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DR. MARK ELLYNE
CHALLENGES IN AFRICA
JULY 2013
Does Africa Need the
Bretton Woods Institutions?
WHO ARE THE NEW RULERS OF THE
WORLD?
Africa and the IMF – Mark Ellyne
1/29/20152
CONSPIRACY OR COOPERATION?
1/29/2015Africa and the IMF – Mark Ellyne 3
International Conspiracy to
Impose Western Hegemony...
SECRET PLAN FOR IMF WORLD DICTATORSHIP
IDENTIFIED BY THE ILLUMINATI (5/11/2005)
4
…a British-steered attempt to impose the...
WHY IS AFRICA SO POOR?
Africa and the IMF – Mark Ellyne 5 1/29/2015
WHO ARE THE
BRETTON WOODS INSTITUTIONS?
Africa and the IMF – Mark Ellyne 6
World
Trade
Organ.
 Develop
global rules of
tr...
PURPOSE OF THE IMF
Africa and the IMF – Mark Ellyne 7
• Prevent another great depression
• Promote exchange rate stability...
WORLD BANK VS. IMF
Africa and the IMF – Mark Ellyne 8
World Bank
• Development projects
• Raises money on
international ma...
IMF INTERVENTION MODEL
Africa and the IMF – Mark Ellyne 9
1. Economic problem/shock affects
country’s balance of payments,...
WORLD BANK INTERVENTION MODEL
Africa and the IMF – Mark Ellyne 10
1. Economic development affects
country’s income and pov...
POVERTY IS LINKED TO GROWTH
1/29/2015Africa and the IMF – Mark Ellyne 11
Why hasn’t Africa improved as much as Asia?
Pover...
THE DOWNTURN IN GROWTH BEGINNING IN 1980 LED
AFRICA TO SEEK ADVICE FROM THE IMF.
1/29/2015Africa and the IMF – Mark Ellyne...
ECONOMIC GROWTH THEORY
Africa and the IMF – Mark Ellyne 13
Y = TFP KαL (1-α)
Growth depends on:
Capital accumulation
Lab...
AFRICA’S GROWTH IS LOWER
THAN THEORY PREDICTS
1/29/2015Africa and the IMF – Mark Ellyne 14
• Sub-Saharan African countries...
UNTIL THE MID-1990S, GROWTH IN SSA WAS DRIVEN PRIMARILY BY
FACTOR ACCUMULATION IN ALL COUNTRY GROUPS.
1985-89 1990-94 1995...
WHAT MAKES AFRICA DIFFERENT?
Why is TFP growth lower than elsewhere?
• Geography?
• Demographics?
• Culture?
• Resource e...
WHY DOES AFRICA GROW SLOWER?
Geography
(Bloom and Sachs)
• Geography and Climate: African soils,
topography, and disease ...
WHY DOES AFRICA GROW SLOWER?
Geology
• Resource Curse
• Heavy dependence on a small number of
primary exports, which have...
THE PROBLEM IS “THE RESOURCE CURSE”
• The exploitation of Africa’s prolific natural
resources encourages rent seeking
(pay...
WHY DOES AFRICA GROW SLOWER?
Politics
External politics
• The legacy of the slave trade;
• Colonial rule;
• Cold War mani...
THE IMF EXPLANATION
Africa and the IMF – Mark Ellyne 21
Poor economic policies
• Excessive protectionism--inefficient;
• ...
TO ALLEVIATE CAPITAL SHORTAGE,
DONORS GAVE LOANS DURING THE 1980S
1/29/2015Africa and the IMF – Mark Ellyne 22
0.0
10.0
20...
BAD GOVERNMENT POLICIES ARE
OFTEN THE SOURCE OF THE PROBLEM
1/29/2015Africa and the IMF – Mark Ellyne 23
THE BWI SOLUTION TO
AFRICA’S DEFICIENT POLICIES
1/29/2015Africa and the IMF – Mark Ellyne 24
Structural Adjustment Program...
WASHINGTON CONSENSUS
1/29/2015Africa and the IMF – Mark Ellyne 25
Fiscal Policy
1. Fiscal discipline is good;
2. Public ex...
IMPLIED POLICY PRESCRIPTIONS
26
 Reduce the fiscal deficit
• To take pressure off interest rates, stop
crowding out the p...
WASHINGTON CONSENSUS
27
Price Liberalization
4. Deregulation to encourage market-
determined prices, which create more eff...
IMPLIED POLICY PRESCRIPTIONS
28
Depreciate the exchange rate to increase
competitiveness
• To raise exports and reduce im...
WASHINGTON CONSENSUS
29
Free Trade
6. Trade liberalization is good for growth
and consumer welfare.
7. Encourage privatiza...
WASHINGTON CONSENSUS
30
8. Liberalize the financial sector to obtain
efficient allocation of capital, including
market int...
IMPLIED POLICY PRESCRIPTIONS
31
Raise the real interest rate
• To reduce inflation, encourage savings, and
make efficient...
RESULTS OF POLICIES IN AFRICA
1/29/2015Africa and the IMF – Mark Ellyne 32
Average GDP Growth Rates (in Percent)
1981-90 1...
