Origins, History of the IMF
The International Monetary Fund was first conceived between July 1-22, 1944, at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. The conference was attended by representatives of 45 nations, which were called together in order to plan and lay the groundwork for a cooperative economic framework to solve global financial crises before they occur. One key reason for the conference was to put in place the fiscal mechanisms which would provide protection against a possible repeat of the terrible Great Depression of the 1930s.
Also, another significant reason for the Bretton Woods conference was that WWII was showing signs of winding down in 1944, and the allied nations that were about to put the finishing touches on the defeat of the Nazis and of Japan, were seeking solutions to hitherto chaotic international monetary relations. It was a time for the practical and shared exploration of solutions that would bring prosperity as well as peace to many nations that were devastated by WWII.
A further reason for the Bretton Woods conference was spawned by the myriad of mistakes nations made during the Great Depression, and in intervening years; policies needed to be reviewed so the same mistakes are avoided in the future. During that decade, as economic activity in the major industrial countries weakened, many countries tried to shore up economies by placing stifling restrictions on their imports. What this did was merely add impetus to the downward spiral in world trade, in output, and in employment. In order to conserve fading gold reserves and foreign exchange, some countries cut back on the rights their citizens had to buy abroad. Also during that period, some nations devalued their currencies, and others introduced a lot of red-tape type restrictions on their citizens' ability to hold foreign exchange.
In the end, the methodologies aforementioned nations instituted proved to be self-defeating, and no country was able to shore up a competitive edge for very long. Hence, the international economy was devastated by ill-timed methods of "fixing" economies, and living conditions in many nations suffered - as did world trade.
For some additional and insightful background into the IMF's origins and functionality, it may be instructive to turn to excerpts from professor Leland Yeager's book, International Monetary Relations: Theory, History, Policy. Yeager holds two impressive titles: the Ludwig von Mises Distinguished Professor Emeritus of Economics at Auburn University; and the Paul Goodloe McIntire Professor of Economics Emeritus at the University of Virginia.
The IMF resulted from lengthy discussions of separate American, British, Canadian, and French proposals drafted during World War II," he writes. In the British "Keynes Plan," an international clearing union was proposed, that would create an international system of payment called "bancor." Each member country's central bank would then accept payments in bancor, "without limit from other central banks. Debtor countries could obtain bancor by using automatic overdraft facilities with the clearing union.
The limits to these overdrafts would be generous and would grow automatically with each member country's total of imports and exports," Yeager continued. "Charges of 1 or 2% a year would be levied on both creditor and debtor positions in excess of specified limits." And further, a portion of the credits, under the British proposal, might be "forgiven" and in the end, turn out to be "gifts" to the developing nation receiving the loan. Any large imbalances in the repayments could, under the proposal by the British, be covered by massive and automatic U.S. credits to the rest of the world - up to billions of American dollars.
Americans Reject British proposal
But the American representative at the organizational sessions, Harry Dexter White of the U.S. Treasury, rejected the British idea. White's plan involved having member IMF nations pour money into a currency pool, from which needy countries might borrow to tide them over. Although both the British and U.S. plans steered clear of re-instituting the Gold Standard and proposed strong exchange-rate stability, the final compromise looked more like the U.S. plan then the British plan.
Purposes for the IMF
On December 27, 1945, the IMF became an official world economic organization. Twenty-nine nations signed the "Articles of Agreement" on that date.
The main purposes for the IMF are laid out in Article I of the "Articles of Agreement," which states that "The IMF is responsible for promoting international monetary cooperation [and for]:
facilitating the expansion and balanced growth of international trade;
promoting exchange stability;
assisting in the establishment of a multilateral system of payments;
making its resources temporarily available (under adequate safeguards) to members experiencing balance of payments difficulties;
and to shorten the duration and lessen the degree of dis-equilibrium in the international balances of payments of members" (IMF, 2002).
In a general sense, the IMF's larger challenge is to take responsibility for ensuring "the stability of the international financial system" (IMF, 2002), which is a colossal undertaking, and one which inevitably entails controversy and provokes intense media attention, a topic that will be addressed later in this paper.
IMF Financial Operations & Loan Conditions
The single most important feature of the financial structure of the IMF is that it is continuously developing," according to the IMF's description of its operations (IMF.org, 2002). "This is necessary for the IMF to meet the needs of an ever-changing global economic and financial system." bit of historical context is appropriate here. During the beginning years of the IMF (1945 -1960), there was very little financing, since the U.S. "Marshall Plan" assumed that role in large part. In the years 1961-1970, the IMF unveiled a new "supplementary reserve asset" - better known as "special drawing right " (SDA) - and a standing borrowing arrangement with the IMF's larger creditor members to supplement the IMF pot of money in times of "systemic crisis." In the years 1971-1980, there were two world oil crises, causing the IMF to expand its financing, and its system of disbursal to its poorest members ("concessional lending" came into being).
And, to be exact, the IMF says it does not technically "lend" money, as a traditional bank would write the borrower a check, for example. Rather, financial assistance is provided with a creative exchange of monetary assets - something akin to a "swap" of assets between the IMF and the nation that is receiving the monetary help. That being said, the IMF's literature says interest is still charged and the purchase and repurchase of currencies from the IMF is "functionally equivalent to a loan."
During the decade of the 1980s, huge debts built up by developing (i.e. Third World) countries, which forced the IMF to offer higher levels of assistance - financed of course through borrowed resources. And in the 1990s, the IMF set up a temporary lending facility to help ease formerly centrally planned economies into the world market system.
IMF Financing Mechanisms
The main IMF financial mechanism (or, in simple terms, the main money account) is called the GRA - General Resources Account. The number of nations contributing to the GRA (as of mid-2001) was 38. In the first 25 years of its existence, the nations borrowing from the IMF were mostly industrial countries caught in a financial bind. But in the last 25 years, most nations borrowing from the IMF were "developing" and "emerging market" countries.
And in hard core terminology, loans aren't really "loans" at all - in IMF terms they are "arrangements." When the Executive Board of the IMF approves an arrangement, after back up is shown to the Executive Board as to how the arrangement is to be repaid, the loan is issued in phased installments.
Very poor countries are allowed to borrow from the IMF at the lowest interest rate ("concessional" rate) of 1%, and the payback if over a longer period of time than "non-concessional" loans. That loan for the low-income nation is issued through the Poverty Reduction and Growth Facility (PRGF). The loans which go to other countries are issued in five facilities: Stand-By Arrangements (SBA), the Extended Fund Facility (EFF), the Supplemental Reserve Facility (SRF), the Contingent Credit Lines (CCL), and the Compensatory Financing Facility (CFF).
PRGF: The interest rate on PRGF loans (for the poorest nations borrowing money) is usually a mere 0.5% to 1%, and are to be repaid over a period of 5 1/2 to 10 years. The financing for concessional lending is arranged through a cooperative effort of 94 nations - and this commitment to the poorest of nations will be limited by the IMF to about 1 billion a year until 2005.
SBA: Stand-By Arrangements are only designed to take care of short-term "balance-of-payments" issues for a given country. SBA is the most frequently used form of loan from the IMF. The length of SBA is usually 12-18 months, and is expected to be repaid within 2 1/4 to 4 years without an approved extension.
EFF: This type of loan is over a longer period of disbursal (3 years), and the repayment is usually 4 1/2 to 7 years.
SRF: Supplemental Reserve Facility loans are to be repaid within a year and a half, and there is a substantial surcharge of 3-5 percentage points.
CCL: This is under the same repayment criteria as SRF, but the surcharge is less (1.5 to 3.5 percentage points).
CFF: This type of loan was designed to help a country experiencing a very sudden "shortfall" in export earnings (caused by world commodity fluctuations), and the financial terms match those of the SBA (except CCF loans have no surcharge).
In the event of a nation suffering a natural disaster like an earthquake, flood, typhoon, or other calamities, or for a country just emerging from war, the IMF provides "Emergency Assistance" loans. They are subject to the basic rate of charge, and must be repaid within 3 1/4 to 5 years.
It should be pointed out the IMF lending is usually dependent upon that nation borrowing funds adopting and putting in place a program of economic reforms. Those reforms must be approved prior to the loan being approved, and the reforms must address the country's exchange rate, money and credit, and the fiscal deficit. The IMF is always reminding any country applying for funds, that their loans are only temporary, to be repaid in full when the "imbalances" of that country's finances are straightened out. Then, the money is available for other countries to use, playing out the motto of the IMF as an "international credit union."
There are two basic kinds of safeguards put in place by the IMF, to protect their resources. One form of safeguards aims at protecting "currently available or outstanding credit" and the second form focuses on "limiting the duration of, and clearing, overdue obligations" (IMF, 2002).
The safeguards which protect current credit include: limits on access combined with incentives to avoid long usage of the money; program design conditions; post program analysis and central bank safeguards; way to deal with misreporting of information from the borrower; and technical assistance / statistical standards. In cases where there are overdue obligations, the IMF has policies (safeguards) to cooperatively prevent arrears, clear arrears, and conduct remedial measures to sanction those nations in arrears that have not been responsive.
Technical Assistance
While most of the attention is paid to the loans themselves, and to the countries that are struggling to extract themselves from debt and receiving the loans, the IMF also provides technical assistance (TA). This TA is designed to help countries help their "human and institutional capacity" (IMF, 2002), so that policy-making decisions are based on solid information and input. This assistance is free to the nation that has received a loan. About 75% of the IMF TA goes to the countries with the most abject poverty. Indeed, Sub-Saharan Africa at this time receives the largest share of TA from the IMF. It just makes good business sense to not only loan money to poor nations who deserve, but to give them the training and business support to make sure they not only pay it back, but that they grow and prosper thanks to the financial lift. "Give me a fish, and I eat for a day," the saying goes. "But teach me to fish, and I eat for a lifetime." That certainly is an appropriate philosophy when dealing with millions of dollars being poured into poverty-stricken nations with poor management structures in place at the top.
