Tag: Danny Bradlow

• Opinion by Danny Bradlow (pretoria, south africa)
• Friday, July 05, 2024
• Inter Press Service

To be sure, the IMF is not the only cause of Kenya’s problems with raising the funds to meet its substantial debt obligations and deal with its budget deficit. Other causes include the failure of the governing class to deal with corruption, to spend public finances responsibly and to manage an economy that produces jobs and improves the living standards of Kenya’s young population.

The country has also been hammered by drought, floods and locust infestations in recent years. In addition, its creditors are demanding that it continue servicing its large external debts despite its domestic challenges and a difficult international financial and economic environment.

The IMF has provided financial support to Kenya. But the financing is subject to tough conditions which suggest that debt obligations matter more than the needs of long-suffering citizens. This is despite the IMF claiming that its mandate now includes helping states deal with issues like climate, digitalisation, gender, governance and inequality.

Unfortunately, Kenya is not an isolated case. Twenty-one African countries are receiving IMF support. In Africa, debt service, on average, exceeds the combined amounts governments are spending on health, education, climate and social services.

The tough conditions attached to IMF financing have led the citizens of Kenya and other African countries to conclude that a too powerful IMF is the cause of their problems. However, my research into the law, politics and history of the international financial institutions suggests the opposite: the real problem is the IMF’s decline in authority and efficacy.

Some history will help explain this and indicate a partial solution.

The history

When the treaty establishing the IMF was negotiated 80 years ago, it was expected to have resources equal to roughly 3% of global GDP. This was to help deal with the monetary 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 problems and with “new” issues like climate, gender and inequality.

To fulfil these responsibilities, its member states have provided the IMF with resources equal to only about 1% of global GDP.

The decline in its resources relative to the size of the global economy and of its membership has at least two pernicious effects.

The first is that it is providing its member states with less financial support than they require if they are to meet the needs of their citizens and comply with their legal commitments to creditors and citizens. The result is that the IMF remains a purveyor of austerity policies. It requires a country to make deeper spending cuts than would be needed if the IMF had adequate resources.

The second effect of declining resources is that it weakens the IMF’s bargaining position in managing sovereign debt crises. This is important because the IMF plays a critical role in such crises. It helps determine when a country needs debt relief or forgiveness, how big the gap between the country’s financial obligations and available resources is, how much the IMF will contribute to filling this gap and how much its other creditors must contribute.

When Mexico announced that it could not meet its debt obligations in 1982, the IMF stated that it would provide about a third of the money that Mexico needed to meet its obligations, provided its commercial creditors contributed the remaining funds. It was able to push the creditors to reach agreement with Mexico within months. It had sufficient resources to repeat the exercise in other developing countries in Latin America and eastern Europe.

The conditions that the IMF imposed on Mexico and the other debtor countries in return for this financial support created serious problems for these countries. Still, the IMF was an effective actor in the 1980s debt crisis.

Today, the IMF is unable to play such a decisive role. For example, it has provided Zambia with less than 10% of its financing needs. It has been four years since Zambia defaulted on its debt and, even with IMF support, it has not yet concluded restructuring agreements with all its creditors.

What is to be done?

The solution to this problem requires the rich countries to provide sufficient finances for the IMF to carry out its mandate. They must also surrender some control and make the organisation more democratic and accountable.

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

First, it must set out detailed policies and procedures that explain to its own staff, to its member states and to the inhabitants of these states what it can and will do. These policies should clarify the criteria that the IMF will use to determine when and how to incorporate climate, gender, inequality and other social issues into IMF operations.

They should also describe with whom it will consult, how external actors can engage with the IMF and the process it will follow in designing and implementing its operations. In fact, there are international norms and standards that the IMF can use to develop policies and procedures that are principled and transparent.

Second, the IMF must acknowledge that the issues raised by its expanded mandate are complex and that the risk of mistakes is high.

Consequently, the IMF needs a mechanism that can help it identify its mistakes, address their adverse impacts in a timely manner and avoid repeating them.

In short, the IMF must create an independent accountability mechanism such as an external ombudsman who can receive complaints.

Currently, the IMF is the only multilateral financial institution without such a mechanism. It therefore lacks the means for identifying unanticipated problems in its operations when they can still be corrected and for learning about the impact of its operations on the communities and people it is supposed to be helping.

Danny Bradlow is Professor/Senior Research Fellow, Centre for Advancement of Scholarship, University of Pretoria

Source: The Conversation

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

IPS UN Bureau

© Inter Press Service (2024) — All Rights ReservedOriginal source: Inter Press Service

• Opinion by Danny Bradlow (pretoria, south africa)
• Monday, May 13, 2024
• Inter Press Service

During its G20 presidential year, South Africa will host a summit of heads of state and government. It will also be responsible for organising and chairing about 200 meetings of ministers and officials. These will come from the G20 members, invited countries and international organisations like the International Monetary Fund and the World Bank.

