Information about Sub-Saharan Africa África subsahariana
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An Unofficial View

Editor(s):
I. Patel
Published Date:
December 1992
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G. K. Helleiner*

The most important element in the emerging consensus on the requirements for economic development for sub-Saharan Africa is the adoption by policymakers of a much longer time horizon than is implicit in current structural adjustment programs and many current evaluations.1 Many of the most important investments and policy changes have very long gestation periods. The costs of pursuing too short-term and, therefore, in the absence of alternative possibilities, too demand-oriented an approach to adjustment in Africa have been severe. The forced adjustment necessitated by short-term balance of payments arithmetic and the concomitant “import strangulation” not only rendered the investment required for recovery impossible but also damaged the limited and painfully accumulated existing capital stock. Worse still, it resulted in unnecessary output losses, as a consequence of the underutilization of partially import-dependent productive capacity, and in unnecessarily severe and extended human suffering.

Agreement is also widespread on the need for restructuring production toward efficient exporting and import-substituting activities and on the typical main elements of previous supply-side policy error—on the relative neglect of agriculture, overambitious aspirations for the role of the state in the productive sector, inappropriate or ineffective pricing policies, the neglect of maintenance and recurrent costs relative to the further expansion of capital stock, and inappropriate technology in all sectors.

Particularly worth noting, in light of the prodding of the Economic Commission for Africa (ECA) and the United Nations Children’ s Fund (UNICEF), is the fact that the impact of adjustment programs upon poverty is now receiving much more attention in Africa and elsewhere. Policies for the relief of absolute poverty seem at last to have been added as an eleventh item to the so-called Washington consensus on ten kinds of appropriate policy reform.2 Still, relatively little effort has been made to monitor absolute poverty levels, assess the implementation of antipoverty policies, or build antipoverty objectives into ex ante design of adjustment programs.3

External Resource Requirements and Debt Relief

The overall resource requirements for sustained African development in the 1990s, as estimated by virtually all sources, imply significant increases in transfers from external official sources. (Indeed, the World Bank has consistently understated Africa’s medium-term requirements so as to generate aid targets that the major industrial countries would consider within the range they consider to be politically possible.)

The highest immediate returns from expanded official flows to import-strangled economies are typically reaped from the provision of increased inputs for the rehabilitation and full utilization of existing capital stock rather than from the creation of new capital. Increased supplies of “free” foreign exchange in situations of foreign exchange constraint can yield extraordinarily high returns. (They could also, in some circumstances, simply finance increased rents for those controlling mismanaged economies or increased capital outflow, or both.) At the same time, they can render many more potential investments remunerative. Growth-oriented adjustment requires investment for the restructuring of production of tradable goods and services. There are obviously also continuing needs for the expansion of social infrastructure and the directly productive capital stock for steady longer-run development. There can be neither private nor public incentives for such investments without assurances of adequate provision of inputs for their effective operation.

Concern over the “absorptive capacity” of recipient African governments for increased external assistance may in some circumstances, particularly where there is war, civil strife, or gross mismanagement in government, be appropriate. In the main, however, such concerns are inappropriate, in light of the sharp reduction in African imports (and, even more, imports per capita), the virtually universal phenomenon of import-related underutilization of both social4 and directly productive capital, and the continuing increases in population that will expand import needs. Where absorptive capacity problems do seem to arise, they are frequently the product of donor administrative and other constraints, which it must be a matter of high priority to ease.

