IMF and the extended credit facility.



In the 1970s, for political reasons (the Israeli war) a number of big OPEC countries stopped delivering oil to the west. This tremendously pushed up the oil price, which transferred astronomical sums of money to the Arab oil producing countries. By the same token it had serious repercussions for the US economy. The US, very dependent on imported oil for its economy and military, seriously considered the “military option”. That is a euphemism for war and occupation of oil producing countries. With this violent concept under the table, the Arab countries were forced into a compromise: they could keep the oil price up, only if they would deposit the profits in American banks, so the Americans could still profit from it in some way. Now the US banks had enormous amounts of money they needed to use to create interests, and the western economies, because of the oil crisis, were depressed. So the banks looked beyond their usual customers and started offering big loans to third world countries (the contemporary term for what is now called “developing countries”). Clearly, these amounts of money seemed irresistible for the third world governments, at the time often dictatorships. These amounts of money promised “development” (a very vaguely defined term). This was actively promoted by western governments by using economic hit men, who would produce reports with strongly overstated development predictions from the projects financed with these loans. In some cases corrupt implementation lowered the benefits further, and in most situations the third world (developing) countries had trouble repaying. This gave western countries leverage over the political economy of the third world countries, which they had implemented by the IMF and World Bank. The resulting programmes were called Structural Adjustment Programme (SAP). These were neo-liberal reforms that were designed to increase influence of capitalist companies over the world economy, by selling off state enterprises, lowering state expenditure, and privatising the commons. These SAPs created untold misery, as they resulted in imf-and-world-bank-keeps-africa-poorcollapsing health care, education, and economic prospects for the poor. In the mean time the multi-national companies and the local third world elites would profit. This is consistent with the neo-liberal goal of restoring and creating ruling class power over the population and increasing inequality. Because of the bad social outcomes the SAPs were replaced with (essentially the same) programmes called Poverty Reduction Strategy Papers. These were drawn up by the third world governments, but under the direction of the IMF with the same goals as SAPs so the outcome was essentially the same. Here in Malawi we have seen the real income of the common people go down since the 1980s, largely because our rulers went along with these schemes that were profitable for them and disastrous for the population. This again got a bad name so with minor adjustments this was renamed Enhanced Structural Adjustment Facility, then Poverty Reduction and Growth Facility, and after that Extended Credit Facility. While each was slightly different from the previous, the neo-liberal background made it impossible to escape from the creation of greater and greater inequality, which was beneficial for the ruling class, as their share of the national wealth grew. Obviously, for the masses of the population this was destructive.

Typical stabilisation policies include:

  • Balance of payments deficits reduction through currency devaluation. This lowers incomes and lowers the values of savings, including pensions and such. That way the wage earners, savers and (future) pensioners pay for the balance of payment problems.
  • Budget deficit reduction through higher taxes ad lower government spending, also known as austerity. In (IMF) theory this should cut wasteful spending. But the wasteful spending benefits the powerful through allowances and luxurious conferences. So the powerful push this downwards, where the poor are confronted with inadequate health care and education among others.
  • Restructuring foreign debts
  • Eliminating subsidies, typically on essential needs such as food. This pushes up food prices, in Malawi most importantly the maize price. Again the poor are bearing the brunt of the load.
  • Raising the price of public services such as health care and education. We see this in Malawi by both refusing to hire teachers and nurses while charging draconian rises in university fees.
  • Cutting wages, mostly done through run-away inflation.

Long term adjustment policies that are pushed upon third world countries like Malawi typically include:

  • Liberalisation of markets, which pushes up the price of essential goods like food and fuel.
  • Privatisation of state owned enterprises. These are sold at give-away prices to the politically connected. In Malawi we have seen a lot of that under Muluzi, including Press Corporation and many others. Prices of public transport have risen since the privatisation of bus services.
  • Improving governance and fighting corruption: this would help the poor, so it is not done in Malawi
  • Enhancing the rights of foreign investors. We see Chinese and other foreign companies coming into Malawi, though piece meal because of bad governance and infra structure.

A lot of these conditions are under the so called “Washington Consensus” a deal made in Washington pushed by rich western countries on the rest of the world.


One thought on “IMF and the extended credit facility.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s