With the World bank and IMF pushing for structural reforms in Nigeria in the line or further devaluing the currency, privatizing state properties and removing fuel subsidies and etc, I will like people to remember the effects of Structural Adjustment Programs imposed my IMF during Babangida's regime, since it always hard explaining to the average Nigerian what the Evil World bankers want i think looking at effects of such practices in other countries will make my point much clearer.
http://www.mediamonitors.net/raymondker9.html

Argentina and the IMF: A Lesson for Third World Countries

The world was spellbound last December by the spontaneous non-violent uprising of tens of thousands of Argentineans besieging government buildings with a deafening cacophony of incessantly banging pots and pans (the “cacerolazo”), which toppled the unpopular president Fernando de la Rua and subsequently four further presidents in less than a fortnight, and ushered in an unprecedented grassroots democratic movement which has grown exponentially over the past few of months. This is especially astonishing because it occurred in a country that is still nursing deep psychic scars from the trauma of seven years of brutal military dictatorship.

This cataclysm was precipitated by a catastrophic socio-economic crisis following upon a recession which slowed the economic growth rate from 8% to 1%, pushed the unemployment rate to 20%, forced 14 million below the poverty line, and catapulted the country into bankruptcy. The final straw was the imposition of deep salary and pension cuts, and the restriction of withdrawals from frozen bank accounts.

Since the economic meltdown, the unremitting woes and deepening socio-economic disaster in Argentina has been heart-rending. A country that was previously toasted as a “miracle economy” and star of the “emerging markets boom”, was reduced to superlatives of dubious distinction: It is now the world’s largest nation ever to go bankrupt; the nation that recently had the highest per capita income in Latin America, has rapidly dropped to 9th, with 49% (18 million) now living below the poverty line; the world’s most rapidly declining economy (the peso shed 66% of its value in a few weeks); the IMF’s biggest debtor nation; and responsible for the largest debt default in history ($155 billion).

The power and significance of the socio-political developments cannot be fully appreciated without knowledge of the tragic history of Argentina: For two decades before the military coup in 1976, the economy had been growing steadily, with the nascent industries and domestic market being nurtured by the protectionist agenda of successive governments. This era came to an abrupt end as the military dictatorship imposed a free market system on the country at the behest of local and foreign economic elites, which included liberalising the goods and capital markets, crushing the progressive trade union movement, and annihilating any criticism of the regime’s policies with a horrendous reign of terror – resulting in the slaughtering or disappearance of 30,000 people.

This free market fundamentalism was further entrenched and extended by Carlos Menem’s civilian government from 1989. Under the direction of the IMF, Domingo Cavallo, Menem’s Harvard-trained finance minister, instituted one of the most radical structural adjustment programmes in history which included trade liberalisation, liberalisation of the capital account, privatisation of state enterprises, pegging the peso to the dollar, and tightening of government monetary and fiscal policy, with draconian cuts in government spending.

Arthur MacEwan, Professor of Economics at the University of Massachusetts, asserts that “from the late 1980s onward, a series of loans gave the IMF the leverage to guide Argentine policymakers as they increasingly adopted the Fund's conservative economic agenda.” This proved to be the thin edge of the wedge: the IMF soon started wielding the carrot and stick with consummate skill to ensure the implementation of its programme, which was masterminded on Wall Street and in the US Treasury Dept.

The rapid and radical opening up of Argentina’s goods markets to trade exposed their fledgling industries to aggressive and unfair international competition, which resulted in the bankruptcy of thousands of Argentine corporations. The unhappy outcome was a reversion to a primary product and service economy.

The abrupt opening of the capital markets to unrestricted foreign capital flows made the country vulnerable to dangerous international market volatility. Enormous foreign capital inflows between 1990 and 1994 fuelled consumer credit and positive growth rates. But the confidence crisis following the Mexican peso collapse in 1994 impacted negatively on Argentina and resulted in massive capital outflows, precipitating the deep recession. This was compounded in subsequent years by ‘emerging market’ financial crises in East Asia, Russia, Brazil and Turkey.

The extent of the privatisation of state enterprises was ludicrous and extremely damaging to the country. The valuable family silver was flogged off at fire-sale prices to mainly foreign buyers, including the airports, rail system, national oil company, social security, mail services and all utilities! This milieu was also an ideal breeding-ground for the inveterate corruption that was to characterise Argentine politics. An example is the $40 billion earned from the privatisation of state assets that had simply disappeared!

Pegging the peso to the US dollar at a one-to-one exchange rate, was the brain-child of the IMF, which lobbied hard for its implementation. This required the building up of huge reserves of US dollars, incurring enormous debt. It initially helped to ameliorate inflation, but as the dollar appreciated against other currencies, the peso appreciated in tandem, reducing local and global demand for Argentine goods. The result was an ever-increasing trade deficit. The IMF was dead against a policy of raising tariff barriers to discourage imports flooding into the country. Argentina was encouraged instead to borrow heavily from the Fund and the capital markets to offset the deficit. Their creditors became progressively more apprehensive about the “consequences of the unbridled market freedom they had benefited from initially” and responded by pushing up interest rates, further compounding the problem.

