institute for global dialogue institute for global...

C M Y CM MY CY CMY K

institute for global dialogueinstitute for global dialogue

Omano Edigheji and Adekunle Amuwo

OCCASIONAL PAPER NO 60

No credit due:

The World Bank and IMF in Africa

November 2008

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INSTITUTE FOR GLOBAL DIALOGUE

MissionThe Institute for Global Dialogue is an independent South African non-government

organisation that provides policy analysis on the changing global environment and

its impact on South Africa for the benefit of government and civil society.

core programmesThe activities of the Institute centre on four programme areas:

1. Africa research

This programme aims to promote research and analysis with a view to enriching debates

and understandings about the development challenges which confront African countries,

both domestically and internationally.

2. Multilateral Analysis

This programme aims to analyse multilateral institutions as they influence global processes

of change with a view to understanding their impact on South Africa and the global South.

3. Foreign Policy Analysis

This programme aims to provide policy analysis and recommendations on South Africa’s

foreign relations to the South African government, parliament and civil society.

4. Southern Africa

This programme aims to analyse and promote an understanding of factors that advance or

hinder regional co-operation, sustainable development, and security in southern Africa.

OP 60.indd 2 11/20/08 11:53:33 AM

OCCASIONAL PAPER NO 60

No credit due:

The World Bank and IMF in Africa

Omano Edigheji and Adekunle Amuwo

Series editor: Garth le Pere

Institute for Global Dialogue Johannesburg South Africa

November 2008

OP 60.indd 1 11/20/08 11:53:33 AM

Published in November 2008 by the:

Institute for Global DialogueIGD House, Thornhill Office ParkBekker Street, Vorna ValleyMidrand, South Africa

PO Box 32571, Braamfontein 2017, South Africa

Tel +27 11 315 1299Fax +27 11 315 2149

www.igd.org.za

All rights reserved. This publication may not be copied, stored, or transmitted without the prior permission of the publisher. Short extracts may be quoted, provided the source is fully acknowledged.

ISBN 978-1-920216-17-7

Produced by Acumen Publishing Solutions, JohannesburgPrinted by Digital Documents, Johannesburg

About the authors

dr omano edigheji is research director of the policy analysis unit of the Human Sciences Research Council (HSRC).Email: [email protected]

Professor Adekunle Amuwo is a professor of political science, and executive secretary of the African Association of Political Science (AAPS).Email: [email protected]

OP 60.indd 2 11/20/08 11:53:33 AM

table of contents

1. introduction 5

2. the history of international development policy 6

2.1 The origins and objectives of the World Bank 6

2.2 Project-based lending and its underlying philosophy 7

3. Problems surrounding project-based lending 9

3.1 Critique of poverty alleviation projects 9

3.2 Broader problems of project-based lending 10

4. the international context for the introduction of policy-based lending 11

4.1 The origins and objectives of policy-based lending 13

4.2 How the WB dictates policy to borrowing countries 15

5. the role of the World Bank and iMF in Africa 22

5.1 The interface between globalisation and globalism 22

6. WB and iMF ‘development’ policies in Africa 30

7. concluding remarks 35

endnotes 37

references 37

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Acronyms and abbreviations

ACP African,CaribbeanandPacific

AU African Union

EPA Economic Partnership Agreement

EU European Union

FAO Food and Agriculture Organisation

GNU Government of National Unity

IBRD International Bank for Reconstruction and Development

ICB international competitive bidding

IDA International Development Agency

IDB Inter-American Development Bank

IFC International Finance Corporation

IMF International Monetary Fund

MDG Millennium Development Goal

NEPAD New Partnership for Africa's Development

NGO non-government organisation

ODA overseas development assistance

OECD Organisation for Economic Co-operation and Development

OPEC Organisation of Petroleum Exporting Countries

PFP Policy Framework Papers

RDP Reconstruction and Development Programme

SAL Structural Adjustment Loan

SECAL Sectoral Adjustment Loan

TNC transnational corporation

UNCTAD United Nations Conference on Trade and Development

UNDP United Nations Development Programme

UNESCO UnitedNationsEducational,ScientificandCulturalOrganisation

WB World Bank

WHO World Health Organisation

WTO World Trade Organisation

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OCCASIONAL PAPER NO 60 5

Capitalism is not a success. It is not intelligent, it is not beautiful, it is not just, it is not

virtuous, and it doesn’t deliver the goods. In short, we dislike it and we are beginning to

despise it. But when we wonder what to put in its place, we are extremely perplexed –

Lord John Maynard Keynes (cited in Bendana 2008: 30)

Society’s destiny does not depend exclusively on the logic of the market and its invisible

hand – Jacques Delors, then president of the European Commission (cited in Adeniji

2005:60)

1. introductionThis paper seeks to explain the policy-based lending progamme of the World Bank

(WB),andthesignificanceofitsengagementwithdevelopingeconomies.Itisdivided

intotwoparts.Thefirstdealswiththehistoryandeconomicsofinternationaldevel-

opmentpolicyvis-à-visdevelopingeconomies.ItstartsbyexplainingtheWB’sorigins

and objectives, and then addresses the origins, objectives, and outcomes of its initial

project-basedlendingprogramme.WearguethattheWB’searlierpovertyalleviation

project failed to achieve its stated objectives, and worsened rather than resolved prob-

lemsinthirdworldcountriesinwhichtheseprojectswereundertaken.

We also interrogate the events and conditions that led to a shift by the WB from

project-basedlendingtopolicy-basedlending,aswellasthemodalitiesofthisshift.We

arguethat,throughpolicy-basedlending,theWBeffectivelycontrolstheeconomiesof

borrowing countries, leaving them very little room to formulate and implement autono-

mouseconomicpolicies.TheWB’sconditionalities,sometimescombinedwiththatofthe

International Monetary Fund (IMF), have compounded the economic crises in numerous

thirdworldcountries,withAfricatheworstaffected.

In the second section we analyse the political economy of the intervention of the

WBandIMFinthethirdworldingeneralandAfricainparticular.Weshowthatthe

WB’sprimarygoalistoprotectglobalisedcapitalismandthegeo-strategic,economic,

and sociopolitical interests of the triad (the United States, European Union, and Japan),

the G7 plus Russia, and the transnational corporations (TNCs) which drive globalised

capital.Thishasbeendone,weargue,throughmarketdogma,freetrade,andaid.The

currentglobalisationpoliciesoftheWBandIMFhavebeenusedtobenefitcapitaland

reinforcewestern(principallyAmerican)hegemony.

The main consequence of aid-driven international development policy has been debt

peonage and the annual transfer of massive amounts of capital from the Global South to

theGlobalNorthunderthepretextofdebt(re)payment.Wecanvasstheviewthatthis

isdoneinasubtlemannerbyconflatingtheinterestsofwesterncapitalandcapitalist

governments (globalism) with those of the natural consequence of global development

(globalisation),whichputativelybenefitsallhumanity.

Our concluding statement is a clarion call, following Bendana (2008:29), for a politi-

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6 INSTITUTE FOR GLOBAL DIALOGUE

OMANO EDIGHEJI AND ADEKUNLE AMUWO

calapproachtoeconomics.Weargue,inter alia, that a combination of pro-growth poli-

cies,institutionsthatcanmakeeffectiveandpeople-friendlypolicies,andalegitimate

state anchored on a genuine social contract with the citizenry would place African

countries on the road to economic recovery. Itwould also give themmore room to

engage,fromapositionofstrength,withtheWBandIMF.

2. the history of international development policy2.1 the origins and objectives of the World Bank

Attended by 44 countries, the Bretton Woods conference of July 1944 gave birth to

two multilateral agencies: the International Bank for Reconstruction and Development

(IBRD),nowknownastheWorldBank,andtheIMF.TheBank’sinitialrolewastoaid

the reconstruction of Western Europe, ravaged by World War Two, and extend long-term

loansatcommercialratestodevelopingnationstofinancetheirinfrastructuraldevelop-

ment(Wood1986:22;Payer1982:20;Padayachee1991a:6;Canak1989:14;IAA1987:7).

Accordingly, its first four programme loanswent to France, Netherlands, Denmark,

andLuxembourg,anditsfirstprojectloanstoChile,BrazilandMexico(Payer1982:23,

Padayachee1991a:6).

Unlike the IMF, which was designed to provide short-term balance of payments relief,

theIBRD’sbriefwastoprovidelong-termmultilateraldevelopmentaid,disbursedona

commercialbasis,forprivateinvestmentandproductiveendeavour.Theseloanswere

project-specific(Padayachee1991a:6;Payer1982:22),andsomewere,andcontinueto

be,sourcedinthecapitalmarket.TheplannersoftheWBandIMFwerehauntedby

the depression of the 1930s and the consequent breakdown of international trade and

investment.AsRobertW.Oliverputsit:

Their major objective was to provide a world within which competitive market forces

would operate freely, unhampered by government interference, for they supposed

that market forces would produce optimum results for the entire world (cited in

Payer1982:22).

The WB had a capitalist agenda right from the outset, and has put its leverage to good

use by becoming, with the IMF, the leading institution for coordinating capital within a

systemofsovereignstates(Canak1989:13).Itsactivitiesandpolicydirectionhavebeen

dominated by the great powers – the capitalist industrialised countries in general, and

theUnitedStatesinparticular.Notsurprisingly,theWB’sgeneralphilosophyaccords

with the capitalist, neo-liberal, and market-oriented ideology of the United States and

otherwesterngovernments.Putdifferently,thisphilosophyisbasedontheideologyof

neo-liberalismanditsprincipalobjectiveandthrustiseconomicgrowth.Thelatteris

largelymeanttobeattainedviaexportexpansionanddiversification.Otheringredients

ofthisapproachincludemonetaryandfiscalrestraint,freemarkets,asoundcurrency,

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THE WORLD BANK AND IMF IN AFRICA


external economic equilibrium, and – perhaps most importantly – a favourable invest-

mentclimate(Padayachee1991a:7).

TheWBhas152membercountries,‘classifiedaccordingtovariouscriteria,inorder

(amongotherreasons)toprovideguidelinesforitslendingpolicies’(ibid:6).Itshouldbe

noted that the WB consists of several institutions, namely the Bank itself (also referred

to as the IBRD), the International Finance Corporation (IFC), and the International

DevelopmentAgency(IDA).

TheIFCwassetupin1956asaseparateagencywithintheBank,withitsownstaff.

It promotes private sector development, and assists TNCs that invest in developing econo-

mies.TheIFChasthecapacitytomakeequityandloansinvestmentwithoutreceiving

governmentguarantees.Itsloans,usuallymadeoncommercialterms,maturewithinfive

tosevenyears.Itcurrentlyfundsabout10percentoftheWB’sgrouplending(ibid:7).

TheIDAwassetupin1960.CountrieshavetobemembersoftheWBtobemem-

bersoftheIDA.Thelatterisregardedasthe‘softloanwindow’oftheWB.Itprovides

interest-free loans, under government guarantee, to its poorest members, mostly third

worldcountries.However,theIDAleviesaservicechargeof0,75percentforitsloans,

whichusuallymatureover10and50years.Itsfundsareentirelyderivedfromgrants

by capital-exporting countries, with a small proportion derived from the IBRD out of

retainedprofits(Payer1982:33;Padayachee1991a:7).

2.2 Project-based lending and its underlying philosophy

A discussion of project-based lending, its philosophy and problems will help us to under-

stand the circumstances and events that led to the introduction of policy-based lending

inthe1980s.

Exceptforitsfirstfourloans,theWBwasonlyinvolvedinprojectlendinguntilthe

1980swhenpolicy-basedlending(thesubjectofthispaper)wasintroduced.Initsearly

years,theWBtendedtoequategrowthwithdevelopment.Inthe1950s,forinstance,

typical project-type loans were extended for infrastructure development (roads, rail-

roads,electricity,ports,andsoon).Next,itfocusedonagriculturaldevelopment.For

example, between 1961 and 1965 some 75,6 per cent of all WB lending was for electric-

ityandtransport.

After 1973, under the presidency of Robert MacNamara (1968–1981), it shifted its

emphasis to poverty alleviation project loans. DuringMacNamara’s tenure, theWB

expandeditslending,andthetypesofprojectsitfinanced.Itbegantofinanceprojects

inlocalcurrencies.Loanswerealsograntedforeducation,health,andupgradingurban

areas.Italsobegantoextendloanstoindividualfarmersforon-farminvestment.Until

thenithadrestricteditsloansintheagriculturalsectortoinfrastructuraldevelopment.

