More flak for World Bank, IMF but this time from another development bank


The world Bank and the International Monetary Fund, which have come under increasing attacks from pro-Third world economists and organisations have been criticised again but this time by the European development bank.

The German development bank, Kreditanstalt fur Wiederaufbau (KFW), says that the World Bank and the IMF’s publications on ESAP in the third world countries are too optimistic about the results of adjustment than is merited by hard evidence.

It says reports from Washington have compared performances of countries that are not comparable. Conclusions have been based on too short a time span, KFW says, arguing that anything less than five years is meaningless for cyclical rainfed economies of the sub-Saharan Africa, for example. It also argues that accurate technical methods of measuring the effects of adjustment have not yet been developed.

The German bank accuses the World Bank and the IMF of being weak in not pressing Western governments harder to give more aid or to lift trade barriers and farm subsidies.

It says the World Bank’s drive for privatisation has neglected competition and service standards. It is simply transforming many parastatals into private sector monopolies. Water and power utilities are often sold off without any local business shareholding and with no obligation to cross-subsidise and ensure service to the rural villagers or the urban poor.

KFW argues that the emphasis on the private sector neglects essential state activities like agricultural research and extension, poverty relief and environment protection.

It says the IMF and the World Bank are so preoccupied with short-term budget stability and debt service that they do not give enough attention to the long-term development of efficient economies in Africa.

The German bank feels that newly democratic governments need a transition period before they are made to swallow the bitter and painful pill of adjustment.

The KFW sponsors a number of projects in Zimbabwe. In September, the government accepted a Z$105 million loan from KFW. The larger amount of DM30 million (about Z$90 million) was to finance Open General Licence and Export Retention Scheme imports under the Economic Structural Adjustment Programme.

A further DM5 million (about Z$15 million) is to finance the importation of trucks and earthmoving equipment and spares for private contractors engaged in the rural roads programme.

The DM 30 million loan is repayable over 20 years at 1 percent interest and has a grace period of 10 years. The second loan is interest free. This is, however, a pittance compared to the World bank loan of Z$850 million also to support the Economic Structural Adjustment Programme. But as KFW said the World Bank is already saying Zimbabwe’s implementation of ESAP is overally positive. This is despite the fact that the country’s gross domestic product has dropped by 11 percent and its external debt is now over Z$50 billion.

Some of the so-called positive steps Zimbabwe has taken, according to the World Bank, include the tightening of monetary and credit policies which have forced interest rates to rise. The bank does not say how this tight monetary policy has affected business and the number of jobs lost because companies were no longer able to borrow or the worsening housing waiting list since people cannot obtain loans to build houses.

Imports have been liberalised with the ERS rate now at 30 percent and OGIL at 50 percent. What the bank does not say is that for the first time there is no shortage of foreign currency in the country because the business sector does not know what to do with the money. This on its own shows lack of confidence in the current economic reforms. People are not re-investing their money and the stock exchange continues to plummet.

The World Bank rightly notes that price controls have proceeded more quickly than expected but it does not say how this has impacted on the poor. Most people can no longer afford to buy even the basic foodstuffs and are not merely resisting the increased charges.

It also says the government has reduced the size of the cabinet from 22 to 18 yet a glance at any Hansard clearly indicates that there are 29 members in the cabinet comprising the president his two vice-presidents and 26 ministers.


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Charles Rukuni
The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.


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