Transcript 12.1 IMF%WB - Midlands State University

12.1 IMF%WB
• THE IMF AND WORLD BANK
• The International Monetary Fund (IMF)
was established in 1944 as part of
Bretton woods system in conjunction
with WB. IMF was the central institution
in the management of post war
economic relations.
12.2
•
• The intention was to supply international
liquidity to member states finding
themselves in balance of payments
difficulties. Thus the fund was to
emerge as a system of stable exchange
rates.
12.3
• In addition to the supervision of exchange
rate regime, the IMF lends money to member
states in balance of payments difficulties. It is
always
assumed
that
the
monetary
authorities would take appropriate measures
to correct such imbalances and indeed it has
become a feature of IMF lending that so
called “conditionality” stipulations would be
part of the rescue package.
12.4
• Recognition of the right to lay down such
conditions is indicated by the recipient
government issuing a letter of intent to the
IMF- this procedure of laying down conditions
erodes state sovereignty.
• The IMF has a tradition of requiring states in
receipt of its loans to make internal
adjustment to rectify the disequilibria such as
raising taxes and interest rates and cutting
public expenditure, including subsidies.
12.5
• The IMF system of stable exchange
rates established as a fundamental
principle of the system after 1944 begun
to be seriously questioned towards the
end of the 1960s. IN 1961 US begun to
be affected by deficit as a result of the
funding of the system hence running the
risk of the devaluation of the dollar as
confidence was lost.
12.6
• The collapse of confidence in the dollar
came in 1971 and speculation grew
leading the US president to announce
the temporary suspension of the
convertibility of the dollar into gold.
•
12.7
• WORLD BANK GROUP
• Was formed to facilitate the building of those
essentially developed economies, which had
been shattered, by war and assist in the more
basic task of the least developed countries.
• Like the IMF the bank has a weighted voting
which gives power to effect outcomes to
those states that make greatest contributions.
12.8
These contributions are expressed as
subscriptions to the bank and these member
states subscriptions are one of the main
sources of Bank’s funding.
• The Bank also goes into the private capital
markets to raise funds and these borrowings
now constitute largest sources of bank’s
liquidity.
• (mncs, banks, companies that need
privatization in order to benefit)
12.9
• Being heavily infused with commercial
banking principles it comes as no
surprise that the bank’s lending policy
follows fairly strict commercial criteria.
12.10
• IMF & WB in Africa
• Many African countries faced with economic
problems found themselves borrowing the
funds and the subsequent implementation of
SAPs in the 1980s.
• It was believed that the policies would
automatically produce rapid growth as
propounded by the interest of market reforms.
12.II
• It was believed that the 3 key “Ds” were the
issues needed for African countries’
prosperity
• DEVALUATION
• DEMOCRATISATION
• DEREGULATION- this involved getting the
macro economic policies right by keeping
budgets deficits low and maintaining a market
determined foreign exchange rates
12.12
• It also involved fostering competition, including
trade liberalization, and minimal involvement of
gvt in the economy.
• A critical look into Africa post SAPs era it appears
no panacea for African ills has been seen. Nearly
one and half decades after implementing SAPs
most countries in the continent are still waiting
for a take off. They are still struggling to recover
to per capita income levels reached in the 1960S
OR 1970S. Few countries have in the 1990s
attained new peaks of national wealth.
12.13
• According to IMF figures real gross
domestic product growth for africa only
arose from an average of 2.5% in 198089 to 2.8% in 19990-99. According to
World Bank Growth has been slow in
sub-Saharan Africa from 4.2% in 1996
to 3.7% 1997.
12.14
• Reliance on markets and macro-economic
reforms has clearly not transformed African
economies. For example deregulation of
foreign exchange rates and devaluation,
which is supposed to allocate such foreign
exchange rate more efficiently to boast
exports by increasing local prices paid to
export
producers
and
raise
foreign
investment.
12.15
• Through growth in African exports was
recorded from 0.9% in 1980-89 to 4.2 in
1990-99 this did not result in the
diversification of exports in most
countries. Nearly a quarter of African
countries depend on single commodity
for 50% or more of their export income
more than 29 countries rely on two or 3
commodities.
12.15
• In
considering
the
disappointing
performance of African economies
under free market structural adjustment.
It has to be understood that one aught
to avoid an attitude of condemning the
IMF/WORLD Bank As inherently bad or
reactionary institutions.
12.16
• Take note: SAPs were introduced to
correct gross deformities in postindependent economies. It is quite
evident that African public enterprises
are definitely wasteful and inefficient
and that most existing subsidies will
benefit middle-class and to the cost of
the poor.
12.17
• IMF/WB aught to be criticized for religiously
presenting remedies, which have diverted
attention from underlying causes of under
development in Africa.
•
• SAPs have failed to work because it places
too much reliance on market to galvanize
resources for productive activities.
12.18
• For example adjustment in foreign exchange
rates can only stimulate only increased and
diversify export activities if private sector
producers are available to take advantage of the
resulting increase in domestic commodity prices.
• In most African countries there exist an elasticity
in supply, partly because the private sector is
very weak and introverted, at most trade
liberalization has not aided domestic production
as much as it has opened economies for imports.
12.19
•
• Some other factors have militated against the
success of SAPs THAT INCLUDES
RAMPANT corruption, political instability and
lack of wealth creating culture.
•
• There are questions as to whether the
policies themselves work.
12.20
• E.g. Nigeria since 1995 have sound market
oriented economic and trade policies yet remain
mired in economic failure and inefficiency.
Zambia has undergone extensive privatization
programme yet the country is no further down the
road of real economic recovery.
• In recent years the WB officials have
acknowledged that markets alone cannot solve
the economic ailments of developing countries
and now advocate a two-pronged strategy of
market oriented policies and enhancement of
public institutions.
•
12.21
• The bank now speaks about good
governance- rule of law, transparency and
accountability.Economic development is not
simply about prices. It is about raising the
capacity of society to produce the conditions
of its existence in semi feudal African nation
seeking industrial civilization economic
development calls for changes in institutions,
values, attitudes and social relations that
underpin society.
12.22
• There can be no economic development
in African nations until there emerge
modernizers like the bourgeoisie,
powerful enough to sweep aside
existing structures, patrimonialism, petty
tribalism and other cobwebs from the
past that hinder creativity and wealth
creation.
12.23
• No amount of macro-economic policies,
trade liberalization and privatization can
engender rapid sustainable internal
growth in the absence of an appropriate
cultural environment for development.