Asaresult,theWBwouldlaterclaimthatitsloanshadbenefitedpoorfarmers.Italso

disbursed loans for poverty alleviation (Payer 1982:24-25; Canak 1989:15; Padayachee

1991a:7).

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What lay behind this shift in, and expansion of, project-based lending? In the mid-

1970s,theWB’svice-presidentfordevelopmentcommissionedanevaluationofitsdevel-

opmenteffortsduringtheprevious25years.Thefindingsofthecommission,headedby

DavidMorawetz,hadaprofoundeffectontheBank’ssubsequentthinkingandactivi-

ties.Thecommissionnotedthatalthougheconomiesthroughouttheworldhadgrown

rapidly,thebenefitswerefarfrombeingequallydistributed,andthatonebillionpeople

werestilltrappedinpoverty.Itattributedthistoeconomicstagnationandlowproduc-

tivity(Morawetz,citedinMosleyetal1991).TheWBadoptedthisview.

Subsequently, its actions have been required to address the problems of increasing

globalpovertyandskewedincomedistribution.TheWBbecameconvincedoftheneed

forcontinuedinternationalaidandtradereforms.Toachievetheseobjectives,ithadto

becomemoreactiveinthedevelopmentfield,notonlyinrespectofthetypesofprojects

financedbutalsotheirsize.MacNamarachampionedtheseconcerns,inthebeliefthat

theindustrialisedcountrieshadaresponsibilitytoaddressglobalpoverty.Asaresult,

in the interest of poverty alleviation, the WB began to argue against protectionist poli-

cies and other policies of industrialised countries deemed to be detrimental to global

welfare(Mosley,etal1991:22–23).

However,theMorawetzstudyreinforcedtheWB’smisconceptionthatthedebtprob-

lemwasover-emphasised.Itbelievedthatthegrowthinprivatecommerciallendingto

developingcountriesdidnotmakeadebtcrisisinevitable,andcouldbestavedoffby

appropriatecorrectivemeasures.Justliketheprivatebanksandtheborrowinggovern-

ments, the WB did not foresee the impending debt crisis and its implications for the

worldeconomy.Thesecondoilpriceshockin1979–80wouldchangeitsview,however.

TheWBbecame concernedwith the ability of the internationalfinancial system to

recycle enough funds and maintain import levels and economic growth rates (World

Bank1980:3,citedinMosleyetal1991;Seddon1994).

TheWBwasalsoinfluencedbythedeflationarymeasuresadoptedbytheconserva-

tivegovernmentsthatcametopowerinkeyindustrialisedcountries.Atthesametime,

it wrongly believed that the real price of energy would rise further throughout the

1980s.TherewerealsootherfactorsthatcontributedtotheWB’schangedstanceand

itsincreasinginvolvementwiththirdworldcountries.These,accordingtoPadayachee

(1991a:7), included

the growth of … international Keynesianism (the view that development in the third

world is in the best interest of the industrialised countries); the Cold War (the view

thatfinancialassistancetodevelopingcountrieswouldactasachecktothespread

of Communism); and the growing articulation of the developing countries them-

selvesforinternationalcoordinatedassistance(cf.Wood1986:40–41).

In 1980, the WB began to realise that the global economy had changed permanently,

andadoptedmeasurestorespondtothenewchallenges.Againstthisbackground,it

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concluded that structural adjustments were needed to revamp the economies of devel-

opingcountries.Italsodecidedthatsuchstructuraladjustmentsshouldbesupportedby

externalfinancing,andthateconomicstabilitywouldbepursuedbymeansofeconomic

growth.Asaresult,theWBadoptedthenewpolicyobjectiveofstructuraladjustment

with growth (Mosley et al 1991:23). Against this background, theWB shifted from

project-basedlendingtopolicy-basedlending.

3. Problems surrounding project-based lendingBeforediscussingtheWB’smorerecentapproachofpolicy-basedlending,weneedto

highlighttheproblemsassociatedwithitspreviousapproachofproject-basedlending.

Wewillfirstanalyseitspovertyalleviationconcerns,andthenthebroaderproblems

inherentinproject-basedlending.

3.1 critique of poverty alleviation projects

While it canbeargued that theBank’spovertyalleviationprojectswerepartly suc-

cessful,itwouldbedifficulttocontendthattheysignificantlyalleviatedpoverty.Some

oftheprojectsbenefitedpeopleinthethirdworld,butthiswasonlyaprivilegedfew

andnotthepoor,letalonethepoorestofthepoor(Payer1982:20).Furthermore,these

projects were too small to have more than a negligible impact either on the productiv-

ity of the poor or on the amount of productive employment available to them (Mosley

etal1991:33).

TheWB’semphasisonforeigninvestmentmadepovertyalleviationveryunlikely.

As Payer (1982:20) puts it,

to the extent that greater advantage for foreign investment is incompatible with

the alleviation of poverty and satisfaction of human needs … poverty in the sector

and society is likely to increase rather than being alleviated as a result of the Bank’s

intervention (our emphasis; also see Bornschier and Chase-Dunn, quoted in Canak

1989:15).

Some of these projects proved to be detrimental to the poor because of what Payer

referstoastheintrinsicnatureofthesocietiesinwhichtheyweresituated.Inherview,

some of those societies were so corrupt, unequal and unjust that it was impossible to

runsuccessfulandbeneficialpovertyalleviationprojectswithoutexternallyimposed

conditions(Payer,1982:23).

Perhapsmoreimportantly,thepeoplewhomtheprojectsweremeanttobenefitwere

notinvolvedinanystageoftheprojectcycle–identification,preparation,appraisal,

negotiation,implementation,andevaluation.ThesewerecarriedoutsolelybytheBank

andthegovernmentsofthecountriesconcerned(ibid:72–85).Asaresult,someofthose

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projects may not have been what their citizens wanted – even though it can be argued

that the governments of the countries in question could not but have articulated and

representedtheinterestsoftheircitizenssomeofthetime.However,ifPayer’sargu-

mentsarevalid,itcanbecontendedthatthegovernmentofficialswhoparticipatedin

those projects did so essentially to advance their own interests as well as the interests

oftherulingeliteattheexpenseofthemassofthepeople.

3.2 Broader problems of project-based lending

TheWB’sprojectmodealsoseemedtoreflectthedominanceofprofessionalengineers

initsearlyyears.Inthatperiod,ittendedtoequatedevelopmentwithinfrastructural

development.However, the shift to policy-based lending reflected the emergence of

economistsasdominantvoiceswithintheBank.Economistswereverycriticalofthe

project mode and its associated fungibility problem, and put up several arguments

againstit.First,theyarguedthattheWBmightbefundingprojectsthatrecipientgov-

ernments would have funded in any case, and that its funding allowed them to divert

funds tootherprojects, thuscreatinga falsesenseofprogress.Second,WB’secono-

mists criticised the adverse economic environments in which some of these projects

were undertaken, as well as the failure of recipient countries to create the environment

needed for theseprojects to succeed.Furthermore, theyargued that the inabilityof

the countries in question to formulate appropriate policies to meet rapidly changing

externalconditionshadnegativeconsequencesfortheprojectsconcerned.Underthese

circumstances,itbecamemoredifficulttoidentifyandevaluateprojects.

WBeconomistswereequallyworriedthatifagivengovernment’smacroeconomic

policieswereindisarray,thematchingfunds(meanttofinanceinitialcivilengineering

and construction works and the recurrent expenditure arising from the operation of the

new facility in question) which borrowing countries were meant to contribute would

dryup.Ifthishappened,manyprojectswouldbehaltedmid-way,andotherswouldfail,

duetoafailuretomaintainexistingfacilities.ThisoftenhappenedinAfricancountries

inthelate1970sandearly1980s.

In these circumstances, these economists thought it made little sense to continue

withproject-typelending.Inordertoensurethecompletionofprojects,theWBcalled

on recipient governments to introduce budget and other economic reforms. It also

believed that programme aid would strengthen government budgets by providing for-

eignexchangewhichcouldbesoldtoimportersinexchangeforlocalcurrency.In1997,

generaleconomicperformance,first introducedintheearly1960s,becameaformal

criterionforreceivingWBloans(Mosleyetal1991:29–31).

Despite linking loans to improved economic performance, the project mode did not

remainaviablemeansfortransferringWBaid.Thiswasbecauseitwantedtorespond

morequicklytoexternalshocksthathadthrownmostdevelopingcountriesofftheir

chartedpath.Thelengthofprojectcycles–uptofiveyearsinsomecases–becameone

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ofthemostworrisomeissues,asfinancialdisbursementundertheprojectmodewas

tooslowtorespondtobalanceofpaymentsproblems.SomeWBofficialsalsobelieved

that the conditions attached to project loans did not touch the real levers of economic

control – exchange rates, interest rates, trade regimes, and prices of agricultural goods

– central to the success of developmental projects and the relief of underdevelopment

ingeneral(Mosleyetal1991:31–32,65).

3.4 the international context for the introduction of policy-based lending1

We now turn to the international economic context in which the WB shifted from

project-based lending to policy-based lending. From1965 to 1986 economic growth

sloweddownglobally,exceptforChinaandSouthAsiaespeciallyinthe1980s.However,

the economies of some developing countries grew faster than those of their developed

counterparts.Atthesametime,thedifferentials inthegrowthofdevelopingecono-

mies increased, with growth in sub-Saharan Africa in particular contracting in the

early1980s.Buthigherratesofeconomicgrowthinsomecountrieswereimmediately

negatedbyfasterpopulationgrowthrates.Asaresult,thegulfbetweenrealincomeper

capitaindevelopedanddevelopingcountriesdidnotdiminish.

The slow growth of the global economy can be attributed to two factors – the oil

priceshocksof1973and1979–80,andtheconsequentdebtcrisisof1982.Theseevents

werecausedbytheexpansionofaggregatedemandbyindustrialisedcountries.This

provoked strong inflationarypressures in the industrialisedworld.The resultwasa

boom for non-oil primary commodities in 1972–4. The Organisation of Petroleum

Exporting Countries (OPEC) took advantage of this situation to increase the price of

petroleumbymorethan400percent.Thisimpactednegativelyonindustrialisedcoun-

tries, since it reduced the real growthof their output,while inflationary conditions

persisted. This situationwas further compoundedby the tripling of the oil price in

1979–80,whichpushedtheeconomiesofthedevelopedworldtowardsrecession.Fur-

thermore, the emergence of conservative governments in the rich countries, which were

determinedtosqueezeinflationoutoftheworldsystematanypricethroughunemploy-

ment, amongst other factors, reinforced the already strong recessionary tendencies.

Theslumpinindustrialisedcountriespersisteduntiltheoilpricefinallyretreatedtoa

realisticlevelin1986(Canak1989:17).

According to Mosley et al (1991:6), the debt crisis which erupted in 1982 was a

‘direct consequence of the decision by Organisation for Economic Co-operation and

Development (OECD) governments to leave the intermediation of the large OPEC bal-

ance of payments surpluses, caused by the oil price rises, to the private banking sys-

tem’.Therecyclingofthesesurpluseswasbelievedtobeaprofitableformoflending.

This belief stemmed from the fact that borrowers were third world countries that had

neverdefaultedondebts.However,noneoftheseloanshadbeenservicedinlinewith

theiragreedterms,andmanyhadtobewrittenofforwereheavilydiscounted.Simi-

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larly, borrowing governments wrongly believed that they were gaining access to cheap

money, which would help them to bridge growing balance of payments problems and

wouldnotcausethemseriousrepaymentproblems.Asaresult,manyspenttheloan

funds without establishing whether those investments would create a surplus and

whether such a surplus could be turned into foreign exchange to help service their

debts.

The rise in real interest rates, beginning in 1980, brought these miscalculations to

the fore.Thiscoincidedwith theadventofconservativegovernments in the leading

industrialisedcountries:theUnitedKingdom,Germany,andtheUnitedStates.These

governmentsbelievedthatinflationcouldbereducedbycontrollingmoneysupply.This,

ofcourse,pusheduprealinterestrates.Unfortunately,itcoincidedwiththeeffectofthe

secondoilpriceshockin1979,whichundermineddemandandeconomicactivity.

