The Washington Consensus, the neoliberal policies of privatization, deregulation, liberalization and fiscal austerity peddled by the Bretton Wood institutions, have long been discredited and discarded by the vibrant developing economies of Asia and Latin America. Yet, they are still embraced by African nations under the sway of the West. This has to change if Nigeria is to benefit from the potential of the new emerging world order.
by Ugo Akpan, Contributing Editor
The World Bank and IMF Spring Meetings have just concluded in Washington DC. According to the IMF website, the Spring Meetings bring together central bankers, ministers of finance and development, parliamentarians, private sector executives, representatives from civil society organizations and academics to discuss issues of global concern, including the world economic outlook, poverty eradication, economic development, and aid effectiveness. On the face of it, these targeted discussions are laudable. The only problem is the track record of policy outcomes from these Washington based institutions has largely been disastrous for developing countries and has instead stifled development in these countries, while increasing poverty and inequality in the process.
The Wall Street Centric Washington Consensus
The institutions at the core of the Washington Consensus are the International Monetary Fund (IMF), the World Bank Group, and the US Department of the Treasury. In fact, it is more appropriate to isolate the US Department of the Treasury as the core institution at the heart of the global neoliberal order; indeed this is why the system has the appellation the Washington Consensus. The IMF and World Bank Group are essentially undemocratic institutions dominated by the United States and its western allies, with this bloc of countries, which represent about 14% of humanity, holding almost 60% of total voting rights. In addition, the United States has veto over major policy decisions in both institutions. Thus, the United States is able to exercise inordinate influence on the economic policies of other countries through the lending and economic policy activities of these institutions. As if to reinforce the totally undemocratic nature of these institutions, the head of the IMF is always a European and the head of the World Bank is always an American; thus, is perpetuated the neo-colonial global structure established by the United States following the routing of European colonialism in the middle of the previous century.
Eric Toussaint, in his book The World Bank: a never-ending coup d’état. The hidden agenda of the Washington Consensus (2007), lays bare the finance capital and private sector centric ideology of the World Bank Group and its imperative of achieving US political aims above all other considerations. Both these institutions are the original architects of the debt trap, which the United States and its vassals now falsely attempt to accuse China of conducting. This fabricated accusation by the US-led West is merely an attempt to maintain western neo-colonial hegemony in the Global South and Africa in particular. Deborah Brautigam and the China-Africa Research Initiative (CARI) at John Hopkins School of Advanced International Studies have published in-depth researches debunking the myths about China’s “debt traps”.
The debt process in African States goes back to the colonial period when European colonial powers illegally bequeathed to newly independent countries the debts they had contracted in their own interests, making these debts both illegal and illegitimate. The World Bank had made loans to Belgium, France and Great Britain to finance projects in their colonies (Belgian Congo, Rwanda, Burundi, Kenya, Uganda, Tanzania, Northern and Southern Rhodesia (now Zimbabwe and Zambia), Nigeria, Algeria, Gabon, French West Africa (now Mauritania, Senegal, French Sudan (Mali), Guinea, Côte d’Ivoire, Niger, Upper-Volta (Burkina Faso), and Dahomey (Benin)). These colonial powers used the loans to produce minerals, agricultural produce and fuel to be shipped off to the colonial centres. As acknowledged by the World Bank’s historians, Devesh Kapur, John P. Lewis, Richard Webb; these loans enabled the colonial powers to reinforce the domination that they wielded over the peoples they had colonized.
Independent countries had few options to finance their ideals of national construction and were compelled to contract debts. Moreover, the debt policies of the former colonies were encouraged by the international context of the Cold War, both on an economic and a political level. The situation was aggravated by the neoliberal structural adjustment policies (SAP) imposed by the World Bank and the IMF in the 1980s–1990s, conditioned on “structural reforms,” mainly fiscal austerity measures and liberalization of the economy. The debt stocks of African countries have steadily increased, often reaching levels of over-indebtedness and resulting in the first debt crisis at the end of the 1970s and early 1980s. A fallout of these SAPs has been the hollowing out of critical social spending on health, education, social services, and poor access to electricity and clean drinking water. In addition, investments in critical physical infrastructure have also suffered if these key infrastructures do not serve the “export-led” growth policy advocated by the Washington institutions. Naturally, these snake-oil policies pushed by these US Department of the Treasury backed institutions only worsened the plight of African and Asian countries which had been burdened with the SAPs leading to greater indebtedness of these countries, while promoting the interests of Wall Street financiers and Western corporations. Thus, more snake-oil was required, and the Washington institutions launched the Heavily Indebted Poor Countries Initiative (HIPC) in the late nineties and followed it up in 2005 with the Multilateral Debt Relief Initiative (MDRI), which focused on the full cancellation of 100% of the multilateral debt of heavily indebted poor countries that had reached the HIPC completion point. Instead of solving the debt crisis in Africa, these initiatives exacerbated it. At the present time, the outstanding amount of external debt for countries that experienced these two initiatives is often higher than that of countries which did not benefit from the HIPC initiative. And post-HIPC, post-MDRI States were very quickly brought back into the process of re-indebtedness in the 2010s. This was a new process of indebtedness that came into being after the 2007–2009 crisis; a crisis that was caused by the very reckless money making schemes of the Wall Street establishment.