The evident need for increased official resource transfers for African development is directly related to the problem of Africa’s external debt, most of which is owed to official creditors. If newly acquired external resources have to be employed to service external debt, they obviously cannot contribute to African social or economic development. Official flows and debt problems therefore must be considered in an integrated and consistent fashion. In recent years, the problems created by Africa’s external debt have been worsening.5

The overhang of African debt now constitutes a significant extra drag upon the prospects for Africa’s development. The constant pressure of debt-related financial negotiations deflects decision makers from the necessary and more socially productive activities of development-oriented economic decision making. It thus both detracts from effective economic governance and reduces absorptive capacity for utilization of further public resources, whether locally or externally mobilized, for development. African governments’ absorptive capacity for further debt negotiations and extensive consultations with external sources of advice is a much greater problem than their absorptive capacity for further resources. No less important are heavy external debt-servicing obligations that discourage private investors and government reformers alike by imposing a major “tax” upon successful adjustment efforts.

Reducing the current external cash flow obligations and payments on debt account will thus probably be the most cost-effective form of official external resource transfer to Africa in the 1990s. Debt reduction must be a major element of any serious internationally supported effort to restart African development. Of the $43.5 billion of external finance deployed in support of 23 African SPA (Special Program of Assistance) countries between 1988 and 1990, $11.6 billion, or 27 percent, was already in the form of debt relief (capitalization of scheduled interest payments, postponed scheduled principal payments, and rescheduled arrears). With the anticipated modest potential for further increases in gross official development assistance (ODA) flows to Africa in the 1990s, the role of further debt relief in marginal expansion of external support is potentially much larger (as it was in the SPA effort, where it accounted for over 60 percent of the “new” money).6

Since a high proportion of Africa’s debt, particularly high in the lowes-income countries, is owed to governments and official institutions rather than private creditors, there is high potential for direct political solutions. There have already been many official initiatives in the sphere of African external debt. So far, however, they have had only minor effects upon the transfer of resources to Africa. Cancellation of debt associated with official development assistance programs has mattered little, since the debt was originally on very soft terms.

The so-called Toronto terms for Paris Club debt rescheduling are now widely recognized as far from adequate. Some creditors have consistently availed themselves of the agreed option to extend maturities rather than reduce principal or interest rates (Belgium, the Netherlands, Spain, and the United States). The terms of debt reductions, where they occur, are too modest (averaging about 20 percent),7 too slow to take effect (because they apply only to servicing obligations during the “consolidation period” rather than to the entire stock of debt), and too costly in terms of negotiators’ time. The World Bank estimates that their application in the first 17 African countries (since October 1988) has resulted in a cash flow saving of only about $100 million annually, of which Zaïre and Mozambique together make up over half. Between 1990 and 2000, the introduction of the Toronto terms to those eligible for them will save at most 5 percent of 1989 debt-servicing obligations.8 Current Toronto terms may be roughly appropriate for other debt-distressed African countries, those not categorized as low-income or least developed.

Debt forgiveness on previously concessional debt (official development assistance) is estimated to have reduced annual debt servicing for Africans by another $100 million in 1990.9 There is some potential for further gains for debt-distressed African countries as more donors write off their ODA loans; but these possibilities are, by their nature, fairly limited.

Among the non-African proposals recently floated for improving Paris Club treatment of low-income African countries’ debt are: (1) a one-off reduction of the total eligible debt stock (rather than continuing to reschedule only one-year maturities each year) by two thirds, with an initial five-year period of interest capitalization and an extension of the repayment period from 14 to 24 years for the remaining debt; (2) total forgiveness of bilateral official debt to the poorest of the severely debt-distressed countries (the “least developed” and other low-income countries); (3) a three- to ten-year moratorium on all bilateral official debt servicing with all rescheduling on International Development Association (IDA) terms. All of these are to be conditional on the existence of an agreed adjustment program and to be additional to current or anticipated resource flow commitments.

A high-level political agreement is required among creditor governments to ease significantly the current terms of Paris Club rescheduling agreements. This must involve reducing a much larger proportion of the debt “at one go” and reducing payments obligations by much greater proportions. The speed with which the Group of Seven10 were recently able to agree to better-than-Toronto terms of debt forgiveness for Egypt and Poland illustrates the possibility of effective early action.

