Monday, March 19

The IMF: Friend or Foe?


On March 17th, the International Monetary Fund (IMF) released the 2007 Country Report for Ethiopia. The findings of this report include a national economic “growth rate of almost 11 percent” (from 2003/3004-2005/2006), which has resulted in a “real per capita income increasing at the fastest rate in Ethiopia’s recent history” at 7 percent per annum over the same 3-year period (translating to $121 annual per capita income, according to ATLAS calculations).

Frankly, this comes as quite a surprise to me. While I do not have enough information to confidently assess their methods of data collection, I can assure you that such growth has yet to trickle down into the pockets of the poor (or even the middle class, for that matter), though the current rate of inflation is noticeably felt by all.

For those not living in this country (or, rather, any of us who have more than $121/year on which to survive!) this new GDP figure, while perhaps a statistical improvement from a decade ago, is nearly impossible to grasp in actual terms. Let’s forget the math for a moment--a stroll through Shola market on a Saturday afternoon unfortunately proves a far more accurate indicator of current economic conditions than any official document. Considering a friend struggling to feed her family on a monthly income of 400 birr (approximately $50/month) puts things sharply into perspective for me: one litre of oil now sells for 16 birr. A kilo of tomatos 4 birr, onions 3.5; oranges, sugar and coffee (unroasted) have become rare luxuries, at 6, 8 and 24-26/kilo, respectively. A large loaf of bread sells for 2 birr and a month’s supply of teff flour (50 kilos for a small family of 5) has become unafforable at 250- 270 birr. 1.5 litres of bottled water sells for 4 birr and omo (washing powder) for around 24/kilo.

And it gets worse. The eucalyptus debate can be put on hold in Ethiopia it seems, as the price of charcoal has actually doubled (a month’s supply is now 80 birr); at 1 birr each, cow dung patties have become the biomass fuel of choice for the majority of poor households (and for the bargain of a single birr, the health hazards of methane gas must be necessarily forgotten).

Yet, in spite of these drastic increases, none can compete with the leap petrol has taken in recent months. From around 5 birr/litre in August, it has since been driven up to 8.25, and rising still. Cars have become weekend luxuries for former 7-day motorists, and taxi drivers are forced to continually count their losses (as people are increasingly unable to pay the higher fares). A mini-bus ride costs between 65 cents-$1.60 birr, while 50 cents now barely guarantees you standing room on the perilously crowded yellow city buses. In this light, feeding even a small family on $50/month becomes a super-human feat, yet this is nearly 5 times the average per capita income in Ethiopia today, according to the findings of the annual IMF country report.

Which brings us back to the role of this instituion in developing economies such as this one:

The IMF can certainly be recognized as more-highly functioning than the plethora of international aid agencies that currently saturate this region of the world, however, their credibility in the arena of the world’s poorest populations (and not Western or emerging markets, where they have achieved some success) must come from actual measured achievements and not merely relative success in comparison to the abysmal failures of the aid industry as a whole. After all, millions of lives are at stake.

Accordingly, when considering the recommendations of country reports such as this one, we would be well-served to begin with a single, basic question: Has the IMF actually proven its ability to achieve macroeconomic stability in the poorest regions of the world? (Unfortunately, I think we all know the answer to that one…)

Absolutely, these countries are plagued by severe obstacles to economic prosperity (the “root causes of extreme poverty”, --political, historical, geographical, social) for which the IMF cannot be blamed, but it is worth noting that (as pointed out by NYU professor of economics and former senior World Bank economist, William Easterly, in his fascinating book “White Man’s Burden”) “of all 8 cases worldwide of state-failure or collapse”--Afghanistan, Angola, Burundi, Liberia, Sierra Leone, Somalia, Sudan, Zaire—“seven of them had a high share of time under IMF programs in the 10 years preceeding their collapse”; therefore, “statistically speaking, spending a lot of time under an IMF program is associated with a higher risk of state collapse”. This seems as good a starting point as any and, at the very least, should raise some serious red flags regarding the credibility of such intervention methods within the Ethiopian context.

