The World Bank and IMF in Africa
Last updated August 2008
The World Bank and International Monetary Fund (IMF) are two of the most powerful international financial institutions in the world. They are the major sources of lending to African countries, and use the loans they provide as leverage to prescribe policies and dictate major changes in the economies of these countries. The World Bank is the largest public development institution in the world, lending over $24 billion in 2007 – of which over $5 billion (or 22 percent) went to Africa.
The World Bank and IMF are controlled by the world's richest countries, particularly the U.S., which is the main shareholder in both institutions. The World Bank, headquartered in Washington, DC, follows a “one dollar, one vote” system whereby members with the greatest financial contributions have the greatest say in decision making. The U.S. holds roughly 17% of the vote in the World Bank and the 48 sub-Saharan African countries together have less than 9% of the votes. The Group of 7 rich countries (G-7) control 45% of World Bank votes. This system ensures that the World Bank and IMF act in the interest of the rich countries, promoting a model of economic growth (called neo-liberal) that benefits the richest countries and the international private sector.
Over the past two decades, the poorest countries in the world have had to turn increasingly to the World Bank and IMF for financial assistance, because their impoverishment has made it impossible for them to borrow elsewhere. The World Bank and IMF attach strict conditions to their loans, which give them great control over borrower governments. On average, low-income countries are subject to as many as 67 conditions per World Bank loan. African countries, in need of new loans, have had no choice but to accept these conditions.
The World Bank and IMF have forced African countries to adopt "structural adjustment programs" (SAP) and other measures which cut back government spending on basic services. They have required African governments to reduce trade barriers and open their markets, maintaining their economies as sources of cheap raw materials and cheap labor for multinational corporations.
As a result of World Bank and IMF policies, average incomes in Africa have declined, and the continent’s poverty has increased. Africa’s debt crisis has worsened over the past two decades, as the failure of World Bank and IMF intervention has left African countries more dependent than ever on new loans. These institutions have also undermined Africa’s health through the policies they have imposed. Forced cutbacks in spending on health care, and the privatization of basic services, have left Africa’s people more vulnerable to HIV/AIDS and other poverty-related diseases.
The policies of the World Bank and IMF have come increasingly under fire, for the negative impact they have had on African countries. But these institutions, and the U.S. and other wealthy countries that control them, refuse to address these concerns. Instead, they continue to use Africa’s debt as leverage to maintain control over the economic policies of African countries. Even as Africa faces the worst health crisis in human history, these institutions insist that debt repayments take priority over spending on the fight against poverty and HIV/AIDS. African countries continue to spend up to five times more on debt servicing than on health care for their populations.
In response to growing criticism of their policies, the IMF and World Bank have continuously repackaged their structural adjustment programs over the last two decades. In 1999, the institutions began a funding system that requires a country to create a Poverty Reduction Strategy Paper (PRSP), which purports to outline programs that will promote growth and reduce poverty over the next several years. Through the Poverty Reduction Growth Facility (PRGF), which disburses funds, the World Bank and IMF approve and then finance these poverty reduction programs. While the World Bank and IMF claim that this allows greater flexibility for countries receiving assistance, the degree of ownership that countries have in PRSPs is exaggerated. Parliaments and civil society are often excluded from developing and adopting PRSPs.
In 2005, the IMF created the Policy Support Instrument (PSI). PSIs do not provide financial assistance to the countries that choose to participate. Rather, the IMF provides economic policy advice to a country, and then monitors it to determine whether or not the country has earned the IMF’s endorsement. Creditors and donors can then base their decision to offer loans or grants to a country on the IMF’s PSI assessment. In practice, this program continues to enforce IMF economic reforms and compromise the ability of African governments to decide on their development path.
To address the external debt crisis of poor countries, the IMF and World Bank introduced the Heavily Indebted Poor Countries (HIPC) initiative in September 1996. Designed by creditors, this initiative was intended to extract the maximum in debt repayments from poor countries. It has failed even to meet its stated objective of reducing Africa's debt burden to a “sustainable” level, and the strict HIPC eligibility requirements prevent many countries from receiving much-needed assistance.