Low-income debt-distressed countries’ obligations to multilateral institutions are, by common agreement, best handled by refinancing at highly concessional terms; and most of the World Bank’ s and the IMF’ s credit to these countries has already been treated in this manner. The problem of arrears to the international financial institutions, however, is a much more difficult issue. Arrears in African countries’ IMF repayment obligations are unlikely to be successfully addressed in existing or newly agreed arrangements for dealing with them, all of which require major “up-front” policy change, without the prospect of supportive external resource transfers until much later. Such punitive approaches risk aborting recovery. The World Bank should continue and complete its program for the conversion of Bank loans to IDA terms for currently IDA-eligible borrowers. Other “hard” creditors should do likewise.

Although in most sub-Saharan African countries (Nigeria is a major exception) private creditors account for a relatively small proportion of external debt, failure to deal with them—through clearing arrears, rescheduling, and writedowns—can be very costly in terms of more expensive or unavailable trade credit and higher-priced imports.

As far as commercial debt is concerned, there is no reason, in principle, for African debtors to be treated in any way less favorably or less quickly than those already benefitting from debt-reduction initiatives under the Brady initiative, or its successor arrangements. There is every reason to expect case-by-case IMF and World Bank initiatives in support of debt-distressed African countries with significant commercial debt outstanding, as in the case of Morocco. The $100 million fund provided to IDA out of the World Bank’ s profits for this purpose is much too small. Under its rules, each beneficiary country may receive up to $10 million in grants, but there are already 15 countries with upward of $2 billion of commercial debt that have applied for its use.

Developed country governments that are themselves writing down their own African debt should also be expected to insist that their private creditors offer no less favorable arrangements to the beneficiary debtors. Thus far, they have largely, and inappropriately, stood aside from these negotiations.

Conditionality and Local “Ownership”

A great deal of energy has been devoted to the assessment, by the IMF and the World Bank, as well as by others, of the effects of their stabilization and adjustment lending activity and, by implication, of the efficacy of their conditions.11 Granting all the methodological problems, notably the difficulty of establishing appropriate counterfactuals, there is evidence of modest improvement in overall economic performance in countries with IMF or World Bank programs. The IMF’ s studies also now indicate that there are initially negative growth experiences associated with typical IMF programs.12 But it remains difficult to disentangle the positive results of increased resource flows from those of policy reform; a lot of uncertainty about the effects of particular components of reforms remains; and the evidence is, in any case, much less persuasive in Africa than anywhere else.

It is important that any generalizations from these studies not be translated into universally identical policy prescriptions. Not only do different kinds of countries and different kinds of problems require different solutions but apparently fairly similar circumstances may, in fact, cover widely varying underlying constraints.13

One way in which prescription for most African countries probably should differ from current generalizations is in the sequencing of adjustment policy. The current “conventional wisdom” posits that macroeconomic stabilization, especially in the realm of inflation, should come first; followed by the restructuring of incentives, addressing the most severe distortions first; and only then expanded investment and growth.14 In today’ s Africa, where critical early investments must be undertaken by government (in education, health, and infrastructure), where confidence in government has been shattered, and where much of the relevant private decision making is done by peasant farmers, the first step has normally been to restore some public investment, generate some early growth, and restore some government credibility.

Most African countries can be described as different from the developing country norm, if indeed there is such a thing at all, in their very low income, very limited base of human, physical, and institutional capital, heavy dependence upon primary production and exports, limited flexibility of production structure, “soft” administrative systems, and small economic size. At the same time, most are both extremely susceptible to external shocks and extremely limited in their capacity to respond rapidly to them via appropriate borrowing and adjustment. They are uniquely fragile in economic terms (as well as, frequently, in ecological ones). Policy prescriptions for them must take these special characteristics fully into account. Ultimately, however, there is no substitute for full country-specificity in adjustment programs.

