• Monday, April 15, 2024
businessday logo

BusinessDay

Debunking the economic myth: No country ever developed following the advice of the World Bank and IMF

Debunking the economic myth: No country ever developed following the advice of the World Bank and IMF
  1. These policies, often accompanied by austerity measures, have faced opposition from civil society groups and have been blamed for worsening economic conditions.

Over the years, heated debates have raged over whether countries should heed the advice of the Bretton Woods institutions – the World Bank and the International Monetary Fund (IMF) – regardless of their development status.

These institutions stand as pivotal pillars in global development, offering guidance and support to member nations in their pursuit of economic prosperity.

Yet, amid discussions on their influence, a provocative assertion has gained traction: “No country has ever developed following the advice of the World Bank and IMF.” While challenging conventional wisdom, this claim remains a subject of intense debate.

Read also: IMF forecasts record fall in Nigeria foreign reserves in 2024

Critics argue that the Structural Adjustment Programme (SAP) policies prescribed by the World Bank and IMF, particularly in Africa, have exacerbated poverty rather than alleviating it. These policies, often accompanied by austerity measures, have faced opposition from civil society groups and have been blamed for worsening economic conditions.

Digging deeper, a commentator remarked, “It is a fallacy of hasty generalisation and untrue to say or claim that ‘No country has ever developed following the advice of the World Bank and IMF.’”

However, proponents of the institutions refute these claims, suggesting that the failure of SAP in African countries stems from policy misuse rather than inherent flaws. This dichotomy calls for a deeper analysis and clarification of the issues at hand.

Phase 1: Nigeria – The Burst and the Boom under World Bank and IMF

Nigeria’s economic narrative unfolds across three distinct epochs: pre-colonial, colonial, and postcolonial (Tekedia.com). In the latter period, a pivotal moment emerged with the advent of the Structural Adjustment Programme (SAP) in the 1980s, sparking intense discussions in economic circles.

The Burst

SAP, introduced by global bodies like the World Bank and IMF, aimed to restructure the economies of developing nations through measures such as slashing government spending, encouraging free-market dynamics, and devaluing local currencies. In 1986, Nigeria, under the Babangida-led military regime, embraced SAP after its rejection by the Buhari-led administration in 1984.

The decision was influenced by various internal and external factors, including rampant corruption in public sector enterprises (PSEs), failures of economic task forces, and mounting pressure from both citizens and the international community.

However, SAP’s implementation exacerbated Nigeria’s economic woes rather than alleviating them. Inflation soared, with the percentage increase in the inflation rate from 1986 (5.72 percent) to 1995 (72.84 percent) reaching approximately 1173.60 percent, crippling its financial stability and leaving its citizens grappling with the harsh realities of economic hardship. -Macrotrends.com

External debt ballooned, with the percentage increase in the external debt from 1986 ($22.215 billion) to 1995 ($34.094 billion) reaching approximately 53.47 percent. This potentially exerted pressure on revenue through debt servicing (Macrotrends.com).

The privatisation of government entities led to tariff hikes, driving many small businesses to closure. Removal of subsidies further burdened the poor, worsening living conditions.

Read also: Nigeria can repay its COVID-19 fund, says IMF

Even after SAP’s official termination in 1996, its adverse effects persisted, shaping Nigeria’s economic landscape. While some argue that SAP’s failures in African countries stem from policy misuse rather than inherent flaws, many African critics vehemently oppose this viewpoint, fuelling ongoing debates over the programme’s legacy.

The Boom

Despite the setbacks experienced under SAP, Nigeria’s engagement with the IMF and World Bank has not been devoid of successes.

Financial assistance from the IMF during times of economic turbulence, such as the $3.4 billion loan secured in 2016 amidst declining oil prices, has provided much-needed stability and bolstered confidence in Nigeria’s fiscal policies.

Additionally, the approval of projects like the Nigeria Distributed Access through Renewable Energy Scale-up initiative by the World Bank underscores the potential for positive impact through international collaboration. This ambitious project aims to provide clean energy access to over 17.5 million people in Nigeria, particularly those in rural areas, aligning with the nation’s broader energy transition goals.

Beyond Nigeria: Examining global impact

Under IMF oversight, Zambia’s once-prosperous economy now faces dire challenges, reminiscent of its heyday driven by copper mining.

The country, grappling with soaring debt levels and a dwindling financial sector, finds itself in a precarious position. Critics blame IMF-backed austerity measures and structural reforms for exacerbating Zambia’s economic woes, painting a stark picture of hardship and struggle for its citizens.

Similarly, Argentina’s economic history is riddled with IMF interventions, leading to cycles of booms and busts. The imposition of stringent austerity measures and currency pegs has plunged the nation into deep recessions, triggering social unrest and widespread suffering among its people.