There is a much greater demand for TA then there are resources to provide the TA within the IMF. So, the IMF has set up a list of priorities for the issuance of TA. The main policy areas that receive priority TA are crisis prevention, debt relief and poverty reduction, and capacity building. It comes as no surprise, in this time of terrorists blowing themselves up in crowded public places, and crashing jetliners into buildings, that TA resources from IMF are also devoted to countries to help them combat money laundering and terrorism-financing within their nation. The IMF has 2 regional TA centers (Pacific and Caribbean), and 4 regional training centers (Brazil, Cote d'Ivoire, Singapore, and Austria).
Answers to Fiscal / Political Questions about the IMF
Having covered the aforementioned factual issues surrounding IMF's history and the nuts and bolts of how the IMF works and why - and before launching into the workings of the World Bank - a look at present realities vis-a-vis the IMF seems appropriate. As to the question of who really runs the IMF and World Bank: when it comes to voting on whether to issue a loan to this or that country, members of the IMF vote based upon the amount of money they pay into the organizations (MacEwan, 1999).
The U.S. government has by far the largest share of votes in the IMF and World Bank (WB), and, along with its closest allies, effectively controls their operations," says Arthur MacEwan (Dollars & Sense). In 1998, the U.S. held 18% of the votes in the IMF and 15% in the World Bank. Around 40% of the shares in both the IMF and the WB are controlled by a community of nations that include the U.S., Germany, Japan, the U.K., and France. The remaining shares are spread among 175 other member governments. But the bottom line is that the United States is effectively in charge of the IMF. And since WWII, when the IMF was established, the president of the IMF has always been a European, and the president of the World Bank has always been a U.S. citizen.
And, if one wonders why international economic conferences draw thousands of angry protesters from around the globe - some violent - to the streets, part of the reason the U.S. attracts the vitriol because of how much power America wields. Though America is always the lightning rod for protests in money matters, deserving or not, yet it's important to remember that in effect, the IMF and WB are, quite literally, extensions of U.S. government's foreign policy (MacEwan, 1999). Both the IMF and WB are "...well insulated from democratic accountability, because Congress, to say nothing of the U.S. populace in general, has no role in overseeing their operations, and they [both] operate largely outside the public eye" (MacEwan, 1999).
Many of the protesters demonstrating in the streets at recent economic summits are demanding that the IMF and World Bank "forgive" loans to financially strapped Third World countries.)
The above-mentioned protests "...are merely the tip of a vast iceberg of transnational networks tying together people from all parts of the world who share grievances about the current rules government global economic integration," according to Ann Florini (OECD Observer, 2001).
Her argument is echoed by many journalists and activists in just about every corner of the world, and that is that "globalization" through loans by the IMF and WB does not necessarily work well for many developing nations for a potpourri of reasons. "Those grievances are often voiced by the rapidly growing number of civil society groups working locally or nationally who find that the roots of their problems lie at the global level," she explained.
The intensity of the protests - in the streets and elsewhere in more low-key settings - is moved to an even higher level by seeming arrogance and smugness on the part of IMF and WB officials. Florini sites "The egregious case of the Quebec City trade negotiations, when citizens were denied access to the negotiating text that was nonetheless granted to hundreds of corporate leaders, exemplifies the most objectionable biases of global economic decision-making." Amnesty International "have reported many cases of extreme police brutality directed against non-violent demonstrators, or even uninvolved bystanders," Florini adds. "Many protestors are convinced that violence is often permitted or even deliberately provoked by police forces seeking excuses to round everyone up." line for dissention from IMF and WB policies: "The protest movement has become to large to ignore, and will not go away [so]...international organizations...will have to seek out ways to grant a meaningful voice to these [protest] groups," Florini states. "[Groups] are raising important substantive points about real flaws in the current rules for governing the world."
Adding to the tremendous financial and political power exerted by the IMF and WB, is the fact that if a poor nation cannot obtain a loan from either, that poor nation will definitely not receive a loan from an international bank. And, when that poor nation does receive monetary help from the IMF or WB, along with that loan comes the red tape: reform your government's policies or else you won't get all the funds.
How does the U.S. play the IMF and WB "political card" when it comes to America's friends and America's foes? MacEwan of Dollars & Sense responds thusly: "The IMF and WB make sure that U.S. allies get the financial support they need to stay in power, abuses of human rights, labor, and the environment notwithstanding; that big banks get paid back, no matter how irresponsible their loans may have been; and that other governments continually reduce barriers to the operations of U.S. business in their countries, whether or not this conflicts with the economic needs of their own people."
As a general rule of thumb, the IMF provides monies to nations in immediate financial need, those in truly dire straights where people's health and lives are on the line. And the WB provides financial services for the long-range development projects of nations, and "shapes the economies of countries where it makes loans" (MacEwan, 1999). Typical projects funded by the WB include huge hydroelectric dams, major road development, and education building for Third World countries. In itself, that sounds altruistic and beneficial for societies needing the support.
But MacEwan offers some insights into the WB's activities. "Many of the WB's programs appear desirable in themselves - who would object to clean water facilities, education in animal husbandry, or better roads? Yet the particular projects promote a development strategy that minimizes the role of the public sector, and demands the privatization of communal lands and other public property," which raises concerns among citizens in those WB-supported countries.
Speaking of the aforementioned drawbacks, the IMF "took the financial community by surprise," according to the journal, African Business (November 2002), "by pledging to ease up on the conditions it imposes on indebted countries." The IMF announced at its annual meeting it will allow countries to try "alternatives to its typical advice to cut spending, open capital markets and dispose of state assets." Critics immediately blasted the IMF policy adjustment as "a new spin on an old line," African Business contended. "...Previous promises by the IMF and the WB to listen more closely to local officials in designing economic programmes did not amount to much." Job losses in African nations currently receiving help from the IMF and WB are being blamed on policies (as mentioned in the paragraph above) that promote privatization, free markets, and forced reduced capital spending.
While there is no shortage of criticism of the IMF and WB when it comes to the seemingly heavy-handed "red tape" and "special conditions" they place upon poor nations receiving hard-to-come-by fresh sources of capital. But Africa today is experiencing a multitude of regional conflicts, civil wars, and instances of corruption are rampant - and this has to be a concern when doling out millions of dollars that all too often are misspent or simply ripped off by unscrupulous "leaders." In a recent public policy statement, the IMF and WB said "...there is nothing much the international community can do to [assist] Africa's development unless African leaders themselves determine to get rid of corruption and focus on good governance" (Famakinwa, 2002). "...In the end, the thing that will determine where the corruption goes in Africa is if the leadership ensures that corrupt people get out of government."
In effect, this was a warning from the IMF, that "[though we are committed to] stronger growth in low-income countries especially in African countries in the context of poverty reduction and growth strategies...there [will be] a huge setback of any project...if African leaders [do not] get rid of armed conflict and exercise better governance." Indeed, the IMF had planned to establish two TA centers in Africa, to add to the TA they offer worldwide; however, armed conflicts in Tanzania and the Ivory Coast have put a freeze on those TA centers.
On the positive side of African investments, the IMF announced (Orina, 2003) that it "may resume" lending to Kenya in July 2003. That is, if the Kenyan government "fulfills the anti-corruption pledges it has made." When it is said the IMF carries a big club, this is an example of why it needs that club. Before Kenya begins once again enjoying much-needed infusions of capital, it must meet these IMF conditions: passage of anti-corruption and government ethics bills in Parliament; increasing the Attorney-General's powers to prosecute corruption; and the development of a poverty reduction strategy paper (PRSP). The IMF monies have been cut off to Kenya since December 2000 - that's when the "Anti-Corruption Authority" in Kenya was outlawed by a "constitutional court."
Another recent positive indication that some African nations are using the IMF and WB money properly was revealed recently (Xinhua, 2003). The IMF commended South Africa for its handling of finances - which it forecasts, will enjoy a 3% growth rate this year. "This greater resilience of the economy is largely attributable to an improved policy environment," the IMF news release stated (Xinhua, 2003). "...The [South African] government should be commended for maintaining strict fiscal discipline in the face of budgetary pressures." The bad news though - and there always seems to be some bad news when reporting on Africa - is that the IMF warned that South Africa is facing a "serious HIV / AIDS epidemic.
The spread of the disease and its macroeconomic impact are difficult to project, but it will in all likelihood significantly lower the average life expectancy and economic growth." Without "drastic policy measures and changes in social behavior," the IMF warned, "the disease could be expected to continue spreading and to take a heavy toll on the population and labor force."
Meanwhile, when talking about substantially large loans to Africa, where do the IMF and WB get their billions of dollars? The IMF gets funds as "subscriptions" from member governments - the amount each government gives determines the number of votes that government gets in running the IMF. What if the IMF needs more funds than it has on hand? It can tap into low-interest loans from lines of credit it has established with governments and large banks (MacEwan, 1999). As for the WB's money sources, it operates by getting loans from the private sector, operating through financial markets, as would private firms. The WB then in turn loans this borrowed money out to the governments of poor countries. So what is really happening here, is poor nations are in effect borrowing from international capital markets at rates much lower then they could receive if they were borrowing on their own.
