IBB’s tango with IMF: Truths, half-truths, lies

In the early 1980s, the Cold War had reached a critical juncture. The arms race between the East and the West was at a deadlock, with neither side gaining a definitive advantage. However, the real battleground lay in economic ideology.

The contrast between the two dominant economic models—the liberal open-market system of the West and the centrally planned economies of the Eastern Bloc—had become increasingly evident.

While the East struggled with inefficiencies, scarcity, and widespread economic hardship, the West flourished under a system that fostered innovation, productivity, and a higher standard of living. The success of market-driven economies was undeniable.

Western leadership, particularly under U.S. President Ronald Reagan and U.K. Prime Minister Margaret Thatcher, championed policies of deregulation, privatisation and reduced government intervention in business.

Their governance exposed the inefficiencies of state-controlled economies and reinforced the case for private sector-led growth. Across the globe, liberal economic policies were gaining traction as the superior model for sustainable development.

Simultaneously, the Soviet Union was experiencing cracks in its economic and political structure. The introduction of Glasnost (openness) and Perestroika (reform) by Mikhail Gorbachev, Soviet’s general secretary, in 1986, was an implicit acknowledgment that the communist system was no longer viable. By the late 1980s, the collapse of the Soviet Union and the fall of the Berlin Wall signalled the end of the Eastern Bloc’s economic experiment.

With the inefficiencies of state-controlled economies exposed, Nigeria had two options- reform and set the economy on a sustainable path or crumble along with other state-run economies.

Read also: Babangida’s a journey in service: A memoir of deflections

Enter SAP, IMF

By 1985, Nigeria faced a financial crisis. Foreign exchange reserves had dwindled, covering less than three months’ worth of imports—far below the international benchmark of six months.

The country was at risk of economic instability, with mounting fiscal pressures and an unsustainable balance of payments. External financing slowed to a trickle for many countries, while primary commodity prices dropped sharply. The slump in oil prices exposed cracks in Nigeria’s deeply-flawed socialist economic structure.

It was against this backdrop of global transformation that Nigeria made a choice to embrace a free-market model under the Structural Adjustment Programme (SAP) introduced by then military head of state, Ibrahim Badamosi Babangida.

The IMF’s lending to countries rose to unprecedented levels during the late 1980s and early 1990s. Conditions in the countries borrowing from the IMF were, by historical standards, unusually weak: fiscal and external imbalances were large; output was often falling; frequently, inflation was high.

In most countries, these weaknesses were not simply cyclical but resulted from deep-seated structural distortions, hence the need for a “Structural Adjustment Programme.”

Some 45 IMF lending arrangements were approved between mid-1988 and mid-1991 for 36 middle-income countries.

A study by Susan Schadler, an economist at the IMF, concluded that the conceptual approach to designing adjustment programmes was sound, noting that most countries adhered reasonably well to their policy programmes and that most aspects of macroeconomic performance improved. The most striking gains were on the external accounts; developments in the key domestic targets—inflation, investment, and growth—were less impressive.

An IMF helping hand? No thanks

After his predecessor, Muhammadu Buhari, rejected an IMF loan, Babangida who ousted Buhari in a coup on August 27 1985, reopened talks with the Fund.

“We needed funds,” Babangida recounted in his memoir, ‘A Journey in Service,’ published three decades after he left office.

“We applied to the International Monetary Fund (IMF) and the World Bank for balance-of-payments assistance loans.

“However, both institutions imposed strict conditionalities on their balance-of-payments assistance programs. These conditions required comprehensive economic restructuring, including currency devaluation, trade liberalisation, and fiscal discipline,” Babangida said.

Babangida however called for the public to voice its views on the loan, a summons that brought forth a “flood of opposition in the pages of Nigeria’s newspapers,” as a New York Times article by Edward Gargan on Oct. 8 1985 put it.

“This tide of public protest has come from all spectrums of society – including labor and business, students and traditional tribal rulers. And despite a spate of recent newspaper advertisements urging acceptance of the loan, so far the mood of the country seems clearly opposed,” Gargan wrote.

Babangida’s public consultation had ended with Nigerians rejecting the idea of an IMF loan but they were in agreement that the economy needed restructuring.

Public consultations on government policies were rare in the days of military rule.

Babangida’s predecessor, General Muhammadu Buhari, did not need public consultation to reject a $2.4 billion IMF financial support.

“Interestingly, ordinary Nigerians reduced the IMF debate to a simple question of whether to borrow now and endure the pain of being tied to debt forever or endure some inconveniences to grow our resources from debt,” Babangida wrote in his book.

“At the end of an exciting debate involving boardroom business leaders, professional economists, university professors, market women and street-side artisans, the consensus among Nigerians was that we should not seek or accept an IMF loan facility but should adopt some of the sensible conditionalities as a homegrown strategy of economic recovery and survival.”

Adopt a homegrown strategy they did, according to Babangida.

The IMF had pushed for privatisation of public enterprises, commercialisation in cases where outright privatisation was not feasible, deregulation of general economic sectors and processes, and reduction of overall government presence in the economy under its Enhanced Structural Adjustment Facility (ESAF).

