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Zimbabwe's Love, Hate Relationship with the IMF

In recent months, news on Zimbabwe has focused mainly on President Mugabe and the continuing economic decline of the country.    The article below is written by Briggs Bomba, a Zimbabwean studying in the U.S. and a member of the AFSC’s Life Over Debt Campaign.

Briggs provided this brief account on the current foreign debt payments in Zimbabwe, and the social cost of increased poverty and suffering of the people of Zimbabwe.  He concludes his paper on the failure of the international financial institutions to uphold their mandate to “foster economic growth” and economic decisions of President Mugabe which further exasperate conditions for Zimbabweans.

As always, we welcome your comments and support.  Please take time to sign up today to make debt history for African countries

Imani Countess, Coordinator, Africa Program, September 2007

Zimbabwe’s Love, Hate Relationship with the IMF

By Briggs Bomba

On the verge of expulsion

In 2005, Zimbabwe’s long strained relationship with the International Monetary Fund (IMF) came to a head. The country was faced with expulsion from the Fund for failing to honor its overdue arrears which now amounted to $US295 million.

In September 2005, the IMF board was to decide on Zimbabwe’s fate with many predicting an expulsion. Two years earlier the IMF had set into motion a procedure for compulsory withdrawal citing the country’s overdue arrears. This put Zimbabwe in a position to be the second country after Czechoslovakia (in 1954) to be compulsorily expelled from the IMF. 

“Briggs speaking with Harare-based AIDS activists”

A brief history

Zimbabwe joined the IMF immediately after independence in 1980 and ever since has had a love hate relationship with the institution.

For the first decade of independence the country pursued a self-described doctrine of scientific socialism, thus there was very little room for the IMF.   However in 1990, following years of relentless courting from the IMF and the World Bank, Zimbabwe adopted an Economic Structural Adjustment Program (ESAP) sponsored by these two institutions.

From then onwards these institutions gained the leverage to decisively dictate economic policy. A decade of disastrous experimenting with ESAP plunged the country into a severe social economic crisis; a ballooning debt, rising inflation, depreciating currency, de-industrialization, thousands of job loses, crumbling health care and a generally crippled social service delivery system.

In the late nineties, faced with mass uprisings, directly responding to the ever escalating cost of living, Zimbabwe’s President Robert Mugabe made a partial withdrawal from the IMF policies; among other protective measures, he imposed price controls on basic commodities and slapped a huge tariff on luxury goods. These two particularly irked the IMF and subsequently the institution suspended all ‘technical assistance’ and ‘aid’. One IMF official is quoted at the time as saying for the normalizations of relations

“…we want the government to reduce tariffs slapped on luxury goods …and second, we want the government to give us a clear timetable as to when and how they will remove price controls…” (Financial Gazette, 12 March 1999).

Immediately afterwards, the World Bank and the African Development Bank followed suite and also imposed sanctions on Zimbabwe. 

Up until 1999 President Mugabe had religiously paid his foreign debts. For instance, in 1997 he spent seven times more servicing debt than on health and education. In 1998, in the midst of an intensifying economic crisis, he spent a whooping 38% of export earnings servicing foreign loans.

In spite of consistent payments the debt had continued to balloon due to compound interest. In 2001, President Mugabe, now clearly upset at IMF conditionalities for aid resumption, blew off and told the IMF to ‘go and hang’ and he unilaterally stopped servicing his debts.

In early 2003 the IMF suspended Zimbabwe’s voting rights and in December of the same year the institution began an official procedure for compulsory withdrawal and threatened Zimbabwe with expulsion.

By mid 2005 Zimbabwe’s arrears to the IMF General Resources Account (GRA) amounted to $295 million.

A surprise repayment

The IMF board was going to meet and decide on Zimbabwe’s fate in mid September 05. After years of not meeting his obligations to the IMF, President Mugabe surprised everyone by making a sudden $135 million down payment to the institution and promised to clear his arrears within six months.

True to his word by February 2006 Mugabe had cleared all his arrears to the GRA which stood at $295 million the previous year and Zimbabwe demanded the reinstatement of its voting right and resumption to balance of payment support. 

In spite of the payment, the IMF only stopped the compulsory withdrawal procedure but maintained sanctions against Zimbabwe.

The Social Cost

To fully grasp the social cost of Zimbabwe making this payment, one has to look at the circumstances under which the payment was made.

This was in the middle of a most severe economic crisis; the economy had already bled to bare bones having shrunk within six years to the 1950s level of output. The country was reeling under acute foreign exchange shortages failing to import basics such as medicine, food, fuel, and chemicals to treat its drinking water.

Almost every basic commodity was in short supply. Inflation was galloping above 1000%. The infamous 2005 ‘urban clean up’ operation had left thousands in dire need of shelter and food aid.  For the IMF to prioritize debt collection under these conditions only shows how heartless the institution is and questions the institution’s haughty claims about being there to help poor countries.

The biggest question however is why President Mugabe chose to starve his nation in order to patch up relations with the IMF.

What would have been the cost of not paying?

Zimbabwe’s decision to settle IMF arrears at such an astronomical cost in order to avoid expulsion raises serious questions on what exactly would have been the consequences of an expulsion.

Why did Mugabe choose to retain membership at all costs? Those who spoke on the matter make it sound like an expulsion would have been the end of the world for Zimbabwe. One such voice was South African President, Thabo Mbeki. This is how he explains his country’s offer (rejected by Mugabe because of alleged political conditions) to settle Zimbabwe’s debt:

We had indeed said that we were ready to assist, and the reason we wanted to assist was because we understood the implications of Zimbabwe’s expulsion from the IMF. What it would mean, among other things, is that everybody who is owed something by Zimbabwe would demand immediately to be paid. You would even get to a situation where they would seize anything that was being exported out of Zimbabwe because of that debt (Reuters, 2005).

Others say expulsion “would have closed doors to Zimbabwe in virtually every corner of the world when it came to commercial lines of credit and other forms of financial assistance.   It would have damaged the New Economic Partnership for Africa’s Development (NEPAD) and struck a blow against the reputation of other African states whose position is only marginally better than that of Zimbabwe” (Cross, 2005)

Conclusion

Whatever the consequences of an expulsion, the story of Zimbabwe demonstrates the enormous, yet clearly illegitimate power that the IMF wields over sovereign nations and beyond that shows how callous and irresponsibly the institution discharges this power.

The IMF claims its purpose is to, “foster economic growth”, “promote high levels of employment” and “promote high exchange rate stability” among other lofty claims. The institution’s actions in Zimbabwe had the exact opposite consequences of intensifying the economic collapse characterized by sky-high inflation, high unemployment and a depreciating currency.

Take Action:

Locally, you can ensure that U.S. Congress increases the pace in calling for debt cancellation and eliminating harmful conditions by working with city or state legislators to pass your own resolution directing Congress and the Bush Administration to take action! See our sample resolution (PDF, 11 KB) that is a model that can be adopted by a city council, a state government, or an organization.

Please contact AFSC Africa@afsc.org or Kristin Sundell at the Jubilee USA Network, Kristin@jubileeusa.org for help developing and passing your local resolution.

See also resources on passing debt resolutions from the Institute for Policy Studies >

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