Theeconomiccrisisofthe1980sspreadthroughthethirdworldinvariousways.

Developing countries that had borrowed recycled petrodollars had done so at variable

interestrates,whennominal interestswere lowrelativeto inflation.Thisborrowing

was cheap in real terms in the 1970s because real interest rates were negative, so

borrowerswerebeingpaid toborrow rather thanhaving topay forborrowing.But

thecombinationofrising interestratesandadecreasingrateof inflationcreatedan

alarmingincreaseintherealcostofborrowing.Asaresult,thirdworlddebtornations

wereobligedtorepayloans,orinterestonloans,butcouldnotdoso.Manydeveloping

countriesbecameheavilyindebtedinthisperiod.

Theinabilityofthirdworldcountriestomeettheirfinancialobligationswasocca-

sioned by the falling price of exports. This, combinedwith higher interest rates on

loans,exertedacutepressureontheirbalanceofpayments.Toovercomethissituation,

theyhadtwooptions:eithertofinancetheirbalanceofpaymentdeficits,oradjusttheir

economiestobalancedemandforforeignexchangewithdecreasedsupply.

Whatwerethesourcesofexternalfinance?Priortothiscrisis–thatis,before1973–

third world countries depended on aid from bilateral and multilateral donors such as the

WBandIMFtofinancetheirbalanceofpaymentsdeficits.From1973totheearly1980s,

whenthecrisisbrokeout,theprincipalsourceofexternalfinancewasnon-concessional

loans,largelypetrodollarson-lentbyprivatecommercialbanks.However,oncethedebt

crisis erupted, this source of funding dried up – the vacuum created by the withdrawal

ofcommercialbankloanscouldnotbefilledbylendingindustrialisedcountries,which

hadstartedtoreduceforeignaidaspartoffiscaldiscipline.Asaresult,theexpansionof

aid from other industrialised countries such as Japan and Italy was necessary merely to

keeptheaggregateflowroughlyconstant.AccordingtoMosleyetal(1991:9),

inthe1980s,then,theglobaleconomiccontextplacedapremiumonfindingways

ofbringingdowndevelopingcountriesdeficitstothelevelthatcouldbefinancedby

thestagnantaidflowsplusrapidlydwindlingprivatecommerciallending.Inessence,

thatiswhatstructuraladjustmentofdevelopingcountriesisintendedtodo.

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Anothermajorevent that influencedtheshift topolicy-based lendingwastheemer-

genceoftheideologyofneo-liberalism.Thisbecameverypopularamongeconomists,

journalists,andpoliticians.Amajorcanonofneo-liberalismisitsoppositiontostate

interventionintheeconomyalmostasanarticleoffaith.AccordingtoMosleyetal,

economic liberalisation

impliestheroll-backofthestate,bothintermsofitsownershipofindustries,finan-

cial institutions and the marketing agencies and of its regulatory activities in trade,

industry,agriculturecreditandforeigninvestment.Theeconomicargumentscentre

onthefailureofthestatetocreatetherightsystemofincentivesforanefficiently

operatingeconomy.Thisissometimesexpressedasthestate’spreferenceformacro-

economic policy instruments which are exercised at the expense of microeconomic

rationality.Thecorrectivemeasuresarethenprivatisationandextensivederegula-

tion, recommended in the belief that freely operating markets will conduce to the

moreefficientuseofscareresourcesofthepoor(ibid:11).

Proponents of this approach also mistakenly believed that liberalisation would lead to

amoreequitabledistributionofincomeandwealth.Thisprovidedtheeconomicand

intellectualcontextfortheintroductionofpolicy-basedlendingbytheWB.

4.1 the origins and objectives of policy-based lending

Policy-based lending – in the form of Structural Adjustment Loans (SALs) – can be

definedasacombinationofprogrammelendingwithbroadereconomicpolicyreforms.

Underthisapproach,theBankprovidesdevelopmentfinancethatisnottiedtospecific

items,butsupportsabalanceofpaymentsdeficitingeneral.Thisisaimedatfacilitat-

ing imports,and increasingeconomicgrowthanddevelopment.SALsalso involvea

combination of programme loans linked to policy conditionality that are sectoral or

sub-sectoralinnature.Later,thiswasbroadenedtoincludenationalmacroeconomic

policyasawhole(Mosley,et.al,1991:27).

Policy-basedlendinginvolvesamajormovementfromfinancingindividualprojects

to programme and sector lending, with its insistence on a wide range of macroeconomic

policyreformsasapreconditionforlending(Goldin1992:10).Thus,unlikeprojectlend-

ing,inwhichloansareextendedforspecificprojects,programmeaidintheformofSALs

involves the ‘… injection of money designed to underpin programmes of policy and insti-

tutionalreformbygovernmentsofdevelopingcountries’(Harrigan&Mosley1991:63).

It should be noted, however, that prior to the introduction of SALs the Bank had never

extendedunconditionalloans.Allitsprojectloanswereconditional,buttheserelated

onlytotheprojectbeingfunded(Mosleyetal1991:27;Padayachee1991a:8).

Furthermore, before the Bank formally adopted SALs as lending instruments, these

kindsofloanshadbeentriedinIndiabetween1963and1964.TheIndiaConsortium

OP 60.indd 13 11/20/08 11:53:35 AM



hadgrantednon-projectloanstoIndiatosupportitsbalanceofpayments.Beginning

with theBank’sBellmission to India, ithadadvised the Indiangovernment to lib-

eralise its trade and industrial regime, devalue the rupee, and change its industrial

strategy.Thesemeasureswereonlypartiallysuccessful.Indianswereverycriticalof

thesepolicyoptions,whichtheysawasimposedbyforeigners.TheWBwasverydis-

appointedbyitsIndianexperience,anddecidedtoabandontheprogramme.However,

programme lending continued through the 1970s, and was extended to Pakistan and

Bangladesh.

The revival of programme lending combined with policy change in the early 1970s

was a consequence of, and a reaction to, the oil price shock of 1973, which worsened the

balanceofpaymentdeficitsofseveralEastAfricancountries.Consequently,between

1973 and 1975, some of these countries – notably Zambia, Kenya and Tanzania – received

programme loans linked to policy conditionalities, including changes in agricultural

marketingandpricing(Mosleyetal1991:32).Despitethis,throughoutthe1970sthe

WBhadhopedthatthesewouldbetemporarymeasures.Thesecondoilpriceshockof

1979-80 combined with other factors – including the emergence of conservative gov-

ernments in Europe and the United States, and pressures within the WB to reassess its

roleandefficacy–strengthenedthemovetowardsSALs.ThemovewithintheWBfor

the second revival of conditional programme lending was led by MacNamara, its presi-

dent,andagroupofseniorofficials.

Several factors accounted for the internal pressures within the WB for the revival

of SALs in the1980s. Thefirstwas the Indian experience. Ernest Stern, theBank’s

vice-president, who spearheaded the introduction of SALs, had worked on South Asia

forUSAIDbeforejoiningtheBankin1973.Similarly,StanleyPlease,Stern’sadviseron

SALsbetween1980and1984,startedhiscareerintheBankasthefiscaleconomiston

theBellmission(Mosleyetal1991:29).While,asnotedearlier,theIndianexperience

was partly successful, it must have taught those two economists that trade liberalisation

wasperhapsasoundandnecessarypolicyfordevelopment.Bythesametoken,these

figuresmusthaveconcludedthatthepoweroftheWBtograntorwithdrawaidwasa

keymeansofinducinggovernmentstoliberalisetheireconomies.

Second, MacNamara, who was approaching the end of his tenure, began to doubt

povertyalleviationasapolicyobjective.Hischangingviews,coupledwiththecritical

assessmentofthepovertyalleviationprojecttypebysomestaff,madetheshiftinevita-

ble.Onestaffmember,MahbabulHaq,wroteapaperinwhichherecommendedanew

strategyoflong-termprogrammelending.ItappearsthatMacNamarawasinfluenced

by this recommendation. Furthermore, WB staff became increasingly disenchanted

with poverty impact lending, and more concerned with how to get borrowing countries

tocreateenvironmentsconduciveforeconomicgrowth.Theywereparticularlyfrus-

trated by thenature of their dialoguewith borrowing countries. By the late 1970s,

it had become obvious to them that sub-Saharan Africa was in danger of having nei-

ther projects (as aid was drying up) nor acceptable economic strategies that could be

OP 60.indd 14 11/20/08 11:53:35 AM



financed.Thiscalledfortheadoptionofaquickandsuccessfulmeansofdialogue.To

achieve this- and for aid to continue at the usual rate- it was decided to urgently imple-

mentanewformofdevelopmentstrategy(Mosleyetal1991:33–34).

As a result, in April 1979, during the United Nations Conference on Trade and Devel-

opment (UNCTAD) meeting in Manila, MacNamara announced that the WB would

henceforth provide long-term programme assistance to countries ready to embrace

economic policieswhich theBank regarded as necessary for development. Thefirst

operational move was the conversion of some sector lending to new progamme lend-

ingonaconditionalbasis.However,Bankstaffstillfeltthiswasnotenoughtoprocure

the policy changes required in developing countries. Theywere of the opinion that

the Bank needed to introduce conditionalities that would impact on the economies of

recipientcountriesasawhole.ThisbecamethecentralfeatureofSALs,approvedbythe

WB’sexecutiveboardaftersubmissionsbyitsmanagementintheearly1980s(Mosley

etal1991:34).Theobjectivesofpolicy-basedlendingare:

...toprovidequick-disbursingfinancetosupportmeasuresdesignedtostrengthen

recipient countries’ balance of payments without severely constraining demand

in the manner that unnecessarily sets back economic aid and social development

(Landel-Mills, cited in ibid)

...(to)assistcountries...preparedtoundertakeaprogrammeofadjustmentto

meet an existing, or to avoid an impending, balance of payments crisis (World Bank

1988:22)

... tofacilitatetheadjustmentrequiredtoachievesustainablegrowthandthe

mobilisationofexternalfinancingneededtosupportacountry’sadjustmentefforts

(Micalopoulos 1987, cited in Mosley et al 1991)

Somemembercountrieswerescepticalaboutthisdevelopment.Boardmemberswere

concerned about two issues, namely, the link between programme aid and policy

conditionalities;andtheimplicationsoftheWB’snewapproachforitslinkswiththe

IMF.However,thisishowtheWB’spolicy-basedlendingcameintobeing,andsinceits

introductiontheBankhasnotlookedback.Indeed,viathisapproach,ithasconsolidated

itspositionintheinternationalcapitalmarket,andhasstronglyinfluencedtheglobal

economy,particularlyinrespectofthethirdworld.

4.2 How the WB dictates policy to borrowing countries

Through its policy-based lending, the WB dictates key policies to borrowing coun-

tries.Theloansandtheconditionalitiesattachedtothemhaverefocusedthenational

economicprioritiesanddevelopmentstrategiesofborrowingcountries.

As noted earlier, a major reason for the introduction of policy-based lending was

theneedtoaddressthebalanceofpaymentdeficitsofdevelopingcountries.Thiswas

OP 60.indd 15 11/20/08 11:53:35 AM



occasioned by, among other factors, the two oil shocks, the fall in commodity price,

the world economic depression, the rise of conservative governments in Europe and the

UnitedStates,andthesubsequentintroductionofdeflationaryeconomicpolicy.Inother

words, policy-based lending was introduced at a time when most developing countries

wereexperiencingadebtcrisis.Worriedabouthowtorecovertheirmoneyandensure

economic growth, donor agencies – multilateral, bilateral, and private – decided to

intervene. The policy option adopted by theWBwas policy-based lending. Interest-

ingly, the many conditions attached to the latter (including devaluation, reduced public

spending; elimination of public subsidies; wage restraint; increased interest rates and

taxes related to demand curbs; elimination of state-owned or supported enterprises

and greater access for foreign investment; reform/protection of local industries; export

promotion and application of foreign exchange to debt services, etc) have invariably

becomethesameconditionsattachedtoloans.Thegeneralthrustoftheseconditions

(orconditionalities)hasbeentopromoteopenandmarket-orientedeconomies.

Again, as noted earlier, policy-based lending was introduced at a time when

commercialbankloanstodebtorcountrieshaddriedup.Asaresult,theWB’spolicy

conditionalitieshaveenabledittoexertleverageoverkeypoliciesofborrowingcountries.

