God's Politics

God's Politics

Francis Ng’ambi: Jubilee vs. the IMF

The International Monetary Fund, whose board will meet this weekend in Washington, D.C., continues to use its role as a gatekeeper for rich country aid to impose questionable, and often downright harmful, conditions onto poor countries. For example, the IMF has often imposed “wage bill ceilings” that limit how much money a government can spend on salaries – sometimes even when that money comes from foreign aid offered to help fight poverty or the AIDS epidemic – because the IMF is concerned that paying too many salaries could cause inflation to rise a few percent. As South African economist Francis Ng’ambi points out, IMF “conditionality” threatens to counteract some of the benefits won by Jubilee debt campaigners. Sojourners spoke with him in March at Ecumenical Advocacy Days.

Ng’ambi: Malawi just got its debt cancellation a few months ago, late last year. And people now are happy, but the biggest thing they are asking themselves is, “How do we make the maximum benefit out of the debt cancellation?” Already the money that has been freed is going to promote access to education by children, students. They are going to hire doctors, they are going to hire nurses – if that will be allowed by the conditionalities set by the IMF.

Because the IMF says, for example, do not employ new personnel, do not increase the [government’s] wage bill. Now the people in Malawi – that is, government, civil society, donors, and especially the churches – have to come in to support the government on how make sure that this money is budgeted properly.

Sojourners: So there is an ongoing threat that the IMF program officer to Malawi might say “no, your budget is too large”?

Ng’ambi: Yes, because these things were signed in what they call the “letter of intent.” It was signed there [recently]. After 1980, when you have been going through the conditionalities, people have seen on the ground that conditionalities have not been good. They have always brought negative impact. So that means now with the money freed [by debt cancellation], the civil society, the government, have to approach the IMF, and discuss with them to say, how can we now use this money to inject into education, health, and agriculture? They must enter some form of dialogue, looking at the conditionalities set, because we need nurses, we need medical doctors.

I think many of our readers will be shocked that there even has to be a dialogue with the IMF – that although a country has the money and wants to spend it on teachers, you have to argue the IMF into letting you hire them.

Yes, that’s the fact in southern Africa, most of the national budgets in southern Africa have to have some form of approval of the IMF. And even sometimes it’s even prior to the parliament discussing that particular budget. Why? Because they have to look at some of the macro conditionalities.

You know, it’s a big problem. It dehumanizes, it actually leaves the government powerless, because they cannot make decisions in the way they want. They always have to go back to the drawing table. A budget is supposed to be an internal issue, not necessarily involving other people outside. But because of the conditionalities, the macro-policies … development in our countries has been left in the hands of the IMF and the World Bank. And that is not right in any way.

What gives you hope for the future?

There’s a lot of hope. First of all, what gives us hope is that we are not fighting on our own, southern countries only. We have got like-minded people in the north who are thinking like us. And that is a very powerful tool to use, because you are in a better position whereby you can lobby governments in the north.

Secondly, we are hopeful because the world is becoming smaller and smaller. Problems in the south are being heard in the north. Civil society in the south is being linked to civil society in the north. We can exchange views, we can exchange ideas, we can even share strategy on how to actually solve something. Another thing is that we are now one big Christian community. We pray together.

The body of Christ.

The body of Christ. In the south we are praying, in the north we are praying. So all over, we are praying over the same issue, and that gives us hope.

Francis Ng’ambi is Budget Monitoring Officer at the Economic Justice Network of the Fellowship of Christian Councils in Southern Africa.

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posted April 12, 2007 at 3:53 pm

