IMF: The Politics of Debts, Currency Devaluation and Austerity Measures

The value and worth of a currency is determined by the wealth of a nation.
 In this era of global capitalism, a wealth of nation goes beyond the
conventional valuation based on the natural and human resources.  A
nation’s image, perception, security and stability also played an
important role in the determination of a nation’s wealth. Therefore
currency and its value become the bellwether and principal indicator of
the economic status and financial wellbeing of a given nation.

The principal factor in a currency regulation and determination is rooted
on the forces of supply and demand, most especially nations that are
exposed to global trade and currency transactions. Most currencies are not
rigidly fixed but are allowed to float and checkmated by the forces of the
market. The gold standard that was tied to a currency has been abandoned
and determination of a currency was replaced by the forces of the market
and the wealth of a nation. A currency is more than medium of exchange,
for a currency is principally used as a settlement of debt both domestic
and international.

A wealth of a nation consist of its currency backed by the size of the
economy (GDP) which includes of course the natural and human capital,
credit worthiness and the debt of a nation.

International Monetary Fund (IMF) an international elite organization is
empowered by the member nations to be advisory regulator of the financial
wellbeing of the global market economy.  In this case IMF becomes a
watchdog to the financial and economic standing of nations, more or a less
a financial policeman that can bark but sometimes it can also bite. The
later became functional and operational when a nation seeks the aid of the
Brentwood institute for a financial counsel and credit due to economic
hardship. In this case a nation invites the financial entity and it will
come and rearrange the financial house before it accept to help the host.
Sometimes IMF can interject without invitation on the grounds of doing
public good and protecting the world from financial and economic
pandemonium that comes with great recession and sometimes depression.

Never for one second believes and accepts the propagated notion that IMF
is just only a financial institution devoid of politics, the whole truth
is that IMF is also a political institution. Political economy is bedrock
of economic evaluation and determination of a nation’s wealth. Advanced
nations have more clout before IMF more than developing nations of south
of the hemisphere especially countries of Africa. IMF bureaucrats can
prescribe some conditions and criteria to African member nations and the
implementation may cause unforeseen hardship but those policies will not
be accepted by the more powerful economies of northern hemisphere. The
less developed nations bear the brunt of IMF overwhelming control and
intimidation.

With this in mind, let’s reflect on Africa of 1980s that ran to IMF for
financial bailout due to economic hardship and a laden-back breaking
foreign debt caused by herculean mismanagement and corruption. Those were
days of capital flights, military coups and political instabilities in
Africa. The African dictators asked for credits from international
financial institutions but they were directed to go through IMF. The
ramifications of the emitted IMF’s austerity measures that come with
currency devaluation on African nations brought economic collapse of the
continent. There were massive unemployment and brain drains that decimated
African economic outlook and prospect. Prices of essential commodities
rose beyond the affordability of an average African.

African producers and manufacturers import most of their raw materials
with devalued currency and subsequently higher price of dollar makes it
impossible to continue production. Literally and figuratively Africa was
in mundane hell endowed with higher and rising inflation. The prices of
cash crops produced by African countries nosedived because they were
instructed to devalue their respective currencies. The once respected and
dominant naira was so devalued that many companies went bankrupt with red
financial balance sheet. These were the prescriptions given to powerless
and poor nations of southern hemisphere.

Most African nations were not producing materials and commodities for
export but rely on one or two cash crops for making of small foreign
exchange and these nations are receptors of donations from foreign donors
to balance their budgets. Therefore what is the meaning and logic behind
devaluing their already weak currencies that were streamlined by inflation
and political instability? Instead of any meaningful gain, it rather
brought about the crash of the currencies that brought stagnation and
hyperinflation together with malnutrition and penury in Africa.

The connected and acceptable African economists and government bureaucrats
who were anointed by IMF elites were the mouth piece of the goodness of
currency devaluation and austerity measures. The government was asked to
reject welfare state, therefore to cut down on spending and to remove
subsidies from the essential commodities that the poor needed for
survival.  The IMF Ivy league elites and their puppets have no meat in
what is happening to Africa, it is all about policies and economic
theories and experiments on Africans. Our leaders were intimidated to
challenge those unproven economic theories; moreover African dictators do
not want to rock the boat and asked about their democratic credentials.
Can IMF point to any success story that came out of Africa as a result of
their economic and financial pills it prescribed to Africa?

 Then comes Nigeria of 1980s, she has no business asking for help from IMF
but she did and she paid dearly for it. Nigeria in 1980s could not
acquire credit lines for international transactions due to her weakness
in serving her debts and foreign obligations. Nigeria an oil-rich nation
has no reason to fall behind in her financial obligations and payments of
her foreign debts. But inertia, mismanagement and corruption had claimed
a large chunk of her operational and financial integrity.

Emeka Chiakwelu is the principal Policy Strategist at Afripol. Africa
Political and Economic Strategic Center (Afripol) is foremost a public
policy center whose fundamental objective is to broaden the parameters of
public policy debates in Africa. To advocate, promote and encourage free
enterprise, democracy, sustainable green environment, human rights,
conflict resolutions, transparency and probity in Africa.

http://afripol.org/            info@afripol.org