It is particularly difficult to generalize about the development consequences of more micro-level policy reforms. It would be a very brave analyst who could conclude that there have so far been unambiguously positive effects from African efforts at financial liberalization, import quota and tariff reform, privatization of public enterprises, or tax reforms, to name some of the principal areas of policy pressure. As experience accumulates, there will undoubtedly be scope for improved policies and results in these spheres.

The principal shortcomings of African stabilization and structural adjustment programs in the 1980s are obviously controversial, but many would find some fault with their

  • • continued overreliance upon demand restraint;
  • • overoptimism concerning the market prospects for traditional exports and the short-run possibilities for expanding nontraditional ones;
  • • relative neglect of the provision of crucial public goods, especially agricultural infrastructure;
  • • relative neglect of the maintenance of human capital, particularly health expenditures, and failure to minimize the impact upon absolute poverty;
  • • failure to grasp the nature of required changes in the financial system, and overestimation of the efficacy of financial “liberalization” and interest rate increases;
  • • overestimation of the efficacy of privatization, especially in agricultural marketing and input distribution;
  • • inadequate appreciation of the fiscal implications of reform packages incorporating sharp devaluations and interest rate increases;
  • • exaggerated expectations of the role of foreign direct investment, and the prospect of returning flight capital;
  • • inadequate consideration of the potential gains from regional and subregional cooperation; and
  • • underfunding, and frequently inappropriate forms of external assistance.

On the other hand, as far as more immediate prospects are concerned, one lesson of recent experience is quite clear. Whereas it has been very difficult to prove unambiguously that policy reform itself has improved development performance, either in Africa or anywhere else, it is beyond dispute in econometric investigations that there is a positive and statistically significant correlation in recent years between increased imports and improved growth.15 Increased external resources, evidently, can be highly productive in periods of foreign exchange stringency in the short to medium term, probably primarily through their effects upon capacity utilization.16

Among the most important other thrusts in development and adjustment thinking in recent years, derived in large part from these same studies, is the increased emphasis now placed upon stability, policy credibility, and sustained government effort.17 More important than achieving policy “perfection” at each point in time, whatever that might mean, is the creation and maintenance of a stable overall policy environment, and the creation and preservation of credibility for and confidence in an announced adjustment and development program. Stable incentives and politics can compensate for quite a lot of policy “imperfection.” Only with the resulting reduction in overall uncertainty will private decision makers and public servants be able to act rationally, consistently, and in the longer-run social interest. This new perception of the prime prerequisites of success has created a fresh interest in “critical thresholds” in policy change, below which very little will happen but above which much more is possible. Once this threshold is crossed, and, provided that relapse does not occur, there may be considerably lower marginal returns to further “fine-tuning” of policies. Once the most grotesque distortions, particularly, in Africa, those related to the real exchange rate and the fiscal deficit, are repaired, further “improvements” of prices and policies may not be nearly so productive. Adjusting African governments, in fact, have achieved significant real currency devaluation and other major price reforms in the 1980s. Insistence upon too many further policy reforms, which are often disputed, risks disruption of the stable investment flows on which development depends.

Among the key elements in securing policy credibility are the adequacy of finance and assurance of its continuation. It makes little sense to strain over optimal policies if all can see that adjustment possibilities are so tightly constrained by resources as to throttle the best of reform efforts.

More debate is required not only on the conditions for external support of low-income countries’ adjustment and development programs but also on the process for monitoring and enforcing them. Current arrangements provide for a very short leash on African governments. Arrangements under the IMF’ s structural adjustment and enhanced structural adjustment facilities are between one and three years in duration, and performance is assessed every six months. Within the World Bank, there is active discussion of the possibility of shortening the leash on adjustment lending still further. Some suggest that, where reforms take a long time either to implement or to take effect, loan disbursements should be geared to the continuation of appropriate policy or policy change in order to reduce the prospect of “policy slippage.18

While this recommended “short-leash” approach may be defended on the basis of the incentives (against policy slippage) that it creates, it makes little sense in terms of broader adjustment objectives. If there are balance of payments problems associated with adjustment efforts, increased external finance should be made available; the amounts to be provided should relate to the objective need for both quick-disbursing and steady program support, not fairly subjective assessments of whether programs of uncertain outcome in the longer-run are being adhered to. The stability of incentives and expectations, and the credibility of development programs, both of which are critical to success, are hardly enhanced by “stop-go” approaches to the commitment or provision of external finance.