The World Bank - History, Important Functions
The World Bank was founded at about the same time as the IMF, and at the same place, Bretton Woods, New Hampshire. The WB launched executive activities on July 1, 1944 and on June 25, 1946, the World Bank formally began funding operations). The WB's initial authorized capital was $12 billion; its first loan was $250 million to France in 1947, to help rebuild following the destruction caused by the Nazis. Today, the WB consists of 5 separate components.
They are:
The International Bank for Reconstruction and Development (IBRD);
The International Development Association (IDA);
The International Finance Corporation (IFC);
The Multilateral Investment Guarantee Agency (MIGA);
The International Centre for the Settlement of Investment Disputes (ICSID)
In the operating lexicon of this huge and influential Washington-based organization, the IBRD and IDA are considered, technically, "The World Bank," and all five components taken together comprise what is known as "The World Bank Group." The combined efforts of all 5 parts of the WB resulted in providing $19.5 billion in loans to client countries in Fiscal Year 2002 (WB, 2003). The WB is active today in more than 100 emerging (or "developing" as the WB refers to them) nations.
As stated in its published main goals, the overall promise of the WB is to provide, to the representatives of the poorest people in the poorest lands, loans, policy advice and technical assistance. The "...global fight against poverty is aimed at ensuring that people everywhere in this world have a chance for a better life for themselves and for their children. Over the past generation, more progress has been made in reducing poverty and raising living standards than during any other period in history" (WB, 2003). This progress in the world's "developing countries," according to the WB explanatory materials, includes:
A) An increase in life expectancy from 55 to 65 years; B) a doubling of the number of literate adults; C) the total number of children in primary school has increased from 411 million to 681 million; D) a reduction of 50% in infant mortality.
Notwithstanding these announced and seemingly impressive successes, "massive development challenges" remain for the WB and its components. For example, of the 4.7 billion people now living in the 100 countries that are World Bank clients, the following issues remain critical human concerns. Some 3 billion people are presently living on less than $2 a day, and an estimated 1.2 billion eke out survival on less than $1 a day. Also, nearly 3 million individuals, 2 million of them children, in developing nations perish each year from diseases which vaccines - if available - would normally prevent. Further, some 113-million school-age children are currently not receiving any formal education. Finally, over a billion and a half poor people in poverty-stricken nations do not have clean water available for drinking.
In 2001, the WB, undergoing a close examination of its own immediate priorities, came up with 4 intensely critical areas for upcoming financial focus. The first area was in "accelerated debt relief," where "significant process has been made to provide deeper, broader, and faster debt relief" (WB, 2003) to some of the poorest countries in the world, many of them in Africa. This debt relief falls under the beefed-up "Heavily Indebted Poor Countries (HIPC)" initiative framework. In the WB reports on HIPC, as of June 30, 2002, 26 countries were receiving debt relief under HIPC (expected to be $41 billion in the near future), and those 26 countries should experience a much-needed two-thirds reduction in total debt.
A second immediate priority for the WB is a new, more concentrated support for the battle against HIV / AIDS. The widespread epidemic now poses a "paramount threat to Sub-Saharan Africa." (Each day, 15,000 more people become infected with HIV, half of them between the ages of 15 and 24, and the great majority of them in Africa.) Hence, the WB has launched a commitment for more flexible and rapid funding (through the International Development Association - IDA, the Bank's concessional lending window), to individual HIV / AIDS projects developed by individual countries. The third area is what the WB calls "Multidimensional support for poverty reduction" (WB, 2003). In short, this new thrust encompasses law and justice, new and stronger support for education, anticorruption programs, and commitments toward a cleaner, healthier environment for citizens.
The fourth new priority is called "Improved development effectiveness" - which entails continuing to slash the number of "at risk" projects the WB has it its portfolio. Those "at risk" have been cut in half over the past five years and is now the lowest it has been in many years (WB, 2003).
The World Bank: Purposes of the IBRD
The IBRD was established 1945, and currently has 184 voting members. Its cumulative lending power presently is upwards of $371 billion; for Fiscal Year 2002, the IBRD loaned $11.5 billion for 96 "new operations" in 40 different countries.
As to the purposes of IBRD, this agency aims to "reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development, through loans, guarantees, and non-lending -- "including analytical and advisory -- "services" (WB, 2003). The IBRD, rather than just disbursing funds, has actually earned a net income each year since 1948. Its profits fund a number of developmental activities and the profits also ensure its financial strength. The IBRD is able to provide attractive terms for clients, on low-cost borrowings in capital markets. The IBRD actually is owned by its member nations, and, like the IMF, the IBRD links the voting power of its members to the capital subscriptions that members hold title to. The number of capital subscriptions held by a country generally reflects that country's relative economic strength.
The World Bank: Purposes of the IDA
The IDA was set up in 1960, and it has 162 member nations at the present time. It's cumulative lending power is an estimated $135 billion, and in Fiscal Year 2002 the IDA disbursed loans totaling $8.18 billion for 133 new operations in 62 nations. For poverty-plagued, developing nations, IDA provides "credits," which are actually loans at zero interest which have a 10-year grace period and maturities of 35 to 40 years. These are very attractive terms, but that's the idea behind such programs, because borrowing countries face complex challenges in striving for progress toward the international development goals.
There are key things borrowing countries must pledge to do, in order to continuing receiving their "credits" from the IDA. They must, for example, show they can ably respond to the competitive pressures as well as opportunities of globalization. They must have a working plan in place to arrest the spread of HIV / AIDS in their countries, and they must be successful at preventing conflict or at least deal wisely with the aftermath of conflict. To assist these countries in improving their prospects for re-invigorating their economies, the IDA policy framework emphasizes several important functions - not dissimilar to requirements for IMF and other WB sectors.
The borrowers must work towards accelerating their economic growth, particularly in rural and private sector matters. They must support and address the pivotal social problems of their country, and beyond combating AIDS/HIV, that includes "gender mainstreaming" (i.e., fair treatment and educational opportunities for women as well as men). Combating corruption in government and preserving a healthy natural environment are included on the "must do" list for borrowers from IDA.
In an apparent attempt to "empower" and provide real-time "inclusion" for the governments of the borrowing nations, in the spring of 2001 the IDA invited those countries to, for the first time in its history, join donors in dialogue about the future operational focus of IDA.
The World Bank: Purposes of the IFC
The IFC has a total of 175 member countries, which, as other WB branches do, determine its policies and approve all of its investments. A country must first be a member of the IBRD in order to join the IFC. All corporate powers of the IFC are held by its Board of Governors; member nations appoint representatives to the Board. IFC's "share capital" is provided by its member countries, and voting is in direct proportion to the number of shares held by each voting member. At present, IFC's "authorized capital" (available money) is $2.45 billion.
Although IFC coordinates its activities in many areas with the other institutions in the World Bank Group, IFC has the authority to function independent of the other components. The President of the IFC (James D. Wolfensohn) also serves as President of the World Bank Group.
The IFC claims in its mission statement it "adds value" to borrowing nations by "taking educated risks that the private sector will not take alone." As in other divisions of the WB, the IFC goes to great lengths to prove that it does not simply issue credits (money) and hope poor nations respond on their own to challenges that caused the need for the investment in the first place.
Providing quality advice when the private sector is unwilling" to offer that input, is a way to "better meet our clients' needs" (IFC, 2003). One key promise in most of the public pronouncements by WB components is that there will be positive environmental and social impacts from the loans made. This position most likely results from intense media and direct public pressure exerted over the years from environmental / conservation organizations (and social-related activists) that have been critical of some past WB / IMF policies.
Among the most often criticized projects funded by WB and IMF groups are large hydro-electric facilities - which of course invariably cause the flooding of some agriculture and other important lands and communities.
Meantime, it should be noted that IFC operates on a strictly commercial basis. This is not a non-profit or in any way a "welfare and social services" agency. Its investments are exclusively targeted in for-profit projects, and the IFC charges market rates for its products and services, which cover three general areas: Financial Products: the IFC finances private sector projects by providing loans, equity finance and quasi-equity. Advisory Services: providing advice and technical assistance to private businesses and governments in appropriately needy developing countries. And Resource Mobilization: the cornerstone of the mobilization effort is the loan participation program which arranges syndicated loans from banks that would otherwise be beyond that nation's reach.
Among its regulations and policies, the IFC is unique among WB divisions in that "...a company or entrepreneur, foreign or domestic, seeking to establish a new venture or expand an existing enterprise can approach IFC directly by submitting an Investment Proposal" (IFC, 2003). After an "initial contact" and a "preliminary review," the IFC may then request a "detailed feasibility study or business plan" to determine whether or not to look more thoroughly at the proposed project.
There are, of course, general considerations, which these private sector proposals must meet, among them: A) the project must be located in a developing country, which is a member of IFC. B) It must be "technically sound" and have good prospects of becoming profitable. C) It must, obviously, be beneficial to the local economy. D) And in this age of deteriorating water supplies and global climate change, and AIDS, the project must be environmentally (and socially) sound, satisfying stringent IFC standards as well as those of the host country.
The World Bank: Purposes of the MIGA
The MIGA was established 1988, and presently has 157 Member Nations.
The MIGA's total cumulative guarantees issued add up to $10.34 billion. For Fiscal Year 2002, the guarantees issued totaled $1.36 billion (which includes $136 million leveraged through the "Cooperative Underwriting Program").
Like all other IMF and WB agencies, the MIGA's expressed objective is "to promote foreign direct investment into emerging economies to improve people's lives and reduce poverty" (MIGA, 2003). But the difference in specific purpose for MIGA is in its offering of "political risk insurance (guarantees) to investors and lenders," and by helping borrowing countries attract and retain private investment. In addition, MIGA acts as an "umbrella of deterrence" against government actions (such as corruption, which is very common in developing countries) that may possibly disrupt investments, and the MIGA uses its influence when it comes to the resolution of potential disputes.
