IMF | Overlords of the Developing World

Kenya is currently experiencing widespread protests against a new finance bill introduced by President William Ruto’s government. Demonstrations have erupted across all 47 counties, with protesters in Nairobi even attempting to storm the Parliament. The government’s response has been severe, resulting in 30 deaths and over 200 injuries due to police action. Under mounting public pressure, President Ruto announced he would not sign the controversial bill, which aimed to increase taxes on essential items like bread, cooking oil, sugar, and diapers.

Despite this concession, protesters are now demanding President Ruto’s resignation. They accuse him of being more loyal to the International Monetary Fund (IMF) than to the Kenyan people. One protest sign captured the public sentiment: “Kenya is not IMF’s lab rat.” Frustrated by rising living costs, Kenyans are not only opposing Ruto’s policies but also the IMF’s influence in their country. But why is there such anger towards the IMF, and why is it dictating policies to Kenya?

In 2021, Kenya entered into a four-year loan agreement with the IMF for $2.34 billion. Another deal in May 2023 increased the loan amount to $3.6 billion. However, IMF loans come with conditions and are disbursed in stages. The IMF reviews the country’s progress in meeting these conditions before releasing the next tranche of funds.

As part of the 2021 loan agreement, the IMF required Kenya, already struggling due to COVID-19, to implement austerity measures to increase its revenue collection to 25% of GDP. These measures included tax hikes and budget cuts, such as removing subsidies on fuel and electricity and reducing spending on education and health.

When President Ruto took office in September 2022, he followed the IMF’s directives closely. He cut subsidies on maize and fuel, leading to a surge in inflation. This sparked massive protests in March and July 2023, resulting in 30 deaths due to police action. Despite the unrest, Ruto continued with other fiscal measures, and his government recently reached a staff-level agreement with the IMF. This agreement was expected to unlock another $976 million, provided the finance bill, projected to raise $2.68 billion in revenue, was passed. However, with Ruto abandoning the bill, the future of IMF funding is uncertain.

This situation is not unique to Kenya. Many African countries find themselves caught between the needs of their people and the demands of private investors and Western banks, represented by the IMF. Although the IMF claims to be governed by its member countries, its history and management suggest it serves American foreign policy and Western financial interests.

The IMF was established in 1944 at a conference in Bretton Woods, New Hampshire, when American economic power was already dominant. This power dynamic was built into the IMF and the World Bank. For example, the World Bank president is always an American, while the IMF head is always from a European ally of the U.S.

In theory, the IMF’s role is to promote economic development and monetary stability. In practice, it has worked to integrate newly independent countries into a global economic system that benefits American capital. Voting rights in the IMF are based on financial contributions, not democratic principles. The U.S. alone holds 16.5% of the voting power, while the G-7 countries together control over 40%. This is more than the combined voting power of all African and Latin American countries, which are most affected by IMF decisions.

As of March 2024, 31 out of Africa’s 54 countries had outstanding loans with the IMF, but they have little influence over how the IMF is run.

UN Secretary-General Antonio Guterres highlighted this bias last year, noting that the Bretton Woods system reflects the power dynamics of 1945. He pointed out that during the pandemic, the IMF allocated $650 billion in Special Drawing Rights (SDRs). The G7 countries, with a population of 772 million, received $280 billion, while the African continent, with 1.3 billion people, received only $34 billion. This disparity raises questions about how many developing countries would have needed IMF assistance if they had received a fairer share of SDRs.

This unfairness and unequal relationship with the IMF have led to protests in many developing countries, including Kenya, Ghana, Zambia, and Pakistan, against IMF-imposed economic policies known as Structural Adjustment Programs (SAPs).

Since 1986, SAPs have required governments to cut public spending, privatize state enterprises, reduce import duties, and implement other measures to promote export-led growth. These policies have often resulted in extreme inequality, as documented in the IMF’s own research.

A 2002 study funded by the World Bank tracked the impact of SAPs in nine countries across four continents. The report identified four ways these programs impoverished and marginalized local populations: the collapse of domestic manufacturing, the destruction of small farms and rural communities, job losses and lower wages due to privatization and budget cuts, and increased poverty due to reduced state spending on essential services. Despite this, the IMF continues to impose similar austerity measures.

In response to backlash, the IMF introduced ‘social spending floors’ to protect public spending on education, health, and social protection. However, an Oxfam analysis of 27 loan programs found that for every $1 the IMF encouraged governments to spend on public services, it required them to cut six times that amount through austerity measures.

In 1994, the New York Times described the IMF and the World Bank as the “overlords of Africa.” Thirty years later, as Kenyans can attest, little has changed. These institutions continue to influence economic policies in low and middle-income countries, with decisions made not in local parliaments but in IMF boardrooms in Washington.