The Policy of The International Monetary Fund in The Development of Countries Such as Tanzania

Nations have become independent politically but remain economically shackled in an endless circle of dependencies. The late 1960s was at a time that colonial rulers lost power over colonies in Africa, forcing them to grant independence. In 1944 another form of modern day colonialism was created in the Bretton Woods, New Hampshire, U.S. This was created under the banner of foreign aid from two financial institutions: The International Monetary Fund (IMF) and the World Bank (WB). The U.S holds 17 percent of votes in the IMF where 49 African countries hold less than 9 percent; this shows the unequal power relation present in global organizations. In addition, the world’s seven richest countries control a total of 45 percent of the World Banks’ votes. The World Bank was created for the purpose of getting rid of poverty in developing countries by offering a short term loan, whereas the International Monetary Fund focuses on economic growth and long term involvement, both going hand in hand with goals of economic stability. Viewing the underlining motive of the IMF is based on factors detailed by Horace Campbell and Howard Stein, “devolution of currency, demand management, liberalization of foreign rates to their natural markets level, elimination of government’s subsidies, reduction of states investment in the economy, the encouragement of the private sector”. Tanzania became an independence state in 1961 and became a member of the IMF in 1962 within one year. In the case of Tanzania a post-colonial nation it was placed and still is in an endless cycle of debt and dependency. Located in east Africa with a population 49.2 million people and a gross domestic product (GDP) of 44.8954 Billion (USD) in addition of $3,100 per capita. Amidst this Tanzania is in millions of dollars in debt. In the present global age, neoliberal policies indoctrinated in financial institutions such as the World Bank and the International Monetary Fund have negatively affected the development of Tanzania, through endless debt collection, conditions attached to loans and the implications these policies have had on human development. The World Bank and IMF seem like the ultimate debt setup but both sides of the equation must be thoroughly analyzed. Taking resource are not as easy as previous years ago, so the loan of money opens door for powerful states robbing vulnerable states in their time of need. Just like in the pre-colonization era, Global North states viewed colonies as investments; in today’s case for Tanzania we see a repeat in this history. With the introduction of the dependency theory, once aid is accepted along with high interest rates, this gives room for the exploitation of resources. It’s is key to comprehend why Global South nations are in debt, understand that neoliberal development policies are not implemented for states like Tanzania to grow. Applying sanction on Tanzania and the free trade agreement backed up by the World Trade Organization (WTO) focuses the lack of development.

The International Monetary Fund (IMF) and World Bank (WB) are the last options for countries like Tanzania. States are put in predicaments that are caused by post-colonization problems and internal facts; this forces states to ask for aid from money thirsty organizations. Understanding the important implications that come with debt needs to be explored. The debt crisis in Tanzania has been going on for so long having an impact on the country’s economy. In 1986 the Tanzanian government signed an agreement with the World Bank (WB) and International Monetary Fund (IMF) for a loan of $445 million (USD). Tanzania’s debt in 1990 was at US$ 6.5billion and then rose to US$ 8.7 billion. The reason why the debt increased is that the IMF and WB have placed high interest rates that they know Global South nation would not be able to pay back. Evident that when the IMF and WB know when a nation is unable to pay back loans it’s because various factors must be put in place. The factors are “existing debt stock and associated debt service, the prospective path of its deficits, the financing mix of the debt and the evolution of its repayment capacity in terms of foreign currency value of Gross Domestic Product (GDP), exports and government revenues”. Exampling the factors of being able to pay debt just shape a clear understanding of how unrealistic it is for Tanzania to get out of debt it is. Being in debt effect the economy so heavily because the (GDP) of a nation is based on its output and export potential. However, the IMF makes states devalue their currency to allow foreign investments to come in and have a ripper effect. Meaning that local markets are going to fail because imports are going to flood the market, that’s going to have an impact on the economic. “Tanzania at independence inherited an agricultural-based economy with reliance on few cash crops for the bulk of its export income; the limited amount of industry was mostly restricted to the processing of goods”. Coming to that an economy is based on the money that a country is making and also the money that they are using, but with the IMF cases the money is going to go back into the international market and not into Tanzania’s. IMF and WB not only placed Tanzania in debt but they have guidelines for nations to pay back loans using a Eurocentric, paternalistic approach by adding sanctions.