Much more persuasive than the calls for shorter-leash financing is the call for improved contingency financing—what used to be called “supplementary finance”—to adjustment programs supported by the World Bank to stay on track in the face of unexpected events, such as terms of trade deterioration.19 The new evidence that investment rates vary directly with the stability of overall output lends extra support to this advice.20 It is striking that the existing contingency financing arrangements with the IMF, introduced in 1988 with considerable fanfare, have not been utilized.

Among the most critical issues in the development of appropriate adjustment programs in small low-income countries is the time and energy of the relevant skilled personnel, which are available for dealing with foreign sources of finance. The “transactions costs” of endless dealings with individual bilateral donors, the World Bank, the IMF, and, in the case of the debt-distressed countries, the Paris Club are enormous when expressed in terms of their domestic opportunity costs. It is inconsistent for external sources of finance to demand simultaneously both that local programs be developed by national governments and be fully “owned” by them and that they devote the amount of effort required to service the informational and other requirements of the external creditors. Short-term, short-leash finance implies, for these countries, that there will be little time left for the relatively small numbers of key economists and administrators to develop their own programs and policies for development.

While the rhetoric of the IMF and the World Bank clearly admits the need for local “ownership” of programs and policies, the practice of “leaning” fairly hard on the weaker members, notably those in Africa, has been resistant to change. Yes, the IMF and the World Bank have experienced professionals and access to the best support systems, but their combined resources cannot completely substitute for local understanding. Even if it could, policies and programs will come to naught when those who implement them do not believe in them, or do not regard them as their own. As I emphasized earlier, the African countries have limited absorptive capacity, either in administrative or political terms, for external reformist advice during any given period.

African development is likely to be best served when (1) no single foreign source of ideas and finance has disproportionate power, and (2) African indigenous technical capacity is built to the point where genuine policy dialogue, based upon mutual respect, takes place between external donors and African policymakers, and where Africa’s development programs are fully and unambiguously locally constructed.

At present, there is a fairly general professional, governmental, and popular consensus within Africa that the relative influence of the IMF and the World Bank, particularly the latter, has grown too large. There is little consensus as to what should or can be done about it: for example, Seek to strengthen the African Development Bank or the ECA, or both? Press for more diversified sources of external assistance (while somehow still seeking to minimize transactions costs and improve aid coordination)? Improve various forms of South-South exchange and cooperation? Or what?

On one longer-term response, there is a firm African consensus: that technical capacity-building is a matter of very high priority. For obvious reasons, there is widespread nervousness in African economists’ circles about too great a Washington influence upon technical and economics capacity-building as well as everything else. For the present, the IMF and the World Bank will continue to perform their most useful roles when they provide, upon request, specific technical assistance and advice, and contribute to the quality of ongoing, primarily domestic, policy debate.

The Roles of the IMF and World Bank

Table 1 shows the net international transfers to (and from) sub-Saharan Africa by the IMF, the World Bank, and others in the 1980s. Most striking are the IMF’ s negative net transfers from 1984 onward, totaling over $4 billion over the 1984–90 period. Sub-Saharan African use of IMF credit peaked in 1987 and has fallen by about 15 percent since.21Table 1 also shows sharply rising IDA disbursements until 1987 and a negative World Bank transfer beginning in the same year. The total net transfers to sub-Saharan Africa from the Washington international financial institutions in the lace 1980s were positive but small, only about one third to one fourth the size of those transfers early in the decade, and far less than the transfers from other official sources. A significant proportion of sub-Saharan Africa’s actual debt service, 32 percent in 1989, is paid to the IMF and the World Bank.22 The net transfers to the IMF alone have exceeded those to private creditors in 1987, 1988, and 1989.