These were the reforms imposed on countries worldwide seeking IMF and World Bank bailouts for their ailing economies.

Nigeria however designed its own reform plan that mirrored the IMF’s conditionalities for a bailout but didn’t take the loan that should have come with it.

“Our SAP was self-inflicted which meant more difficult options as we took on the hard choices without cushioning loan support,” Babangida said in his book.

In addition to implementing the IMF recommendations, Nigeria added what Babangida described as “sensible policies dictated by our economic conditions.”

“There was a deliberate limitation and reduction of the cost of government. No imported vehicles for government officials, import restriction on non-essential items.

“Bans on imports like wheat, vegetable oil, textiles and other items with available local substitutes were part of our own SAP.

“We insisted that the government and the populace should make do with locally available or produced goods. We encouraged farmers to cultivate wheat at home and to eat bread made with local substitutes like cassava and corn,” Babangida wrote.

Nigeria adopted a SAP programme of its own making and design but the results were mixed, even though the policies were critical for restructuring a stumbling economy.

Karl Maier, a renowned American Journalist who reported on Africa for a British publication, The Independent, had the following to say about the SAP and its impact in his book, ‘This House Has Fallen.’

“While these policies were intended to stabilise the economy and promote growth, their execution was deeply flawed.

“The naira’s devaluation led to hyperinflation, causing food and basic commodities to become unaffordable for ordinary Nigerians.

“Many industries collapsed due to the high cost of imported raw materials, leading to massive job losses. Privatisation efforts were riddled with corruption, as key state enterprises were sold off to political allies rather than competent investors. SAP’s harsh impact triggered widespread public outcry, protests, and riots, making Babangida one of the most unpopular leaders in Nigeria’s history.”

The social crisis triggered by the implementation of the SAP sparked riots in Nigeria.

While SAP aimed to create a more dynamic economy, its rapid implementation led to severe inflation, a declining currency and increased poverty.

The naira slumped from about N1/$1 in 1986 to N23/$1 by 1993.This worsened inflation, which surged past 40 percent by 1989, according to the World Bank data, eroding purchasing power.

The programme worsened poverty, with 45 percent of Nigerians living below the poverty line by the early 1990s, sparking public unrest and protests.

Although the SAP sought to reduce Nigeria’s external debt burden, which stood at $19 billion in 1985, the external debt stock had ballooned to over $30 billion by 1993 due to continued borrowing and high-interest repayments.

State-owned enterprises were privatised, but critics say corruption undermined the process. Fiscal austerity measures failed to bridge the budget deficit, which persisted throughout the period.

A rare success was in agriculture, as import restrictions boosted local production, restoring Nigeria’s position in cocoa, palm oil, and rubber exports.

Read also: Why Nigeria joined Organisation of Islamic Countries during my regime – Babangida

Babangida’s reputation tainted SAP

Maier’s book extensively covers how Babangida’s regime institutionalised corruption in Nigeria.

He argued that while corruption predated Babangida, his administration elevated it to unprecedented levels.

The infamous Gulf War oil windfall of 1991, in which Nigeria earned an estimated $12 billion in excess revenue, is cited as a prime example of how state funds were mismanaged and siphoned off by government officials. Despite public demands for transparency, no clear account of how the funds were used was ever provided.

Babangida justified the spending of the $12.4 billion oil windfall by his government.

“What I have done is not unusual in this country. Somebody did it before me, but I won’t mention names. We did undertake the construction of various ports and other projects (including bridges).

“That money could have gone into the Federation Account. Yes, but whatever foreign exchange we earned, we monetised it, and those we monetised were what the state governments and local governments were getting… And if all we could spend between 1988 and 1994 was $12.4bn, that is very good,” he said.

It’s 1986 all over again

It’s 1986 all over again in Nigeria but this time the country’s civilian president, Bola Tinubu, has had to implement tough economic reforms which are strikingly similar to the reforms of SAP.

The naira has been devalued while subsidies on petrol and energy are giving way.

Tinubu, like Babangida, has implemented these reforms, without accepting an IMF loan.

Nigerians have maintained their no-love-lost relationship with the IMF since Babangida’s tenure, with country’s leaders after him all rejecting an IMF facility due to its unpopularity among the people. It has never mattered that the loans came at around 1 percent interest rate, making them far cheaper loans secured from international investors.

But the IMF is getting unfair criticism given that the policies it promoted in the 1980s were critical to restructuring low-income economies where the government played a larger than life role in the economies.

“Those measures (SAP) are the hallmarks of every open and competitive liberal economy; and any economy that has been so badly mismanaged, as Nigeria’s has, needs those self-correcting measures,” Olu Fasan, a respected political economist, said.

“However, Nigerians rarely hold their government to account for mismanaging the economy through misguided policies and industrial-scale corruption,” Fasan said.

The ongoing suggests that Nigerians should have held Babangida responsible for the failings of the well-intentioned reforms rather than blame the IMF or World Bank for crippling the economy.