Sunday, December 28, 2008

Why are they still here?



The World Bank and IMF, that is. Our good friend, Iddi Mwanyoka aka Rash, sent us an original piece he wrote on the irrelevance of the World Bank and IMF, and how they have kept Africa poor. Interesting point given their timid response in the wake of the global financial crisis. I have always thought that the relevance for at the least the IMF's existence is to prevent the kind of mess that took place. Here is Rash's piece. Enjoy!

HOW IMF & WORLD BANK FAILED IN AFRICA

Call them 400 pounds Gorilla in the room, and they sure know how to suck the air. For many years IMF and World Bank held custody African nations. These two agents control almost every action that we’re trying to take. They force us to maintain old economical development strategy which based on “export led-growth” or “export led-development”. While most of developed nations moved away from such strategy.

In the man kind history no nation has ever taken the step from being poor to being wealthy exporting raw material in absence of domestic manufacture sector. Although history suggests no body get rich by exporting low value agricultural commodities, the WB and IMF seems to be encouraging or forcing Africa nations to pursue such a strategy, with disastrous results.

Take the international coffee trade as a case in point. In coffee producing countries, IMF and World Bank has been requiring government to liberalize. These have involved measures such as eradicating price model, disbanding trading board and actively encourage increase in production and exports. For instance in 1993 World Bank advised Ugandan government to increase coffee production to five million bags; however World Bank didn’t focus on the other side of the coin which is oversupply of Robusta coffee in world market which led to price crash.

Ironically, the kind of policies that now help majority of African nations to qualify for debt relief under Heavily Indebted Poor Countries (HIPC) has contributed to trap these nations in the worse economical standard ever. IMF and World Bank expertise ignore simple Economics 101 knowledge which says an increase in supply, without an increase in demand, will lower price. Those expertises only care about increasing in production and exports and reducing state intervention across the global.

In the 1990s IMF and World Bank took a new approached which focused on privatization. They forced poor nation to step aside when it come to industrial management. Yet the United Nation Conference and Development (UNCTAD) has found that the rapid and extensive trade liberalization undertaken by developing countries during the 1990 failed to benefit the poor. According to UNCTAD trade liberalization has cost sub-Sahara nation more than $272Billion for the past 20 years.

In 2003 Ghanaian Parliament passed the law to increase the import duty on poultry products to protect Ghanaian farmers who were fight uphill battle with subsided European poultry producer. However, after a phone call from IMF, the legislated increased import duty was removed by the Ghanaian government after just few weeks.

Leaders of the West have pressurized IMF and World Bank to recommend agricultural liberalization to the third world nations, while they’re maintaining massive subsidies for their own farmers. The ‘one size fits all’ liberalization policies have failed to lead economic growth in developing nations.

Trade liberalization has also created problems for sustainable government income. Research has show that cutting import tariffs has reduced tax revenue resulting in fiscal squeeze, exacerbating the debt problem and causing cutback in infrastructure investment. Although the theory is that governments can replace tariffs with other taxes, this is easy said than done in a real world.

Majority of the IMF and World Bank economist graduated from North America and European universities, and they care about how the policies will benefit their nations. They’re pushing free trade and less regulations without even conduct any studies. We need golden rule when it comes to trading, if a multi million dollar farmer in Idaho received subsidy from US government, then why can’t we even subsidies fertilization for our little guy?

8 comments:

GT said...

JM,

that was a good piece...lakini jaribu kupounguza urefu wa posts zako...after kusoma those long essays zisizokwisha kule JF the last thing i need hapa kwako ni GAZETI lingine reefuuuuu

anyway back to the issue...i wonder how many people/readers here believe the figures that we get fed on daily basis. Truth is most of them are Computable General Equilibrium (CGE) models...and thats where every chip falls since their assumptions bear little resemblence to the real world

Rash said...

GT, World Bank and IMF use the methodology called "one fit all". I was reading World Bank publication which deals with coffee production in Tanzania, and after i finished i went to look at the one deal with cotton production and it was the same materials.

