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Economic Policy of The International Monetary Fund in Rwanda

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Rwanda is one the poorest countries of the world: its HPI-1 is of the 44,5%. The causes of economic weakness are to be found in the distance from the sea, in the economic dependence on the export of tea and coffee and in the precarious political situation.

With the support of the International Monetary Fund and the World Bank, Rwanda has been able to make important economic and structural reforms and sustain its economic growth rates over the last decade. Although still recovering from the tragic genocide happened in 1994, during which 800,000 Tutsis and moderate Hutus were killed, causes of the collapsing situation are not to be found just in ethnic hatred unlike it was painted by the international community. An underlying cause was the economic collapse due to the austerity conditions imposed by the International Monetary Fund and the World Bank, with the implementation of the Structural Adjustment Programmes on Rwanda’s pre-genocide economy. Their destructive impact on the economy put the basis of the clash. These same institutions are the ones who helped rebuild the country.

In particular, beginning with the collapse of the coffee market till the early awakenings of the genocide (1990-1994), data will be provided to support the disruptive impact of the SAPs. Structural Adjustment Policies are economic policies which countries must follow in order to qualify for new World Bank and International Monetary Fund loans and help them make debt repayments on the older debts owed to commercial banks, governments and the World Bank.

The post-colonial economy of Rwanda was dominated by coffee exports. In fact, by 1986 coffee accounted for 82% of Rwanda’s export earnings. However, international prices were on a downward spiral and finally collapsed in 1989, when the International Coffee failed to reach an agreement on new export quotas. This led to a dramatic loss in export revenues at the same time as external debts rose rapidly. Coffee prices had decreased dramatically and, as coffee was a main export commodity, this had a major impact on the Rwandan economy: Rwanda’s export earnings plummet by 50% between 1987 and 1991 ; Income from coffee exports fell from $144 Million in 1985 to a meager $ 30 Million in 1993). Its external debts doubled between 1985 and 1989 and increased by another 34% between 1989 and 1992. The situation put the government in a difficult position, as it had paid a fixed sum for coffee to the peasants throughout the 1980s. Due to overproduction Rwanda lost nearly two thirds of its revenue generated by coffee exports.

This was the situation when the WB, IMF and the government of Rwanda in November 1990 reached an agreement on an economic structural adjustment programme (SAP) for the country in an effort to stabilise the economy. In 1991 Rwanda received $90 million of loans from the world bank . Together with several bilateral donors, the Bretton Woods institutions contributed $216 million to the programme in 1990 and another $375 million in 1991 . The common guiding principles and features were implemented: export-led growth, privatisation and liberalisation, efficiency and free market, devaluation of currency, lifting imports, restricting exports, eventual elimination of the Equalization Fund (used to buy coffee from planters), withdrawal of agricultural subventions.

Coffee exports were supposed to be increased inter alia by a devaluation of the Rwandan Franc. Intent of boosting coffee exports, the Rwandan government, under the IMF recommendation, devalued the Rwandan Franc up to 67%: it sparked massive inflation, a collapse of real earnings and dramatic price increases for consumer goods. Consequently, export earnings decreased due to the drop in the price coffee with resulted in a fall in production. When the currency was devalued, the government was simultaneously able to reduce drastically the “real” price of coffee to the farmer and to disguise this reduction by limiting the decrease in the nominal price of coffee. The government thus reduced the nominal price from 125 RWF to 100 RWF per kilo in 1990, and then raised it unilaterally to 115 RWF . Moreover, farmers were guaranteed by the government to receive a fixed amount for their coffee production. This amount was decreased by 20 percent in order to reduce government spending. As a result many farmers replaced their cash crops with food crops as the sale of coffee did not cover the investments anymore. In order to establish a link between the genocide and the SAPs it is necessary to assess these in the wider context of the Rwandan labour market and the resource scarcity which occurred in Rwanda.

The inflation grew from 1% in 1989 until 19.2% in 1992 and real income slumped. The price of fuel and other necessities shot up. There was a deterioration of the balance of payments and negative economic growth. Foreign debt increased by 34.3% between 1989 and 1992: Rwanda’s external debts amounted to US$804.3 million in 1992.

As for social implications, SAPs demanded increased support of the private sector and cuts for the public sector. the civil service was considered as ineffective and had to be reformed. Fees for education, water supply and medical care were raised, and sales tax was increased. Economic reform resulted in the collapse of public services, famine, (hitting many areas since 1992), the shooting up of unemployment and an unstable social climate. Middle and upper level positions in the public service and the military were only available to Hutus and due to government sponsored discrimination Tutsis focused mainly on the work in the private sector. SAPs demanded increased support of the private sector and cuts for the public sector. Therefore, the perception was that Tutsis were favoured by the SAPs and many Hutu elites in the public sector feared to lose their employment and subsequently influence. The Committee of the International Red-Cross (ICRC) and the United Nations Organisation For Food and Agriculture (FAO) drew attention to the famine hitting the Southern provinces. Health and education programs collapsed; hospital structures and medical supplies were used mainly for the militia; infant malnutrition increased dramatically.

Moreover, fiscal discipline was expected, the government had to privatise large numbers of state-owned enterprises and markets were to be liberalised. Despite the increasing of socio-economic imbalance, the WB recommended that focus should be on cash crops rather than food crops in order to increase export earnings. With the earnings, food could have been bought.

The austerity measures demanded by the donors under the SAPs affected exclusively non-military expenditures whilethe military expenditures took up a growing proportion of the State income and foreign loans. Financial resources were focused on the war effort and the displacement of large numbers of the population further decreased agricultural production. In exchange, to the devaluation of the RWF the IMF provided credit in the form of quick disbursing loans to enable to country to maintain the flow of imports. While import prices soared, in response to the IMF insistence, the price at which coffee was bought from local producers was frozen. As a result, hundreds of thousands of small coffee farmers were ruined. Consequently, these destitute farmers because a permanent reservoir of recruits for the army. The GDP per capita fell by nearly 30 percent and poverty increased from40% in 1985 to 53% percent in 1992.

My conclusion: the imf and wb are responsible of putting the preconditions which led to genocide, which I may consider a product of economic miscalculations. The SAPs did not enhance development, they augemented rwanda’s indebtedness and slowed it from development. 

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Economic Policy of the International Monetary Fund in Rwanda. (2022, May 24). GradesFixer. Retrieved June 27, 2022, from https://gradesfixer.com/free-essay-examples/economic-policy-of-the-international-monetary-fund-in-rwanda/
“Economic Policy of the International Monetary Fund in Rwanda.” GradesFixer, 24 May 2022, gradesfixer.com/free-essay-examples/economic-policy-of-the-international-monetary-fund-in-rwanda/
Economic Policy of the International Monetary Fund in Rwanda. [online]. Available at: <https://gradesfixer.com/free-essay-examples/economic-policy-of-the-international-monetary-fund-in-rwanda/> [Accessed 27 Jun. 2022].
Economic Policy of the International Monetary Fund in Rwanda [Internet]. GradesFixer. 2022 May 24 [cited 2022 Jun 27]. Available from: https://gradesfixer.com/free-essay-examples/economic-policy-of-the-international-monetary-fund-in-rwanda/
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