THE INTERNATIONAL MONETARY FUND AND THE WORLD BANK TOWARDS THE SAP’S
The IMF and WB are two most important institution set up by the UN monetary and financial conference popularly known as the BRETON WOOD conference held in New York in July 1944 however these two institutions come into effect/existence in 1945.
INTERNATIONAL MONETARY FUND ITS OBJECTIVES
1. To promote international co-operation on international monetary affairs by being a machinery for consultation and collaboration about money.
2. To facilitate international trade by adjusting differences between the values of currencies of different countries of the world.
3. To facilitate exchange stability and ordering exchange arrangements including transfer of fund among nations.
4. To eliminate foreign exchange restrictions which prevent the growth of world trade.
5. To shorten duration and magnitude of payment of imbalances (debts) between nations.
FUNCTIONS OF IMF
1. To administer exchange rate policies and restrictions on payment for the current account transactions.
2. To provide members with funds in order to enable them collect or pay for their debts.
3. To provide forum or room for members to consult each other and work together on international monetary matter
PRINCIPLES OF IMF
1.The IMF provides loans to all needy members on condition that they must pay bank soon after solving their debts so that other needy members can be borrowed.
2. A recipient member should first show how she intends to solve debts and how she will pay bank the debt with interest which always takers 3 to 5 years.
WORLD BANK (WB)
This was established on July 18, 1944 and started her activities in 1945, hence WB was known as international bank for reconstruction and Dev elopement (IBRD) and its head quarter is in Washington DC U.S.A.
ITS OBJECTIVES
1. To work on reconstruction and development of its members in which most of the members were affected by the WW II.
2. To provide foreign private investment to its member state especially private capitals.
3. To promote long term balanced international trade by enabling members to balance their payments with money from the bank.
PRINCIPLES OF THE WORLD BANK
1. It provides money for productive purposes e.g. money in agricultural/sector, rural development, construction of infrastructures and energy.
2. Loans may be used to purchase goods from any country in the world without restrictions.
3. Loans can be given to either country or political sub-division or to private enterprise in a given territory.
4. Technical assistance and other services are provided to member state.
5. Bank decision to provide money must be based only on economic consideration.
6.The loans must be guaranteed by the government concern and for specific project.
CONDITIONALS OF IMF AND WB
The IMF and WB introduced the following conditionality’s aimed at changing the economies of LDCs to be a capitalist economy.
1.To allow trade liberalization and foreign exchange; whereby the government of the LDCs is forced not to control the prices and abolish the price commission so that the prices should adjust themselves in the world market basing on the law of supply and demand.
2.To devalue the currencies so as to attract more investors in countries and more buyers of goods from countries concern, but also devalue of currency aimed to make the currency of the LDC s at least to match with the capitalist economy.
3. To control government budget deficit by reducing government expenditures like provision of social services, buying of expensive cars of leaders etc.
4.The government of LDCs should increase taxes by charging public goods and services highly.
5.The government of the LDCs must reduce their expenditures on provision of social services like in education, water supply, and electricity by introducing cost sharing between the government and people with general public concern with social services.
6. To allow and introduce western democracy or liberal democracy led to existence of multiparty and its features.
7. To allow redundancy of works. This is done by the IMF and WB to force the government of LDCs to privatize government parastatals and reduce workers from civil servants in order to control the budget of the country, reducing budget deficient and controlling over expenditures.
8.To allow privatization policy; hence the government of LDCs are forced to privatize their economy in the countries for the foreign investors such as agriculture, mining sectors all these is done by welcoming foreign investors to invest tin different economies sectors.
SAP’S
This refers to the policies introduced by IMF and WB in order to control the state budget and official policies in the LDCs; therefore the IMF and WB aimed at creating changes of the government budget so as to bring development in the LDCs.
BACKGROUND OF SAP’S
Due to worsening economic conditions the LDCs especial in Africa in the mid of 1980’s; approached the IMF and WB for Loans hence the IMF and WB suggested for SAP’s to be in traduced in the LDCs as a solutions for their economic development.
REASON FOR ADOPTION OF SAP’S IN LDCs
1. To solve external debts crisis in the LDCs especially in African States.
2. To promote rural development projects in order to improve the living standard of the rural people.
3. To improve the rapid decline of per capital income in order to make sure that people in the LDCs should have high per capital income.
4. To improve the rapid decline of G.N.P (Gross National Profit) in order to make sure that nations found in the LDCs should improve their national domestic product and avoid dependency from the developed countries.
5.To improve the decline of health services in order to make sure that government of the LDCs particularly in Africa should improve better social services to their people like hospitals educational facilities, clean water supply etc. e.g. availability of drugs in hospitals, dispensary or health centers, availability of equipment in hospitals and educational facilities i.e. books laboratory equipment etc.
6.To improve transport and communication networks in the LDCs in order to make sure that transport and communication networks is well available in the LDCs for development e.g. road ports, airports, railways etc.
7. To improve science and technology in the LDCs so as to remove the problem of weak science and technological base found in LDCs particularly in Africa and which has been acting as an obstacle for the development of LDCs.
