Africa Falls Off the IMF Agenda (Again)

Foreign Policy in Focus
Sep 27, 2006
by Sameer Dossani and Soren Ambrose

Sure, since that G-8 meeting, some African debt has been cancelled.
But most of the promises made in 2005 have gone largely unfulfilled.
Instead, poverty continues to deepen in most African countries, and
the international financial institutions have returned to business as
usual in 2006.

The clearest indication that old habits are back came at the
IMF/World Bank annual meetings, held in Singapore in September.
There, the IMF's Board of Governors formally approved a previously
announced reshuffling of voting shares designed to increase the
voting power of four middle income countries -- China, Mexico,
Turkey, and South Korea. The biggest loser was sub-Saharan Africa;
its collective voting share, already a paltry 5%, was cut in half.

Over the last year, warnings from G8 country officials that the IMF
was adrift have prodded the institution to seek a facelift. The U.S.
Treasury Department calls for it to be a tougher cop on currency
values – a barely-veiled plea for it to pressure the Chinese
government to devalue its yuan. Western European governments, which
by antiquated tradition select the IMF's Managing Director -- who has
as a result always been a Western European -- want to ensure the
institution remains high-profile. However, they aren't quite sure
what exactly they want the Fund to do.

While criticism, even from powerful countries, need not be life-
threatening for the IMF, other developments may be. Civil society
advocates, and some of the bolder officials of borrowing governments,
have long complained bitterly about the debilitating "reforms"
demanded by the IMF – harsh measures that tend to strangle rather
than revive economies. Recent moves by client governments have
alerted G8 officials that the institution's legitimacy, and even its
solvency, are seriously threatened.

Many of the countries, particularly in East Asia, who have been big
borrowers in the past have built up unprecedented currency reserves
so they need never call on the IMF again. And at least six
governments, including major borrowers Brazil, Argentina and
Indonesia, are opting to repay IMF and World Bank loans before they
are due. That means decreased interest revenue for the IMF.

The writing on the wall is easy to read: governments will go out of
their way to avoid borrowing from the IMF. Only African countries,
which can afford neither early repayments nor rich reserves, will
remain firmly under the IMF's thumb.

The IMF's response, in part, has been to refashion itself from rule-
maker and enforcer to mediator. It wants to bring together the major
players in the world economy – such as China, the U.S., and the E.U. –
and convince them to roll back trade imbalances and deficits. How
this differs from other fora for economic talks is unclear, but G8
officials have rushed to persuade the world, and themselves, that
this shift is just the thing to revitalize the organization.

Even as it takes on a new role, the Fund is not shedding its old one.
In African countries, and other nations unable to extricate
themselves from the IMF's grip, the policy demands for which the IMF
is notorious – trade and investment liberalization, public sector
layoffs and budget cuts, withdrawal of subsidies, high interest
rates, reduced budgets for health and education, and privatization –
will continue to be imposed. Even in the case of countries that are
not trying to borrow from the IMF, any defiance can lead to it
expressing disapproval over economic policy. That step, in turn, can
lead to the withholding of aid and credit by rich nations and other
international organizations.

The juggling of board votes has demonstrated that at the IMF, those
nations who are the least likely to be subjected to the institution's
policies wield the most power over the direction those policies take.
Countries that must take the IMF's medicine get the fewest votes.
They should expect to lose even those.

While the four beneficiaries of this reform may see a symbolic, or
psychological, boost from the maneuver, the real power at the IMF
will not shift. The United States will continue to control at least
as many votes as before, and as always, is assured of a "veto" by
virtue of its 17% share and an 85% "supermajority" rule for major
decisions. The U.S. and the other G7 countries (Canada, France,
Germany, Italy, Japan, and the U.K.) will continue to exercise
pervasive influence at the IMF, utilizing the "consensus" model of
decision-making that obscures any dissent from the status quo.

The shunting aside of Africa in this latest reform demonstrates how
far from fair the current IMF is. Recognition that most of the
institution's funding now comes from repayments by the developing
countries would warrant a much larger voice for those that must
swallow the IMF's bitter pills.

Most urgent, however, is diminishing the institution's power to
coerce governments into accepting damaging economic policies. For
even substantial vote realignment is unlikely to prod the institution
that has designed and enforced a radically unbalanced global economic
system to undo the damage. With the prospect of breaking the IMF of
its bad habits so remote, the only reforms that matter will be those
that defang it.

Sameer Dossani is Director of 50 Years Is Enough: U.S Network for
Global Economic Justice in Washington, DC. Soren Ambrose is
Coordinator of Solidarity Africa Network in Nairobi. They are both
contributors to Foreign Policy In Focus.

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