Greece, too, found itself in the throes of a severe debt crisis, requiring multiple bailouts from the IMF and the European Union. The resulting austerity measures and structural reforms plunged the country into an era of high unemployment and prolonged economic hardship, leaving many Greeks struggling to make ends meet.

And then there’s Jamaica, a nation with a long history of IMF programmes aimed at stabilising its economy. Despite these efforts, Jamaica continues to grapple with persistent debt and economic challenges, with harsh austerity measures exacerbating poverty rates and deepening social inequalities.

Read also: To tackle inflation, IMF urges CBN to mop up N2trn via OMO bills

These concerns raise questions about the success of countries that have partnered with and followed the advice of Bretton Wood. Is it the country’s government that failed or the policy of the Bretton Wood?

Phase 2: China, the second world largest economy

In the late 1970s, China embarked on a transformative journey of economic reform under Deng Xiaoping’s visionary leadership. This shift ushered in an era of remarkable growth and poverty alleviation, reshaping the global landscape.

Despite receiving expertise and guidance from the World Bank and IMF, China chose its path, gradually liberalising markets and integrating internationally through bold experimentation.

At the core of China’s success story is its commitment to export-led growth, propelling the nation into the role of a manufacturing giant on the world stage. Leveraging its vast labour force and strategic infrastructure investments, China became a global manufacturing hub, meeting demand worldwide.

China’s proactive approach to attracting foreign investment played a crucial role in its ascent. By fostering an environment conducive to investment and partnering with multinational corporations, China tapped into external resources to drive its development.

Today, as the world’s second-largest economy, China’s journey from agrarian society to economic powerhouse exemplifies the potential for growth and prosperity under visionary leadership and strategic reforms.

BusinessDay earlier reported that China achieved zero poverty in 2021 and came second in research and development globally in the past five years.

Thus, the recent completion of the 2023 Article IV Mission to China holds significance for both the IMF and China. For the IMF, it offers an opportunity to evaluate China’s economic performance, provide recommendations, and support the nation’s sustainable growth.

For China, it demonstrates a commitment to transparency and cooperation while benefiting from expert insights to enhance economic resilience and stability (IMF Article IV).

Read also: IMF warns Nigeria over worsening cost-of-living crisis

South Korea

South Korea’s economic journey, often hailed as the “Miracle on the Han River,” stands as a shining example of successful development strategies.

Back in the 1960s and 1970s, South Korea embarked on its path to prosperity with crucial backing from the World Bank and IMF. Armed with loans and technical expertise, the nation set out to transform its economy.

At the heart of South Korea’s success story were bold policies centred around export-driven industrialisation, hefty investments in education and infrastructure, and a relentless drive for innovation.

These initiatives fuelled a dramatic surge in industrial output, catapulting South Korea onto the global stage as a manufacturing powerhouse. The results were nothing short of spectacular: sky-high economic growth rates, a burgeoning industrial sector, and a remarkable reduction in poverty levels.

From being a struggling post-war nation to emerging as one of the world’s most vibrant economies, South Korea’s transformation stands as a testament to the power of strategic development planning and international collaboration.

Botswana

Botswana, a beacon of economic success in Africa, owes its prosperity to strategic governance and partnerships with global financial institutions like the World Bank and IMF.

Leveraging its diamond resources, the country pursued prudent fiscal policies, fostering stability and enabling substantial investments in infrastructure and poverty alleviation.

In 2022, Botswana achieved an impressive 5.8 percent economic growth, surpassing the 4 percent long-run average. However, growth is expected to slow to 3.8 percent in 2023 due to decreased diamond production and global economic challenges. IMF Article IV

Despite this, Botswana remains committed to sustainable growth and fiscal responsibility. The country’s financial sector is considered stable and resilient, though vigilance is needed to monitor risks from large non-bank deposits.

Read also: Nigeria misses out as 10 African countries set for remarkable economic growth IMF

Botswana’s success story underscores the transformative power of effective governance and international collaboration, offering valuable lessons for nations striving for sustainable development amidst global uncertainties.

Olugbenga Alawode, an information and technology economist, said, “Those countries like China, South Korea, and Poland, among others, have minimal levels of corruption compared to African and Latin American countries.”

He added that the motives behind World Bank and IMF policies are good, but the implementers and operators of the policies in different countries are to blame for the negative results afterwards.

The World Bank and IMF wield immense influence in shaping the economic destinies of nations across the globe. While their interventions have yielded both successes and failures, the ultimate determinant of their impact lies in a complex interplay of factors including policy implementation, governance structures, and external influences.

 

Oluwatobi Ojabello, senior economic analyst at BusinessDay, holds a BSc and an MSc in Economics as well as a PhD (in view) in Economics (Covenant, Ota).

Wasiu Alli is a business and finance journalist at BusinessDay who writes about the economy, business trends, and politics. He holds a BA. Ed. and M. Ed. in English Language and Education.