8. To help the LDCs to get out of the poverty this is common problem in LDCs.
OBJECTIVES OF SAP’S
1. Aimed to reform and elimination of restriction of trade between North – South.
2.Aimed to privatize all public sectors so as to improve the G.N.P. of the country concern, provide employment and improve the growth of per capital income of each individual found in LDCs.
3.Aimed to reform agricultural sector by mobilizing the resource of the LDCs for improvement of agricultural sector.
4.Aimed to remove and reduce poverty by improving the living standard of the people found in LDCs, improving G.N.P. of countries, improving science and technology of the third world and improvement of economic growth.
5.Aimed at improving public investments programmed by welcoming investors both from within LDCs and outside of the LDCs.
6.Aimed of improvement and clear linkage of different sectors of the economy found in the LDCs for domestic development and restoration of economic growth of the LDC.
PRINCIPLES/CONDITIONS/FEATURES OF SAP’S
1.To remove subside in agricultural sector whereby IMF and WB force the LDCs to remove subsides on agricultural sector.
2.To introduce cost sharing in social services; whereby governments of LDCs are forced to withdraw from providing free social services like free-education, health care, electricity, water supply etc.
3.Devaluation of currencies. The LDCs is forced to devalue their currencies in order to accept by the capitalist in their trade transactions in the world market.
4.Privatization of economic sectors; are reforms programs in the LDCs are forced to privatize their financial sector, industry, mining trade and reforming other sectors like public sector management, trade sector etc.
5.Unemployment/redundancy of workers; majority of the civil servant face with the problem of unemployment after public sector privatized to the foreign investors
6. Elimination of trade barriers, tariffs and custom duties. The LDCs are forced by IMF and WB to eliminate trade barriers in order to premiere private sectors and foreign investors who come to invest in LDCs.
7. Elimination of price commissions in order the prices in the market to be determined by the law of supply and demand.
8. Removing restrictions on collective reform and wage selling practices so as to attain better life in LDCs, this is achieved by introducing collective bargaining between employers and employees.
9. Introduction of western democracy based on liberal democracy which insists under multiparty and introduction of puppet leaders.
10. Introduction of trade liberalization. This is done by forcing the governments of the LDC s to remove the price commission of raw materials and manufactured goods in market to be determined by the law of supply and demand.
11. Destruction of culture in the LDCs by forcing LDCs to practice their foreign culture which always destroy the culture of the people found in the LDCs.
ACHIEVEMENT OF SAP’S
1. It had achieved in raising living standard of the people in LDCs through privatization of public sectors.
2.It has led the creation of employment among the people in LDC s after being employed in various sectors which were privatized by the governments of the LDC s.
3. It had increased agricultural investments, agricultural products and agricultural consumption.
4. It had increased export of raw materials from LDC s to developed countries starting from the mid of 1985 up to date.
5. It had increased investment performance in different sectors in LDC s like infrastructure network, investment in industry, agriculture, financial institutions etc. which create the employment opportunity in LDC s.
6. It had improved different sectors of the economy like industries, mining, and trade after these sectors privatized to the foreign investors.
IMPACTS OF SAP TO THE AFRICAN ECONOMY.
- It increased poverty, suffering and civil wars among the Africans since most of the policies increase dependency ration between the African nation with European donor countries eg: through multiparty system.
- It increased corruption especially in privatization where transparency and un-ucountability were non-existent for instance secret agreement from the public in selling public entities embezzlement of funds.
- Influx of multnation corporation. These were different companies from foreign imperialist countries investment in T.T.C.L, TANESCO.
- Cost sharing, with its implications of the allocation of fever resources at different levels, has implications for corruption and even more, the fact that you are depriving the majority of the people a their basic right eg: Education, electricity, water e.t.c
- IA led to mass unemployment because of the retrenchment policy of civil servants where by their life became nursery, no income, the termination benefits given to them were eager to continue life.
- Privatization has increased the price of fertilizers and other inputs, and reduced access to credit.
- Some policies of SAP were impracticable hence promoted doors violence and internal disputes in Africa eg: privatizing of all public enterprises.
- Impacts on environment. This is due to industrialization resulted to privatization and foreign investment.
- SAP’s are responsible for much of the economic stagnation that has occured in borrowing countries.
- Inequality, since the implementation of SAP’s the group between rich and poor has been steadily increasing.
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WEAKNESS/FAILURE/DISADVANTAGE OF SAP’S
1. It had led to low prices of export of raw material from LDCs and increased the prices of imported goods from rich nations.
2. It led to poor science and technology in LDC s after the developed nations importing outdated and expired technology in the LDCs.
3. The removed of subsides in agricultural sector accelerated the low production in agricultural sector because majority of peasants found in LDC s cannot afford necessities of their cash crops like to buy insect sides, pest sides, tractors and ploughs.
4.It had/accelerated from rural to urban migration because many investors’ especially foreign investors tend to invest in urban areas in so doing; many people found in rural areas are running to look employment in urban areas were investors are invested in different sectors in rural areas.
5.It has increased poverty in LDC s especially in rural areas; but also even those who were employed to public sectors after they remain unemployed and fell to afford their life.
6.It has debts of the LDCs who tend to look for loans from IMF and WB which later have to pay the loans with high interest in a given period of time.
7.The cost sharing in social services like in education, health, water has resulted to many negative impacts to the people of the LDC s like death few to access education especially higher education and poor water supply.