Question

IMF was created to promote monetary stability. The current role of IMF is to oversee exchange rate policies in member countries and advises developing countries about how to turn their countries around.

World Bank was set up to lend money to countries so they could rebuild their infrastructure that had been destroyed during the war. The WB is looking to expand its lending to developing countries and to provide more loan guarantees for businesses entering new developing markets.

Required:

1. You are required to distinctly identify the roles play by the above institutions in Zimbabwe in the last 30 years and state the successes and difficulties encountered in that engagement. What will be your advice today to the government of Zimbabwe in ensuring the full utilization of the facilities available from these institutions?

Answer 1

Zimbabwe became a member of both the World Bank and IMF shortly after gaining independence in 1980. Though it had entered into agreements with the World Bank in the late 1980s, it began structural adjustment in 1991 when it signed a stand-by arrangement with the IMF in exchange for a $484 mn loan. Unlike many of the countries, Zimbabwe did not institute structural adjustment in response to a "crisis."President Mugabe adopted the Economic Structural Adjustment Programme in 1990. As part of the market strategy, the government removed food subsidies, deregulated the exchange rate, and increased education and health fees.

Among the policy changes required by the IMF in exchange for the loan were cuts in Zimbabwe's fiscal deficit, tax rate reductions, and the deregulation of financial markets. It also required Zimbabwe to dismantle protections for the manufacturing sector and deregulate the labor market, lowering the minimum wage. This combination of reduced protection of the manufacturing sector, reduction in public spending, and labor market deregulation led to higher unemployment and lower real wages and food prices rose much faster than general consumer prices.

So, the economy of Zimbabwe suffered under the guidance of the IMF and World Bank. Till date, the World Bank and IMF programmes continue to benefit the rich, multi-lateral corporations and industrialists. Conditions imposed by them for giving loans force poor countries into unplanned trade liberalisations with limited considerations on poor people. Zimwambe and other African economies are integrated into the very structure of developed economies, which ensures dependence on international capital.