Why is this happening and what can be done? — A global issue
Police officers use tear gas to disperse protesters during a demonstration against police killings of people protesting Kenya’s finance bill in Nairobi on June 27, 2024. Photo by Voice of America (VoA)
  • opinion Danny Bradlaugh (Pretoria, South Africa)
  • Inter Press Service

To be sure, Kenya’s inability to raise funds to repay its huge debts and address its budget deficit is not solely down to the IMF, but also to the failure of the ruling class to address the problem. corruption,spend finance We will responsibly run an economy that creates jobs and improves the standard of living for young Kenyans.

The country is also Drought, flood and Locust outbreak In recent years, the country’s creditors have been demanding that it continue to repay its large external debt despite domestic challenges and a tough international financial and economic environment.

The IMF Financial Support Loans to Kenya come with strict conditionalities, suggesting that debt obligations trump the needs of the country’s long-suffering people. This is because the IMF Delegation It now also includes helping countries address issues such as climate, digitalization, gender, governance and inequality.

Unfortunately, Kenya is not an isolated case. twenty one African countries are supported by the IMF. In Africa, Debt repaymentOn average, this is more than governments spend on health, education, climate and social welfare combined.

The stringent conditions attached to IMF loans have led people in Kenya and other African countries to conclude that the IMF’s excessive power is the cause of the problem. Studies on the law, politics and history of international financial institutions It suggests the opposite: the real problem is the IMF’s declining authority and effectiveness.

A little history can help explain this and offer a partial solution.

history

When the IMF charter was negotiated 80 years ago, the IMF was expected to have resources equivalent to roughly 3% of world GDP to deal with the currency and balance of payments problems of 44 countries. Today, the IMF is expected to help its 191 member countries deal with fiscal, monetary, financial and foreign exchange issues, as well as “new” problems such as climate, gender and inequality.

To meet these responsibilities, member countries have provided the IMF with just about 1 percent of world GDP.

The decline of its resources relative to the size of the world economy and its member states has at least two pernicious effects.

First, the IMF is providing its member countries with less financial support than they need to meet their populations’ needs and comply with their legal obligations to creditors and citizens. As a result, the IMF remains a purveyor of austerity policies: it is asking member countries to make deeper spending cuts than would be necessary if the IMF had sufficient resources.

A second impact of reduced resources is a reduction in the IMF’s negotiating power in managing sovereign debt crises. This is important because the IMF plays a key role in such crises: it helps determine when a country needs debt relief or debt forgiveness, the size of the gap between a country’s fiscal obligations and available resources, how much the IMF will contribute to fill this gap, and how much other creditors must contribute.

Mexico Announced When it was announced in 1982 that Mexico could not meet its debt obligations, the IMF offered to provide about one-third of the funds needed to meet the debt, provided that Mexico’s commercial creditors contributed the remaining funds. The IMF was able to persuade the creditors and reach an agreement with Mexico within a few months. The IMF had enough funds to repeat similar efforts in other developing countries. latin america And Eastern Europe.

The conditions that the IMF imposed on Mexico and other debtor countries in return for this financial assistance caused serious problems for those countries. Nevertheless, the IMF played an effective role in the debt crises of the 1980s.

Currently, the IMF is unable to play such a decisive role. For example, Less than 10% has been provided to Zambia Four years after Zambia defaulted on its debt due to growing financing needs, it has been unable to reach a debt restructuring agreement with all of its creditors, even with IMF help.

what to do?

To solve this problem, rich countries would need to provide the IMF with enough money to carry out its mandate. They would also need to give up some power and make the institution more democratic and accountable.

In the short term, the IMF could take two actions.

First, the IMF needs to develop detailed policies and procedures that explain to its staff, member countries, and their residents what the IMF can and will do. These policies should clarify the criteria the IMF will use to decide when and how to integrate climate, gender, inequality, and other social issues into its work.

It also needs to explain with whom the IMF consults, how external parties can engage with the IMF, and the processes the IMF follows in designing and conducting its operations. International Codes and Standards Something the IMF can use to develop principled and transparent policies and procedures.

Second, the IMF needs to recognize that the issues raised by its expanded mandate are complex and the risks of making mistakes are high.

Therefore, the IMF needs mechanisms to identify its mistakes, address their adverse effects in a timely manner, and avoid repeating the same mistakes.

In other words, the I.M.F. Independent accountability mechanisms An external ombudsman to receive complaints.

Currently, the IMF is the only multilateral financial institution without such a mechanism, which means we lack the tools to identify unforeseen problems in our operations before they can still be fixed, and to know the impact of our operations on the communities and people we serve.

Danny Bradlaugh Professor/Senior Research Fellow, Centre for Academic Advancement, University of Pretoria

sauce: conversation

https://theconversation.com/the-imf-is-failing-countries-like-kenya-why-and-what-can-be-done-about-it-233825

IPS United Nations Secretariat

© Inter Press Services (2024) — All rights reservedSource: Inter Press Service

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