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The World Bank and IMF in AfricaLast updated June 2009 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 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 SAPs 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 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 SAPs. 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. 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 It must also approve any funds that are given to the IMF. Congresswoman Maxine Waters spearheaded the effort to get support from lawmakers for legislation to ensure that the IMF funds would be used appropriately and provide effective help for low-income countries. She was concerned that the Senate attached an inadequate package to Fiscal Year (FY) 2009 supplemental appropriations bill that concerned the IMF funding. She and other supporters of the IMF reforms asked that the funds be used for stimulatory purposes, that at least $5 billion of the gold sales would be used for debt relief or grants, that all IMF loans would have to have parliamentary approval and called for greater transparency and public availability of documents within a reasonable time frame. These lawmakers were given an opportunity to insist on IMF reform as a condition to receiving the extra funding to enable global stimulus. Some of these necessary reforms would have included that gold sales would be approved only if the IMF ceased the use of overly restrictive deficit-reduction and inflation-reduction targets, eliminated budget ceilings for the health and education sectors and de-linked debt cancellation from such harmful macroeconomic conditions. Instead, the U.S. government has effectively handed the IMF a 'blank check.' The new money would not be used for debt relief or grants, but for loans that could amount to $1 trillion dollars in new debt for developing nations. The sale of the IMF's gold reserves would be able to fund expanded debt cancellation, up to $5 billion for debt relief for up to 70 of the world's poorest countries for the next three years. In the end, lawmakers approved the bill without the IMF reforms and no strings attached to the funding. In June 2009, lawmakers voted to give $108 billion to the IMF, the U.S. contribution to the pledge of $1 trillion from the leaders of the G20.
LinksPresident Obama Must Intensify Efforts at G-20 Summit to Ensure that Financial Institutions and Markets are Reformed
'Owning up to Africa': Gerald LeMelle on Sirius XM Satellite Radio
Secretary of State Clinton Begins Tour of Seven African Countries, Civil Society Responds
Akwaaba! …Ghana Should Meet Obama With Cautious Optimism
A Blank Check for the IMF Won't Serve the World's Poor
U.S. Drags its Feet at United Nations Conference
The Scourge of the IMF
IMF Gold Sales: the U.S. Treasury agenda, Congressional leverage, and civil society advocacy
Civil Society Letter to IMF
IFIs in Africa News Briefing
Factsheet - The World Bank: Hazardous to Africa’s Health
Africa Action Confronts World Bank & IMF on Health Impact, Corruption
Impoverishing a Continent: The World Bank and the IMF in Africa
The Policy Roots of Economic Crisis and Poverty: A Multi-Country Participatory Assessment of Structural Adjustment
Africa Action Statement on 100% Debt Cancellation for Africa
The Bretton Woods Project
Jubilee USA Network
Hazardous to Health: The World Bank and IMF in Africa
Africa’s Debt
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