How the IMF and World Bank destroyed African economies

By Gugulethu Hughes

Editor’s note: The opinions expressed here are those of the authors. View more opinion on ScoonTV.

After Germany’s defeat in World War 2, 44 nations converged in Bretton Woods, New Hampshire for the United Nations Monetary and Financial Conference. The outcome was known as the Bretton Woods Agreement, which led to gold becoming the basis for the US Dollar and all other currencies pegged against the US Dollar. 

This set the USA as the main economic powerhouse. Even when the gold-powered Bretton Woods System ended in the early 70s, the dollar maintained its powerful position against other currencies for exchange rate and trade purposes. Part of President Franklin Roosevelt’s opening remarks read as follows, 

“At Bretton Woods, you who come from many lands are meeting for the first time to talk over proposals for an enduring program of future economic cooperation and peaceful progress… Economic diseases are highly communicable. It follows, therefore, that the economic health of every country is a proper matter of concern to all its neighbors, near and distant. Only through a dynamic and a soundly expanding world economy can the living standards of individual nations be advanced to levels which will permit a full realization of our hopes for the future…” 

Roosevelt’s speech set the tone for what was to come. Perhaps the biggest outcome from the conference was the formation of the International Monetary Fund and the World Bank. The principal actors behind the formation of these two institutions were British and Americans. John Maynard Keynes, father of Keynesian Economics, was the chief British negotiator, while Harry Dexter White, a senior USA Treasury Department official, led the USA delegation. 

The USA had a total of twelve delegates, and perhaps the most explicit comment regarding the IMF’s formation came from USA delegate Ansel Laxford who stated the following during one of the commission sittings, 

“Institutions in the past have been established on more or less completely commercial lines. Others have been established on completely political lines. This whole document is an attempt to blend those two concepts…” 

The final outcome saw the World Bank get created to play the leading role in economics and politics while the IMF provided the financial sucker punch and practical business aspects of the new Bretton Woods Institutions. 730 delegates signed the agreement. The Soviet Union, it goes without saying, did not. 

The only African countries represented at the Bretton Woods Conference of 1944 were apartheid South Africa, British-colony Egypt, Ethiopia, and USA-extension Liberia. By default, all other African countries were by proxy represented by the colonial powers. 

After the formation of the International Monetary Fund and World Bank, a wave of political liberation buoyed by Russian and Chinese military support swept across Africa. More and more African countries attained their independence and adopted socialist policies of economic sustainability. This meant that the European colonial masters began to lose control of African resources and overall economies. 

Also, the transition from colonial rule to self-governance required that the handover of state instruments to black-led governments be phased in with colonists still playing key roles in the economy. This was made possible by the fact that even though the war was won in military battles, the battles were put to bed in negotiating tables where the colonists made strategic bargains. With African countries already married to the IMF and World Bank through ratifications and commitments made by colonial powers, it became easy for the colonists to muddy the waters and influence policy decisions. 

As per the goal of the 1944 Bretton Woods Conference, there was a requirement for the Bretton Woods Institutions to channel the direction new independent African countries would take. A perfect scenario would ensure that political independence was married to economic dependence on the International Monetary Fund and the World Bank. 

To that end, Structural Adjustment Programs were created that targeted “low income” economies in Africa and Latin America. These programs were characterized by long term loans compared to the normal caliber of existing IMF loan facilities, forcing those countries into debt. 

In 1989, a list of policies backed by the US Treasury Department, the World Bank, and the International Monetary Fund were introduced to the Bretton Woods Institutions model of business. Termed the ‘Washington Consensus’ by economist John Williamson, these policies, first applied in Latin America before being rolled out to African countries and other economies that were deemed high risk by the IMF and World Bank, were the very epitome of neoliberalism. 

Neoliberalism is a political attitude centered on free market capitalism, reduced government spending in social services, import and export policies favorable to colonial powers, and outright encouragement of white supremacy. 

According to Williamson, the Washington Consensus policies included maintaining fiscal discipline, reordering public spending priorities (from subsidies to health and education expenditures), allowing the market to determine interest rates, privatizing state enterprises, deregulating barriers to entry and exit, and securing property rights. Williamson noted that these policies contradicted conventional wisdom in developing countries, many of which embraced state dominated systems in the 1950s. 