According to Goldin (1992:15), ‘the increased emphasis on policy conditionality has

occurred at a time when commercial lending to developing countries had dried up, so

that the World Bank’s influence on the policy environment, in borrowing countries, has

grown to the extent that it was easily the most powerful policy actor …’(ouremphasis).

Thisleverageismanifestedinseveralways.Thefirstistheintellectualhegemonyof

theWB.ThisisderivedfromitscloseworkingrelationshipwithUnitedNationsagen-

cies such as the World Health Organisation (WHO); Food and Agriculture Organisation

(FAO);UnitedNationsEducational,ScientificandCulturalOrganisation(UNESCO);and

theUnitedNationsDevelopment Programme (UNDP). Staffers of these agencies are

involvedintheWB’sprogrammes,andprepareprogrammesforBankfunding.How-

ever,theseexpertshavenoinfluenceovertheBank’slendingpolicies.Asaresult,the

Bank’sideastendtodominateitsrelationshipwiththeseagencies,anditalsohasthe

mostmoneytospend(Payer1982:16–17).

Similarly, over the years, the WB has developed a huge bank of information that sur-

passesthoseofindividualcountriesororganisations.Thisplacesitinanadvantageous

position innegotiationswithborrowingcountries. It is thereforenot surprising that

certaincountriesnotonlydependonthis information,butreadilyaccept theBank’s

prescriptions and conditionalities, which are claimed to be the panacea for their eco-

nomicproblems.In1984,forexample,theNigerianmediareportedthatthecountrydid

notknowhowmuchitowedtheWBandotherdonoragencies.Asaresult,theNigerian

governmenthadtodependontheBanktoverifyitsdebts.TheWBcapitalisedonthis

unfortunate situation when negotiating with the then Nigerian military regime for new

loansandreschedulingofolddebts.Africa’smostpopulouscountryis,regrettably,not

theonlyexamplethancanbecitedwithinthiscontext.

OP 60.indd 16 11/20/08 11:53:35 AM



Second, the Bank’s leverage over and subsequent prescription of key economic

policiestoborrowingcountriesarederivedfromitsfinancialhegemony.Thishegemony

is derived from its influence over other aid agencieswhich co-finance programmes

preparedandappraisedbytheBank.Forexample,Payer(1982)observesthatbytheend

offiscalyear1980thetotalamountofco-financingfromalllenderswas$6,5billion,

morethan50percentoftotallendingbytheWBgroup.

The WB also plays a vital role in the co-ordination of overall aid programmes to

individual countries through its position as convener of almost all the existing aid con-

sortiaorconsultativegroups,suchastheParisandLondonclubs.Inthisregard,Payer

(1982)callstheBank‘theinternationalorganiserofcreditors’.HowdoestheWBuseits

intellectualandfinancialhegemonytodictatekeypoliciestoborrowingcountries?

First, as earlier remarked, borrowing countries are expected to contribute match-

ingfundstotheBank’sprogrammes,usuallyforinfrastructureoroperatingexpenses.

This is a powerful way of compelling borrowing governments to spend their money for

purposesdeterminedbytheBank.Thosegovernmentsmayhavewantedtospendthe

moneyonalternativeprogrammes,buttheBank’sconditionalitiesruleoutsuchoptions.

As a result, borrowing countries are often forced to spend money on programmes that

undermineor circumscribe theirnational interests.However, the implementationof

suchprogrammeshasnotgonetotallyunchallenged.Numerousborrowingcountries

have experienced urban riots induced by economic SAPs, led mainly by university stu-

dents,workersandtheurbandispossessed.Theirgovernmentswereundermined,and

theirlegitimacyreducedordestroyed.In1989,anti-SAPdemonstrationsshookNigeria’s

Babangida regime to its core, whilst three years earlier, anti-SAP protests contributed to

thecollapseoftheJean-ClaudeDuvalier(‘BabyDoc’)regimeinHaiti.Itcanbeargued

furtherthatsincetheBank’sloanshavetoberepaid,aportionoftheloanismoney

thatbelongstoborrowinggovernments.Inanutshell,itiscorrecttosaythattheBank’s

loans and attached conditionalities determine how borrowing countries must spend

theirmoneyand,byextension,dictatekeyeconomicpolicies.

Second,theWBalsodictatespolicychoicesondevelopmenttoborrowingcountries.

TheBankespousesafreemarketapproach.Throughitsloansandrelatedcondition-

alities, it promotes the interests of private international capital and its expansion

to developing countries. In the process, the ability of borrowing countries to adopt

individual, independentorautonomouspathtodevelopment is severelyconstrained.

Through its conditionalities, the Bank has acted, from its own standpoint, to foster

developmentandintroduceorderlymarketprocessesincontextoftheglobaleconomy.

Yet its policy prescriptions in developing countries have tended to limit the capacity

of nationalist/progressive governments and social forces to formulate nationalist or

people-centred development policy (Block 1977; Payer 1982; Pastor 1987; Wood 1986;

Canak1989:11).

Clearly, SALs constitute one of the instruments with which Western Europe and the

United States force developing countries to follow an orthodox liberal path of development

OP 60.indd 17 11/20/08 11:53:35 AM



(Mosleyetal1991:39).Inrecentyears,theconditionalitiesoftheBankhaveincluded

the requirement that borrowing countries adopt western-style multi-party democracy as

wellasprescriptionsfor‘goodgovernance’.Inotherwords,theWBandIMFhavetended

todelegitimiseor criminalise socialist and socialwelfarepathsof development.Yet,

only these appear capable of humanising the majority in developing countries who are

currentlyekingoutalivingattheperipheryoftheglobaleconomy.Conditionalitiesalso

commonly include cuts in public welfare spending; a prescription that the state cannot

own the means of production and distribution, nationalise privately owned business, or,

forthatmatter,protectlocalindustries.Therearealsoprohibitiononminimumwage

legislationandthefosteringoftradeunions(Payer1982;Canak1989).

International competitive bidding (ICB) as a means of allocating WB funds also

constrainsthechoiceofmarket(s)availabletoborrowingcountries.Italsoopensthem

uptointernationalcapital.About80percentofWBfundsareallocatedthroughICB,

andsupervisedby theBank.Mostof thesebidsarewonbycorporations increditor

countries.What thismeans is that through the ICB, theBankopens themarketsof

borrowing countries that should ordinarily be serviced by local suppliers to so-called

‘marketforces’(Payer1982:36).

The WB also uses its relationship with the IMF to dictate key policies to borrowing

countries.TheinformalagreementbetweenthesetwoinstitutionsensuresthatSALsare

onlyextendedinsituationsinwhichtheIMF’sconditionalityandstabilisationpolicy

isalreadyinplace.Themajorelementsofthispolicyincluderestrictionsonmonetary

growth and public expenditure, devaluation, increase in taxes or public utility prices,

andwagecontrols(Killicketal1984;Mosleyetal1991:68).Theseelementscombine

toconstrainthesocialandeconomicpoliciesofborrowingcountries.Toreiteratean

earlier point, the political capacity of national regimes to adopt independent socioeco-

nomicpolicyoptionsisalsoseriouslyundermined.Forexample,protectionismishardly

aviableoptionforcountrieswhosesurvivalistiedtoforeigndebtrefinancing.Thisis

more evident in countries where orthodox market reform has been presented as a condi-

tionforaccesstotheglobalcreditmarket.

The growing use of cross-conditionality between the WB and IMF has tended to

strengthen both organisations in their negotiations and other dealings with borrowing

countries.Forexample,theIMFdraftsPolicyFrameworkPapers(PFPs)whichsimulta-

neously articulate its understanding of the economic problems of borrowing countries,

andproffersolutionstothem.TheIMFthenpresentsthePFPtotheWBforitsopin-

ion.Oncefirmedup,theIMFandWBusethesePFPsinnegotiationswithborrowing

countries.Inmostcases,theproblemsandsolutionscontainedinthePFPsdominate

therelationshipoftheseagencieswiththeborrowers.Byextension,theWBnotonly

imposes solutions on borrowers, but also forces them to view their problems from the

perspectivesofbothinstitutions.

We have already alluded to the fact that the WB is the organiser of international

capital.Toensurethesuccessofitspolicyframework,theBankhaspersuadedbilateral

OP 60.indd 18 11/20/08 11:53:35 AM



andprivatedonorstotietheirfundstoSALsandIMFconditionalities.Inthefaceof

increasingdebts,borrowingcountriesareforcedtoadheretoWBpolicy.Thisisbecause

their access to new loans and their ability to reschedule their debts (which must be

financedthroughaidbymultilateral,bilateralorprivatedonors)dependsontheirbeing

declaredcreditworthybytheBank.AsGordhan(1991:11)notes, ‘theWorldBank…

determines the credit rating and acts as a signal to the banks on whether or not to lend

toaparticularcountry’.Thissituationforcesborrowingcountriestocomplywiththe

Bank’sconditionalities,sincethisisreallytheonlywayinwhichtheycanaccessnew

loansandrescheduleolddebts.AsCanak(1989:21)putsit:

Caught in the debt crisis, borrowing governments found themselves forced to accept

aroutinisedprocessfordebtrescheduling.Theymustpresentaplanforeconomic

stabilisation that conforms to the conditionality and structural adjustment demanded

bytheIMFandtheWorldBankasabasisforthecertificationofcreditworthiness.

In this context, note Mosley et al (1991:54–55),

the room for independent policy manoeuvre is more restricted, both in terms of the

measurestobeadoptedandthesequencingoftheiradoption…Onceofficialsofthe

Bank and the IMF make up their minds, there is usually little material contribution

fromborrowingcountries.

The techniques used to disburse SALs and Sectoral Adjustment Loans (SECALs) has

furtherstrengthenedtheBank’spositionvis-à-visborrowingcountries.Loansaredis-

bursedintranches,andcertainconditionshavetobemetbeforethefirsttrancheis

disbursed.Thedisbursementofsubsequenttranchesdependsonamid-termreviewof

implementation of the loan programme and an evaluation of progress made towards

agreed targets.The lattervarybetween tenand20perproject.Adjustment lending

typicallycompriseonetotwoyears’loansdisbursedoverfivetotenyears.Whencoun-

tries fail to meet these targets and other conditions, no further tranches are paid out,

andtheycannotaccessnewloans.Asaresult,thecarrotoffutureloansensuresthat

Bank conditionalities are implemented, a phenomenon which serves to curtail the pol-

icyoptionsopentoborrowingcountries(Goldin1992:15).Itisalsonotuncommonfor

the Bank to tie the size of loans to the extent of policy changes prescribed to borrowing

countries.Thelargerthepolicychangerequired,thelargertheloan.

Importantly,oneoftheWB’smostimportantrequirementsisthatloansberepaid.

Expresseddifferently,theBankensuresadherencetoitsprogrammethroughitspower

toadvanceorwithholdnewloans.Whenborrowingcountriesdefaultonrepayments,

theBankandotherdonorsmayrefusetoadvancenewloansorrescheduleolderones.

Evenwhen reschedulingdebts theBankensures that its loansareprioritised.Payer

(1982:46) cites a former WB president, A W Clausen, as stating that ‘there are substan-

tialpragmaticreasonswhyborrowersdonotdefaultonWorldBankloans.Intheevent

OP 60.indd 19 11/20/08 11:53:36 AM



of a default, no further disbursement would be made on that loan or any other loan we

hadoutstandinginthecountry.Andnonewloanswouldbecommitteduntilthedefault

hadbeencured’.Defaultsalsoimpactnegativelyoncreditworthinessratingsbyother

donors.Countriesdo,however,default.

The key point is that the WB and IMF use the power to advance or withhold new

loans to intimidate and manipulate borrowing countries into meeting their debt obli-

gations in the form of paying interest or the principal. Furthermore, notes Canak

(1989:22) ‘conditionality also requires that surpluses generated by the balance-of-trade

surplusesbeusedtosatisfymultilateralandinternationalcreditors.'Itisthereforeself-

evidentthattheWBdeterminesthenationalprioritiesofborrowingcountries.Itisnot

uncommontofinddebtornationscommittingalargechunkofGDPtodebtservicing

and repayments, even though these funds could have been put to better use either to

increasenationalproductivityortoimprovesocialservices.