The targeted results of MIGA development efforts include: the creation of local jobs, the generating of substantial tax revenue, and the transfer of skills and technological know-how. Local communities often receive significant secondary benefits through improved infrastructure, including roads, electricity, hospitals, schools, and clean water.
Success is spelled out in numbers for MIGA: the agency has issued more than 500 guarantees for projects in 78 developing countries in its 15 years of existence. As of June 2001, total revenue issued exceeded $9 billion, bringing the "estimated amount of foreign direct investment facilitated since inception to more than $41 billion" (MIGA, 2003).
The World Bank: Purposes of the ICSID
The creation of the International Centre for Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the WB President and the staff of the burden of becoming involved in disputes...between [borrowing] governments and foreign [private] lending institutions" (WB, 2003). But in creating ICSID, the WB had a second key purpose in mind, to wit: promoting "increased flows of international investment" from wealthy countries to poor nations. Indeed, the bottom line in this second purpose for ICSID is, that bitter or bombastic public quarrels over the repayment or administration of WB loans, casts a negative light over the otherwise positive aspects of other WB projects.
The ICSID's "Administrative Council" is chaired by the World Bank's President, and it is composed of one representative from each State which has ratified the Convention. It's important to remember that the ICSID is an autonomous international organization, albeit, its WB links are solidly in the WB family. Indeed, all of ICSID's members are also WB members. All expenses incurred by the ICSID Secretariat are paid for by the WB, although, as a practical matter, the costs of individual proceedings are funded by the parties involved in whatever dispute is on the docket. What does the ICSID really do? Act as a court of mediation? The answer is, something akin to mediation is involved.
ICSID provides the facilities for the "conciliation and arbitration" of disputes between member nations and investors (who qualify as nationals of other member countries). Though utilizing the conciliation and arbitration services of ICSID is entirely voluntary, once the two parties have agreed to arbitration, neither side can unilaterally withdraw its consent. In fact, all ICSID Contracting States, whether they are parties to the dispute or not, are obligated by the rules of ICSID to recognize and enforce any sanctions or awards meted out by ICSID.
What if the foreign national investor is not a member of ICSID? Or, what if the dispute is not investment-related? In those cases, ICSID has what it calls "Additional Facility Rules" (WB, 2003), allowing ICSID to administer a fact-finding proceeding "...to which any State and foreign national may have recourse if they wish to institute an inquiry 'to examine and report on facts.'"
Fiscal / Political Issues re: Africa & the IMF & WB
The WB and IMF represent such enormous power when it comes to Africa's future - and present - when the leadership of either organization make hopeful pronouncements, a ripple of optimism washes over the continent. That's why there was much rejoicing in Africa in early 2001 (Duodu, 2001) following the first ever joint visit to the continent by World Bank President, James Wolfensohn, and the IMF's managing director, Horst Kohler. Upon returning to London, Wolfensohn called upon wealthy countries to open up their markets to developing countries...and honor their commitment to devote 0.7% of their annual GDP to overseas aid. According to New African journalist Cameron Duodu, overseas aid to Africa had "...fallen drastically from $32 per head in 1990 to just $19 in 1998, despite evidence of the effectiveness of aid..."
Wolfensohn scolded the rich nations, saying it is "hypocritical to give debt relief with one hand, and then deny poor countries the ability to export their way out of poverty with the other." He also said "Africa is the test of whether we can make globalisation work for the poor. Africans must lead their own development efforts, but they need a level playing field."
When Duodu read Wolfensohn's spoken words, he said, "...I could not help shouting 'Wow'!" In a later article, the Wolfensohn / Kohler tandem wrote that "Sub-Saharan Africa accounts for only 2% of world trade...yet research shows that granting free access to industrial countries' markets for these African countries - particularly for agricultural products and textiles - would result in growth for Africa worth billions of dollars per year."
That hoped-for infusion of new "billions" of dollars haven't yet made it to Africa as yet, but a phrase has arrived and been espoused by journalists and others - even IMF executives - that may be a useful tool in explaining one major dilemma. The phrase is "moral hazard" (Lane & Phillips, 2001), and it means basically that the knowledge that IMF or WB financing will be made available in the event of a financial crisis makes the crisis more likely to occur. Lane & Phillips, writing in Finance & Development, explain in greater detail. "The idea is that creditors know that IMF financing helps crisis-prone countries stave off default and are therefore willing to lend to such countries at lower interest rate spreads than would prevail if the International Monetary Program (IMP) did not exist."
The presence of the IMP, Lane & Phillips assert, "thus weakens pressure on governments to pursue policies - such as sustainable fiscal policies and sound financial supervision and regulation - that could prevent crises."
When it comes to Africa, moral hazard or not, there is no shortage of opinion as to how to attack the multiple crises of drought, famine, corruption, AIDS/HIV - and economically-strapped governments. Even "success stories" resulting from the loans and other assistance from the World Bank seemingly have their downside. Take Tanzania, which gained independence in 1961, prospered and grew and by the mid-1980s enjoyed one of the highest literacy rates in Africa as aid from the World Bank poured in to help the GDP grow at a 4% per year rate (Pooley, 2000).
Tanzania has made great progress in getting its macroeconomic situation in order," said James Adams, WB director for the country, while European sedans fill the capitol (Dar es Salaam), and imported goods fill shops. "There's no question that opening up trade has transformed Tanzania," Adams added. Meantime, away from the bustling capitol, more than half the population (15 to 18 million people) lives in abject poverty, on less than $1.00 a day. One can argue that the situation is better than it was in the mid-1980s, when 65% of the population lived on a dollar a day or less, but that's a rather superficial argument. So, if the WB and IMF regard Tanzania a success, through what statistics are they measuring?
One portion of those in abject poverty are small-plot, cash-crop farmers, who, according to Eric Pooley writing in Time. "The small farmers have ben structurally adjusted half to death...everything in a farmer's life costs more today. Currency devaluation and the elimination of agricultural subsidies doubled and quadrupled fertilizer prices...[and] farmer's couldn't borrow, because short-term rates in rural areas hit 100%. Yields fell, but thanks to global oversupply and greedy middlemen, farmers were often paid less for what they could grow." Famine, not fortune, "remains a persistent threat for 40% of the country," Pooley continues. "With Tanzania's debt from IMF, World Bank...now at $6.4 billion, the government has been spending 40% of its annual revenue on interest payments - more than it spends on health and education combined."
As a result of this turn of events, in an African country [Tanzania] the WB alludes to as "a success story," it's reported that 70% of the citizens consult faith healers (Pooley, 2000), and school enrollment has plummeted from 93% in 1993 to 66% today.
And in addition to the grim economic statistics, Tanzania has an HIV epidemic.
One rather radical suggestion to the IMF and WB (Ambrose, 2000), is to outright cancel the debts of poor nations. "If their people are ever to gain a sense of ownership of their economic destiny...the U.S. government should ideally take the lead...first by canceling the bilateral debt of the most impoverished countries without credit-imposed conditions, and then by strongly urging similar cancellation of multilateral debt." Ambrose goes on to say that University of Vienna economist Kunibert Rafter suggests the cancellation of debts to borrowing nations could be accomplished "without the creation of a new international agency." But Ambrose, doubting that Rafter's idea is realistic, nonetheless offers three recommendations.
1) Immediate comprehensive cancellation of debt to impoverished countries; 2) establish an international body with authority over the IMF and WB for the "adjudication of debt cancellation and reduction"; 3) annul debts incurred for "failed economic programs and non-performing infrastructure projects."
While that bold scenario seems unlikely to be put in place any time soon, there is evidence of some local governmental pressure being applied to the WB. The San Francisco Board of Supervisors (The Nation, 2000) voted unanimously to stop buying WB lending bonds. Veteran anti-apartheid activist Dennis Brutus said (in San Francisco): "We need to break the power of the World Bank over developing countries, as the divestment movement helped break the power of the apartheid regime over South Africa."
Raymond Mikesell, writing in Contemporary Economic Policy (October 2000), flatly states that the reason IMF and WB "have not performed in accordance with the original intentions of their founders," is because "many of the original intended functions for these institutions are no longer relevant."
Mikesell, Emeritus Professor of Economics, University of Oregon, and author of numerous books on economics and international monetary issues, recounts that the IMF's original intentions were to "...stabilize currencies and avoid restrictive exchange practices. It provided short-term liquidity to members with current account deficits, conditioned on their taking measures to restore balance of payments equilibrium."
Meantime, the World Bank was originally intended "to make loans and guarantees for post-World War II reconstruction and for economic development." But what has resulted from those original intentions is not what the founders of the IMF and WB - or developing nations in need of assistance - had envisioned. Indeed, Mikesell sums up the situation in the following passage. "Some poor countries (particularly those in Africa) have experienced civil strife in the form of military coups, and some have been governed by dictators mainly interested in amassing personal wealth outside the country. There is little the World Bank or any other agency can do to promote democracy and peace, and the aid received is unlikely to contribute much to development. The billions of dollars in IMF credits to these countries have accomplished little and have put the borrowers heavily in debt."
Moreover, "In recent years, the World Bank has included in its conditionality for loans such requirements as legal reforms, tax reform, privatization of state-controlled enterprises, and governmental efforts to eliminate corruption," Mikesell continues. "Reform in these countries is unlikely to occur without basic political change." Mikesell's recommendation for the SDR ("special drawing rights") program? "Very simple. Just abolish it. SDRs are a poor form of foreign assistance." Overall, "The existence of two international institutions making the same kinds of loans to the same countries is inefficient and wasteful of public funds. I favor a merger of the IMF and World Bank under the leadership of the World Bank."