World Bank tried many economical reform when it come to Africa, but nothing works. I believe most of their western strategies cant work in Tanzania or else where in Africa. You can't force people to increase production while demand stay constant.

For instance, Majority of Tanzanian are farmers. On the other side WB and IMF ban governament subsidy on that industry. So, my question is how will our GDP grow if we can't help over 50% of our GDP contributor?

The notion that free trade will automatically empower all citizen is just a lie. I personal believe on free trade, but i also believe on common sense. Our farmers needs all tools necessary to compete. USA subsidize her farmers with different tools, from purchasing their products to price floor of their products. So, i don't understand why can't we even help our farmers when it come to high fertilization price.

Anonymous said...

again an interesting article here.
If any of you guys get time please read a book by John Perkins called

confessions of an econimic hitman (The shocking inside story of how America REALLY took over the world)

indeed the book shades some light on this interesting topic

Happy new year

Kaakufui J

GAME THEORY said...

I remember couple of years ago Britains DfID short-listed eight companies to work on the privatisation process in Sierra Leone, including public relations work on privatisation in order to overcome "Public resistance to the divestiture of enterprises seen as a 'public good', together with fear for the implications of the cost of the service."



The privatisation's being supported by DfID include the sale of a Water Company, which supplies water to Sierra Leone's capital, Freetown. When advertising the contract, DfID justified its work as being part of Sierra Leone's Private Sector Development objectives "contained in the PRSP" or something like that, In this case its also fair to point out that, in 1999, when the Sierra Leonean civil war was still underway and British troops were fighting on the ground, the IMF was already stating that Sierra Leone needed to privatise its fragile utility sector. FEW YRS ALATER, the IMF made the restructuring and privatisation of public enterprises a condition of its aid package and in 2002, the privatisation programme was a condition of Sierra Leone joining the HIPC debt relief process...DID I SAY THIS WAS ACOUNTRY THAT COULDNT AFFORD MONEY FOR ITS POST CONFLICT RECONSTRUCTION?






Further more its worth mentioning that 96 per cent of PRSPs include fiscal stringency; normally that the government should not resort to borrowing from the domestic economy,having looked at WB papers, looks like Tanzania's is the only one that explicitly says a fiscal deficit is allowed, stating it should be maintained "at a modest level"....labda kwa mnaofanya kazi hapo WB ofisi za Dar mnaweza kutufafanulia what that REALLY MEANS.

Anonymous said...

I find the article interesting. But we should know that, what we condemn today to be the failures of the IMF and the WB Export-led economics was once considered to be the 'only' solution of the failures of the Ujamaa's Import-substitution industrialisation policy of 1970s. I consider my country Tanzania to be one of those few developing countries which has experienced these 'traditional' economic approaches, yet remained with unsatisfactory economic progress. Today, Tanzanian economists must dedicate more time to provide clear solutions rather than just posting a blame...
Here goes a question:
… Does the failure of the IMF and the WB’s Export-led economics remind us of the Import substitution economics??

Boniface Mhella

Rash said...

Good argument Mr. Boniface Mhella,
The problem is we're still trapped to IMF and WB economical plans. We still owe them plenty of money, so they will hold us custody for a while.

We need new economical approach which doesn't depends on export lead growth. Other approach requires massive investment on each sector, but still it can be done.

Mchangiaji said...

You can watch this videos to prove Rash argument

How the IMF underdevelops Africa (1/6)

By Mchangiaji

Mchangiaji said...

The more of IMF DEBT implication on Jamaican Perspective,

From the Jamaican president/Prime Minister to Economist put their input.

(Jamaica) IMF decimating one country after another

Until we set ourselves free of this trap, we will always undermining our missions of development, Democracy and progression, India and China realized that then, and decided to work hard to stem themselves out of that TRAP, BIG UP TO THEM!!

The question is how can we Manoeuvre ourselves from this viscious cycle, you have seen it happening in Ghana, and other countries. and I must say, I must it give to marehemu JK Nyerere in understanding of implications of these issues, but he ignored to offer us viable solutions and alternatives.

Watch an interview the author of Confession of Economic Hit Man(THE INSIDER) by John Perkins ..

By Mchangiaji