Between the years 1986 and 1995, 36 countries became victims of the Structural Adjustment Fund and Enhanced Structural Enhancement Fund. Of the 36 countries, 21 were African with the balance split between Latin American and Asian countries. During the same period, 66 countries were victims of International Monetary Fund-supported programs. More than 20 African countries out of the 66 were hanged on the altar of IMF-supported Structural Adjustment Programs. According to the Peterson Institute for International Economics, the Washington Consensus of 1989 had the following ten recommended policy reforms which are still being applied to this day in pursuit of neoliberal agendas: 

1. Reduce national budget deficits

Large budget deficits had contributed to high and variable rates of inflation in Latin America in the 1980s. Policymakers prescribed fiscal discipline— by raising tax revenues or cutting domestic spending— to reduce the need for government borrowing and restore economic stability. 

2. Redirect spending from politically popular areas toward neglected fields with high economic returns

Some components of public spending—subsidies to state-owned firms, or for food or fuel consumption—led to economic distortions and favored richer urban populations as opposed to the rural poor. Reducing subsidies of politically connected economic sectors could inflict costs on some but freed up spending to support basic social services, education, and infrastructure. 

3. Reform the tax system

Reforms should broaden the tax base and remove exemptions that exclude some politically connected taxpayers and organizations from paying taxes. Broadening and simplifying taxes could promote efficiency, improve tax collection, and reduce tax evasion. 

4. Liberalize the financial sector with the goal of market-determined interest rates

Government controls on interest rates tend to punish savers and discourage investment while stifling financial development, while rationing credit tends to breed corruption and favour political insiders. Market-determined interest rates supposedly promote savings and ensure that banks or financial markets, not government politicians, determine allocation of credit. 

5. Adopt a competitive single exchange rate

Move away from overvalued exchange rates that discourage exports and lead to foreign exchange rationing; a competitive market-driven exchange rate can promote export-led economic growth and reduce balance of payments problems. 

6. Reduce trade restrictions

Trade restrictions that promote special interests should be reduced in general. Tariffs are preferable to quotas and other arbitrary trade restrictions that strangle trade. They’re gradually reduced which allows domestic firms to adjust and, unlike quota rents for special interests, yield revenue for the government. 

7. Abolish barriers to foreign direct investment

Banning or restricting inward foreign investment gives domestic firms a monopoly and reduces competition. Foreign investment allows a country to gain capital, create jobs, and build skills, while exposing domestic firms to greater competition. Domestic companies that tap foreign direct investment (FDI) can foster intellectual property innovations that contribute to development. 

8. Privatize state-owned enterprises

State-owned firms are often inefficient, surviving only with the help of government subsidies that widen countries’ fiscal deficits. They argued privatization may cause some unemployment, but is more likely to raise the efficiency and profitability of businesses and increase national productivity and growth. 

9. Abolish policies that restrict competition

Removing regulations and obstacles that prevent new firms from entering the marketplace could stimulate competition, efficiency, and economic growth, they argued. 

10. Provide secure, affordable property rights

A legal system that grants and upholds property rights, including the rights of people working informal jobs not officially reported and holding land without official documentation, incentivizes investment and individual liberty. Private assets enable owners to access credit, expanding the economy and the government’s tax base. 

All ten recommended policies find the independent countries trading their sovereignty in exchange for loans. The impact of these loans gave rise to systemic structural economic issues and disenfranchisement of the state at a macroeconomic level. The policies rendered the state incapable of catering to its citizens before the interests of the IMF and World Bank. 

These policies today act as non-negotiable conditions for countries seeking IMF and World Bank loans. While these evil Bretton Woods Institutions are headquartered in Washington DC, their proxies in other countries influence governments to implement neoliberal policies. These proxies go as far as funding political campaigns of would-be-stooges of the West while dragging state sovereignty down the rabbit hole. 

South Africa is a perfect example of this. They were seduced by the International Monetary Fund, and the result was rampant privatization of State-Owned Entities, social services budget cuts, joblessness, and high cost of living. The same applies to all other countries in a similar quagmire. Only the pockets of neoliberal black enablers get nourished. 