Table 1.The IMF, the World Bank, and the External Transfers to Sub-Saharan Africa, 1980–90(In millions of U.S. dollars)
1980198319841985198619871988198919901
IMF
Gross disbursements2121716189527387356781033865733
Repayments and interest3487739993117216891541149515931265
Net transfer730879-4l-434-954-863-462-728-532
IDA
Disbursements4246377788811400168116971700
Repayments and interest2144567994111128126
Net transfer4035937228021306157015691574
IBRD
Disbursements400708832647898998581835
Repayments and interest328438527616865107313061226
Net transfer722703053133-75-725-391
IMF, IDA, IBRD,
Total net transfers12051742986399385632382455
Other net transfers
Multilateral4707664442487650709672607
Bilateral416572295192547212101194630945430
Private52818270-1667-2648-1132-213-434-428-1818
Total long-term debt
Related net transfers565740921727-8562067318517122307657
Grants630572844342245144823503065676570
Direct foreign investment20882494105946011676872301
Total net transfers65737485441927795209676375118692
Source: Derived from World Bank, World Debt Tables, 1990–91 (Washington, 1990), Vol. 1, pp. 130–33.Note: IMF = International Monetary Fund; IDA = International Development Association; IBRD = International Bank for Reconstruction and Development.

Projected.

Purchases.

Repurchases and charges.

Excluding grants.

Publicly guaranteed and unguaranteed, excluding direct foreign investment.

Excluding technical assistance.

Source: Derived from World Bank, World Debt Tables, 1990–91 (Washington, 1990), Vol. 1, pp. 130–33.Note: IMF = International Monetary Fund; IDA = International Development Association; IBRD = International Bank for Reconstruction and Development.

Projected.

Purchases.

Repurchases and charges.

Excluding grants.

Publicly guaranteed and unguaranteed, excluding direct foreign investment.

Excluding technical assistance.

Table 2 shows net IMF credit flows at the country level in 1988—90 (exclusive of charges, because the data are not publicly available). In the year ended April 30, 1990, about half of Africa’s countries were, on balance, transferring resources to the IMF. Of the 39 African countries (35 sub-Saharan) that have had IMF programs in recent years, only 21 (19 sub-Saharan) still had them outstanding at the end of November 1990. The IMF’ s enhanced structural adjustment facility (ESAF) has not extended nearly as much credit to Africa as originally anticipated. The reasons for this come down to controversy over conditionality. During 1990, the structural adjustment facilities for Chad, Guinea-Bissau, and Tanzania expired. None was immediately renewed. Major further tests will arise in 1991 and 1992 as eight structural adjustment and seven enhanced structural adjustment facilities formally expire.

Table 2.Net Flows of IMF Credit to African Countries, 1988–901(In millions of SDRs)
Year Ended April 30
198819891990
Sub-Saharan Africa
Angola33.06
Benin6.26
Burundi0.0012.818.54
Cameroon69.5315.45
Central African Republic4.081.46-8.66
Chad6.12-1.755.68
Congo-2.38
Côte d’lvoire-19.25-125.06-87.46
Equatorial Guinea2.43-2.31
Ethiopia-8.80-6.47-18.45
Gabon20.1251.168.22
Gambia, The4.730.043.88
Ghana-21.37-41.3723.39
Guinea7.2817.37-6.01
Guinea-Bissau1.00-0.941.78
Kenya-27.359.79-14.03
Lesotho3.024.53
Liberia-1.29-2.36
Madagascar3.48-28.04-12.26
Malawi-15.15-0.250.30
Mali-15.20-1.247.79
Mauritania16.97-5.148.66
Mauritius-22.80-32.27-31.19
Mozambique30.5012.200.00
Niger-0.60-7.54-3.32
Sao Tome and Principe0.010.08
Senegal11.1123.321.23
Sierra Leone-0.70-0.01-2.42
Somalia-1.63-8.50-1.22
Swaziland-4.50-1.10
Tanzania31.8832.1013.93
Togo-3.23-6.880.06
Uganda-3.1817.21-6.13
Zaïre-26.50-71.98-98.52
Zimbabwe-90.40-41.77-25.11
Subtotal123.38-129.16-178.27
North Africa
Algeria72.05470.90
Egypt103.50-6.25
Morocco-28.10-121.24-35.94
Tunisia47.00-18.71
Subtotal122.40-55.44416.25
Total-0.98-184.60237.98
Source: International Monetary Fund, Annual Report of the Executive Board for the Financial Year Ended April 30, 19- (Washington, various issues).

