Get real time updates directly on you device, subscribe now.
Sparring with the Messiah of the Neoliberals
Bereket Gebru
It has been a long time since the International Monetary Fund (IMF) started to probe Ethiopia towards devaluing its currency. This is just a single step in the broad package of policy changes that the IMF puts as conditionally upon taking loans from it. The Ethiopian government puts on a brave face to delay such moves, but it has finally caved in and devaluated its currency by 15% this week. The government announced that it made the move to enhance the low performance of the export sector.
Reports by the Ethiopian News Agency (ENA) state that “the World Bank has been suggesting that the Ethiopian government should devaluate its currency by at least 10 percent, pointing out that in real terms it may lead to a five percent increase in export earnings and a two percent increase in growth.” On the other hand, the IMF has also been pushing such moves for a long time now especially under its Article IV consultation discussions.
The International Monetary Fund (IMF) holds annual meetings with its member countries and provides them with a set of policy packages on the economic route they need to take. Largely criticized for prescribing the same set of remedies for all the differing economic realities of countries around the world, these analyses and recommendations are tools used by the international organization to spread the use of a certain set of policies.
As has been clearly indicated by a number of scholars who closely dealt with the activities of the IMF, the paradigm that shapes the policy recommendations of the international organization is neoliberalism. An April 2016 the guardian article by George Monbiot, a published author and activist against neoliberalism, entitled “neoliberalism – the ideology at the root of all our problems” identified the IMF as a major promoter of the ideology. In his research: “Developing Country’s Experience with Neoliberalism and Globalization” Kalim Siddiqui states that the IMF and the World Bank used neoliberal measures in Latin America and Sub-Saharan African countries in response to the debt crisis in the 1980s.
A paragraph on the official website of the IMF states: “Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities.”
Accordingly, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Ethiopia on September 26, 2017. As a member of the international organization, Ethiopia received hefty loans from it with annual discussions held between the two parties. Accordingly, Ethiopia has recently received a 700 million USD loan from the IMF to enhance the accessibility of social services while another 600 million USD long term loan was provided by the international monetary institution to strengthen rural food security efforts. The policy recommendations of the IMF are clearly bearing a significant influence on Ethiopian policies.
As stated in the research by Kalim Siddiqui:
…the past decades of neoliberal policies have witnessed slower growth, greater trade imbalances and deteriorating social and economic conditions in most of the developing countries. The UNCTAD reports that, “for developing countries as a whole (excluding China), the average trade deficit in the 1990s is higher than in the 1970s by almost 3 percentage points of GDP, while the average growth rate is lower by 2 percent per annum.” Another study namely by Mark Weisbrot found that, “contrary to popular belief, the past twenty five years (1980-2005) have seen a slower rate of economic growth and reduced progress on social indicators for the vast majority of low and middle income countries (compared with the prior two decades).”
The IMF is a proponent of neoliberalism that has pushed numerous countries into the degrading path of economic colonialism. The slower rate of economic growth and reduced progress on social indicators associated with neoliberalism also pose considerable threat to the hopes of our nation. Therefore, it is important to look into the recommendations of the international financial institution.
The IMF has, since the mid 1970s, pushed developing countries with trade deficits towards opening up markets for foreign investors, export promotion, privatization and devaluation of currency. It is these policies that have effectively handed the poor over to the merciless greed of the rich. Therefore, we will consider if these policies are still in the mix of IMF’s recommendations.
Accordingly, the end-of-mission press release by the IMF staff team states:
The Ethiopian economy showed strong resilience in 2016/17 amid continued weak global prices for Ethiopia’s key exports and re-emergence of drought conditions in parts of the country. Real gross domestic product (GDP) is estimated to have increased by 9 percent in 2016/17. Government interventions to mitigate the social impact of the drought, in collaboration with development partners, were timely and effective, thus limiting its human cost. Prudent budget execution led to a lower-than-planned fiscal deficit, estimated at 2.5 percent of GDP. Determined actions by the authorities to contain external imbalances led to a narrowing of the current account deficit, and restrained debt accumulation. Nevertheless, exports continued to stagnate due to weak global commodity markets and delays in completion of key related projects.
The press release then gives a glimpse into the recommendations it put forward to the Ethiopian government. It states: “In the short term, however, the current account deficit remains high, and indebtedness and associated risks have increased. Thus, until past investments in infrastructure and logistics pay off and exports take off, macroeconomic and financial policies should aim at reducing external imbalances and liabilities.” The IMF seems to suggest there that Ethiopia puts a brake on investment in infrastructure because it is time for boosting exports, lowering imports and servicing its debt.
The press release goes on to explain that achieving this rebalancing requires the introduction of “additional restraint in undertaking public investment projects, particularly those with a high borrowing component on top of the appropriately tight budgetary stance announced by the government.” As most of these public investment projects include roads, clinics and schools, recommendations to restrain such investments would immensely affect the achievement of the second GTP. It is also important to note that this recommendation is also similar to the infamous austerity measures the international institution pushes in Europe and elsewhere. The IMF team claims to support the authority’s intention to protect pro-poor programs in spite of its recommendations to restrain the undertaking of public investment projects. That surely is a narrow room to maneuver solidarity with the poor.
The IMF also calls for ongoing domestic revenue collection efforts to be stepped up. Everybody would agree with the enhancement of tax collection, but considering the precarious and sensitive state of affairs surrounding the issue, I would say awareness creation and normalization of recent unfavorable understandings should come first. There is a clear tendency by some to utilize revamped tax collection efforts to incite violence and ignite social unrest. Therefore, efforts to promote the domestic revenue collection should be wary of internal realities.
At the end, the press release rather simply stated that a more flexible exchange rate would help competitiveness. After finalizing the Article IV consultation discussions with the IMF on September 26, 2017 the Ethiopian government devaluated its currency on October 11, 2017 – just a couple of weeks later. Numerous Ethiopian economists and the government have argued in recent years that devaluation is going to cause the country more harm than good. Regardless of that reality, though, the IMF and other international monetary institutions keep pushing for it. With inflation levels so high already and contributing to the country’s current unrests, more devaluation could potentially pour gas onto the fire.
Finally, it is important to note that the biggest recipients of IMF’s loans a decade back are some of the countries that have experienced a meltdown in their financial and monetary systems. Going down the path of biggest IMF loan recipients such as Greece, Iceland and Ireland is not a viable option for any country. Therefore, the Ethiopian government needs to be cautious in its dealing with the messiah of the neoliberals.