Though officially “the financial assistance provided by the IMF enables countries to rebuild their international reserves, stabilize their currencies and continue paying for imports” (, recent history sadly demonstrates that quite the opposite has been achieved. A great part of the problem lies in the fact that statistics available in the poorest countries of the world--the very same statistics used to determine the current GDP and thus predict future economic performance--are often unreliable or downright inaccurate (due to the challenges of gathering information from highly inaccessible rural regions combined with widespread political corruption and intentional data manipulation). Also, how do the “human complexities” that cannot be represented by a financial programming model accurately factor into such country projections and interventions? The problem is they cannot, and do not.

Further, the nasty habit of refusing to seriously penalize the fiscal corruption of borrowing governments has thus ensured that money continues to flow, regardless of actual economic performance and repeated failure to translate progam agendas into real on-the-ground benfits for the desperately poor. This suggests little incentive for developing countries to comply with all conditions outlined by the IMF, and reccommendations are thus accordingly often only partially implemented, increasing the risk of further economic chaos.

(Enter: the art of diplomatic language.) Fortunately, there are plenty of euphemisms to choose from which conveniently afford the IMF justification to continue to lend to irresponsible and corrupt governments (extending new loans to help pay for the old ones, and round-and-round we go!)—hence, reliably overly-optimistic country projections and annual progress reports abound, alongside the ever-lengthening list of countries wallowing in economic turmoil.

Finally, despite the fact that international funds are essentially guaranteed--even in the wake of gross human rights violations and ongoing political oppression--this government will nonetheless be expected to miraculously attempt to bring federal spending within the the limits outlined by the IMF policies (an interesting suggestion when partnered with the observation that “further efforts are needed to strengthen public financial management and financial sector reform”). Grudgingly, Meles may be an extraordinarily intelligent man, but a magician he is not and a reduction in public expenditure--however justified--poses a serious national dilemna. With the social sectors already trapped in a perilous state of disrepair, any additional budget cuts (by a government comfortable devoting a mere 4.9% of the annual federal budget to public health services!) will forseeably serve to further deny the most vulnerable people of society access to these vital services. Even if the rate of inflation can be successfully halted and eventually reversed through such demand-dampening measures, there is no guarantee that the social sectors will receive the radical transformation they desperately require in the future. (Equitable distribution of funds and proper sector allocation under the EPRDF at this point seems an almost laughable suggestion.)

Fortunately, the IMF is not an ‘official aid agency’ and therefore conveniently lacks accountability to the very citizens their economic advice is designed to most greatly assist.


Anonymous said...

Thanks for helping us understand, I have had hard time swallowing these new figures, as I have read a diffenrent figure on growth on EIU report on Ethiopia. could this be cooked at the kitchen of MOF, I guess EPRDF despartly need good news, so cooking seems easier than making one.

Anonymous said...

Thanks for shading some light on this biased report. Obviously every thing is possible for EPRDF, manuvering the figures may be the easiest for the officials who are just living for thier belly. unfortunately we are just helplessly observing the deteriration of the situation in our country. If the situation continues this way we are likely to wittness our beloved country scrumble into chaos. I am wondering who is behind this crime??? it seems that there is an invisible force driving this country deep into worst of the worst making recovery almost impossible. Ethiopia has becme a country for the poorest of the poor, go to the rural part and witness the level of poverty and look into the towns infested with street children, elderlies the young hoemless and hopeless!! and albeit this is the development which is being appreciated by IMF! who is the voice for this endless suffering of the people? who is standing for truth? even these international organizations are giving deaf ear and a blind eye for this suffering rather in contrary encuraging the government to advance its brutal regime and inappropriate policies. Who is behind this? I am afraid there is a force behind, which EPRDF itself is not aware ofand which is using the ignorance with in EPRDF and the greed of the few in the rulling circle for its own benefit. After all the members in EPRDF are all Ethiopains and are unlikely to prefere the starvation of their own people and disintegration of their country. we should be able to find a solution for this stalemate before it is too late.

God bless Ethiopia

Gooch said...

Nice post.

You're right, tightening demand does seem impossible, although a sector re-allocation of government spending may help rein in inflation a bit.

Of course, improving overall governance would help improve private sector investment and productivity, especially agricultural productivity, and this would bring much better results.

But, what do we know?!