For example, in the face of mass poverty, hunger, unemployment, diseases,

homelessness, illiteracy, and so on, the South African Government of National Unity

(GNU) committed 18 per cent of its GDP in the 1995/6 budget to debt servicing (Mercury

Business Report,16March1995).Tobesure,thatmoneywouldhavegonealongway

towardsbuildingmorehouses;providingbetter,moreaccessibleandmoreaffordable

medicalcare;improvingeducationandsocialservices.Intheprocess,someofthegoals

oftheReconstructionandDevelopmentProgramme(RDP)wouldhavebeenachieved.

The situation is worse in several other African countries where, for instance, foreign debt

oftenamountstomorethanthreetimesthevalueoftotalexports(Simon1995:25).

ThepervasiveinfluenceoftheWBonborrowingcountriesisamplyandaptlysum-

marised in the following statement by the Institute for African Alternatives (1987):

The…Bank’s claim that theydonot forceanythingonanycountry is incorrect

becauseanIMFagreementisapreconditionforanyexternalfinanceandbecause

they sometimes pressurise countries to take additional loans- even when these coun-

tries say they do not need them, and when it is clear that they cannot service their

existingdebts.

Under structural adjustment, these agencies do not merely supervise individual

sectorsoftheeconomy…Theynowmanageeachcountryentirely.Theyhaveto

approve annual budgets, foreign exchange budgets, post their representatives to the

Central Bank, Ministries of Finance and Trade of independent countries, approve

monetary,fiscalandtariffpoliciesandgiveclearancecertificatesbeforecountries

cannegotiatewithotherforeignlendingagencies.

This discussion shows clearly that policy-based lending enables the WB to dictate key

economicandfinancialpoliciestoborrowingcountries.Ithasbeenestimatedthatbor-

rowingcountrieshavemetabouthalfoftheBank’sconditionalities.Ithasacknowledged

that about 60 per cent of agreed conditions have been implemented during the loan

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periods, and that in almost every case, the second installments have been disbursed

eventhoughtheoriginalconditionswerenotsatisfied(WorldBank1988:15).Whatthis

shows is that, under certain conditions, borrowing countries can adopt independent

policyoption(s)indisregardoftheBank’sprescriptionsanddictates.

Mosley et al (1991:38–51) have identified two features of policy-based lending

whichpreventborrowingcountriesfrommeetingpolicyprescriptions.First,thepolicy

changes required are often numerous and extreme, and loosely linked to the capacity of

borrowingcountriestorepaytheloan.Second,theseconditionstypicallycannotbemet

in a short period of time and therefore often stretch over a number of years, which gives

borrowerssomeroomformanoeuvre.Asaresult,itisnoteasytojudgewhetherornot

agivencountryhascompliedwithagivenprescription.Thisthenbecomesasubjectof

negotiationbetweentheBankandborrowingcountries.

Under these circumstances, all the Bank can do is to ask borrowers to reaffirm

theirgoodintentions.Underproject-basedlending,allloanapplicationswereclosely

scrutinisedbeforebeingapprovedbytheBank’sboard.Policy-basedlendinglackssuch

approachandthereforegivesborrowingcountriessomeroomtomanoeuvre.Because

theapplicationsare somany,andcountry staffwithin theBankwant tomeet their

targets, shortcomings in applications are either glossed over or massaged by country

staff inorder tomake theproposal(s) available for thenextboardmeeting.Propos-

alsare thereforerushedthrough.Toa largeextent, theBankequates thesuccessof

programmes to their number.What thismeans, concretely, is that, at least in some

instances,theBanklendseveninthefaceofnon-compliancewithitsconditionalities.

Thisispartlybecause,forgoodorforill,theBank’scontinuedrelevancedependsonits

abilitytolend.Somesmartcountries(aswellasunsuspectingones)couldexploit–and

areexploiting–theseloopholes.

Another factor that creates room for countries to adopt their own policies is the

conflictthatmightariseasaresultofthecombinationofthepoliciesoftheWBandthe

IMF.Thiscreatesconfusionaswellasadministrativeproblemsinborrowingcountries

whichthenhavenochoicebuttooptforanindependentapproach.Shouldeitherthe

Bank or the Fund want to sanction such a country, the latter could decide to negotiate

withbothofthemjointly.Thiscouldexposetheconflictsinherentinthecombination

oftheirpolicies.However,theBankandFundmayeasilyagreetonegotiatewitheach

otherovertheheadsofborrowingcountries.

Moreover, internal pressures within the Bank to lend irrespective of whether or not

conditionsaremettendtoencourageborrowingcountriestodisregardtheBank’scon-

ditionalities,sometimeswithimpunity.Theseinternalpressureshaveseveralsources.

First, the Bank commits itself to lending a certain sum based, it claims, on the needs of

borrowingcountries.Onthisbasisitnotonlyinvitesadditionalsubscriptionsfromits

members,butalsoborrowsfromthecapitalmarket.Oncethesizeoftheplannedloan

isdeclared,thereissomepressuretofulfilltheaggregatelendingplan.Thisiscoupled

withtheBank’sneedtomaintain itsstatusasapreferredcreditor.Additionally, the

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rapid expansion of the Bank from the 1970s onwards has internalised the pressure to

meetitscountrytargets-andstaffappraisalsandpromotionsdependonmeetingcoun-

try targets. In these circumstances, irresponsible lending abound,which borrowing

countriescouldexploittotheiradvantage(Mosleyetal1991:46–47).

Political pressure to lend by major shareholders is another source of internal pres-

surewhichmakesamockeryoftheBank’sconditionalities.Acaseinpointoccurred

in1988when,followingpressurefromtheUnitedStates,theBanklent$1,25billion

to Argentina (which was, at that time, highly indebted to the Bank and United States

commercialbanks).ThiswasdespiteitspoorreputationforcompliancewiththeBank’s

conditionalities, and the absence of an IMF stabilisation programme. This kind of

lending to support balance of payment deficits tends to erode the legitimacyof the

Bank’sconditionalities,thoughnottothepointofmerewindow-dressing(Mosleyetal

1991:48).ThisisbecausesuchloansultimatelysatisfyandpromotetheBank’spolitical

objectives.

5. the role of the World Bank and iMF in Africa5.1 the interface between globalisation and globalism

In recent years, some scholars in both the Global North and Global South have tended

to confuse globalism with globalisation, to the detriment of development discourse and

developmentpractice.Whilstglobalisationisanaturalconsequenceofglobaldevelop-

ment, globalism, following Kly (1999), is ‘the attempt to globalise an ideological cum

socioeconomic system by attaching them to the natural demands and consequences of

naturalglobalisation’.Theresultofthisdeliberateconflationbyhegemonicforcesand

classes in the North has been that ‘the negative, destructive, and unjust outcome of

United States and Western globalising policies are popularly attributed to … inevitable

globalisation outcomes instead of to Western and United States policies of neocolonial-

ismandimperialism’.Globalisation’sdominantideologyisneoliberalism,andtheonly

way to make it intelligible and legitimate in the eyes of the public- including globalisa-

tion’svictims-istoengageinadiscoursethatmakesglobalisation‘credible,legitimate,

benevolentand,aboveall,inevitableandirreversible’(Gelinas,2003:98).

Asearliernoted,thethreemajorplanksofneoliberalismarethedeificationofthe

market,freetrade,andaid.Thenotionofthemarketisintrinsicallytiedtothethinking

of Milton Friedman and Friedrich von Hayek, respectively, scions of the London and

Chicago Schools of Economics, who saw it as ‘the most perfect modern application of

theconceptofliberty’.Friedmantookthisphilosophytoanextremebyarguingthat

the‘socialresponsibilityofbusinessistoincreaseitsprofits’.Inthesamevein,contem-

porary western disciples of David Ricardo, foster father of free trade ideology, believe

with him that ‘for the welfare of the nation as a whole, free trade is preferable to pro-

tectionism’(Gelinas2003:104,108–9).Theonlysnagisthatfreemarketideologuesdo

OP 60.indd 22 11/20/08 11:53:36 AM



notpractisewhattheypreach.WhilewesternpowersandtheInternationalFinancial

Institutions (IFIS) they control pressurise and manipulate developing countries into

practising free trade, they themselves freely practise protectionism not only in respect

ofthosecountriesbutalsoamongthemselves.Themostpowerfularenotboundbythe

rulesofthegame;theyprosperbybullyingthemostvulnerable.

Contemporary globalisation has polarised the world, prompting veteran economist

and activist Samir Amin to regard polarisation and imperialism as one and the same

thing.Forhim,imperialismisapermanentfeatureoftheglobalexpansionofcapital,

which has ‘always produced a polarisation of wealth and power in favour of the core

countries’(2006:3).

As could be expected, the dominant development ideology in the context of

globalisation has emerged from the foreign policy of the triad (the United States,

European Union, and Japan). Free trade and the market are oiled by aid money,

provided by the triad and other western powers to create overseas sites for their own

capitalaccumulation.

Tobesure,theobjectiveisnotstatedintheseterms.Rather,thepubliclyenunciated

objectiveof‘overseasdevelopmentassistance’(ODA)–anothernameforaid–istohelp

third world countries to develop, not by reinventing the wheel but by emulating the

developmenttrajectoryofthecapitalistNorth.Butthisisatallorder,totheextentthat

there is a dialectical relationship between capital accumulation in the core states and

themarginalisationofdevelopingcountries.Tocontinuetogoadthelatteralongthe

path of at best dependent development is to deliberately ignore

thefactsofapre-existentglobalhierarchyandofdifferentialmarketpower…which

profoundly constrain the prospects of those who must now try to compete from a

position of considerable disadvantage with established centre of global economic

dominance(Saul2006:2).

Notwithstanding this dynamic on the ground, the WB, IMF, and their western principals

have clung tenaciously to the neo-liberal development doctrine which states that all that

poorcountriesrequirefortheirdevelopmentarelargeandsustainedflowsofforeign

capital(Payer1991:x).Asthesolesuperpowersteepedintheextensiveuseof ‘hard’

ratherthan‘soft’power,theUnitedStatesishegemonicinthisrespect.Washington’s

unilateralistforeignpolicy,firstinLatinAmerica,itshemisphericbackyard,aswellas

on the global scene, is anchored on the conviction that

the United States can legitimately exercise its power abroad solely for American

interests, and that this exercise of power should not be subject to review or approval

byanyexternalpowerorinternationalbody(Staples2007:5).

Atfacevalue,thiskindofideologicalposturingcallsintoquestionAmerica’scommit-

ment to multilateral institutions such as the WB, IMF, and World Trade Organisation

OP 60.indd 23 11/20/08 11:53:36 AM



(WTO)tofulfilltheirrespectivemandates,particularlyinrespectoftheGlobalSouth.

What should bother governments and policy-makers in third world countries, especially

Africa, is that the ideological predilections of the United States and its major allies are

sharedbytheBank,theIMF,andotherInternationalFinancialInstitutions(IFIs).

Washington’s propensity for using its economic, political, financial andmilitary

muscle to serve its own geopolitical, strategic and national interests iswell-known.

This limits the choices of its negotiation partners, and alters their preferred course of

action(Staples2007:5).Inthesamevein,theUnitedStatesandothercreditornations

haveusedtheircapitalflowstodevelopingeconomiestoservetheirownpoliticaland

economicgoalsunderthepretextof‘aiding’thesecountriestodevelop.Theresulthas

been the debt peonage of these countries, and the constant export of vast amounts of

capital fromthesecountries to thecreditors in thenameofdebt (re)payment.Since

1982,accordingtoPayer(1991:115),theannualaverageisabout$30billion.

The combination of transnational corporations and private capital has given a par-

ticular trajectory to development discourse and practice that harms non-western econo-

miesandsocieties.Themarkersand identifiersareclear.Thefirst is free tradethat

is anything but free in view of its ‘double standards that protect certain markets in

wealthycountriesanddenypooranddevelopingcountriesthechancetobenefitfrom

themostpromisingsegmentsoftheirowneconomies’(Naidoo2003).Thesecondisa

power-based rather than rules-based multilateral system which gives the WTO awe-

some powers to formulate ‘global’ policy on virtually all aspects of trade,which is

inimical to the peripheral segment of the international system, pious statements to the

contrarynotwithstanding(Jawara&Kwa2004;Short1998:460,463).