Excludes arrears.

Source: International Monetary Fund, Annual Report of the Executive Board for the Financial Year Ended April 30, 19- (Washington, various issues).

Excludes arrears.

The IMF has long since shifted from its previous proclaimed purity as a (short-term) financial institution, treating all members equally, to a new role in which development assistance is also provided as a matter of course. The subsidized interest rates and longer terms within its Trust Fund, the structural adjustment facility, and the enhanced structural adjustment facility have, willy-nilly, converted the IMF into an aid agency, at least in part. Having “lost its virginity” in this realm, the IMF can no longer easily defend its failure to act more vigorously in the provision of expanded resources to developing countries on the ground that its role is “monetary” rather than “developmental.” At a bare minimum, the IMF should now be acting so as not to generate a net transfer of resources from countries that are at present in desperate circumstances in consequence of terms of trade deterioration, heavy levels of external debt, and other factors.

Surely the time has come for a reconsideration of the usefulness of holding roughly 103 million ounces of gold with a market value of $40 billion in the coffers of the IMF, The low-income developing countries have an unprecedented need for increased financial assistance, some of it directly associated with payments obligations to the IMF that were inappropriately offered and incurred. Article V, Section 12(f)(ii) of the Articles of Agreement of the IMF specifies that proceeds of gold sales, held in a Special Disbursement Account, may be used for

balance of payments assistance… on special terms to developing countries in difficult circumstances, and for this purpose the Fund shall take into account the level of per capita income.

Can it be realistically argued that anything significant in respect of the IMF’ s potentially important international operations would be altered if, say, 30 million ounces of gold were sold over the course of the next few years in the interest of providing expanded resources to the IMF’ s debt-distressed low-income members? The resulting profits could be utilized by the IMF in such a way as to improve its own balance sheet and increase the prospects of some of its most distressed members returning to “normal” relations with the Fund, by financing arrears or interest on arrears and other credit.

In the words of the recent Fraser Report to the United Nations:

The gold is not essential to IMF operations and serves no socially useful function at present. By selling a relatively small portion of the gold [20 percent is suggested], the IMF could raise enough profits to rectify the arrears of poor countries with the IMF through new low-interest loans, and to contribute additional resources to the IMF Trust Fund for subsidizing interest rates on other advances to poor countries.23

It is no longer realistic, at least under current IMF arrangements, to consider the use of SDRs (special drawing rights) to achieve a “link” with aid requirements. When the link proposals were originally formulated, SDRs carried a highly concessional interest rate and therefore constituted a potentially very valuable source of external finance for low-income countries. As subsequently developed, however, the SDRs carry a market rate of interest. That increased credit to low-income countries at market interest rates is not considered appropriate under present circumstances is evident in the highly concessional terms of SAF, ESAF, and IDA lending. It would be possible, however, to provide interest rate relief on SDR issues to low-income countries either by special Trust Fund contributions (perhaps financed by gold sales, among other sources) or by willing suspension by creditor nations of the interest earnings on SDR accumulations to which they would otherwise be entitled. In short, the IMF still has considerable underutilized capacity to perform an important further role as a source of development finance if it chooses to employ it.