So, Sojourners thinks people would be “shocked” to hear that the IMF has placed conditions on debt relief. Me? I’d be shocked if they didn’t. Let’s get straight just what happened here: Malawi was granted money on loans that it proceeded to spend on development projects and programs that did not work; the economy did not grow and they were unable to pay off the loans. (This is the charitable view — the cynic would conclude that the money was soaked up by the usual politically connected gang of third-world kleptocrats, and would have a reasonable chance of being right) The fact that this was a common event for African nations does not change the basic fact of what happened. This does not bode well for the ability of Malawian leaders to effectively manage their economy. So now the IMF has set conditions on what the Malawian government can do, in exchange for debt relief. The devil is in the details, of course, and I don’t intend the following to be a blanket endorsement of the IMF’s rules, but there is at least some potential method to this madness: 1. The Old Testament concept of a “Jubilee” has been used to justify debt relief. This is quite admirable but it should be remembered that in the case of the Jubilee both lenders and borrowers knew up front what the rules were. In this case, these loans were extended with the understanding that they would be repaid eventually. 2. One can argue about how much inflation is tolerable, but the IMF is right to be concerned about it. When inflation gets out of control it can destroy savings and make planning or investment impossible and shredding any chance for economic growth. 3. Again, the devil is in the details, but reasonable limits on government salaries can serve a valuable purpose. If a nation is going to build a functioning market economy then it cannot afford to have the government become the primary provider of jobs. 4. Ng’amgi gives off a whiff of elitism when he complains that the IMF’s conditions are “dehumanizing”. These conditions might be somewhat chastening to the governing class of that country, I doubt that matters much to the vast majority of Malawians who will have little practical input on government budgeting. At any rate, if they found the IMF’s terms chafing, they could have refused forgiveness and committed to repaying the loans. In conclusion, one can make a strong case that the West had a moral obligation to grant debt relief, but to my knowledge it did not have a legal obligation. Debt relief was something of an act of generosity, and I’m not at all bothered by the notion that the West, acting through the IMF, added conditions that improved the likelihood that our debt forgiveness will work out better for the people of Malawi than the original loans did. Wolverine

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posted April 12, 2007 at 6:11 pm

I will be praying for this. p

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Carl Copas

posted April 12, 2007 at 9:53 pm

Wolverine, what sources would you recommend to read for more info on this problem? Thanks in advance.

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posted April 13, 2007 at 1:46 am

Wolverine, “Malawi was granted money on loans that it proceeded to spend on development projects and programs that did not work; the economy did not grow and they were unable to pay off the loans.” My question is more specific than Carl’s: What grants/loans were given, what were the projects and programs on which they were spent, and who was responsible for designing, approving, and managing those projects? Please cite references. See Graham Hancock s book The Lords of Poverty.Loans to developing countries have always come with stipulations about how the money is spent usually on materials and services from the donor country. The projects often benefit a small segment of the population, are often environmentally detrimental, and worsen the quality of life for a larger segment of the population. The recipient country then has to pay back the loan with interest. The classic example is hydroelectric dams. Rivers are dammed, the people who live near the river are displaced, the resulting lake becomes a breeding ground for the snails that are the primary host for schistosomes and mosquito vectors for malaria, and the electricity is transmitted to cities miles away without benefit to the people who have been affected.

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posted April 13, 2007 at 3:09 am

neuro_nurse: Wouldn’t ‘ya know it, I’d a sworn I had the Malawi loan paperwork lying around here somewhere… You’ve got a valid point about the “big project” mentality that motivated a lot of these loans. Many of the “development” programs were based on the assumption that one big piece of infrastructure would jump start the entire economy, yet another manifestation of the central planning fallacy that favored big government over markets. And yes, the west has to take some responsibility for that; in a lot of cases western experts were goading African leaders into taking these things on. This is why loan forgiveness is appropriate and why I stopped short of a blanket endorsement of all of the IMF’s standards. My point was that there were rational grounds for some of what IMF was doing. But absolving the Malawians of all responsibility for their predicament is at least as dehumanizing as anything that the IMF might be doing: there’s a simple way to avoid the problems created by banks offering loans for counterproductive projects: Don’t Take the Money. And as valuable as a well-timed loan for a well-though-out program can be, I have no reason to believe that the people of Malawi couldn’t build their country on their own with only minimal help from western banks if their government would follow sensible, market-savvy policies. As for good books, I would recommend “The Mystery of Capital” by Hernando de Soto. De Soto’s theory is essentially that the key to development is reasonably consistent laws that create tradeable property rights. With that in place, the underpinnings of a modern economy — collateral, credit, partnerships and companies — can take root and create pools of private capital that entrepeneurs can use to create productive businesses without being overly reliant on government contacts. The other development that I think shows a lot of promise is that of “Microcredit”, making loans to poor individuals in developing countries which can be used to start small enterprises. The Grameen Bank is an example of this idea. This is something that both liberal and conservative Christians might be able to rally around. Wolverine

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Carl Copas

posted April 13, 2007 at 6:48 pm

Wolverine, “microcredit” is very interesting. Isn’t the recent winner of the Nobel Peace Prize involved in microcredit? And I agree that both lib and con Xtians should be able to find much of value in it.