Theseelementsarenotuniquetocontemporaryglobalisation.Indeed,asBroad&

Heckscher point out, ‘today’s pattern of global exchangedate back to the periodof

Europeancolonialism thatbegan in the late15th century’ (2003:714).Threeearlier

waves of economic integration (European colonialism; the early post-World War Two

period up to the 1960s; and the 1970s, a period of concerted and heightened political

solidarity and activism among countries of the South demanding new ground rules in

international economic and trading relations) teach us that, then and now, economic

reformprogrammesarenotintendedtoservetheinterestsofthepeopleintheaffected

countries.Rather,theseprogrammesserve‘theinterestsofglobalcorporationsandthe

globalmarket’(ibid:722).

Intheprocess,benignindifferenceorinadequateappreciationisdisplayedtowards

salientissuesofautocentricandgenuinedevelopmentaffectingordinarypeopleinthe

South,ofteninalifeordeathway.Thenatureofcapitalhasremainedunchangeddown

theages:italwayspromotesanethosofcommerceandthecommodificationoflifeitself

overandabovethevalueofhumanrightsandthedignityofhumanlife.Asitwasdur-

ingthefirstscrambleforAfrica-particularlyaftertheBerlinconferenceof1884–5–the

second(andperhapsfinal)scrambleforAfricanowinvolvesemergentpowerssuchas

ChinaandIndiawhicharebynomeansmorebenign.Thecolonialeconomicethosof

OP 60.indd 24 11/20/08 11:53:36 AM



crudeandcruelexploitationisverymuchalive,andreignssupreme.Thisapproachwas

exemplifiedbyCecilJohnRhodes,Rhodesia’scolonialfounder,whenhestated:

wemustfindnewlandsfromwhichwecaneasilyobtainrawmaterialsandatthe

same time exploit the cheap slave labour that is available from the natives of the

colonies.Thecolonieswouldalsoprovideadumpinggroundforthesurplusgoods

producedinourfactories(citedinibid:714–715).

An ideology-driven globalisation process and the ideology of the WB, IMF and WTO,

amongstothers,feedandreinforceeachother.Leftuntamedanduntemperedbydelib-

erate, deliberative and far-reaching state and other political interventions, globalised

capitalism, in the form of free market processes, engender large-scale injustice, insecu-

rity,instability,andinefficiency.InitsstudyGlobalisation, Growth & Poverty: Building

an Inclusive World, the WB claimed, through its chief economist and Vice-president

Nicholas Sem (successor to Nobel Laureate Joseph Stiglitz), that ‘integration and free

tradearereal’,andthatthelatterandglobalisation(readglobalism)amounttoanti-

dotestopovertyandincomeinequality(Raghavan2001).Butthentheclaimthatthere

is a positive linkage or one-to-one relationship between open trade and growth has not

beenvalidatedanywhere.ForemosteconomistDaniRodrik(2006)makestheimpor-

tant point that insofar as the WB itself admits that neither China nor India has adopted

pro-trade policies, rapid integration with world markets is likely to be due to ‘successful

growthstrategies’ratherthantotradeliberalisationoradevotiontoWTOrulesand

frameworks.

He adds that given the fact that both countries only reformed their trade regimes a

decade after higher levels of economic growth (even though trade restrictions remain

prominent, as South Korea, Taiwan, and Vietnam demonstrate) there is reason to believe

thatpoliciesanchoredonthe‘particularitiesandidiosyncraticcharacteristics’ofindi-

vidual countries have boosted economic growth more than the sheepish or monochro-

micembraceofa‘uniformpreceptormodel’(Rodrik2006).WhatsetsChinaandIndia

– as well as Argentina, Bolivia, Brazil, and Indonesia – apart from African countries is

thattheyhaverefusedtoimbibeglobalisation’shegemonictenetshook,lineandsinker.

Rather, they have used the forces of globalisation to enhance their domestic capacities,

thelessonbeingthat‘thebenefitsofglobalisationcometothosewhodotheirhome-

work’(Rodrik2008).

A combination of colonial and neocolonial policy designs and imperatives and undue

pressure on African governments and political leaders to continue to play the guinea

pigroleforsundrypeople-hurtingpolicieshasleftAfricainthelurch.Indeed,manip-

ulation of market orthodoxy by the WB and IMF has subordinated African govern-

mentsandpeople.Itiscommonknowledgethatthereishardlyanycriticalengagement

betweentheG8,theWBandIMFonthehandandAfricangovernmentsontheother.

While, in general terms, the Bank and Fund are infamous for seeking consultation with

OP 60.indd 25 11/20/08 11:53:37 AM



domesticstakeholdersonlyaftertheiragendahasbeenfirmedup(Kenety2000),the

additional tendency, vis-à-vis Africa, has been to set little store by popular consent

andadevelopmenttrajectorythatreflectsconcretehistoricalexperiencesandcultural

exigencies(Adeniji2005:60).Implicit–letaloneexplicit–bargainingisararecom-

modity.AsreportedbyCallaghy(2004),therelationshipisundergirdedbyaleader-

follower mentality: ‘do what we tell you to do, and you will have the funds to invest in

growth-related activities to support on-going economic reform because private external

investmentwillflowin’.PerhapsbecauseAfricaneconomiesarethemostopenandthe

worst exploited by both globalism and globalisation, the lack of internal democracy in

theFundandBankresonateseasilywithinthecontinent.

Haiti (the second black nation in the western hemisphere after Palmares to achieve

independence) is emblematic of the treatment reserved for African governments: the

Bank and Fund would extend new loans or credit facilities to heavily indebted and

strugglingcountriessothattheycouldstartrepayingearlierdebts.Undertheimpulsion

of Washington and, to a lesser extent, the European Union, the Inter-American Develop-

ment Bank (IDB) insisted, in October 2002, that Haiti should start making payments on

yet-to-bedisbursedloansaswellasarrears.Inordertoqualifyforaninvestmentsector

loanof$35million,theAristidegovernmentwasforcedtopayoutstandingarrearsof

$32millioninmid-2003.Tocomply,thegovernmenthadtoliterallyemptythecoun-

try’snationalreserves.

Therewasnocompassionwhatsoever for the long-sufferingpeopleofHaiti; they

effectivelygainedonlyameagresumof$3millionfromthetransaction.Furthermore,

in its push for SAP and privatisation (a move rejected by both the Aristide and Preval

governments),theBankimposedtheprivatisationofkeyinfrastructure.Itwentbeyond

the call of duty to order that key state/public sector functions such as education, health,

familyplanning,watersupplyandsanitationbetakenoverbythecountry’snon-gov-

ernmentorganisation(NGO)sector(Beeton2006).Surely, itdoesn’tgetnastierthan

this!

This explains why legitimate demands by critical state and non-state voices from

the South calling for the adoption of policies and measures to ‘reshape the rules of

theworldeconomytoincreasethebenefitsofeconomicintegrationtoSouthnations

states ingeneral’ (Broad&Heckscher2003:724)have consistentlybeenopposedby

westernpowersandtheIFIs.Theresultisthatthosevitaldevelopmentvariablesfrom

the perspective of the South (such as fair trade to ensure higher prices for commodi-

ties; proper regulation of trade agreements in terms of consensual norms and values;

codesofconductforcorporations;andthirdpartycertificationinitiatives)receivescant

attention.Thisexplainswhyboth theUruguayRoundofWTOtradenegotiationsas

well as the prolonged Doha Round have been no more than the expression of crude

gunboatdiplomacy.

It is instructive to note that, since the Euro-African summit in Portugal in December

2007, the European Union (EU) has been piling pressure on African, Caribbean and

OP 60.indd 26 11/20/08 11:53:37 AM



Pacific(ACP)statestosignanEconomicPartnershipAgreement(EPA).Bothinform

and substance, this would be wholly antithetical to African agriculture and industry

orindustrialisation.Clearly,theEUisaimingatthecontinent’seconomicjugular,with

scant regard for the fact that while Europe currently accesses about 80 per cent of

theAfricanmarket, thereciprocalfigure forAfrica isamiserable2percent(Pilger

2008:28). Interestingly, someCaribbean states (Barbados, Trinidad andTobago, and

Jamaica) that had initially agreed to sign later decided to take a more critical look at

thearrangement(Ischyrion2008).

If the ACP states buckle, the consequences for Africa are ominous indeed: ‘given its

engineering and focus, the EPA would mean the total swamping of ACP countries with

cheap, subsidised food from the EU quota-free and duty-free to the detriment of ACP

economiesandtheirfarmers’(African Agenda 2008).

Thus Clare Short, then British Secretary for Overseas Development, missed the point

when she claimed that ‘developing countries must become full participants on the glo-

baleconomicstage,shapingandinfluencingglobalrulesinlinewiththeirinterestsand

needs’(1998:456).Naidoo(2003)describesthenatureandlogicofthecontemporary

globalisation policies of the Bank and Fund as that which

energetically enable(s) the movement of capital, but not of people, across bounda-

ries;afinancialsystemthatessentiallyrewardsunemploymentandconsolidatesa

notion of jobless growth, a system that rewards rampant over-consumption rather

thangrapplingwiththemorecomplexchallengeofsustainabledevelopment.

In Lent & Lost: Foreign Credit and Third World Development (1991), a companion volume

to her two previous works on the WB and IMF (1975 and 1982),2 Cheryl Payer claims

that ‘since the Latin American debt crisis broke in 1982, Third World debtors have been

payingtheircreditorsanaverageof$30billionmoreeachyearthantheyhavereceived

innewlending’(pix).Sheadds:

This is money which could and should be used to pay for necessary imports to keep

their own productive facilities operating and to make new investments for future

production. It ismoney that isdesperatelyneeded for educationandhealth care

expenditures … (yet) it is a charge that they are legally required to pay year after

yearintotheindefinitefuture(ibid).

She also speaks to misconceptions and myths about third world development and the

roleofforeigncapitalinthedevelopmentprocess(ibid:x).Atleastthreeofthemyths

shehassoughttocorrectaregermanetothemajorthesisofthispiece.Thefirstisthat,

contrary to the popular notion that poor countries are natural and net importers of capi-

tal,theyhavebeen(asalreadynoted)massiveexportersofcapitalsincethe1980s.The

second is that, while received wisdom states that the WB and IMF have the expertise to

advise countries about how to deal with their balance of payments problems, they have

OP 60.indd 27 11/20/08 11:53:37 AM



oftencreatedandsustainedthedebtcrisesofdevelopingcountries.Worse,theyhave

tended to cling to the same panoply of policy advice even whilst grudgingly admitting,

as the Bank did in Economic Growth in the 1990s: Learning from a Decade of Reform

(2005),thatthesearchforformulaeand‘bestpractices’iselusive(Rodrik2006).And,

finally,theripostetothemyththat‘economicgrowthwillgivecitizensofthedebtor

countriesabetterlifewhileatthesametimeeventuallyallowingthemtopayofftheir

debts’ isthat,ratherthansolvebalanceofpaymentsproblems,domesticgrowthhas

tendedtoworsenit.

Rodrik(2006)hasarguedthatif‘bestpractice’wasallabouteconomicgrowth,sub-

SaharanAfricaexperiencedthatinthetwodecadesprecedingSAPs.Clearly,then,itis

not.Rather,itisaboutintegratingdevelopingcountrieswiththeglobalpoliticalecon-

omy via market reforms that have consistently failed to establish the basis for long-term

economicgrowthinlow-incomecountries.Thisisneitheraccidentalnorfortuitous.On

thecontrary,itisglobalismatwork,andtheconnectionsitisfosteringare‘benefiting

largefirms,whilecreatinghardshipsandinstabilityformany,manypeople’(MacEwan

2001).OrthodoxmarketreformssanctionedbythepoliciesoftheBankandFundhave

nowhereledtostableandsustainedeconomicexpansion.

On the contrary, as already noted in the preceding section, they have tended to

deepeninequalityandexacerbatethecrisisofpovertyinmanyAfricancountries.On

the whole, policy advice to developing economies (some of which, by the late 1970s,

were already evincing features of a developmental state) to curtail social spending

on education, health, and physical infrastructure threw spanners into their long-term

economicgrowthanddevelopment (Yu2005). InMay2001KwamenaBartels, then

Ghana’sministerforworks(later information),gavethisverdictabouttheimpactof

SAP on the economy and society of a former star pupil of the Bank and Fund:

After 20 years of implementing SAPS, (Ghana) economy has remained weak and

vulnerableandnotsufficientlytransformedtosustainacceleratedgrowthanddevel-

opment.Povertyhasbecomewidespread,unemploymentveryhigh,manufacturing

and agriculture in decline, and … external and domestic debts much too heavy a

burden to bear (in World Development Movement 2007:12).