Taking the flaws of the IMF and WB a step further (Phiri, 2003) was the former Founding Head of State of Zambia, Dr. Kenneth Kaunda. "What do I see in IMF, World Bank, and WTO systems?" he asked, at a news conference in Luska. "Same thing...slave trade. Where has the World Bank programmes succeeded in Africa? I want to know." He went on to call for the "democratisation of world trade" if slave trade and colonialisation in modern times was to come to a halt.
Whatever we sell at the market of powerful Western countries, they decide how much we are going to sell and if they intend to sell their finished products to Africa, they also decide how much we will pay," he said. He added, "In the year 2003, we demand better trading conditions between us in Africa and our brothers in Europe and America." He also noted that if globalization was going to work effectively, the IMF, WB, and WTO should be freed from U.S. control.
Structural Adjustment Programs (SAPs)
The available literature on Structural Adjustment Programs (SAPs) is enormous in volume, albeit a good share of the material takes the IMF and WB to task for nudging nations into accepting SAPs. In this section, the paper will highlight a number of carefully chosen studies which identify the results and outcomes of SAPs in sub-Saharan Africa. Also, where there is a counterpoint in official studies and literature from the IMF and WB, those views will be presented.
Identifying the effect of SAPs is not necessarily an easy process. Thirty-seven countries have been involved in SAPs to some degree, and at the beginning of fiscal year 1997, 22 nations were still carrying out SAPs to one degree or another. The great difficulty in measuring success or failure in SAPs (Noorbakhsh & Paloni, 2001) can be broken down into two categories. The initial challenge one faces in identifying the effect of SAPs can be summed up by asking, what would have happened in borrowing nations if there had been no SAP? And since there are no clear methods for doing this, researchers invariably compare "the evolution of certain selected variables between program and preprogram years in program countries or in program countries relative to a control group normally composed of non-program countries" Noorbakhsh et al. (2001). In that description, one can see that the potential for confusion and for the possible overlapping of data exists.
And the second difficulty in the process of assessing SAPs is in the definition of program countries themselves. The WB's definition is based upon whether the country has received an adjustment loan or not ("reformers" are nations receiving SAPs; "non-reformers" are not receiving SAPs). But the authors of "Structural Adjustment and Growth in Sub-Saharan Africa: The Importance of Complying with Conditionality," contend that a better measure of progress or no progress may come clear when examining "whether countries sought the assistance of WB adjustment lending at an early or late stage and more or less intensively."
With this premise, the above-mentioned study (in Economic Development & Cultural Change) indicated that the countries that made "the largest adjustments in their macroeconomic policy stance" showed "better economic performance" than those countries that instituted "less resolute macroeconomic" reforms.
Conditionality - the conditions laid down by the IMF and WB with reference to SAPs - matters a great deal, in measuring success, say the authors. "The empirical analysis" consistently indicates that "for growth compliance...the performance of poor compliers deteriorates over time and is significantly worse than the performance of countries that comply with the policy conditions." The bottom line for this literature is that "macroeconomic stabilization policies," if they are instituted in line with the program conditionality, "slow down growth, but their negative effects disappear in the long run." And by the same token, weaker compliance with conditionalities imposed by the SAP, begins to exert a positive influence in the long run." The authors suggest that in the Sub-Saharan contest, a "less strictly orthodox" macroeconomic policy stance may make sense.
Meanwhile, "medieval doctors always prescribed the same 'cure'" - writes Sarah Anderson (Anderson, 2001), Director of the Global Economy Program of the Institute for Policy Studies in Washington, D.C.; "no matter what the ailment, they applied leeches to patients and bled them. For the past decade and a half, critics have likened the World Bank and International Monetary Fund to these doctors." Anderson, clearly among those "critics," claims the IMF and WB have thrown "millions of people deeper into poverty" by promoting "harsh" economic reforms such as privatization, budget cuts and flexibility in labor. Meanwhile, heavily in debt, many of these developing nations have accepted reforms known as "structural adjustment programs."
One of the SAP requirements put forth by the IMF is that nations receiving the loans must privatize their public companies and services, and in many cases, fire (dismiss) public sector workers. These cuts are forced upon nations in the name of balancing their government's budgets. And while these actions free up money to pay back loans, and, in effect, reduce the size of the state, they can have a devastating effect on domestic capacities of countries (Anderson, 2001). Part of this effect results in deep cuts in spending by the borrower nation on education, health, and environmental protection - since those departments do not furnish the government with revenue. The strategy which the IMF and WB's SAPs employ in order for the poor nation to fire workers and thereby allow more money to be paid back to the IMF and WB, is through "labor market flexibility." Basically, this undermines unions' ability to stand up for their members, and hence, their members are jobless and under-represented at best, un-represented at worst. This is a way in which, intentionally or otherwise, the IMF and WB remove "collective bargaining" from the equation.
Another manifestation of IMF demands vis-a-vis SAPs has been the forced de-regulation of the borrower nation's economy. The idea is that by increasing their foreign currency earnings - through boosting exports - the borrower nation may be in a better position to repay international creditors. The problem here (Anderson, 2001) is that "increased exports are not [necessarily] associated with increased personal consumption." For example, labor was weakened to a degree in Sub-Saharan Africa between 1989 and 1998, when, as a result of a SAP mandate to increase exports, the export volume did increase by 4.3% - but the net result was a decline in per capita consumption of 0.5% (Anderson, 2001).
On another level, the IMF, when it has been battered by continuing harsh criticism for its tactics and policies, it then changes terminology and appears to be moving in a new direction. These new directions, are partly due, according to some journalists and researchers, to public relations objectives, rather than meaningful change. "Although the Bank and Fund have promoted SAPs as a virtual religion for nearly 20 years," writes Sarah Anderson (Anderson, 2001), "they cannot even claim that they have achieved a reduction in the developing world's debt burden." As backup for that assertion, Anderson reports that in the years between 1980 and 1997, "the debt of low-income countries grew by 544% and that of middle-income countries by 48.1%. And, in 1999, the IMF re-named its "Enhanced Structural Adjustment Facility" (the division through which it made its SAP loans) "Poverty Reduction and Growth Facility" (PRGF).
Utilizing the PRGF approach meant this change for nations receiving loans from the IMF: governments seeking funds and debt relief would be required to consult with "civil society" to develop better strategies for the reduction of poverty. WB president James Wolfensohn - expounding upon his pride at the new direction - reportedly said that he comes to work each day "...thinking I'm doing God's work" (Anderson, 2001).
In 2000, the WB and IMF jointly initiated the "Heavily Indebted Poor Country" (HIPC) initiative - designed to give debt relief to very poor African and other nations which agree to stringent SAP conditions. The WB said at the time, HIPC indicates an example of its "...leadership to relieve the unsustainable debt burdens that stand in the way of development and poverty reduction." However, at the same time, the WB Web site touted HIPC as a method for poor nations to "service their debt" and "broaden domestic support for policy reforms" (Anderson, 2001). Others were not so certain as to the prime reasons for HIPC; notably Soren Ambrose, Alliance for global Justice, who had this to say: "HIPC is just a cruel hoax designed to trick developing countries into accepting more structural adjustment" (Anderson, 2001).
As of October, 2000, debt crisis had apparently not yet been solved through the provisions of HIPC. Indeed, just 10 of the 41 countries under the SAP umbrella had met the stiff requirements of HIPC criteria (Anderson, 2001).
So, is it Anderson's contention that the metaphor about medieval doctors is still operative in SAPs? "[The doctors] have just repackaged their cruel ministrations with warm and fuzzy labels," she concludes. "The challenge for critics is to keep up the pressure [and] expose this facade..."
What does the IMF have to say about its Structural Adjustment Programs?
The IMF offers two prime reasons as its explanation for the initial launching of Structural Adjustment Programs (SAPs) in Africa in 1982: economies had been brought to the point of collapse by "years of economic mismanagement" and had further suffered "adverse external shocks" (IMF, 1999). The IMF (1999) notes that "some observers" criticized the ESAF (through which structural adjustment loans are made) as "part of the problem" rather than "the solution."
Saying they were listening and responding in a positive way, the IMF conducted "extensive reviews" of ESAF in 1997, including one by "external evaluators." And the upshot of those reviews, the IMF contends, was an endorsement of ESAF's "basic policy approach," plus, they reportedly strengthened the program through adoption of suggested revisions in the reviews.
Nevertheless, the IMF paper continues ("The IMF's Enhanced Structural Adjustment Facility [ESAF]: Is it working?"), the critics persist in attacking the IMF's own reviews, saying the IMF fails to meet their own objectives by not generating growth or external viability. "This is a fundamental misreading of the evidence presented" (IMF, 1999). To bolster their rebuttal of these attacks, the IMF counter-punches twice. 1) "There was a marked turnaround in growth performance in ESAF program countries between the early 1980s (prior to ESAF's creation) and the mid-1990sh. From a period of declining per capita incomes in the early 1980s, real per capita growth in ESAF program countries had caught up with that in other developing countries by the mid-1990s..." 2) "About half of the improvement in ESAF program countries' growth performance could be attributed to strengthened macroeconomic and structural policies...in line with a wide body of academic research on the causes of growth, which confirms that the kind of policies the ESAF supports...are growth-enhancing."