In July 2005, the Group of 8 (G-8) proposed a debt cancellation deal for 18 countries, 14 of which are in Africa. That September, the World Bank and IMF approved this deal through the Multilateral Debt Relief Initiative (MDRI). The MDRI grants debt cancellation to countries that meet certain eligibility requirements, including adherence to economic policies and programs that the World Bank and IMF deem satisfactory. As of December 2007, the World Bank and IMF have approved MDRI debt relief for 25 countries, 19 of which are in Africa. Although the MDRI provides some progress on the issue of debt, it still leaves many African countries trapped under the burden of illegitimate debt. Furthermore, it establishes the precedent that future debt cancellation will only be offered to countries that have submitted their economies to the draconian dictates of the World Bank and IMF’s structural adjustment policies.
The benefits of debt cancellation have been proven repeatedly. While in 2003, Zambia was forced to spend twice as much on debt payments as on health care, partial debt cancellation allowed the government to grant free basic healthcare to its population in 2006. In Benin, more than half of the money saved through debt cancellation has been spent on health. In Tanzania, the newly available funds were used to eliminate primary school fees, increasing attendance by two-thirds. Uganda is currently using the $57.9 million of savings it gained from debt relief in 2006 to improve primary education, energy and water infrastructure, malaria control, and healthcare. Cameroon is using its $29.8 million in savings for poverty reduction, infrastructure improvement, and governance reforms.
Since 2007, there has been talk of the IMF selling its gold reserves to offset its growing administrative budget deficits. In order for the IMF to sell any part of its gold reserves, the sale must be approved by an 85% majority of its members. The United States controls about 17% of this vote, giving it an effective veto over this action. In February 2008, the U.S. Treasury announced that it would support the sale if the IMF takes part in a package of reforms that would put more emphasis on surveillance and financial stability and less on lending.
By law, however, the U.S. Congress must authorize the sale of IMF gold before the U.S. Executive Director may support such a decision. This puts Congress in a unique position to greatly influence the future actions and operations of the IMF. In contrast with Treasury’s modest reform proposal, Congress could seize this opportunity and condition its approval of the IMF’s gold sales on a bold reform agenda that eliminates IMF policies that have restricted investments in health, education and HIV/AIDS spending. Specifically, gold sales should be approved only if the IMF ceases use of overly restrictive deficit-reduction and inflation-reduction targets, eliminates budget ceilings for the health and education sectors and de-links debt cancellation from such harmful macroeconomic conditions. Gold sales could also be used to finance expanded debt cancellation.
African countries must have the power to shape their own economic policies and to determine their own development priorities. This requires the cancellation of all of Africa’s illegitimate external debts, and an immediate end to the harmful policies the World Bank and IMF have imposed in Africa.
Links
U.S. Drags its Feet at United Nations Conference
December 12, 2008
"Due to climate change Africa suffers from shrunken lakes, devastated forests, and eroded coastlines. According to a UN report, a 2 degree Celsius rise in temperature will jeopardize the water supply of 300-600 million Africans. The total population of sub-Saharan Africa is roughly 800 million..."
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The Scourge of the IMF
Robert Weissman - Huffington Post
"In July 2008, a study in the journal PLoS (Public Library of Science) Medicine found that "IMF economic reform programs are strongly associated with rises in tuberculosis mortality rates in post-communist Eastern European and FSU [former Soviet Union] countries." In this posting, Essential Information analyst Robert Weissman explains the results and implications of the study, and discusses the IMF's critical response to the article in an interview with one of the lead authors..."
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IMF Gold Sales: the U.S. Treasury agenda, Congressional leverage, and civil society advocacy
"This March 2008 Bank Information Center (BIC) Update explains in more detail the opportunity for bold reform presented by the IMF's decision to sell a portion of its gold reserves to cover administrative costs..."
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Civil Society Letter to IMF
October 4, 2007 - Marie Clarke-Brill
The letter addresses an IMF Independent Evaluation Office (IEO) report that finds as much as 74% of additional foreign aid to 29 countries in sub-Saharan Africa between 1999-2005 has been diverted from its intended purposes and allocated to domestic debt payment and international currency reserves because of IMF policies regulating macroeconomic and monetary policies.
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IFIs in Africa News Briefing
This resource produced by the Bank Information Center provides summaries and commentary on the latest news concerning the involvement of the international financial institutions in Africa.
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Factsheet - The World Bank: Hazardous to Africa’s Health
April 21, 2006
"This newly-updated fact sheet argues that the policies imposed by the World Bank on African governments have devastated Africa's health care systems and fueled the fire of HIV/AIDS..."