Is it not, at last, time to reconsider seriously the appropriate means for the provision of international finance to very low-income countries? Not only has the IMF been unable, despite contrary statements of intent, to prevent net aggregate repayments from sub-Saharan Africa for the past half decade, but its contingency financing facility has failed to play any role in the stabilization of those low-income countries’ adjustment and development programs that it has supported. The overwhelming need in these countries is for grants and long-term finance in support of long-term development programs. Might it not be preferable, in the case of very low-income (or “least developed”) countries, to build new (and workable) contingency financing arrangements into the longer-term financing programs put together by the World Bank and other aid donors in World Bank consortia, United Nations Development Program (UNDP) round-tables, and the like, and allow the IMF to retreat to a relatively smaller role as a source of technical advice on monetary matters.

The IMF would thereby be relieved of an “aid” role with which it is not totally comfortable,24 the “bad press” associated with its steady negative net transfer out of Africa, and its inappropriate role as “gatekeeper” for access to debt relief and external finance. The IMF’ s existing claims on very low-income countries could either be frozen at existing levels or eliminated by using the proceeds from limited sales of IMF gold. Others, notably the World Bank Group, would then take over primary, though certainly not exclusive, responsibility for assessing these countries’ needs for external finance, and the formulation and monitoring of country-specific conditions for its provision. To perform this role effectively they would be required both to encourage efforts to expand the role of independent advisors and further to develop cooperation among national and international development agencies, including those of the United Nations and, in Africa’s case, the African Development Bank and the ECA. “Graduation” from very low-income (least-developed? IDA-eligible?) status would thereafter involve a return to “normal” IMF membership.

To some degree the international financial system has already been edging in that direction. Is it not now time to shift in a more direct and visible manner? In any new dispensation it will be important, above all, to avoid the creation of any one overpowering arbiter of Africa’s development requirements. The object must be, rather, to assist Africans to reach their own development decisions through the provision of multifaceted and sustained external assistance–in the context of genuine policy dialogue and consistent and sustained domestic effort.

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*I am grateful for the comments of Roy Culpeper, Mike Faber, Just Faaland, Susan Horton, Philip Ndegwa, Frances Stewart, Rolph van der Hoeven, and the participants in the AACB/IMF symposium in Botswana, none of whom is to be implicated in the contents of this paper.
1World Bank (1989); United Nations (1989), Maastricht (1990).
2The others, originally derived from approaches to Latin America, are fiscal discipline, public expenditure priorities, tax reform, financial liberalization, appropriate exchange rates, trade liberalization, foreign direct investment, privatization, deregulation, and securing property rights (Williamson (1990), pages 9–33).
3Stewart (1990); see also Mosley (1990), and Sahn (1990).
4For example, dispensaries without medicine, schools without textbooks of paper, etc.
5Mistry (1988); Humphreys and Underwood (1989); and World Bank (1990b).
6World Bank (1990b), page 93
7Ibid., page 29.
8Ibid., pages 100–104.
9Ibid., page 93.
10The Group of Seven comprises Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
11World Bank (1988) and (1990a); Khan (1990); and Mosley, Harrigan, and Toye (1991).
12Khan (1990).
13Taylor (1988), especially pages 69–74.
14World Bank (1990a).
15Notably those within the World Bank, see Faini, and others (1989) and also Mosley, Harrigan, and Toye (1991).
16Faini and others (1989); and Ndulu (1990).
17World Bank (1990a).
18Ibid.
19Ibid.
20Serven and Solimano (1990).
21World Bank (1990b), page 130.
22Calculated from World Bank (1990b), pages 130–32.
23United Nations (1990), page 94.
24See, for instance, Polak (1989), pages 48–52.

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