The IMF paper says that real per capita incomes in Sub-Saharan Africa, thanks to the ESAF program, have been "rising at an average 2.5% a year." This, they say, compares with the growth of less than 1.3% in "other developing countries." "So the policies work," the report asserts. And all that is needed is to stay the course with existing policies, tackle corruption in African governments, cut red tape, and invest in the health and education of the people. And as to the critics' contention that conditionality undermines program ownership for the poor, the IMF says it has taken a number of steps (such as encouraging member countries to make public any documents which reveal honest data about their programs). And, it says it is working hand-in-hand with client governments to help them candidly explain ESAF data to the press, business and labor groups.
As to second constant criticism, that the IMF emphasizes "short-run stabilization over poverty reduction" (e.g., budget-cutting / inflation-fighting over social spending), the IMF (1999) retorts: "This is incorrect. The evidence is now overwhelming that high inflation and large fiscal deficits are inimical to sustainable growth and poverty reduction. Inflationary policies do not create wealth..."
And with reference to a 3rd constant criticism of the IMF, that their structural adjustment programs are in effect "austerity conditions [which] reduce the availability of social services" to the poor: "This is years out of date. Health and education spending has increased by an average 4.5% a year in real per capita terms during ESAF-supported programs." The IMF does say there "remains considerable scope for further improvement in the quality of spending...including military spending..." By debtor nations locked into SAPs.
Regarding the 4th complaint thrown into the IMF's face, that poverty worsens under ESAF programs, the IMF has this to say: "This criticism is as difficult to refute as it is to substantiate: data on poverty are scarce and almost always several years out of date." Nevertheless, the IMF claims that the SAP-effected groups "that lose from reform" are "concentrated among the initially better-off rather than among the poor." Secondly, the IMF counters the 4th charge with data like this: "ESAF-supported policies raise output growth...[and] in 88 examples of decade-long growth episodes...the poorest fifth of the population benefited in 77 of the cases." Moreover, "ESAF programs can be expected" to have favored the poor because of "increases in social spending." Lastly, under complaint number 4, the IMF admits "data on poverty rates are limited," yet, in "seven SAF/ESAF countries for which data are available, poverty rates declined by an average of 20%..implying an average annual reduction of 5.3%."
Are WB and UN Poverty Numbers Contrived, or Realistic?
Carved into the wall of the WB headquarters is the slogan: "Our dream is a world free of poverty." But, it might be fair to ask, how does the WB determine who is living below, and who is living above, the "poverty rate" - and just what is the "poverty rate" in developing nations, according to the WB? After all, if reliable data on precisely who and where appropriate agencies must target their debt relief and direct financial support is not forthcoming, how solid are the statistical models that utilize that questionable data?
University of Ottawa economics professor Michel Chossudovsky (Chossudovsky, 1999) challenges the operating poverty formulae of the United Nations Development Programme (UNDP) and the WB. "The progress in reducing poverty over the 20th Century is remarkable and unprecedented," Chossudovsky quotes the UNDP as claiming. "The key indicators of human development have advanced strongly," he continues quoting. However, he says these claims are made because "official statistics" of poverty "are manipulated [and] economic concepts are turned upside down."
The poverty framework used by the WB "deliberately departs from all established concepts and procedures," he charges. That policy amounts to an "arbitrary poverty threshold" of one dollar a day per capita, he claims. And with no measurement to back up the math, the WB has decided that populations groups with a per capita income "above one dollar a day" are "non-poor," and, those below one dollar a day per capita income are "poor." The one dollar a day procedure "is absurd," the professor states. "The evidence amply confirms that population groups with per capita incomes of 2, 3, or even 5 dollars a day remain poverty stricken (i.e., unable to meet basic expenditures of food, clothing, shelter, health and education)." This WB formula, he says, was created "without the need for collecting country-level data," and "is carried out irrespective of actual conditions at the country level."
What the professor finds repugnant is that once the WB's dollar a day assumption is plugged into computers which estimate global poverty, it becomes a "manipulated" arithmetic exercise. "Nobody seems to have bothered to examine how the World Bank arrives at these figures."
The data apparently is tabulated in "glossy tables" with "forecasts" of declining levels of global poverty. "It's a numerical game!" Chossudovsky exclaims. "No need to analyze household expenditures on food, shelter, social services...no need to observe...conditions in impoverished villages or urban slums. If the World Bank framework for determining the poverty level is out of sync with reality, Chossudovsky (1999) says the UN's Human Development group "portray an even more distorted and misleading pattern" than does the WB.
Why? Because they "blatantly misrepresent country level situations as well as the seriousness of global poverty." The alleged misrepresentations serve the purpose, he asserts, "of portraying the poor as a minority group representing some 20% of the World's population (1.3 billion people)."
The professor points to a key flaw in both the UNDP and WB measuring sticks for poverty: they do not take into account "comparisons between developed and undeveloped countries." For example, he points to the U.S. "poverty threshold" for a family of 4 (in 1996), which was $16,036. Translating that figure into the dollar a day WB math, poverty in Africa would be below $11 a day. He calls upon authorities to change this "office-based" exercise "conducted in Washington and New York with few insights or awareness of what is happening in the field."
He also challenges other methods of data-collecting by UNDP, such as the 1997 report which points to a decline of one-third to one-half in child mortality in "selected countries of Sub-Saharan" Africa. That report fails to report the closing down of health clinics "and the massive lay-offs of health professionals responsible for compiling mortality data has resulted in a de facto decline in recorded mortality." Moreover, Chossudovsky charges that the IMF-WB sponsored macro-economic reforms have also led to a collapse in the process of data collection."
The points raised by professor Chossudovsky become more salient to the overall picture of poverty when the IMF puts out report after report, and those reports rely on an allegedly flawed system of formulating poverty numbers. In "IMF Concessional Financing through ESAF" (IMF, 1999), the agency discusses concessional financing through the ESAF and SAF, to "ensure continued concessional support...to the poorest countries."
As of March, 1999, a total of "SDR 7.0 billion (about $9.0 billion) has been disbursed under 79 EASF arrangements to 51 developing countries." And in all, some $2.5 billion was disbursed under SAF arrangements. So, the IMF discloses, "altogether, 56 countries have benefited from the IMF's concessional assistance, affecting some 3.2 billion people, at least half of whom survive on less than $1 a day." There's that number, a dollar a day, which raises eyebrows and questions. The IMF paper goes on to discuss eligibility for the concessional ESAF terms, saying 80 countries are eligible, "based on a country's per capita income" (which is now apparently not a reliable mathematical tool for identifying real poverty).
Pro-IMF / WB says African Corruption is the Root of the Problem
Coming to the defense of IMF structural adjustment programs is Gerald Scott, writing in the Journal of Asian and African Studies (Scott, 1998). "In reality, it is not the IMF who has failed Africa, but the African leadership [who] have conspired with private businessmen and firms to adopt and implement policies that benefit themselves at the expense of national development and welfare." Scott lists critical issues which have negatively affected Africa's Sub-Saharan countries: oil crises, global recessions, deteriorating terms of trade, protectionism in the developed nation's markets, high interest rates, domestic economic down-turns, and more. However, he adds, if countries in Africa managed their economies more efficiently, and addressed "the disquieting trends [of corruption]," they could reduce poverty appreciably. And meantime, he adds, of all the "feasible alternatives" for solutions to Africa's economic problems, "IMF programs are the most promising."
It is possible, he contends, that IMF SRAs may actually have "prevented" economic conditions from "deteriorating even more." He agrees that it is not possible to "subject IMF programs to controlled experiments." And yet, he maintains "IMF programs" are "the best policy to embrace." And that is because IMF programs "encourage the dismantling of controls and simplification of the bureaucratic process; emphasize strengthening of institutional capacity; require public accountability; emphasize efficiency and discipline; encourage private sector participation in the economy; foster coordination in economic decisions and promote macroeconomic stability."
The major attraction of IMF programs, though, is "they tend to remove all opportunities for corruption..." By seeking "the source of the problem."
The critics of SAPS, Scott claims, say that the IMF programs "impose severe economic harm on the deprived peoples of Africa." But, he rebuts, "Whom are these deprived peoples and what is the evidence?" He says the "deprived" people are rural citizens who have been "virtually untouched by modernity, largely farmers." He defends privatization of public enterprises: "by turning over certain enterprises to private institutions, the pressure on the budget eases, and there is a greater chance of increasing efficiency in production."
His bottom line: "There can be not doubt that if corruption is eliminated, or even controlled, a sizeable proportion of Africa's problems will disappear..." Instead of blaming the IMF for "the dismal performance in Africa," he concludes, "we should focus on...African leaderships and their policies."
Another glimpse at reasons for inconsistency in SARs is found in the literature of William Easterly (Easterly, 2000). In saying that he is puzzled as to why structural adjustment "reduces the sensitivity of poverty to growth," he offers the following. "I speculate that the poor may be ill-placed to take advantage of new opportunities created by structural adjustment reforms, just as they may suffer less from the loss of old opportunities in sectors that were artificially protected prior to reforms."
Easterly is clearly writing from a pro-IMF / WB point-of-view (albeit a disclaimer at the bottom of page 1, says his views do not necessarily reflect the views of the IMF). And to dramatically juxtapose his own hypothetical / analytical approach, he injects remarks critical of SAPs from a Web site (www.oneworld.org) on page one of his research. To wit: "In country after country, structural adjustment programs (SAPs) have reversed the development successes of the 1960s and 1970s, with... millions sliding into poverty every year. Even the World Bank has had to accept that SAPs have failed the poor, with a special burden falling on women and children. Yet together with the IMF it still demands that developing countries persist with SAPs."
