Now that we have joined the IMF bandwagon

Finally, Nigeria is going to the International Monetary Fund (IMF). To be fair this is not the first time we are going to the IMF as have had three standby arrangements before. But this is the first time we are actually going to take the money. Is it a loan? Technically it’s a credit facility backed by our Special Drawing Rights (SDR) quota with very low interest and service charges which we are expected to repay with the principal within three to five years. If it looks like a duck and quacks like a duck then a duck it is. Still, it is not a full-fledged package so it does not come with the standard conditionalities that come with those. Although typically, countries that tap the emergency facility end up having to go back for the regular package. Will we have to go back for that? The revolutionaries fighting against the neo-liberal capitalist western imperialist agents might need to raise the white flag. The way things are going we may have no choice but to go back for the full program. Still, is the program really that bad?

Much of the angst towards the IMF, not just from Nigeria but from many other countries, comes from our experience with the Structural Adjustment Programs (SAP) in the 80s. Many still tell tales of how SAP “destroyed” the economy and so on, mostly without saying what exactly SAP was. Also, while forgetting that for the seven or so years before SAP we had stumbled from unconventional to heterodox economic policies that put the country in a mess probably only second to the one, we find ourselves in now. So, what was in SAP? First there was the exchange rate liberalisation, allowing market forces determine the exchange and the scrapping of the arbitrary rules which previously determined who could buy or sell FX. In practice this involved abandoning the already imaginary official exchange rate of N1.75 per dollar to about N4.5 where the black market already was. Sound familiar?

Second there was the trade liberalisation. No this was not about forcing free trade on anyone but removing some of the licensing and restrictions on imports and exports. Before SAP you needed a license from government to actually import or export anything. Imagine that. The price and distribution controls on agricultural exports were also scrapped and the list of banned items was reduced. Before SAP a government department determined the prices of almost every export crop from cocoa to groundnuts. There were a lot of other reforms as part of the SAP most of which count as standard sensible economic policy today. This is not to say that SAP was an all-around great program. The spending cuts to education and health in the name of austerity ended up being very damaging and rather unwise. Also, Nigeria’s SAP technically was not an IMF program. But only technically. Also, we only implemented the program for a year or so before backsliding.

So, now that we are back in the land of economic difficulties, should we be so afraid of going to the IMF for a full program because of the conditionalities? Are these conditionalities so bad? The IMF has also learned from years of implementing programs just like everyone else has. Most of the conditionalities are things that most economists would count as sensible economic policy. Flexible exchange regimes, debt sustainability, clean banking systems, conventional and transparent monetary policy and so. Even Ghana, went into a full program just over a decade and they are doing relatively okay. This is not to say that the IMF is always right. We are still learning a lot about how economies function so local context and country input is now a fundamental part of most programs.