The World Bank and the International Monetary Fund (IMF) do not officially engage in political activities in the countries they advise. However, there are cases where the economic advice rendered led to unintended political consequences. We shall examine three cases of Jamaica, Rwanda and Uganda with a view to drawing lessons that might help avoid unintended adverse political, social and economic outcomes. Let us begin with Rwanda.
Up to 1990 Rwanda’s economy with substantial donor support had performed well although the income gap between the rich and the poor had widened. Donor resources had been used well including on infrastructure such as roads and water supplies and services such as transport, energy, houses and office buildings and banks. Human capacity building had also been undertaken. Compared to many African countries, Rwanda received the highest accolade and Rwanda was marked as a model of development efficiency. But Rwanda had become very dependent on donor funding, which worked against her when the economy ran into trouble.
With coffee prices dropping by 50 percent in the 1989/90 season, the country faced serious challenges: economic deterioration, rising external debt and unemployment. “However, when the commodity price of coffee, the main export crop, crashed in 1989, the IMF insisted on restructuring, weakening the state apparatus, creating a motive for corruption, and throwing Rwanda into a crisis that encouraged the RPF invasion. Giving the reigning ideology of the international bankers, the IMF insisted on structural adjustment and advocated a reduction in the size of government and the establishment of free-market reforms and norms without taking into consideration the particular circumstances of Rwanda.
“Added pressures for democratic reform piled a political crisis on top of the economic one. Once the invasion took place and the Rwandan army was forced to expand immediately [from 5,000 to 50,000], what had been proportionately one of the smallest armies in Africa (Rwanda was famed among development agencies in the 1980s for having the lowest expenditures on the armed forces) grew sixfold. At the same time, the IMF incorporated arms and military reduction targets as a condition of its loans just when the Rwanda government was in the midst of fighting a war. On top of the economic, political and military crisis, the donor governments added pressures to restructure civil society when donor countries such as Canada introduced conditionality to its loans and insisted on strengthening human rights, thus stressing the creation of social capital as a condition of financial aid. Insisting on multiparty democracy, insisting on economic restructuring and government downsizing that created enormous insecurity for a major part of the ruling class, insisting on military down-sizing when the country was faced with a civil war, and demanding enhanced attention to human rights all could be virtuous reforms. But at that time and under those circumstances, they weakened those in power who tried to mediate between what Mamdani termed the racist faction and the reformers as the development agencies attempted to strengthen those who advocated a pluralistic democratic and ethnic society without discrimination, but without any clout to bring into operation their valued reforms” (Tom Keating and W. Andy Knight, 2004).
Jamaica’s experience with the IMF is worth mentioning as well. “Two years after the oil prices quadrupled in 1974, Manley’s government accepted IMF conditions for a loan, including a 30% devaluation of Jamaica’s currency in April 1977….
“By March 1978, the IMF had declared Jamaica in violation of its austerity agreements. The country faced a $34 million per month cash shortfall, imports of basic foodstuffs were endangered, and the IMF was demanding an additional 10% devaluation as a condition for even reopening talks… In May 1978, Kingston [capital of Jamaica] accepted a 50% devaluation, in a program which officially proposed to reduce households’ consumption by 10% in the ensuing year”.
In these circumstances, Michael Manley lost the election to Edward Seaga. Besides the economic and social difficulties arising from the IMF austerity measures, Michael Manley lost the election because he was considered to be a close ally of Fidel Castro of Cuba (Editors of Executive Intelligence Review, 1992).
In Uganda, the World Bank and IMF stringent conditions contributed to the fall of the Obote regime in 1985. Here is what happened.
The international donors agreed to assist Uganda after the fall of the Amin regime in 1989. “The IMF agreed a $197m standby facility in June 1981 followed by the first debt rescheduling in November 1981 at the Club of Paris. Uganda then came under IMF tutelage. The Obote government announced its economic recovery program from July 1982-84, which concentrated on the main export sectors and the most pressing social needs.
“A further program was announced for 1983-85 which covered more than 100 projects and gave more emphasis to industry. Under IMF prompting a dual exchange rate for the Uganda shilling was introduced on 23 August 1982 in which there would be two separate ‘windows’…
“Uganda ran into problems with the IMF over the sharp rise in public spending and the government’s worries over the plummeting exchange rate. It was not able to renegotiate a new facility when the one of September 1984 expired with SDR 30m still undrawn. Obote ruled out a further standby facility because he would have to comply with unpopular economic measures in the run up to the impending elections” (New Africa Year Book 1987-88).
At an international conference in Denmark to assess progress on Uganda’s economy, a National Resistance Movement (NRM) delegation led by G.W.Kanyeihamba accused the Obote regime of human rights violation. “The World Bank was represented at that conference by Mrs. Katrine Saito. After listening to the address of Kanyeihamba and of the other Ugandans who were critical, she was visibly shocked to learn about the killings and other gross violations of human rights in Uganda by a government supported as a model by the Bank. … On her return to Washington, Mrs Saito was among the World Bank officials who persuaded the Bank to abandon Obote in favor of Museveni and the NRM” (G.W.Kanyeihamba, 2002). Obote government was overthrown in a military coup on July 27, 1985.
“Following the successes of the NRM and its assumption of power, Mrs Saito was amongst the very first World civil servants to visit and work in Uganda of Museveni and the NRM” (G.W. Kanyeihamba, 2002).
The presentations above have clearly revealed how economic advice and human rights concerns contributed to unintended political and social instability and change of governments. Therefore World Bank and IMF officials should assess the potential political implications of their economic advice to governments especially when they are faced with serious political, economic and social challenges. On the other hand, governments should try to minimize their overdependence on foreign aid. Foreign aid can be a good servant but a bad master. In Jamaica, Rwanda and Uganda the application of tough conditions or abandoning governments contributed to a change of governments in the three countries.