New Vision (Kampala): Opinion
June 16, 2005

Kampala: Soon after independence of African countries, one of the most dubious methods adopted by the [International Monetary Fund and the World Bank] was to ideologise economic aid. [The two institutions] gave economic aid on the basis of perceived belief that a country was toeing a capitalist line, and not on the basis of sound economic policies or genuine democratisation principles.

Two examples, Liberia and Congo will suffice. When Samuel Doe took over power (1980) in Liberia, through a bloodletting coup, in which he murdered the president (Tolbert) and his leading cabinet ministers, the USA government welcomed him with a hefty $500 million in military and economic aid. The $500 million given to Doe in a short time was a whole $100 million more than the $400 million given to Liberia in its 132 years since it was established as a homeland for freed African slaves in America.

In the first three years of Doe’s regime, while economic growth contracted at 3%, which was at the bottom of the poorest countries, and domestic investments declined by 16%, [the] IMF, World Bank and their motley crew of ideological foreign donors sunk in an astronomical $1.3 billion. Both the IMF and World Bank were financing a regime that was engaged in genocide.

Doe’s minority tribe (Krahn) … which dominated the army … was engaged in widespread raping, murders, and maiming of other tribes. Liberia sunk into total genocide, forcing other tribes to rise up in arms, which led to fragmentation of the country into tribal warfare. [The] IMF, World Bank, and the largest commercial bank, Chase Manhattan, which had helped finance genocide, pulled out.

Another tragedy, where both the IMF, World Bank and donors gave financial aid based on ideology other than democracy and prudent economic policies was Congo (formerly Zaire). Following the messing up of Congo’s early democratic politics, when the CIA backed Mobutu and killed Patrick Lumumba, the first democratically elected Congo president, the IMF and World bank officials took over the management of Congo’s economy. Starting with a loan of $27 million in 1967, IMF, World Bank and other officials from donor agencies took over key positions in the ministry of finance, central bank and the office of Debt Management. The mismanagement went into overdrive: Between 1976 and 1981, the currency was devalued five times.

By 1982, Congo had lower GNP than it had in 1967. There were three dubious economic policies, which the IMF and the World Bank imposed. Failure to collect taxes from companies which had political connections and which at the same time dominated the economy, led to tax hikes, which affected mainly the vulnerable sections of the national economy. The unreasonable tax hikes drove the economy into underground. The second dubious policy was cuts in government subsidies and retrenchment, for example, of 7,000 teachers. Imposing frugality on the most vulnerable sections of the population while the IMF, World Bank and donor expatriates and the political class earned astronomical allowances, created disincentive to work.

This is what we economists call the problem of uncompetitive wages. In Uganda, for example, we have expatriates imposed on us by [the] IMF and World Bank as [a] conditionality for funding, earning $20,000 a month, while Ugandans with even much better quality qualifications earn less than 10% of that $20,000. The result is that we cannot retain out patriotic best brains, and instead we have mercenaries imposed on us by donors running our economy.

The third dubious economic policy that the IMF and the World Bank imposed on Congo was devaluation. Consequently investors who borrowed in dollars to start up industries during the devaluation period failed to compete, and could not service their loans. By 1997, GNP, which would have been at $1,400, had Congo continued its pre-independence policies, had dwindled to below $100, courtesy of [the] IMF [and] World Bank’s 30 years of total mismanagement. President Mobutu siphoned out $5 billion under the gaze of the IMF and World Bank officials. In 1997, Mobutu Sese Seko was overthrown. The new regime inherited a whopping $16.6 billion external debts without any value for it. For example, Congo, the size of Western Europe, had only 300-km of tarmac roads. At a formal meeting, chaired by the World Bank to discuss re-scheduling Congo’s debt, delegates from the new government argued, and correctly so, that the World Bank, IMF and other donors acted irresponsibly in lending money to the corrupt regime of Mobutu. The new regime was correct. There was, and perhaps still is, evidence of substantial corruption and Zaire’s inability to service such [a] high level of debts at the time of contracting them.

In an implicit acknowledgement that the IMF and the World Bank failed to design and implement sound economic policies in the 30 years of managing Congo’s economy, they started telling borrowing countries to stamp out corruption or lose access to loans. Ironically, the same IMF and World Bank, which mismanaged Congo’s economy for 30 years, are the same institutions wondering what is wrong with the economy.

From the above cases, it is clear the IMF, World Bank and other foreign donor financial assistance to African countries was never, and still is not, given on the basis of sound economic policies or even genuine democratisation principles. After independence, it was given on the basis of perceived capitalism ideology.

Following the collapse of communism in 1990s, the IMF, World Bank funding is given on the basis of:

• Project trials which largely benefit expatriate staff and foreign multinational companies
• Academic researchers attached to leading universities in the US and Europe, such as Prof. Joel Barkan, department of political science, University of Iowa.
• Career advancement for the staff working in aid industry, mainly at the IMF and World Bank.Lastly, but not least, because foreign financial assistance is not based on sound economic policies, it inevitably contradicts sound nationalistic economic policies.

  […] being on the list of the IMF, World Bank economies is shameful and is considered as a liability by investors.

  The earlier we get off their list, or the earlier the IMF, World Bank and donors soften their conditions, the better.