10 years to repay loans rather then the usual five-year period. (Kiondo, 1992 30-46) The boom in the International Monetary Fund's work in Africa occurred as corrupt despots fell from grace across the continent. Kaunda, Nyerere and Obote in Zambia, Tanzania and Uganda, were all deposed as popular pressure for democratic rule escalated.

The wave of support for democracy coincided, in many cases, with the worst economic crisis faced since independence. Commodity prices, which had propped many of the regimes, plummeted in the 1980s. Most of the countries relied on commodities to get hard currency. When prices fell, so did the value of local currencies. Rapid inflation followed. People couldn't afford to buy food. The government's abilities were questioned. Hungry armies became more disloyal. Calls for democracy were not far behind.

The International Monetary Fund moved in at this point. African nation’s realized economic reform was needed. Socialist isolation was too high а price. Links between economic performance and political survival had become obvious. In country after country, the International Monetary Fund was called in to provide loans. But at а price Loans were dependant on governments cutting public spending, reducing borrowing, encouraging foreign investment, improving balance of payments and thwarting inflation.

Harsh economic medicine was being administered. In return for swallowing the bitter pill, the International Monetary Fund would prescribe its concession Enhanced Structural Adjustment Facility (ESAF) or Structural Adjustment Facility (SAF). According to International Monetary Fund rules, SAF and ESAF are only available to low-income International Monetary Fund member countries undertaking economic reform programmes to strengthen their balance of payments and improve their growth prospects.

Sub-Saharan Africa suffered both from an unfavourable international environment (declining terms of trade and reduced credit) and from government policies (exchange rate, investment, tariff, and pricing) that worsened stagnation and external deficits in the 1980s and 1990s Nafziger 19931. The sub-Sahara's debt overhang restrained investment and adjustment. (NTSEBEZA 1999 83-94) The smallness of 1990 external debt in the sub-Sahara--$174 billion, compared to Latin America's $431 billion-reflected its low income and credit rating.

The ratio of sub-Saharan debt to GNP was higher than for any world region. Furthermore, the 1990 scheduled debt service (interest and principal payments due) of the sub-Sahara was 22 % of GNP and 65 % of export earnings, while the actual debt service paid was 24 % of export earnings World Bank 1991!. Since 1979, virtually all sub-Saharan countries have undertaken International Monetary Fund/World Bank adjustment. Indeed, economic policymaking since then has been primarily shaped by conditions of Bank/Fund loans of last resort.

Some African elites, who were allied with the Bank/Fund, supported liberalization and became (with their accomplices and clients) the emerging economically dominant group--the nouveau riche. Bank/Fund cooperation also enabled elites to protect interests from reform. Adjustment came disproportionately at the expense of poverty programs, wages, employment, and public services for working and peasant classes, who received little benefit from the borrowing, rather than from the ruling elites, whose spending contributed disproportionately to а crisis.

Many opposed the economic liberalism of the Bretton Woods agencies, whose publications emphasized long-term structural adjustment, but whose programs, under constant monitoring, usually carried out demand reduction. To control opposition, some adjusting regimes arrested, banned, jailed, deported, and sometimes even killed dissenting intellectuals, students, and journalists. (Edward 1996 14-16)