To the extent that development in third world countries in general and Africa in par-

ticular is hardly definedby the international development community as ‘sovereign

democratictransformation’(Bendana2008)ofthesocietiesinquestion,acombination

ofODAanddebtcompoundsthestructuralvulnerabilityof thesestates.There isno

gainsaying that a particular development vision or ideology generates its own brand

ofpolicyadvice.Notonlydoaidandloansreinforcethepowerofauthoritariangov-

ernments by concentrating easy money in their hands; they also cement the status of

developingeconomiesaslociandsitesofcheaprawmaterialsandcheaplabour.Bythe

same token, aid and loans are, from the point of view of western powers, an invalu-

OP 60.indd 28 11/20/08 11:53:37 AM



ableinvestment.BesidesthefactthatODAloanshavetoberepaid,andhaveentrapped

African countries into a veritable debt peonage since the 1980s, they are minuscule

comparedtothehugeprofitsaccruingtothosepowersandtheirtransnationalcorpo-

rations.Theseprofitscomethroughunfairtrade,exploitationoflabour,appropriation

of resources, interests on loans, domination of markets, and privileges and incentives,

including tax holidays granted to globalised capital and their agencies in developing

countries(Broad&Heckscher2003:721;Bendana2008:28).Onereasonwhywestern

powerscontinuetodisburseaidispreciselybecauseitservestheirlong-terminterests.

Several Latin American and Asian countries have had the political courage and

sagacity to walk away from the IMF, citing failed policies. This failure is perhaps

most evident in Latin America: whereas between 1960 and 1980 its economies grew

by82percentpercapita,thecorrespondingfiguresince1980isamere14percent

(Beeton2006). There is little doubt that themarket-friendly development paradigm

encapsulated by the so-called Washington Consensus and enthusiastically promoted

until the 1994 Mexican peso crisis and the Asian crisis (beginning with Thailand in

1997) amounted to an unmitigated failure of the Bank and Fund in these two regions

(Raghavan2001).While,asnotedearlier,theWashingtonConsensusappearstohave

fallen out of favour, the policies espoused by its proponents (particularly indiscriminate

trade liberalisation as a catalyst for export-led growth) continue to be propagated in

developingcountriesalmostwithanuncannymissionaryzeal.

As a counterpoint to the foregoing, less aid and more self-reliance have to be the

nameofthegamefromAfrica’sperspective.Betterstill,rejectionoftiedaidappears

sensible.On thefirst score, after its incisive analysis of the lopsided structural and

economic relations between the United States and Latin America, Staples (2007:9) con-

cluded, rather regrettably, that Latin American countries ‘need much more aid for their

economies to grow and also to meet basic infrastructural needs such as education and

health’.

Someperceptivecharityorganisations,foralltheirneeds,havebehavedwisely.In

2007CareInternationalrefusedawhopping$46millioninfoodaidfromtheUnited

States government on the grounds that, rather than save the lives of the farmers

involved,theaidwoulddestroytheirlivelihoods.Additionally,theorganisationrejected

the strings attached- that is to say that donated food should be sold on the local market

sothattheorganisationcouldraisefundsforitsactivities(Obeng2008:8–9).Indeed,

in2000some71,6percentofAmerica’sbilateralaidcommitmentsweretiedtothe

purchaseofAmericangoodsandservices(Adedze,2008:12).

Given this situation, it is strange that most African governments continue to cling to

theerroneousbeliefthataidisapurveyorofeconomicgrowthanddevelopment.There

is, for instance, an almost theological reliance on the goodwill and generosity of the

G8(thenucleus,itseems,ofthelargelynebulous‘internationalcommunity’,themost

important term in current global development literature) for funding both the Millen-

nium Development Goals (MDGs) and the New Partnership for Africa's Development

OP 60.indd 29 11/20/08 11:53:37 AM



(NEPAD).AstheG8appearedreluctant,atits2008summitinHokkaido,Japantoreaf-

firmitscommitmenttokeeptotheself-imposed2010deadlinetoincreaseaidtoAfrica,

theUNDP’sripostewasswift:it’s a slap in the face for Africa when it has already done

so much through improved governance, better macroeconomic policies and strong growth to

uphold its side of the development partnership that underpins the MDGs (Dawes 2008:13,

emphasisours).

It is baffling that, almost a decade into a newmillennium, and confrontedwith

the awkward reality of growing poverty, such governments and their political/policy

leaders have tended to become more rather than less extroverted in their development

strategies. For them, development ismore a function of the benign and benevolent

activities of external agencies and forces and the resources they can mobilise and less of

the agency of domestic structures, social forces, and the abundant resources and energy

ofnationalpopulationsthatcanbedeployedinternally.

The aggregate of globalism as globalisation vis-à-vis the African continent is poverty

writ large.Povertyhasbeenconceptualisednotonlyas‘acomplexandmultidimensional

socioeconomicphenomenon’, but alsoas ‘a social construct’. ForGumede (2008:22),

poverty is far from being a natural phenomenon, not least because Africa, by far the

richest continent in terms of its immense natural, mineral and human resources, is

thepoorestandthemost‘aided’.Totheextentthatpovertyisahumancreation‘ina

worlddevoidofmoralsandcompassion’,Gumedeisrighttoinsistthat‘eachcountry

determines what kind of poverty it can tolerate, how long it wants to tolerate it and how

vigorouslyitwilldealwithit’(ibid).Furthermore,thenatureandcharacterofpoverty

iseasilymisunderstoodbythosewhochoosetoseeitasa‘contemporaryreality’rather

than‘ahistoricalprocessofenrichment’(Bendana2008:30).

Whatisthenatureofthe‘development’policiesoftheWBandIMFinrespectof

African countries? Have they compounded the poverty indices of the continent, or

reduced and alleviated them?

6. WB and iMF ‘development’ policies in AfricaIthasbeenarguedthat,contrarytothepositiontakenbymostinternationalfinancial

institutions,economicandfinancialpoliciesareaneminentlypoliticalmatter.Inthe

same vein, contrary to the ideological and political predilections of the WB and IMF,

effective development policies at any level (national or international) cannot afford

tosubordinaterationalpoliticstorationaleconomics.Thisisbecausenomatterhow

fineaneconomicpolicyblueprintisonpaper-andnomatterhowmuchitispushed

byexternalforces–itwillfailwoefullyattheimplementationstagewithouteffective

support from, and anchorage in, key domestic political constituencies, alliances, or

coalitions. Similarly, policy reforms are doomed unless institutional and political

conditionsarefavourabletothem.AccordingtoRodrik(2006),‘soundpolicies[need]

OP 60.indd 30 11/20/08 11:53:37 AM



tobeembeddedinsolidinstitutions’.Chiefamongthelatteristhestateoraparticular

configuration of the state such that democratic politics, social bargaining, popular

consent,andlegitimacyofpoliticalauthorityfindpopularexpressionandapproval.In

sum, social capital and social contract are vital ingredients in the articulation not only

of economic policies, but also of an effective overarching framework of governance

(Olukoshi2004;Stiglitz2002;Adeniji2005).

In their engagement since the 1980s with African countries on orthodox market

reforms, the WB and IMF have failed in at least three major respects. Firstly, the

developmentpolicyproffered forAfricahasnotonlyemphasisedrationaleconomics

at the expense of rational politics, but has also sought to subordinate the latter to

theformer.Secondly,SAPs,claimedtobethecure-allforthecontinent’saccumulated

policy distortions, were imposed on the state, political, and policy elite in recipient

Africancountries.Thirdly,insofarastheneo-liberalparadigmunderpinningSAPswas

presented as sacrosanct and non-negotiable, the Bank and Fund paid scant attention to

the imperative of a political and institutional framework anchored on an admixture of

stateintervention,marketreform,andsocial(re)distribution(Olukoshi2004).

There were other gaps in the policy process or matrix. These include a poor

understanding of the nature of the economic crisis on the continent, and an inadequate

appreciationofthepoliticsandpoliticaleconomyineachcountry(Adeniji2005).Having

effectivelytakenthepoliticalinitiativeforreformawayfromAfricangovernmentsand

people, theattempt to foistand force reformownershipon toAfricawas foolhardy.

Adams has made the important point that

theWorldBank’ssinglemostdestructiveaccomplishmenthasbeentofreethirdworld

governments from the need to deal with their own people; thereby undermining the

growth of democratic institutions and legitimate tax regimes throughout the third

world(1997:178).

IntheirreviewessaysonStiglitz’sGlobalization and Its Discontents, Friedman (2002)

and Rossi (2002) agree that not only the Bank, Fund and WTO but also the United

Nations family have signally failed in their enunciated mission of ‘furthering various

aspectsofthebroaderdevelopmentgoal’.StiglitzbelievesthattheIMF,morethanany

otherinstitution,isthevillainoffaileddevelopmentinAfrica.Henotonlyblamesthe

Fund’sflawedeconomictheories,lackoftransparencyandaccountabilitytothepublic,

anditspursuitofspecialcorporateinterests(Rossi2002;Rodriguez&Santiso2008),

butalsoquestionsitsrobustindifferencetotheexistence,inmuchofAfrica,ofimper-

fectinformation,incompletemarkets,andunsatisfactorylegalandrelatedinstitutions.

This is because countries forced to implement orthodox market policies in the absence

ofviableandappropriatefinancial,regulatory,andcorporategovernancesystemsend

up retrenchingand retrenching the stateand thenation’saccumulatedassets in the

handsofforeigncapitalanditsdomestichirelings.

OP 60.indd 31 11/20/08 11:53:37 AM



Besides the fact that African governments have been constrained to do away with

well-chosen,politicallysignificantinterventionsinorthodoxmarketreforms,whatkind

of development model were the WB and IMF trying to impose on the continent? To

begin with, political explanations are perhaps more important than economic ones in

ordertoreachabroad-basedunderstandingofadjustmentpolicies(Adeniji2005:44).

These institutions always attempt to cover up their deep involvement in the domestic

politics and policy processes of their African clients by playing the ostrich and bury-

ingtheirideologicalheadsinthesand.Theythenpresentthefaçadeofanhonestand

non-partisanbroker,butnooneisfooled.‘ThemomenttheIMFdemandsthatbudget

deficitsbecutand interest ratesbe raised,’writesMotsi (2006), ‘ithasentered into

domesticpolitics.’Topretendotherwise smacksofpoliticalpowerbereftofpolitical

responsibility.

Perhaps Stiglitz’s (2002)major contribution to thedebate is that so-called failed

development in sub-Saharan Africa occasioned by orthodox market reforms did not

happenbychanceorbyaccident.Itistheresultofafamiliarscript:theWashington

Consensusonfreemarketsequalsablendofideologyandbadscience(Rossi2002).The

policiesoftheseIFIsreflectthecurrentbalanceofpowerintheinternationalsystem,

even though it is not totally correct to say that developing countries are wholly bereft

ofpower.Orthodoxmarketreformsareimposedondevelopingcountriesatthebehest

of the rich nations as well as the creditor clubs of Paris and London and their transna-

tionalcorporations.

Together,theyconstitutethelargestfinancialcontributorsand,inconsequence,the

primary stakeholders of theBank andFund.United States hegemonypartly derives

fromthefactthatitcontrols20percentoftheIMFvote.Thecorrespondingfigurefor

47sub-SaharanAfricanstatesisamiserable7percent.

This suggests why, as noted earlier, the WB and IMF have a tough act maintain-

ing what Ngaire Woods (in Motsi 2006) refers to as the ‘delicate balancing of political

forces’betweenthenationalandglobalinterestsoftheirlargestdonorsandtheirown

non-partisanship and legitimacy as trusted interlocutors vis-à-vis the third world, their

largestcustomers.Theiragenda–toallappearancesmorepolitico-ideologicalthaneco-

nomic – is very clear: imposing the globalising policies of macroeconomic stabilisation

and SAPs (trade liberalisation, openness to FDI, privatisation of state enterprises, con-

ditional lending programmes, promotion of imports and exports by capital markets,

deregulation or abolition of regulations that impede entry or restrict competition, and

so on), thus transforming African countries ‘into open economic territories for their

manufactured products and excess capital, and to create reserves of cheap labour and

naturalresources(Yu2005;Raghavan2001).

