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Article Study - the Political Economy of Imf Lending in Africa

Essay by   •  February 1, 2016  •  Article Review  •  1,154 Words (5 Pages)  •  1,514 Views

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The article “The Political Economy of IMF Lending in Africa” deals with the strategy based lending of the International Monetary Fund in Africa. The IMF has been lending in Africa for about past 30 years. However, there seems to be no significant growth in Africa’s Economy.  Some critics feel that running IMF programs in Africa is more harmful instead of being advantageous.

Major Issues

        The article identifies the major issues which show the poor performance of IMF lending in Africa and also the reasons behind it. The article reports the financial conditions of Africa even after IMF lending programs. The article also analyzes the reason for the most recurrent suspensions in the program.

The first issue that the article identifies is the reason why the IMF program does not achieve its goals in Africa. The gross domestic product (GDP) of African countries is still very low and had not shown any significant increment since the past 30 years. Further, the depending assistance of the African countries has also increased surpassing GDP of 10%.

        The second issue raised in the article is whether the IMF is enforcing any conditions with the loan. This issue needs to be diagnosed. Moreover, if the conditions enforced are the problems for African countries, then what are the policies which need to be revised to reduce enforcement?

        The last issue that arises in the article is the actual reasons why an international institution like IMF, is unable to fulfill its directives. The IMF is build to protect the financial stability of international systems. If the funds are not being utilized properly then the financial institutions suffer failure.

Facts supporting the major issues

  1. Why the IMF program does not achieve its goals in Africa? 

According to the findings of the Vreeland, the participation of the IMF program diminishes the growth of the economy. It redistributes the income away from the lower section of society. It also states that the government involves in IMF programs for shifting the income distribution for the benefit of the capital owners.

An alternative fact frequent lending to the countries that are poorly governed has become a habit. Case studies of Africa had shown that IMF tries to lend more loans even if the countries are not able to pay the initial loans, which generates moral vulnerability.

  1. Whether the IMF is enforcing any conditions with the loan?

The IMF only lends money because it fits in the budget and gets to acquire new clients and satisfies the old ones. IMF satisfies the countries which supply resources and enforce conditions.

There is a most recent example of such happening. Pakistan applied to IMF financing, but its fund was suspended because it performed a nuclear weapon test. Its fund was restored in 2001, when it decided to help the government of the U.S. in an operation led against Taliban. These events have nothing to do with the economic management of Pakistan and neither has it to deal with the IMF lending.

Randall Stone predicts that there are evidences to be found on the IMF’s enforcement in Africa. There are evidences that the United States, Britain and France, repeatedly interfere in the enforcement of conditions of IMF lending programs in African countries.

  1. What are the actual reasons that an international institution like IMF is unable to fulfill its directives?

The board members of the lending committee give more value in enforcing the conditions. This mitigates the occurrence of the moral hazard that can be created by the IMF lenders. The board members also find interests in enlarging the market.

However, in some conditions, there is some trade between the lender and the beneficiary which gives chances to enforcing conditionality so that the beneficiary has to compromise. Due to these reasons the financially strong countries that have authority over the board members of the IMF, force negotiation.

The economically weak countries benefit from the capital of the IMF to create a stable financial climate. However, they have to forgo or agree on a deal which may range with time to enhance their commitments to the stronger countries through the medium of IMF.

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