Easterly's use of several provocative quotes from anti-SAP groups sets up his key emphasis, which is that IMF and World Bank adjustment lending "lowers the growth elasticity of poverty, that is the amount of change in poverty rates for a given amount of growth." By this he means that "economic expansions benefit the poor less under structural adjustment," but meantime, economic "contractions hurt the poor less." How could this be? "I first speculate that IMF and World Bank conditionality may be less austere when lending occurs during an economic contraction, while conditionality may require more macro adjustment during an expansion."
He continues, in an esoteric framework: "if macro adjustment disproportionately hurts the poor - say because fiscal adjustment is implemented through increasing regressive taxes like sales taxes or decreasing progressive spending like transfers - then we get the result that IMF and World Bank adjustment lending lowers the growth elasticity of poverty." His conclusion as regards SAPs and the poor? "The new result in this paper is that, while adjustment lending has no direct effect on poverty reduction, it has a strong interaction effect with economic growth." This means, he continued, that the poor benefit "less from expansions during a structural adjustment program than in expansions without an adjustment program, while they are at the same time hurt less by contractions." Continuing in his less is better, more is less repartee, Easterly concludes with a somewhat confusing description of the condition of the poor under SAPs: "Expansion under adjustment lending is less pro-poor, while contraction under adjustment lending is less anti-poor."
Ghana - A review of Literature
Structural Adjustment Programs and Housing Costs in Ghana
Ghana has been implementing SAPs since 1983, as a pre-condition for badly needed debt relief. The author of "Structural adjustment programs and housing affordability in Accra, Ghana" (Konadu-Agyemang, 2001) explains that SAPs often consist of two parts - "shorter-term stabilization and longer-term adjustments." In describing what this paper has already discussed at length - the various drastic changes which countries undergoing SARs must agree to - Konadu-Agyeman says the reasoning behind IMF demands is rooted in "neoclassical economics and the modernization theories of the 1950s and 1960s." The hitherto mentioned theories attributed the underdeveloment of third world countries in that time period to obstacles like, "...unwarranted state interference in the workings of the price mechanism, an over-bloated public service, exchange controls, investments in social welfare, and state ownership of business enterprises."
The author, writing in The Canadian Geographer, says SAPs basically are a tool to push recalcitrant developing countries into the global economy, "which is basically controlled by the G-7 nations." Globalization "creates more losers than winners, redistributing wealth and opportunity in favor of the rich," he writes, claiming that indeed, globalization and its accompanying elements not only have created "poverty and inequalities," but have questioned and "...redefined the boundaries and contents of social policy, and the role of government."
Ghana, meanwhile, has been completely exposed to the "vagaries of global forces" since 1983. So, Ghana is a good case study in terms of the IMF / WB's assertion that SAPs invariably lead to "poverty reduction" and to a bridging of the gap between rich and poor, rural and urban. Countries that use SAP "tend to be better off than non-adjusting ones," the author writes, in reflecting the view of the IMF. "Hard evidence from countries implementing such programs, however, indicates otherwise," he continues. "Have the structural adjustment programs been totally beneficial to Africa as claimed by the IMF and World Bank? What have been the effects of these programs on housing production, delivery, access and affordability?" And, he also questions why the IMF and WB have not included any data on SAPs' influence on housing availability and housing costs. "Since the World Bank claims that its central goal is poverty reduction, wouldn't it be logical that changes in access to basic shelter, for better or for worse, be included in the criteria for assessing the [SAPs] impact?"
Meanwhile, prior to pursuing his dramatic research on housing costs in Ghana, it's fair to mention that nearly all the literature on African nations supports the notion that Ghana is a success story for the IMF and WB, unlike many other African countries. For example, in the 16 years since SAPs have been in effect in Ghana, GDP growth rate is 5-6%, growth real incomes per head by a 2% average, and the expansion of industrial capacity has grown from about 25% of installed capacity before 1984, to 35-40% in the 1990s. Also, there has been a drop in annual inflation from 123% per annum to 20.8% in 1997, an increase in real incomes, and an expansion of small businesses (Konadu-Agyemang, 2001).
And if one accepts these data (and more is available) as evidence that SAPs can work in Africa - protestations to the contrary notwithstanding - then it's certainly a paradox and a conundrum that housing costs in Ghana have gone through the roof, so to speak. For example, a one bedroom home designed for low income families, sold for 19,650 cedis in 1980. In June, 1998, that same dwelling, with the same basic design, materials, levels of amenities, cost 48 million cedis. That's a skyrocketing 244,000% increase in 18 years. And a 2-bedroom "semi-detached" or "detached" house in 1980 cost 25,500 to 28,500 cedis, respectively. By 1998, the cost for the two styles of the standard low-income 2-bedroom house - again, the same materials, design, amenities, style - had escalated to 49 million and 52 million cedis. That reflects an astronomical 192,156% and 182,456%, respectively.
A look at salaries for nurses, teachers, and other professionals in 1998 in Ghana ranged from 1.8 million - 2.5 million cedis, their income / housing price ratio was 1:19-27, compared to 1:3 in 1980. But as to the escalation of the cost of the houses, between 1980 and 1998 - about the time the SAPs have been in place - housing rose 180%. And wages rose only 58,400% for high income, 49,200% for middle income, and 50,000% for lower income workers.
Is there a connection between the instituting of SAPs in Ghana, and the "widening gap" in housing prices and incomes? Konadu-Agyeman's research suggests so, alluding to the "massive devaluation" the Ghanaian currency has undergone through the last 16 years. That devaluation has had "severe consequences for all segments of the Ghanaian economy, and on all items imported or with foreign parts, or which depend upon the transportation system," the author contends.
Another SAPs-related effect on housing, according to Konadu-Agyeman, includes high interest rates on loans: "Ever since the adjustment programs came into effect in 1983, the Bank of Ghana has used high interest rates as a tool to fight inflation." There was a hope that along with dropping inflation rates, the interest rates would sink as well; albeit, in 1998 interest rates on loans stood at 45%.
Still another SAP-connected cause for the extraordinarily high costs of Ghanaian housing mentioned in the literature is land speculation, and once again, Konadu-Agyeman finds a connection leading directly to SAPs. In 1985 and 1986, lots 120 feet by 140 feet sold for 150,000 to 200,000 cedis. But by 1998, the same size lots in similar neighborhoods were selling for 60 to 100 million cedis. Land speculation did not suddenly began occurring in Ghana when SAPs were instituted in the early 1980s. However, the rise in speculative land activities has been noticeably more dramatic in the 16 years - 1982 to 1998 - during which the SAPs have been in place. This is perhaps a result of the SAP-stimulated fall in the value of Ghana's currency. But additionally, the radical rise in land costs could be attributed to Ghana's withdrawing of subsidies from housing agencies - in line with SAPs obligatory statutes. "But the irony," the author points out, "is that while withdrawing from housing and encouraging the private sector to develop both owner occupied and rental housing, building materials are being taxed heavily to raise revenue for the government."
Beyond the factors mentioned above (devaluation, high interest rates, land speculation), extraordinarily high housing costs could in part be attributable to "globalization." There has been an emergence of foreign-capital-funded, large-scale housing developers in Ghana whose business it is to maximize profits for their shareholders - and hence, the author notes, their housing tends to be upscale and priced in U.S. dollars. "Land values in Accra, Ghana are driven by forces that emanate from beyond Ghana's borders" Konadu-Agyemang (2001).
Zambia: Structural Adjustment and its Effects
Writing in the British Medical Journal (Logie & Woodroffe, 1993) a decade ago and ten years into structural adjustment in Zambia, Ms. Logie claims SAPs "have [had] an adverse effect on the health of most Africans." Sub-Saharan nations - at that time - were spending, according to the research, "50% more on servicing their debt than on the health and education of their children." Debtor countries were, at that time, 61% more indebted than they were in 1982 (Logie et al. 1993). Malnutrition was taking the lives of "11,000 children each day" in Africa, and in Zambia is was affecting half of children under 5 years of age and perhaps up to a third of the population - which Ms. Logie blames on structural adjustment. "[Because of] the removal of food subsidies, the price of maize (Zambians' basic food) has increased by 500%."
What effect has structural adjustment had on living conditions for ordinary citizens and on the migration process between rural and urban environments in Sub-Saharan Africa? According to Deborah Potts (1995), the IMF and WB "imposed unnecessarily harsh and undiscriminating conditions on the urban sectors" of Zambia, Ghana and Uganda in the 1980s, "causing unwarranted hardship for millions." The reason for the error in setting conditions? A "misconceived" understanding of the African urbanization processes. Ms. Potts (The Geographical Journal) states that the "reverse migration" - e.g., from the city's "labour aristocracy" back to the country - had already begun prior to SAPs. But, with the implementation of SAPs, and "The further savage cuts in urban living standards associated with structural adjustment...exacerbated these changes."
To grasp just radically how urban wages fluctuate in Zambia - effected, according to the literature, by SAPs - a look at some data provided by Potts sheds light. When urbanization was booming (between 1964 and 1968) the average urban wage rose 40% (an index of 56) compared with a more modest 3% rise in farmer's wages. Then in 1970 the urban wage index had reached 128, but it fell to 83 in 1985, and continued to fall following SAPs' implementation. "The fall in real urban incomes has been devastating..." writes Potts. She cites evidence for "terrible hardships inflicted on African urban families..." As wages fell well below the minimum money a family needs to be fed, housed, clothed. "Wide-ranging analysis of the devastating impact of structural adjustment programmes..." In the developing world shows up in the plight of the urban poor, Potts asserts.