Maintaining a Western Dominated Neoliberal World Order
While the IMF and World Bank recommended austerity and liberalization policies have devastated the development foundations of African countries, they have been a boon for private finance capital and opened up African economies for exploitation by private corporations through intensified privatization of public services (through public private partnerships schemes). It never matters that this privatization schemes have been discredited in the west, which nevertheless promote them aggressively to the developing world through the World Bank and IMF. The IMF also pushes the snake-oil palliative of austerity and elimination of public subsidies which destroy the foundations upon which these third world countries could build up the critical human development indices that would enable the achievement of the objectives that Washington pays lip service to; poverty reduction and economic development.
The Washington institutions exist solely to preserve the US led neoliberal world order. Acting in concert with its principal financial backer, the US Department of the Treasury, these institutions coordinate global financial policy using coercive debt peonage, economic and financial sanctions, and US dollar hegemony to advance the political and economic interests of the United States.
Although the body of literature on the failure of privatization and economic financialization in delivering development goals and fighting poverty is overwhelming, with European countries such as France and Britain abandoning public private partnerships, the World Bank continues to promote these failed policies in the Global South under a new wrap; de-risking of public service projects by national governments to attract private capital investment using so called “blended finance” and various other government subsidies to the private sector. In other words, by ensuring the transfer or basically risk free profits to private capital, the World Bank seeks to continue the economic pillage so treasured by western capitalists and their Global South compradors. This policy is adopted by the allied regional institutions of the World bank, such as the Inter-American Development Bank and the African Development Bank. ‘When thinking about whether a project is bankable, the first thing Multilateral Development Banks should be asking themselves is “will people pay to use it?” Investors are far more confident in returns when projects have a built-in set of users who are willing to pay’. This logic, neatly outlined by the Inter-American Development Bank, is echoed by all other multilateral development banks. It signals that the updated Washington Consensus is a project to reduce direct public investments in, and public delivery of services, and instead shift them to the private sector. The wrapping of the Washington Consensus privatization agenda has changed, but the substance remains the same: citizens pay user fees for public services, now built and delivered via public-private partnerships.
The IMF focuses on macro policy initiatives which coerce countries seeking IMF financing to embed neoliberal policies within their domestic economic framework. Typical requirements are central bank independence, economic liberalization, privatization of public services, removal of public subsidies and enthronement of market fetishization, deregulation, and fiscal austerity.
One of the platforms on which the neoliberal Washington Consensus is peddled is the annual World Bank and IMF Spring Meetings, and the annual IMF Article IV Consultations carried out by the IMF on member countries. For instance, in its last three Article IV Consultations for Nigeria (2020, 2021, and 2022), the IMF has consistently pushed for the removal of fuel subsidies and the elimination of the Central Bank of Nigeria’s (CBN) developmental function. It also continuously attacks the exchange rate policy of the CBN pushing for a “market-clearing exchange rate” in typical market fetishization fashion. The IMF attempts to mask its push for the elimination of fuel subsidies as progressive since it claims that the subsidies “disproportionally benefits the well-off”. Yet, the IMF provides no basis for this assertion. In fact, in an IMF Working Paper on The Distributional Implications of the Impact of Fuel Price Increases on Inflation, published in 2021, the IMF estimates the broad based impact on general price inflation from a sharp increase in gasoline (petrol) prices. “Food prices also react in a similar manner to gasoline price shocks in advanced and developing economies, although the pass-through is more persistent in the latter group. Much of the overall impact on inflation results from transport, housing and utilities, and food prices as these three categories account for a combined 60 percent of household expenditure in advanced economies, and 70 percent in developing economies.” It goes further to say: “It is also worth noting that 10 out of the 12 CPI components show a positive and significant response to an increase in gasoline prices in developing countries, against 7 out of the 12 CPI components in advanced economies. This suggests that the inflationary impact of fuel price shocks is much broad-based in developing economies than in advanced economies.” It is puzzling therefore, how the IMF justifies this draconian policy of subsidy removal based on a dubious assertion of aiding the poor.
A New World Order Beckons
The BRICS created the New Development Bank (NDB) in 2014 to fund development projects in Global South countries. On Saturday 15 February 2023, President Luiz Inácio Lula da Silva of Brazil joined the new President of the NDB, Dilma Rousseff, in Beijing for her inauguration ceremony at the head of the bank. Dilma Rousseff, a former President of Brazil and an economist, said after a close door meeting with President Lula, that “It is essential to expand the bank’s reach and impact. On the one hand, we are expanding the number of member countries, strengthening our cooperation platform. On the other hand, we are financing key projects for development. From sanitation to social and digital infrastructure.” President Lula said in a follow up speech that the “New Development Bank meets all the conditions to become the great bank of the Global South”. “For the first time, a development bank with a global reach is established without the participation of developed countries in its initial phase. Free, therefore, from the shackles of conditionalities imposed by traditional institutions on emerging economies. And more: with the possibility of financing from projects in local currency.”
This represents an opportunity for African countries to decouple from the Washington institutions and pursue a path of broad-based and unencumbered national development. “A development bank has to have more functions and not just one. I ask myself, every night, why are all countries obliged to do their trade backed by the dollar? Why can’t we do trade backed by our currency?”, said President Lula. “A president cannot govern with a knife around his neck,” he defended, referring to the conditionalities imposed by institutions such as the International Monetary Fund”.