The meetings will focus on issues such as the challenges facing the global economy and whether the current arrangements for global economic governance are able to respond effectively.

The G20 presidency, therefore, presents South Africa with an opportunity to promote reforms in global economic governance. But there are constraints. It will inherit an agenda from Brazil, the current G20 chair. And it will have to respond to developments in the current dynamic and complex global environment.

The IMF/World Bank spring meetings held in April in the US suggest some achievable objectives for the G20 next year. There was a great deal of discussion about the inability of current arrangements to adequately address global challenges like climate, public health, inequality, poverty and digitalisation.

There’s not necessarily agreement on how to prioritise these challenges. And, unfortunately, the views of the rich states, which prioritise issues like carbon emissions, dominate the discussions. For example, the World Bank highlighted the fact that, in the 2023 financial year, it increased the funds loaned for climate-related purposes by more than 20%, allocating 41% of all its lending to climate.

But its own survey of its borrower countries shows that climate ranks number 11 on the list of priorities of its borrower states. Health, education, agriculture and food security, and water and sanitation rank much higher. Nevertheless, at least two gaps became evident in the discussions.

The first relates to IMF reform. The second concerns the relationship between international organisations and their member states.

South Africa should aim to fill these gaps. It should encourage the G20 to commission two studies on the scale and scope of the challenges that the international community faces, and propose some responses. Ideally, it should convince the G20 to commission these studies in 2024 so that it can begin discussing policy responses in 2025.

This kind of approach has been effective. Over the last few years, the multilateral development banks have been the subject of G20-commissioned studies. This has led to proposals designed to make them “bigger and better”.

Shortcomings

The need for IMF reform is becoming more urgent. It is adapting its operations to deal with the macro-economic impacts of issues like climate, gender and inequality. The IMF has created a Resilience and Sustainability Trust that is providing financing to 18 countries, primarily for adaptation. It is reviewing its Debt-Sustainability Framework for Low-Income Countries so that it incorporates these “new” issues.

These changes are being made in an opaque and unpredictable way, however. The IMF has not made publicly available the principles and procedures it uses when deciding what aspects of these “new” issues to take on.

It can’t accurately assess the full impacts of these issues unless it understands how communities, workers, businesses and civil society organisations will respond to the social and environmental impacts of specific policy and fiscal initiatives with macroeconomic implications. It cannot gain this information without consulting these groups.

This means it must engage more with a broader range of stakeholders than it did when it focused exclusively on more traditional macroeconomic and financial stability concerns. These new issues, therefore, raise questions about the appropriate form for the relationship between the IMF and its member states.

At the spring meetings, the Development Committee of the World Bank and the IMF “reiterated the importance of accountability mechanisms in enhancing development outcomes and stimulating internal learning and feedback.”

Yet the IMF remains the only international financial institution without an independent accountability mechanism.

The second gap relates to the fact that developing countries are spending more on external debt service than on health and education. This is undermining their efforts to deal with climate change, inequality and sustainable development goals. Some discussants also regretted that there was a net outflow of funds from the global south to the global north.

As some have noted, the amount of funding committed to new development financing initiatives by rich countries is paltry compared to what’s needed. This has led, for example, economic ministers from Brazil, Germany, South Africa and Spain to call for a global tax on billionaires.

This is an important and creative idea. But the proposal raises difficult questions about state sovereignty and about the design of the institutions of global governance.

What’s needed

While multilateral development banks have been the subject of G20-commissioned studies, the IMF has not undergone a similar examination.

South Africa should commission a group of experts to study how the IMF should change to take on these new issues. The study should look at IMF governance, operational policies and practices, and its financial needs. The purpose would be to identify the current shortcomings in structures and functions.

Experts should also think of ways to make the IMF more responsive to the needs and priorities of all its member states and their citizens.

Second, South Africa should call for a study of how best to divide responsibility between states and the international financial institutions. This is particularly important when it comes to the environmental and social impacts of operations.

The purpose would be to understand how the roles and functions of these institutions are evolving and how this is affecting their relations with their member states. The study could propose ways to ensure that the structure and functions of institutions are both respectful of state sovereignty and appropriate for the responsibilities that the institutions are assuming.

Raising a global wealth tax for developmental purposes could be one example used in this study.

Danny Bradlow is a Professor/Senior Research Fellow, Centre for Advancement of Scholarship, University of Pretoria. In addition to his position at the University of Pretoria, he is also a Compliance Officer in the Social and Environmental Compliance Unit of the UNDP and Co-Chair of the Academic Circle on the Right to Development, which advises the UN Special Rapporteur on the Right to Development.

Source: The Conversation– a nonprofit, independent news organization dedicated to unlocking the knowledge of experts for the public good. The University of Pretoria provides funding as a partner of The Conversation AFRICA.

IPS UN Bureau

© Inter Press Service (2024) — All Rights ReservedOriginal source: Inter Press Service