According to Stiglitz (2002), IMF-style market orthodoxy demonstrates a certain

coherence that comes from ‘an ideological commitment to free markets and a concomi-

tantantipathytogovernment’.EventhoughtheFundpresentsitspoliciesasvalue-free,

because they are market-driven, the consequence of ideology is unmistakable: a ‘cookie

OP 60.indd 32 11/20/08 11:53:38 AM



cutter’ approach tomarket reformpolicies that ignores ‘the facts on the ground’ in

recipientAfrican countries.Thefinaloutcome is that sameprescription ismade for

sundryeconomicailmentswithscantregardforcasebycasedifferentials.Byabandon-

ing Keynesianism (which stipulates full employment for adjusting countries involved

in balance of payments); showing little commitment to economic growth, a necessary

(ifinsufficient)conditionforfullemployment;andprivilegingcreditcontractoverand

above social contract, Stiglitz argues that the Fund ends up either creating or com-

poundingtheproblemsitpurportedtosolve(Stiglitz2002;Friedman2002).

After facilitating the post-World War Two reconstruction of Europe, it appears as

if the WB and IMF chose to take their second mission statement quite literally: global

economicstabilitywouldbemaintainedattheexpenseofdevelopingeconomies.And

theevidenceisunmistakable.Forone,theBankandFundhaveconsistentlydefended

the policies sanctioned by their major shareholders in their policy advice to African

countries, not necessarily because they believe in them, but because those policies serve

theinterestsoftheUnitedStatesanditsallies.StiglitzaddsthattheIMF‘systematically

acts in the interest of creditors and of rich elites (including national ones) more gener-

ally,inpreferencetothatofworkers,peasantsandotherpoorpeople’(2002).

In this context, the root cause of the so-called global food crisis since the beginning

of2008isinstructive.Itisinterestingthatonlydevelopingcountriesareexperiencing

acute food shortages (even though, on account of skyrocketing oil prices, soaring food

pricesappeartobeaglobalphenomenon).Afterall,in2006alone,theEUsubsidised

European agriculture by €42 billion, a little less than the €47,5 billion it spent on

ODAinthesameyear.Ofthe36countriesdeclaredbytheFAOinearly2008tobe

inneedofurgent foodaid,21wereAfrican.Besides the fact that thisfitsperfectly

into a geostrategic and political-economic framework of western global hegemony and

domination, it makes little economic sense to insist that African states with primarily

agriculture-based economies should remove agricultural subsidies while highly indus-

trialised western nations annually spend billions of dollars/euros on farming subsidies

andincentives.But,aswehaveattemptedtoshowinthisessay,thispolicy–andrelated

ones – is a function of high-wire international politics, and has little to do with low-

intensityeconomics.

Thecurrentfoodcrisisisrootedinanumberoffactorsandforces.Theseinclude

the agricultural model promoted in Africa, Asia and Latin America by the great pow-

ers since the 1950s; and the liberalisation and privatisation of agriculture which have

strengthened the hands of western agro-business at the expense of ‘the productivity of

small-scale farmers,andfoodsovereigntyofpoorerpeople’ (Europe Network on Debt

and Development 2008).Othersareneo-liberalpoliciesthatcircumscribetherightof

governments to ‘assist their farmers with essential services such as improved seedlings,

fertiliser, equipments,marketingboardsandextension services’; theneglectof food

crops in the race to cultivate cash crops for export; and a combination of subsidised

foodproductsofWesternEuropeandNorthAmericathatfloodAfricanmarketsand

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‘foodaid’.Allthesefactors–andmore–haveconspiredtodestroythelivelihoodsof

manyfarmingcommunities,aswellastheirfloraandfauna(Obeng2008).

Furthermore, economic growth continues to fuel the gap between the rich and the

poor, partly because of the problematic nature of ODA in relation to growth. ODA

is not a suitable or adequate instrument for tackling the continent’s structural eco-

nomiccrisis.Moreover,manyAfricancountriesdonothavethepowerandcapacityto

address the growing gap between the haves and the have-nots, with a view to fostering

greatersocialjustice.Nolessapersonalitythanthecontinent’slongest-servingminis-

teroffinance,SouthAfrica’sTrevorManuel,hasconfessedtothis.YetAfricansexpect

their governments to ‘be strong and more assertive in regulating to protect the vulner-

able fromexploitationandharmful commercial conduct’of externalactors (Calland

2008:31).

They also expect their governments to emulate the nationalistic and patriotic

responses to globalism of countries such as Brazil and India, which have consistently

resisted demands from the EU and United States to reduce their protection of their

manufacturingsectors.Indeed,theysaythisprotectionisadirectresponsetothemas-

siveprotectionbywesterngovernmentsoftheiragriculturalmarkets(Elliott&Wintour

2008:49).

To be deplored here is the absence of the historical experiences and indigenous

knowledge systems of African states and peoples in the development and policy advice

imposedfromoutside.Thesearereplacedby‘expertadvice’andtheoreticalknowledge

manufactured inWesternEurope andNorthAmerica. The sovereignty andnational

pride of African and Africans, as well as the personal self-esteem of key domestic policy-

makers,aretrampleduponwithirreverenceandimpunity.AccordingtoRajan,

some of the largest industrialised countries see themselves as more sovereign than

others and their politicians brook no interference in their own domestic policies

while being fully prepared to use multilateral agencies to intervene in the domestic

policiesofothers(2007).

ThesuitabilityorefficacyofpolicyadvicebytheIFIstoAfricaisalmostalwaystaken

for granted, ormerely asserted.Whenpolicies fail, theWB, IMF, or foreignprivate

sectorishardlyeverblamed.Almostwithoutfail,theyseektoavoidcorporaterespon-

sibility and moral hazard, as well as responsibility for risks in projects undertaken as a

resultoftheirpolicyadvice.

Theblame is oftenbroadlyput on ‘historically poor governance’, a lack of political

willon thepartofadjustinggovernments,andpoorqualityofpolitical institutions.

Clearly, rich nations and their corporate partners do not know where the shoe pinches:

they stopped borrowing from the IMF in the 1980s but still dominate its board, which

ischargedwiththefinalassessmentofpoliciestobefunded.Theywillprobablynever

understandthat‘breathtaking,comprehensiveinstitutionalreforms’imposedonAfri-

OP 60.indd 34 11/20/08 11:53:38 AM



cancountriesasa‘shocktherapy’engendersapolicyagendathatcannotbeaddressed.

As Rodrik (2006) has averred, because of the open-endedness of the policy advice of the

BankandFund,anditsinherentnon-falsifiability,‘intheenditistheadviseewhofalls

short,andnevertheadvisorwhoisprovedwrong’.

7. concluding remarksWe argue, in conclusion, that the Bank, through its policy-based lending, dictates key

policies to borrowing countries, thus eroding their autonomous police space and their

ability to evolve economic policies best suited to their particular ecologies and pecu-

liarcircumstances.TheriskofincurringthewrathoftheBank–whichwillmakeit

to declare such a country non-creditworthy – is often too much for borrowing coun-

triestobear.Theyneednewloans,andthereschedulingofoldloans.Theytherefore

tendtocomply,willy-nilly,withtheBank’spolicies.Attheendoftheday,borrowing

countriesarethebiglosers.ItispreciselyatthislevelthattheBankandFundhave

becomegreatlydiscredited,inAfricaaswellasinotherdevelopingregions.TheFund

has almost entirely failed to deliver on its key promise of assisting adjusting countries

toreduceoreliminate foreigndebt.Rather, theglobalisingpoliciesof theBankand

Fund (SAPs, conditional loans, and other policies that hurt the long-term growth and

prosperity of the continent) have tended to create or perpetuate massive national debts,

aswellassocialdislocationanddisarticulation.Theultimateeffecthasbeentocause

untoldmiserytomillionsofsouls(WDM2007:20).

Neo-liberal development policy sets little store by salient social and political fac-

torssuchasinequitablesocialstructuresandpowerrelations.Yet,becausetheybreed

unfair social relations both at domestic and international levels, the importance of these

factorsforthesuccessorotherwiseofpolicyreformscanhardlybeover-emphasised.

As long as Africa remains linked to a global system dominated by hegemonic western

economic, political, and geostrategic interests, unfair trade will continue to worsen

povertyonthecontinent,andperpetuateitsmarginalisation.

Clearly, developing countries in general and Africa in particular need to forge what

Bendana (2008:30) refers to as ‘new development model and development solidarity

architecture’.Giventhecontemporaryconstellationandbalanceofforcesbetweenthe

global North and global South, a new model of development will have to emerge from

popular political and class struggles at all levels of national and international commu-

nities,includingtheAfricanUnion(AU)andtheenlargedG77.Whileeachstatewill

have to put its own house in order, development practice in the global South has dem-

onstratedthatthereisstrengthinnumbers.

Whilst socialcontradictionsandthe lackofaunifiedvisioncontinuewithinand

across states (Amin 2006:6), they need not detain or unnecessarily worry genuine

reformers.

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A new development model needs to be found that can facilitate the creation of

the desirable society which African peoples merit and deserve: societies that are

‘developmental,humanisticandharmonious’ (Bangura, inOlukoshi2004).Sincethe

neo-liberal development paradigm, based on the dogma of the market and canvassed by

the WB and IMF, has undermined the development of the continent and deepened the

immiseration of its people, a new development architecture necessarily has to be a prag-

matic antithesis.Atthegloballevel,anewdevelopmenttheoryhastobeevolvedagainst

the‘grimillogicofthepresentglobalcapitalistsystem’(Saul2006:115),whichcould

underpin a new political and policy praxis that is genuinely liberatory, emancipatory,

anddevelopmental.Thiswillneedtobeadaptedto thecharacteristicsof individual

statesandtheirparticularpoliticaleconomy,society,history,andculture.

Thereareimportantconsiderationsinthisrespect.Firstly,therightofallstatesto

development, ardently promoted by the UN General Assembly in the 1960s and 1970s

butjettisonedfollowingoppositionbytheUnitedStates,hastobereintroduced.This

mustbecomeamajordefiningfeatureofglobalisation,aimedathelpingthemostvul-

nerablestatestoadoptthemosteffectivepro-growthpolicieswithoutundueexternal

interference.Secondly,Africanstatesneedstrongandlegitimateinstitutionscapableof

accumulatingcapitalanddeliveringpublicgoods.Effectiveinstitutionsatalllevelsof

thepoliticaleconomythatcanmaximisesocialbenefitsforthecitizenryequallycon-

stituteasocialdesideratum.Theissueisnotcapacity(Africanstateshavesupposedly

been building capacity for the past half-century), but rather how these states can articu-

late viable and people-friendly policies to tackle themost vital development issues.

Foremost amongst these are de-industrialisation; a lack of infrastructure; challenges

in education, health, and housing; unemployment; the energy and food crisis; debt

peonage;etc.

Thirdly,andmostimportantly,thereinsertionofaparticularconfigurationofthe

state into the political and policy process is a sine qua non for people-friendly develop-

ment.Thisnewstatewillworkouthowajudiciousbalancecanbecreatedbetweenthe

roleofgovernmentandtheroleofthemarket.

Further, through the interplay of social contract and social capital, the state should,

once again, assume the (not just a) dominant role in the political and policy process,

aimed at driving development, socialising capital and the market, and achieving social

anddistributivejustice.Withinthiscontext,themarketanditsappurtenanceswould

beselectively,pragmaticallyandideologicallyusedbythestate.AsBendana(2008:29)

has argued,

markets must take their subordinated space in the organisation of a political econ-

omy.Marketsandbigcapitalcannotdictateengagement.Marketshavetobeembed-

dedinsocietyandthereforeinrelationsofsolidarity,notcompetition.

If capitalism is what Keynes says it is (see the opening quote), and if it corresponds to

OP 60.indd 36 11/20/08 11:53:38 AM



itsfurthercharacterisationbyPrzeworski(inSaul2006:115–116)as‘irrational’,surely

there has to be an alternative model of development to an ugly and people-unfriendly

one – a model that is simultaneously humane, humanistic, and anchored on social

solidarity.Whateverthename(ornames)giventothisalternativemodel,itisworth

exploring for the sake of billions of people in Africa and elsewhere on the globe who

continuetosufferunderglobalisedcapitalqua globalisation. n

endnotes

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