Imf, World Bank and Africa

Topics: International Monetary Fund, World Bank, Africa Pages: 7 (2421 words) Published: October 8, 1999
An avid viewer of television has seen the commercials portraying shortages of food and mass starvation in Africa. Yet in these times of relative prosperity, little is heard of Africa's debt problem. Although the total debt of all African countries combined is small in comparison to that of the United States, millions of people suffer as a result. However, it is not until these countries have difficulty repaying their loans that the international community begins to take notice. Many African countries are currently in such debt that all new loans are used to repay old loans in a attempt to salvage any credit rating a country might have (George, 13). Because many banks, particularly in the United states, have invested as much as 100 percent of their shareholder's equity in these less developed countries (LDCs), the chances of a country defaulting on a loan sends tremors through the economic world (George, 39). Eventually the countries are recognized as a poor credit risk and can no longer get loans. This is where the International Monetary Fund (IMF) and the World Bank come into the picture. The structural adjustment programs of the International Monetary Fund (IMF) and the World Bank have had greater negative effects than positive on the African countries that have adopted them. This essay will examine the adjustment programs themselves and the political, social and economic effects adjustment programs have had on the countries that have accepted them. The IMF began as an organization whose purpose was to encourage international trade and discourage protectionism while assisting in the "correction of balance payments disequilibria" for those countries who required short-term assistance (World Bank, 7). The World Bank's sister organization, the IMF, attempts to promote economic growth in certain countries through loans granted for specific development projects. Membership in the World Bank requires membership in the IMF. Recently the two organizations have been acting in concert and often institute very similar policies. Members of the IMF are designated a yearly quota according to their economic standing, and are required to put down an initial percentage in gold, the remainder of which is payable in domestic currency. The LDC is allowed to draw on this quota and even surpass it providing that it agrees to certain governments budget deficits, the correction of an overvalued currency, and the encouragement of export production. These policies become increasingly strict as more Special Drawing Rights (as they are called) are requested. These conditions, when implemented, are called structural adjustment programs. Since these programs seriously infringe upon the sovereignty of the borrowing nation, the IMF is usually turned to as a last report. This occurs when international development banks and private banks, especially fear that a country might default on its loans. As a result, most sources of financing are lost until the debtor country agrees to a structural adjustment program implemented by the IMF. Acceptance of this conditionally suggests to private lenders a willingness to cooperate with the financial community. When this takes place "private bank loans and development assistance, of magnitude far larger that the fund's largess, are likely to flow" (Will,54). Since the IMF is the last institution a LDC will turn to, the economy of the country involved is usually in extremely poor condition. When the structural adjustment programs of the IMF are more difficult to institute in the borrowing country and as a result causes much of the blame to be directed towards the Fund. "Some 30 African countries have adopted formal structural adjustment programs supported by the IMF and World Bank" (Harsch, 47). Although many studies have been done on the effectiveness of the program, no one is quite sure of the effect the measures have had (NowZad, 196). There are several reasons for this. First as was...

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