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posted April 13, 2007 at 7:47 pm

I find it hard to believe that the Western nations who control the IMF would be willing to be so generous to developing nations without some kind personal benefit. The conditions put on the debt forgiveness are a way that these nations can act “generously” while still serving their own agendas. I think that it just shows that one needs to be attentive when looking at the “generous” actions of governments, large corporations, international banks, etc. Can we really trust them to act selflessly? I seriously doubt it. Before supporting such things as debt relief, we need to find out if they truly benefit the disadvantaged, or if they just put more money in the pockets of those who are in power. Since there are book recommendations being thrown out there, “Confessions of an Economic Hit Man” speaks quite frankly about this subject. You need to take some of the things the author says with a grain of salt, but overall it appears to be very revealing.

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posted April 14, 2007 at 3:39 am

Wolverine I have read a few reports of microfinance programs – some of which benefit women who want to start small businesses. That should be a foot in the door for liberal Christians. Good point.

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posted April 16, 2007 at 5:49 am

How Did Malawi Accumulate External Debt? Further to investigation of how Malawi accumulated external debts amounting to $2.7 billion, without a corresponding growth in the economy, exports capability or poverty reduction this paper much of the borrowing contracted during 1973-82 was consumed by balance of payments deficits caused by the first and second round of the oil crises. The paper also finds that export commodity price deflation that started in the late 1970s and worsened during the 1980s also contributed to widening gaps in external liquidity and increasing demand for foreign borrowing. The paper also finds that Malawi suffered a heavy interest burden as a result of the policy of ‘real interest rates’ adopted in the western world during the 1970’s to ensure that interest rates payable on loans sufficiently compensated lenders for the erosion to the real value of the original loan caused by inflation. The primary shock to world interest rates that had started with surging inflation in the US after 1976 was transmitted worldwide and as a result, the rate of interest on Malawi debt rose (by 373%) from only 1.9% in 1976 to more than 9% in 1981. Leaders should lighten poorest nations’ load Malawi is an example of the reality of life and debt in Africa today. Malawi is the 12th poorest country in the world. Sixty-five percent of the population survives on less than a dollar a day, 60 percent will not likely survive to age 40, and 43 percent do not have regular access to clean and safe water. One in seven adults in Malawi is infected with HIV/AIDS. Meanwhile, Malawi spends 21 percent of its budget servicing debt, an amount equivalent to Malawi’s total expenditures on education, health, science and technology, and agriculture combined. Resources that could fund Malawi’s fight against AIDS are instead sent to the G-8 and the IMF and World Bank in the form of debt service payments. The people of Malawi are paying the bill for their own oppression. Much of Malawi’s debt was accrued when the G-8 nations supported and made loans to Hastings Banda, a brutal dictator who claimed that he fed his opponents to the crocodiles. In 1994, Banda’s rule ended and the first government of Malawi’s now multiparty system introduced universal primary education and increased health spending by 50 percent only to be forced by the IMF and World Bank to cut government spending and pare the education and health budgets back to Banda levels. IMF policies have also been blamed for Malawi’s 2002 famine, when the government was advised to sell off grain stocks, leaving the country defenseless against the worst famine since 1949. .

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posted April 16, 2007 at 8:50 pm

Googlemeister, Thanks for the information. Incidentally, my wife and I sponsor a little girl in Malawi through World Vision.

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posted April 16, 2007 at 10:17 pm

I’m shocked! Shocked that a lender would place conditions on a loan! And in particular, shocked a lender would place conditions on a borrower who has already once proven unable to repay the loans.

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