In addition, flexibility in monetary policy was effectively eliminated. So when the recession deepened, the government was unable to increase the money supply to stimulate economic activity, because the peso was shackled inexorably to the dollar. This is an astonishing example of a government that voluntarily relinquishes its ability to shield its economy from the ravages of a volatile global economy,

The IMF was adamant about its four demands: avoiding devaluation; preserving the peso-dollar peg; not defaulting on debt repayment; and eliminating the budget deficit through harsh structural adjustment austerity.

Argentina was precluded from following the examples of Brazil and Russia who had devalued their currencies and then slowly recovered from their financial crises (Russia registered its highest growth in two decades in 2000). The Fund was protecting the interests of foreign investors and was concerned that the government might be tempted to reintroduce capital controls in a bid to ease the suffering of its populace.

The IMF’s dogmatic insistence on 100% compliance with debt repayment despite dire social consequences, shows where its allegiances lie and throws its actual agenda into stark relief. Contrary to the “prevailing wisdom” that defaulting on debt servicing is tantamount to economic suicide, MacEwan explains that: “It was a refusal to repudiate the debt that led into the December debacle. The new government has now defaulted, but not in a controlled manner that might yield the greatest advantage, but as an act of desperation.”

It was supportive of Argentina and dished out bountiful loans only as long as the government complied with its dictates of severely tightening fiscal and monetary policy. The Fund’s conservative macroeconomic mantra was (and still is!) “deficit reduction – Uber Alles”. But as expected, this misguided economic policy and the punishing austerity guidelines aggravated the recession, engendering a vicious cycle of diminished demand and growth, reduced government income, larger deficits, further austerity, etc. Each successive austerity and structural adjustment deepened the recession progressively. There is, however, ample evidence that during recessions, balanced budgets aggravate the decline, whereas moderate deficits actually assist in breaking the cycle.

The sharp cuts in government spending severely compromised social programmes, slashed the salaries of public servants, and reduced overall demand, with resultant recessionary pressures. This negated any prospect of long-term economic progress.

Walden Bello (Professor of Sociology, University of the Philippines) explains that: “Instead of reflating the economy, the IMF imposed an inflation-fighting program that accelerates the contraction of the economy. It seems that the Fund is institutionally - and intentionally - incapable of learning from its mistakes, and Argentina is one more reason why it should be abolished.”

There is now widespread acceptance that the IMF was responsible for a litany of disastrous policy errors that had precipitated the Argentine crisis. Joseph Stiglitz, the Nobel prize-winning economist, states that  "the IMF led a whole series of mistakes, from exchange rate policy, to fiscal policy, to the privatisations, that culminated in disaster in Argentina."

The Fund also appears not to have learnt any lessons from its destructive policies in the aftermath of the 1997 Asian financial crisis. It may be rather unkind to charge that there is a deliberate agenda to replicate exactly the policy “blunders” which destroyed the economies of the Asian Tigers. But what other inference can be drawn from the enigmatic historical record. A cursory perusal of the gargantuan profits realised by Western corporations following the collapse of the Asian economies may convince the most hard-core apologist for neo-liberal globalisation.

As a reward for Argentina’s catastrophic structural adjustment policies, Wall Street, the IMF and the US Treasury Dept hailed the country as a model of market reform, and matched the accolades with a deluge of “generous” and, in the long run, un-payable loans. And just a few years down the line the country is being cruelly punished by the Fund for the economic implosion that was a direct result of the IMF’s misguided macro-economic prescriptions. What a grave injustice!

But why does the IMF stubbornly persist with its discredited and failed policies? MacEwan once again offers plausible explanations: “Probably because those policies serve important and powerful interests in the U.S. and world economies. The U.S. government has by far the greatest influence at the IMF. With over 18% of the voting shares in the Fund, the U.S. government has de facto control. Indeed, over the years, the IMF has operated largely as a branch of the US foreign policy apparatus, attempting to create a context that assures the well-being of US interests--which is to say the interests of US-based internationally operating firms.”

The Enron debacle has clearly shown that the real puppeteers are the powerful money-for-political-influence transnational corporations (TNCs) that ultimately control the levers of power in Washington. Any decent investigative journalism will reveal that the corruption engineered in the upper echelons of the US government by Enron can easily be extrapolated to most large TNCs. There is the all too familiar pattern of: generous campaign funding; munificent political favours for the contributors; US Administration officials who have moved onto Enron’s payroll (Wendy Gramm, James Baker, Robert Mosbacker, Thomas Kelly, etc); Enron staff who have migrated into government (Robert Zoellick, Lawrence Lindsay, Thomas White, etc); and Marc Racicot who was simultaneously a registered lobbyist for Enron and national chairman of the Republican Party!