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Africa Action Confronts World Bank & IMF on Health Impact, Corruption
April 21, 2006
"Ahead of this weekend’s meetings of the World Bank & IMF, Africa Action and its allies today staged a theatrical event to highlight how these institutions are hazardous to Africa's health. Africa Action also challenged the World Bank's new "anti-corruption" agenda..."
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The World Bank and the IMF in Africa: Strategy and Routine in the Generation of a Failed Agenda
“In this January 2004 paper (29 pages), Howard Stein demonstrates that more than any other region, Africa has been forced to feel the full effect of neo-liberalism due to its increasing dependence on bilateral and multilateral aid and paucity of alternative sources of capital. The crisis of Africa reflects the crisis of an agenda that has been captured by strategies and routines that have little to do with the exigencies of African development...”
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Impoverishing a Continent: The World Bank and the IMF in Africa
“This 48-page report (July 2004) from Halifax Initiative Coalition states that over 20 years of World Bank and International Monetary Fund (IMF) policies have underdeveloped Africa and left it in a state of economic and social collapse. The elimination of the Bank and the IMF along with the end of structural adjustment programs is a prerequisite for any kind of progress. This needs to be followed by the total cancellation of Africa’s debt...”
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The Policy Roots of Economic Crisis and Poverty: A Multi-Country Participatory Assessment of Structural Adjustment
“This 4-year, multi-country study (released April 2002) was prepared by SAPRIN in collaboration with the World Bank. Among other things, it concludes that structural adjustment programs have been “expanding poverty, inequality and insecurity around the world. Their effects, particularly on the poor are so profound and pervasive that no amount of targeted social investments can begin to address the social crises that they have engendered...”
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What about us? Debt and the Countries the G-8 Left Behind
“This report from Christian Aid (September 2005) spells out how the arbitrary criteria for debt cancellation laid out by the G-8 and approved by the World Bank and IMF must be expanded if more countries are to stand a realistic chance of achieving their millennium development goals – the internationally agreed targets for tackling poverty...”
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Africa Action Statement on 100% Debt Cancellation for Africa
September 23, 2005
"In light of the decision by the World Bank and International Monetary Fund (IMF) to approve the G-8 proposal to cancel the debts of 18 countries (14 in Africa), Africa Action issued a statement defining what constitutes 100% debt cancellation for Africa. It also highlights the relationship between debt, health, and HIV/AIDS..."
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The Bretton Woods Project
“This is the website of the Bretton Woods Project, a network that provides information and acts watchdog to scrutinize and influence the World Bank and International Monetary Fund (IMF). Through briefings, reports and the bimonthly digest Bretton Woods Update, it monitors projects, policy reforms and the overall management of the Bretton Woods institutions with special emphasis on environmental and social concerns...”
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The African Forum and Network on Debt and Development
“This is the AFRODAD website, a civil society organization based in Zimbabwe that monitors Africa’s mounting debt problem which has impacted negatively on the continent’s development process. AFRODAD conducts research and advocacy on debt. Their monthly electronic newsletter provides news updates, analysis and other useful information on debt...”
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Jubilee USA Network
"Jubilee USA Network’s website features action alerts, updates, analysis, reports, and other resources on debt cancellation. With over 60 organizations including labor, churches, religious communities and over 9,000 active members, the Jubilee USA Network is dedicated to working for a world free of debt...”
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Hazardous to Health: The World Bank and IMF in Africa
April 2002 - Ann-Louise Colgan, Africa Action
“Over the past two decades, the World Bank and International Monetary Fund (IMF) have undermined Africa's health through the policies they have imposed...Cutbacks in health budgets and privatization of health services eroded previous advances in health care and weakened the capacity of African governments to cope with the growing health crisis. This position paper provides a brief background overview of World Bank and IMF policies, focusing in particular on their impact on Africa’s health..."
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Africa’s Debt
July 2001 - Ann-Louise Colgan, Africa Action
“The 48 countries of sub-Saharan Africa spend approximately $13.5 billion every year repaying debts to rich foreign creditors for past loans of questionable legitimacy. These debt repayments divert money directly from basic human needs such as health care and education, and fundamentally undermine African governments' fight against the AIDS pandemic.” – This position paper provides brief background on Africa’s debt, and explores the failure of current debt relief initiatives to resolve this crisis..."
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