Adding to the difficulties caused by the wage crunch for Zambian families was the fact that food prices rose steeply in the 1980s, and many staple items were not available except at black market prices. "A survey of 100 households from different townships of Lusaka, Zambia," Potts reports, "showed that as prices rose, poor families stopped buying meat, chicken, fish and bread. They also cut back on vegetables...and reduced from two to one meal per day..." This, needless to say, had a negative effect on the health of children, in the most obvious form, malnutrition.
A possible explanation as to the "suffering to the African urban poor" in Zambia, because of apparent IMF / WB miscalculations, shall follow. Zambia was touted during the 1980s as the first Sub-Saharan nation to have reached a 50% level of urbanization, but Potts rebuts that, saying Zambia was 40% urban in 1980, and, the census shows, just 42% in 1990. Moreover, the WB believed that the urbanization rate in Zambia was 81% higher than its actual rate (Potts, 2001), "and was still citing a rate in the 1970s which was 25% above the rate established by a census 10 years earlier." What was the upshot of this faulty math?
On this basis Zambia was characterized as a country where net in-migration still contributed well over half of national urban population growth in the 1970s and 1980s...when in fact, it was already under half in the 1970s and perhaps 10-15% in the 1980s." This being said, it's still true that the structural adjustment policies implemented post-1989 take no note of this fact, and "have been exceedingly harsh in trying to 'correct' an imbalance which no longer existed" (Potts, 2001).
How much has structural adjustment effected urban-rural migration in Zambia? Firstly, Potts says "...important financial institutions [have] often disguise the real adaptations which have been occurring...in response to economic change. This...has caused distorted policy responses" to African nations. After conducting her study, and analyzing many other data, Potts established a rule of thumb for human migration in Zaire. "Where there is definite evidence of urban centres growing more slowly than natural increase, urban-rural migration must be occurring." And where the growth rates have dropped dramatically but there still is "some net in-migration, 'going home' may still be an important strategy for some people," she concludes.
Zambia: The Struggle to Achieve Modern Monetary Sophistication
In its Web site, the Bank of Zambia provides a very candid explanation for the struggles and challenges it faced in upgrading a fledgling banking system to be a true, full-functioning "Central Bank." This is germane, not merely to the sidebar issues encountered by a developing nation, which had lived under colonial rule, and found itself for decades in a position of being beholding to the bureaucratic whim of a controlling nation. But, covering this transition is also germane to the monetary and financial conditions in Zambia, pre-IMF/WB.
By the 1960s, the bank needed to evolve into a viable, reliable agency, able to meet a growing country's needs, and also deal with the emerging national monetary structure, inflation, and more. Indeed, the Bank of Zambia Act of 1965 mandated that the bank must now be "banker to government issuer of currency, manager of foreign exchanges reserves, controller of commercial banks' liquidity and with responsibilities for the formulation and implementation of monetary policy" (BoZ, 2003). Although "maintaining price stability" was referred to in the Act as one of the Bank's objectives, it was not, in point of fact, given a priority. The commonly accepted trade-off (among numerous African developing nations at that time) between inflation and employment - through which higher levels of employment could be attained if higher inflation rates could be, and often were, tolerated - was not, in the end, a successful policy.
There were many monetary / economic lessons to be learned by Zambia, even prior to the IMF and WB's infusion of cash - the first, $72,222,800, delivered in 1984. The Bank began operations with about 100 staff members, working in just 2 departments, the "Chief Cashier's or General Manager's" department and the "Secretary's" department. But soon, according to BoZ (2003), demands exceeded existing resources within the Bank. The Bank of Zambia's Web site explains exactly how the growth in needs and services evolved, with clarity and candor:
With time, the number of departments at the Bank started to increase. One of the earliest to be established was the Research Department in 1967. The Operations Department was created in 1976, and later, especially in the 1980s, the pace accelerated when other departments such as Personnel and Administration (1977) Exchange Control. Import and Export Control, Estate and Properties (all in 1981) were created. They were followed in 1982 by Banking and Currency, Small Scale Industries, Inspection and in 1984 by National Debt, Transport, and Government Securities.
The increase in the number of departments at the Bank partly reflected the increased demand on the functions which it had to perform, most of which centered around administering government imposed regulations such as exchange controls and import and export controls. In turn there was higher demand by the Bank on support services for these core activities. In addition, however, it is also true that the Bank, like many other organisations both inside and outside Zambia then, did not make hard distinctions between core and peripheral responsibilities and, hence, utilise resources accordingly. To give a concrete example, it was an accepted practice in Zambia that employers should find accommodation for their employees and in some cases, even furnish that accommodation. Institutions therefore acquired substantial property which required manpower and organisation to manage. In some cases there were economic arguments, which were considered sound then, which led to organisational expansion. In the foreword to Ter' Years of Banking in Zawhia, a Bank of Zambia publication, former President Kenneth Kaunda wrote as follows:
Our highest priority now is the rapid development of the rural areas where the masses of our people live.In this connection, I am confident that the Bank of Zambia would not restrict itself to the orthodox central banking concept of monetary stability only. I would like to see the banking system as a whole take the challenge and devise effective tools in order to facilitate the dawn of a new era of prosperity for the rural areas in particular and the other sectors of the country in general...,"
As already indicated above, this was an acceptable position at the time in the developing world and one of its strongest proponents among practitioners was the Reserve Bank of India. Applied to Zambia, it included the establishment of a department for Small Scale Industries and, later, a credit guarantee scheme.The expansion of the functions of the Bank saw a rise in the number of staff from 400 by 1975, to 1,226 in 1988 and to 1,400 in 1994. The Bank premises therefore had to be extended to accommodate the numbers. The new building (currently corporate head office) opened in 1975 while the Regional office in Ndola opened in 1979. Annex buildings were subsequently added to Lusaka and Ndola.
This dramatic expansion resulting from the constant adding on of functions was unfortunately, not designed with a strong supporting and organizational structure. Rather, by 1989, the structure of the Bank has evolved more in response to bottom line staffing factors, than by the real needs of the Bank and the nation. One major problem which perhaps precipitated this lack of Central Bank structure, has been the quick turnover of Governors. Indeed, since 1964, there have been ten governors appointed to the post (excluding the current Governor) over a period of 28 years. That means a new governor every 2.8 years, which accounts for some instability at the top of the Bank's bureaucracy.
Zambia: AIDS and HIV
Zambia has a teacher crisis, brought on by AIDS. According to the Toronto Star (Landsberg, 2003), about 1,000 new teachers graduate each year and enter the teaching profession in Zambia. But that figure is dwarfed by the number of teachers who either die or become so bedridden with AIDS they can't walk: 2,000.
Indeed, in all of Sub-Saharan Africa, there are 14 million children who are orphaned because of the AIDS epidemic (Landsberg, 2003). What has structural adjustment meant to the fight against AIDS.
Uganda - a Glimpse at its History
Though landlocked, nearly one-fifth of Uganda's total land area is open water or wetlands, including four of East Africa's Great Lakes (Victoria, Kyoga, Albert, and Edward). Lake Victoria, in fact, is the 2nd largest freshwater lake in the world, (after Lake Superior in the U.S.), and was once an economic boom to Uganda as a tourist attraction. These bodies of water, the lush, rich lands, and the hearty native peoples, brought missionaries - Roman Catholics and Protestants - who sought Ugandan souls to save in the 1880s. But instead of bring peace and spiritual harmony to Uganda, the church groups brought a faith-vs.-faith conflict (myUganda, 2002) between Protestants (Church Missionary Society led by Alexander Mackay) and Catholics (French White Fathers, led by Pere Lourdel).
The two church leaders were rivals at the outset, but later were forced into friendship because of steadily increasing violence from the unpredictable and bloodthirsty native leader Mutesa. After Mutesa died in 1884, his 18-year-old son Mwanga took over the native Urgandan power structure, but he was even more bent on slaughter than was his father. Under Mwanga, the torture and murder of thousands of Christians took place.
Meanwhile, a few years later, the British lay claim to Uganda. In 1893, Sir Gerald Portal raised the Union Jack in what is now Entebbe, and announced that this African kingdom was now under "Her Majesty's Protectorate."
Constitutionally, Uganda has been a country in flux. The first constitution was written in 1900, followed by the 1962 constitution which officially ended the era of British control and ushered in independence. Another constitution was instituted - unilaterally - by strong man Milton Obote, in 1966, who was the first prime minister in the post-colonial period. However, Obote's rule and his hand-crafted constitution came to a sudden abrupt conclusion on January 25, 1971, when Obote's military head, Major General Idi Amin, seized power in a coup. Amin became Head of State and head of the military, implemented their own policies. The feelings of joy and relief that swept Uganda were not to last very long, however.
Throughout the world, enthusiastic editors lauded Amin's ascension to power, and newspapers carried on front pages a photo of Amin in the driver's seat of a jeep, unescorted. This was highly unusual for the Head of State of an African nation, and appeared to much of the world like a breath of fresh air was blowing over Uganda. But soon the real Idi Amin began to show his face, and it was the face of a bloodthirsty madman who slaughtered untold thousands of "enemies" of his tyrannical administration.
Amin's tribesmen launched a series of cold-blooded massacres of Acholi and Langi peoples. Also, Amin expelled the Israelis in 1972, when they refused to provide him with weapons. Next, Amin expelled Asians - many of whom were British citizens - in a massive purge, the fallout from which still hangs over Uganda. The purge was partly designed to steal money and property from the Asians (who controlled over half Uganda's wealth), and also because he "wanted to teach the British a lesson they would never forget" (myUganda, 2002).
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