One could therefore declare quite categorically that the policies that the Fund forces on countries like Argentina are, in the final analysis, determined in distant transnational corporate boardrooms.

The Fund’s cynicism is almost palpable when seen in the context of its decision to lend Argentina only enough money to meet the annual interest payment on its debt to the IMF and the World Bank. The country will not obtain any further assistance to help it out of the morass nor to ease the enormous suffering of its people. And to receive this meaningless loan (IMF officials with a macabre sense of humour have referred to this as “rescue financing”!), the country is compelled to submit to painful structural adjustment austerity. 

One gets a clue to the rationale for the IMF’s cynical and apparently sadistic agenda from an expert at the cutting-edge of neo-liberal globalisation: George Soros’s incisive analysis is that: “In contrast to corporate borrowers, sovereign states do not provide any tangible security; the only security the lender has is the pain that the borrower will suffer if it defaults. That is why the private sector has been so strenuously opposed to any measure that would reduce the pain . . .” The perceived sadism also serves the purpose of discouraging other countries from defaulting on their debt repayments.

The fact that the IMF was directly responsible for the Argentine socio-economic crisis, does not enter the equation at all. Not an iota of remorse. To apologise is to show weakness. And weakness would undermine confidence in free market hegemony. No prospect of reparations nor even some paltry debt reduction.

Gerard Coffey claims that the IMF (read: Wall Street/US Treasury/TNCs) is using Argentina as a neo-liberal macroeconomic experiment. Consider the fact that in 2001 the Fund decided to implement a new “sink or swim” policy. This means that “investors must now be prepared to suffer the consequences of their actions and assume the risks if the investment turns sour” because the IMF will not come to their rescue. This is an excellent development, if it could be handled with integrity and compassion. But the problem is that this had never been attempted before and would be an extremely risky experiment. So they had to locate it in a country that does not pose strategic, economic or political risks for the US. Mexico would be disastrous for the US: Imagine the fascinating scenario of hundreds of thousands of impoverished Mexicans flooding across the porous US border! Turkey would also be strategically catastrophic, and so would several other Southern countries. But Argentina fitted the bill perfectly. What rotten luck for them!

The global protests against meetings of the IMF and other neo-liberal summits from Seattle to Prague indicate that the iniquitous impact of these organisations is not confined to a few isolated countries like Argentina, but affects the vast majority of Third World states. The common denominators of these socio-economic assaults on the South are crystallising in the minds of activists and global civil society. Trenchant progressive macro-economic analyses now abound in all corners of the globe, not only in the ranks of the formal social justice movements, but even unsophisticated folk can see through these capitalist subterfuges.

The world would be spellbound if the IMF suddenly realised the error of its ways and started to make amends. But that is probably too much to hope for. It is, however, imperative that the Third World learns from the painful lessons of the Argentine debacle and similar crises. They should then pool their considerable energies and resources to creatively confront international capital in all its guises. A proposed first step might be to collectively jettison the pervasive Washington Consensus model of “free trade” and reintroduce protectionism to shield vulnerable economies from the ravages of the frenetic deregulation of trade and the capital markets. Step two might encompass the resuscitation and rehabilitation of devastated social programmes. Creativity will map out the rest.

And maybe it’s not only the incurable optimists who can visualise the ultimate scenario when six billion souls will triumphantly bang their individual cultural percussion to celebrate the dawn of a new paradigm.

Nigeria has not learnt anything from its history therefore we are bound to make even bigger mistakes:

Just like Argentina and Somalia in the 80's the new programs is aimed to push 80% of the nation into poverty,

1: As the Naira is being devalued it will basically lead to inflation and take the means of survival out of the reach of millions of middle class Nigerians, to clarify; when the price of commodities starts rising due to inflation and the salary and wages remains the same the number of people able to have three square meals declines, the people might protest for higher salaries but that would cause more waste money to go into circulation increasing the inflation rate and digging the nation deeper into economic mess.The Nigerian businessmen will face and unfair aggressive advantages from other nations because you will need more Naira to buy the same good you used to buy before whereas the price is still the same and the foreigners will buy your services for peanuts because they enjoy a stronger currency(which is what the IMF wants in the first place) meaning you have to work 15 hours a day and paid in a month what somebody gets paid in just 3 hours. It will be harder for Nigerians to purchase abroad while it will be easier for those Capitalist to trample us and rush in and buy up all of Nigeria's state corporations like NEPA,NITEL, Ports, Mines and etc.

Its time we understand that these organizations and the west are not friends of Africa,only We can save ourselves by uniting and fight our common enemy.

I try to avoid big vocabularies and make these posts understandable to the layman whom these informations are most deserved .more clarification later.

When you dine with the devil . . . . . . know its poison your being served.

Nigerians cannot listen. . .they LOVE suffering. No need, let them devalue the entire country on Odechukwu's watch.