Tanzania faces a lot of problems in attempting to keep up with the international economic community. Loans that come with more than just a payback, for example if your credit card company placed a restriction of what you can spend the money on, than their loaning you. Taking a loan from the IMF or World Bank comes with restrictions in order to reserve aid. Also with their reimbursements are not in place for the betterment of Tanzanian. In Tanzania’s case, in 1986 the same time when the loan was being affected Ajit Singh an author states the sanction being imposed at the time “A large devaluation of the domestic currency; a reduction of public sector borrowing requirement by means of reducing or eliminating consumer subsidies and many other social expenditures; an increase in interest rates to raise domestic savings; and a reduction of money supply”. Devalue Tanzania’s currency or exchange rate adjustments are one of the biggest risks “The Tanzanian Shilling is overvalued and that’s a serious issue, economic reforms should begin with devaluation: devaluation of a shilling would not be healthy for the economy because it could be inflationary”. Inflationary would not only destroy the economic but also the money value that it has. Meaning that based on inflation rates Tanzania currency would be worthless compared to other countries. The effect of devaluing currency was seen not shortly after. In June 1986 the Tanzania shilling at one of its lowest points was the time where T.Shs 17.80 was worth 1 U.S dollar. Looking into today “$1 (USD) is equal to 2236.71 (T.Shs)”. “Elucidate and to comment on some of the major points of disagreement between the Fund and Tanzania, and to set out the analytics of the alternative macroeconomic policy options, if any, which may still be feasible for the Tanzanian economy.”. Singh, A tells us how at the time Tanzania did believe that the policies being embarked on them by the IMF would worsen both their social and economic development. Not only was the IMF sanction having an effect on the economy but also on social services. Horace and Howard in their book talk about how the IMF program had implemented about the “introduction of school fees, a cut in public sector employment. The effect this has on the public is that if employment is cut and now school costs money, how are citizens going to afford it. IMF cut social programs and medical care in June 5, 1988, a newspaper reported that there was a sudden increase of mothers dying during child labor due to the cut in medical care. Other factors that caused the increase were shortage of blood and lack in medical transportation. Without funding from the government hospitals cannot function as they should be. In one case, it was stated that” as few as three syringes per 300 patients, the risk of disease from unsterilized needles is great. Debt and sanction are immediate effects that are viewed shortly after reserving the loan but long term effects like lack of development are not seen until it’s too late.

Tanzania is an underdeveloped country because it lacks in industrialization, education, standard of living, health care and life expectancy. With these factors, what they all have in common is the money or economy growth but with the IMF and World Bank debts and sanction economy, growth is impossible. Ajit Singh stated that the IMF restrictions “a reduction of public sector borrowing requirement by means of reducing or eliminating consumer subsidies and many other social expenditures' .For example Tanzania can improve its health care system but the money that should be going towards health services is going back to pay for the loan. Health care is an important characteristic in development because if a country’s population are healthy they can help with development. Industrialization is significant because most African countries like Tanzania have raw materials but not the industrials to make the final product “ the IMF policies are likely to be deindustrializing, reducing rather than increasing manufacturing levels”. Also companies don’t pay a fair amount for raw materials leading to exploitation but because of one of the IMF guidelines is to take down trade barriers to allow foreign investor. African states would not get the profit that the material is worth. Trade barriers are key because with the governments-imposed restraint on the goods and services they are able to place taxes and stop them. For example, when a nation takes down trade barriers local farming is in effect because imports or going to become cheaper to pay. Leading to the local market not benefiting because the money and sells are going to go back to the imports and have no benefit for the economy. Private entrepreneurs like Board of Internal Trade (BIT) “a group of companies concerned with importation and distribution, reforms in this area have meant that private entrepreneurs can now import and distribute certain imports freely.” . Education is an essential in development having an educated population can help stop exploitation of labor and raw materials. With education comes the freedom of allowing Tanzania to have a say in the international community. Education just not being university or college but different fields like construction to build roads for transportation so goods can flow throughout the country. Furthermore education can help with the development ports, Tanzania has access to the Indian Ocean that leans to the Gulf of Aden one of the world’s busiest shipping lanes. Lack of development is not a problem that can be fixed overnight but with hard work it can be accomplished.

Decades after colonization and states became independent, foreign colonists are still depending on them. The biggest shareholders of the IMF and World Bank are former colonies. Raising the question, did colonization really end or did the name just change? In today’s era neoliberal polices from financial institutions shape the development of nations like Tanzania placing them in debt. The reality is that Tanzania is going to be in debt for a long time. When the IMF and World Bank were giving a loan to Tanzania they knew that they wouldn’t be able to pay it back. So in return the IMF and World Bank exploit them. Tanzania and other African countries should work together to try to get themselves out of debt. Conditions that are tied to loans to hinter progression in Global South countries was thoroughly explored in the essay with a focus on how sanctions destroyed the economy, health and education systems in Tanzania. Devalue currency and remove trade barriers to exploit the people also the resource not allowing the state to grow. Being in debt resources are on the market for low prices, increase of exports and increase of imports distasting local markets. Tanzania is an example of how polices from these institutions are positioning them to remain in debt. Tanzania is a nation with raw resources but is unable to take for advantage of them. All with the end result leading to lack of development. When a state has resources but cannot utilize them backs them up into a corner.