What would the second coming of IMF to Africa offer the common man
The International Monetary Fund has made a comeback in Africa. Experts say the organisation that provides financial assistance to its members has learned from its mistakes, but it still cannot solve actual problems.
London, September 15, 2018 (AltAfrica)-The rising debt that is threatening to bankrupt many countries on the African continent has sparked the renewed interest in the organisation that many had wanted no more to do with, the International Monetary Fund-IMF
At the end of August, oil-rich Angola in southern Africa turned to the IMF in Washington. President Joao Lourenco is hoping that in addition to emergency loans, it will also provide support for economic reforms.
Nine more African countries have sought IMF funding, including Mozambique, Ghana and the Republic of Congo. The IMF’s Africa programme amounted to $7.2 billion (€ 8.3 billion) in 2017 – four times than that in 2014.
The organization’s strengthened engagement in Africa is reminiscent of Africa’s last debt crisis in the 1980s and 1990s. At the time several countries risked defaulting on debt and the IMF was called upon to extend emergency credit. It came with strict terms: In exchange, the IMF and its partner organization, the World Bank, called on the recipients to implement economic and political reforms.
Structural reforms with little result
The reform packages came with the so-called “Washington consensus” prescriptions, which comprised a reduction in agricultural and industrial subsidies, tax cuts, the privatisation of state entities and free trade policies.
But, rather than ensuring economic upswing, the reforms exacerbated the economic problems of the recipient countries.
“All things considered, one can say these adjustment programmes were not successful,” said Rainer Thiele, an Africa expert at the Kiel Institute for the World Economy in Germany. In fact, most countries had their repayment difficulties in check in the short term, Thiele told DW. However, they subsequently failed to make it onto the “long-term growth path.”
Meanwhile, even IMF economists criticize the organization’s methods. In an internal paper published in journal in 2016, the authors said that at lease some of the reforms that were imposed in the past had led to more inequality and hampered economic growth.
China opened the playing field
Effectively it was a learning curve for the IMF, said Thiele. Dealings with recipient countries now sees much more emphasis placed on matters such as good governance and social concerns than in the past.
A possible reason for this change: the IMF and World Bank are no longer the only potential financial backer for African governments. Some countries can meanwhile now support themselves using regular capital markets. And the emergence of a major investor has altered the financial circumstances in Africa: China.
China’s arrival offered new financing opportunities for African countries, Ndongo Sylla, a Senegalese economist at the Rosa Luxembourg Foundation in Dakar, told DW. “China offers African countries the opportunity to escape, from time to time, the grip of the IMF and the World Bank because China is not demanding conditionalities.” China does not want political and economic reforms in exchange for loans. It asks for business, natural resources and access to markets instead.
Tackle underlying causes, experts say
Sylla argues that China’s willingness to hand over money does not change the problem, the concentration of African economies on natural resources. African economies on “African countries are generally indebted because they export raw materials and import the rest,” he said.
In the 1980s and 1990s, the falling prices of commodities such as oil, cocoa and diamonds, coupled with rising interest on external debt, drove African countries into crisis.
“We have to address the indebtedness problem at its roots,” said Sylla. That would mean providing the room for African countries to develop their own agriculture and industry. “And that means not accepting the agenda of free trade advanced by the IMF, the World Trade Organization and also by the European Commission,” he said.
Chinese credit on the basis of commodity concessions is actually not a solution to Africa’s debt problems in the long-run, the Angolan example shows.
Experts estimate that the country has racked up debt of 25 million dollars to China, secured through oil revenue. But, according to a report by the Financial Times, this possibility is largely exhausted: That amount of oil has already been set aside for credit repayments. Angola’s appeal to the IMF for assistance is a sign that in the future Africa also cannot renounce the controversial organisation in Washington.