On Bretton Woods messiahs
Since Malawi welcomed the International Monetary Fund (IMF) and the World Bank, the Bretton Woods institutions have become pivotal in shaping national financial and economic policies.
The Washington-based institutions have provided loans, financial expertise and economic guidance to Malawi, for which the nation should be grateful.
However, some of the conditions and prescriptions from these global economic giants have not always worked to Malawi’s advantage.
They continue to hurt the country’s fragile economy, especially the poor who need to be cushioned from the harsh effects of imported policies.
For instance, when Malawi agreed to implement Structural Adjustment Programmes between 1981 and 1995, as advised by the World Bank and IMF, we became significantly dependent on their guidance.
They recommended privatisation of State-owned businesses with export potential and we complied, albeit with some haphazard execution and disastrous results.
They also pushed for a shift from a State-controlled economy to market liberalisation, where the pricing for goods and services became market-driven. We agreed.
Since then, the World Bank and IMF have maintained their influential roles as advisers to our government, directing successive administrations on the country’s economic direction like an orchestra that needs close directing.
At times, bold leaders, especially fallen president Bingu wa Mutharika, attempted to challenge their recommendations, particularly concerning agricultural subsidies, which they deemed unsustainable.
The Bretton Woods institutions also advised devaluing the kwacha to address trade imbalances, but this was met with resistance from Mutharika, only for his successor, Joyce Banda, to eventually comply.
Today, we find ourselves once again accepting their conditions in exchange for the External Credit Facility (ECF), a much-needed financial boost to regain the confidence of international development agencies and jump-start our economy.
Unfortunately, the 44 percent kwacha devaluation announced by the Reserve Bank of Malawi on November 8 2023 has led to soaring prices of essential goods, leaving many Malawians in a difficult situation.
While the World Bank and IMF support socioeconomic development programmes in Malawi, such as the Malawi Social Action Fund, the impact on alleviating poverty has been limited.
Corruption continues to hinder Malawi’s development progress, forcing the nation to rely on piling debt and foreign aid from countries like the US and the UK.
The IMF has drawn vocal criticism over the years.
In his 2002 book, Globalization and Its Discontents, Nobel Prize–winning economist Joseph Stiglitz denounced the fund as a primary culprit in the failed development policies implemented in some of the world’s poorest countries. He argues that many of the economic reforms the IMF required as conditions for its lending—fiscal austerity, high interest rates, trade liberalisation, privatisation, and open capital markets—have often been counterproductive for target economies and devastating for local populations.
The fund has also been criticised on the basis of overreach or “mission creep.” William Easterly makes this case in his 2006 account of the failures of Western aid to the undeveloped world, The White Man’s Burden.
While the author acknowledges some IMF successes in firefighting financial crises in Mexico and East Asian countries in the mid-1990s, he criticises many of the fund’s interventions in severely impoverished countries, particularly in Africa and Latin America, as overly ambitious and intrusive.
In addition, he describes many of the fund’s loan conditions and technical advice as out of touch with ground-level realities.
Back to the Malawi scenario, the decisions made decades ago continue to affect the current and future generations. It might be time for someone to stand up to the IMF and World Bank and challenge their influence.