An academic review authored by Ibrahim Keskin and Juma Abdala titled “The Structural Adjustment Program and the Policy Transformation in Tanzania” stated the following, 

“During 1967, Tanzania declared to follow the Ujamaa policy as the national policy for socioeconomic and political development. But in the 1970s, Tanzania began to face stiff challenges which hindered the development of its policy due to the increasing tensions in politics and economic set-up during the Cold war politics in Third World Countries. In Tanzania, the tensions created an atmosphere of misunderstanding between the policy makers and bureaucrats, either to follow the capitalist system of free-market economy or to continue with the Socialist system under the Ujamaa policy. This circumstance was caused by interference of the International Monetary Fund (IMF) and World Bank (WB) since they imposed harsh conditions for economic support. At the beginning, Tanzania found itself in a dilemma to either accept the IMF conditions for its policy reforms or to adhere with the existing policy of the Ujamaa. But, in the end, the policy transformation in Tanzania was inevitable because during the last quarter of the 20th century the Soviet Union lost its supremacy to compete against the Capitalist bloc. Thus, the failure of the Soviet Union to support the minor socialist countries like Tanzania led the Ujamaa policy into failure. When the Ujamaa policy proved failure, the government of Tanzania had no other option except to change its economic set-up…” 

In 1962, Tanzanian President Julius Nyerere published a document titled “Ujamaa: The Basis for African Socialism.” One element in defining Ujamaa was that it was a community-based initiative. As Nyerere put it, 

“Our first step, therefore, must be to re-educate ourselves; to regain our former attitude of mind. In our traditional African society, we were individuals within a community. We took care of the community, and the community took care of us. We neither needed nor wished to exploit our fellow men. And in rejecting the capitalist attitude of mind which colonialism brought into Africa, we must reject also the capitalist methods which go with it […] We, in Africa, have no more need of being ‘converted’ to socialism than we have of being ‘taught’ democracy. Both are rooted in our own past – in the traditional society which produced us…”  

The gods of imperialism in Washington and London would not allow such a vibrant and socialist model to see the light of the day. They used the service of rich black capitalists to create confusion and thwart the Ujamaa juggernaut from achieving intended benefits. 

The protracted economic decline of Tanzania was welded in by western machination leading to the country eventually being ‘forced’ to acquire IMF loans in 1987 that came with a Structural Adjustment Program. As Nyerere lamented, the conditions of the IMF were such that Tanzania was required to change its economic policy from socialist to capitalist. The result was profits for the imperialists and peanuts for Tanzanians. Any underdevelopment in Tanzania today is directly attributable to IMF loans and the appalling conditions accompanying them. 

In 1999, Kaemba Mwale published a document titled “Zambia’s Structural Adjustment Program, a tool for survival or just another economic experiment” on Digital Collections lamenting the bad impact the SAP had on the Zambian economy. Again, the life chances of Zambians significantly diminished as a result of similar programs. The Kwacha, Zambia’s currency, became a laughingstock as imperialists amassed massive profits from Zambian resources. When the country engaged in the noble program of land repossession and redistribution in the early 2000s, the Bretton Woods Institutions slapped the country with economic sanctions that prevented it from trading freely in the export market. 

Zimbabwe ended up with commercial land but no market to export their produce, too. The Zimbabwe Land Reform Program’s “failures” were creations of the West and today are conveniently used to discourage other African countries from going the Zimbabwe route of economic empowerment. 

In 1982, the collapse of the global oil market severely impacted Nigeria’s economy. In response, the Nigerian government adopted the IMF and World Bank-funded Structural Adjustment Program. Since then, Africa’s most populous country has gone to the dogs. They produce oils but import petroleum. Today, the country relies more on donations from the United States Agency for International Development and the UK Government. 

When pundits and malcontents alike refer to Africa as a failed continent, they must understand that Africa was and is being failed by the Bretton Wood institutions and rating agencies under the Washington Consensus. When these institutions and their principals fail to have their way, they begin to fund regime change agendas, create instability, and sponsor wars and genocides. They present China and Russia as our stumbling blocks so much that the USA has gone to the extent of threatening African countries that continue to freely trade with Russia in the face of the Ukraine War. 

Africa’s solution must be to cooperate deeper with Russia, China, and Cuba. Though being a member of the IMF, Russia has never sought to implement a structural Adjustment Program funded by the IMF. China, on the other hand, is in it strategically for its own agenda of positioning the People’s Bank of China as an alternative to the Bretton Woods Institutions.  

We must create a model of African economics that serves African peoples under the economic models of Russia and China. Though the SAPs have been discontinued on paper, the Washington Consensus remains our immediate virus of concern, not Covid-19 and monkeypox.