THE COUNTER ATTACK TO THE WC
STIGLITZ (2002)
1/29/2015Africa and the IMF – Mark Ellyne 33
ATTACK ON THE
WASHINGTON CONSENSUS
1/29/2015Africa and the IMF – Mark Ellyne 34
We don’t live in textbook neoclassical
wo...
ATTACK ON THE
WASHINGTON CONSENSUS
1/29/2015Africa and the IMF – Mark Ellyne 35
Need to build new institutions, like land...
ATTACK ON THE
WASHINGTON CONSENSUS
1/29/2015Africa and the IMF – Mark Ellyne 36
Privatization is not always the answer
o ...
ATTACK ON THE
WASHINGTON CONSENSUS
1/29/2015Africa and the IMF – Mark Ellyne 38
• Trade liberalization need to done slowly...
ATTACK ON THE
WASHINGTON CONSENSUS
1/29/2015Africa and the IMF – Mark Ellyne 39
• Financial liberalization:
oCan be danger...
TREVOR MANUEL: MARKET FAILURES
WERE THE PROBLEM (2003)
1/29/2015Africa and the IMF – Mark Ellyne 41
• World trade regime n...
DOMESTIC MARKET FAILURES
42
• State-owned enterprises can be good
(Asia) but the African State was too weak
to manage them...
DOES IMF CREATE AUSTERITY?
THE IMF RESPONSE
1/29/2015Africa and the IMF – Mark Ellyne 43
• “Saying the IMF causes austerit...
WHAT WAS WRONG WITH SAP ADVICE?
1/29/2015Africa and the IMF – Mark Ellyne 44
I. Fundamentally flawed?
II. Faulty implement...
NEW THINKING
1/29/2015Africa and the IMF – Mark Ellyne 45
• Joseph Stiglitz – How to make
Globalization Work
• Jeff Sachs ...
SOLUTIONS TO THE PROBLEM
Africa and the IMF – Mark Ellyne 46 1/29/2015
THE END OF POVERTY:
ECONOMIC POSSIBILITIES FOR OUR TIME
1/29/2015Africa and the IMF – Mark Ellyne 47
Jeffrey Sachs (2005) ...
SACHS: MORE AID
Africa and the IMF – Mark Ellyne 48
In order to achieve the goal of
eliminating global poverty,
developmen...
DEAD AID BY DAMBISA MOYO
(2009)
1/29/2015Africa and the IMF – Mark Ellyne 49
MOYO’S HYPOTHESES:
Africa and the IMF – Mark Ellyne 50
Foreign aid fosters dependence;
Foreign aid fosters corruption;
...
DONOR AID AND CORRUPTION
1/29/2015Africa and the IMF – Mark Ellyne 51
Historically:
“Corrupt governments do not receive
l...
MOYO: LESS AID - MORE BUSINESS
Africa and the IMF – Mark Ellyne 52
• Advanced economies should reduce aid
while increasing...
PAUL COLLIER
1/29/2015Africa and the IMF – Mark Ellyne 53
• The Natural Resource Trap - The
exploitation of Africa’s proli...
PAUL COLLIER
1/29/2015Africa and the IMF – Mark Ellyne 54
• Political risk is results
from conflict and is one
of the grea...
PAUL COLLIER
1/29/2015Africa and the IMF – Mark Ellyne 55
• The Conflict Trap - civil
wars and coups have an
estimated ave...
POLITICAL RISK IS HIGH IN AFRICA
1/29/2015Africa and the IMF – Mark Ellyne 56
2009: Index of Failed States
• Top 5 failed ...
AVERAGE CORRUPTION PERCEPTION INDEX:
AFRICAN COUNTRIES IN YELLOW (2010)
1/29/2015Africa and the IMF – Mark Ellyne 57
2010
...
HAS THE IMF CHANGED SINCE SAPS?
1/29/2015Africa and the IMF – Mark Ellyne 58
The 2nd Generation of Reforms:
• Concern abou...
HAS THE IMF CHANGED SINCE SAP?
59
• Increased concern over financial
system regulation and supervision
• Provides more cap...
SOME OLD MESSAGES PERSIST
60
• Growth is the key to poverty reduction
• International trade and foreign investment
(new te...
THE ALTERNATIVES TO THE BWIS
• Hold more reserves to protect against
shocks
• Need more commercial borrowing
(expensive)
•...
AFRICA IS EXPERIENCING A RESURGENCE
OF GROWTH SINCE 2000
1/29/2015Africa and the IMF – Mark Ellyne 62
0.0
100.0
200.0
300....
AFRICA’S NEW GROWTH SURGE?
1/29/2015Africa and the IMF – Mark Ellyne 63
Average GDP growth rates (in Percent)
1980-1990 19...
SINCE THE MID-1990S, TFP GROWTH HAS GENERALLY IMPROVED
1985-89 1990-94 1995-99 2000-06
Sub-Saharan Africa
Real GDP growth ...
Summary of key messages
• Until the mid-1990s, growth in SSA was driven
primarily by factor accumulation in all country gr...
IS AFRICAN RESURGING?
1/29/2015Africa and the IMF – Mark Ellyne 67
Just a fluke:
• Just a commodity boom
• Due to China an...
BWI/IMF BALANCE SHEET
68
PROs
Facilitatesinternational
cooperation
Provides public
informationon all
economies
Technica...
IMF IS DISLIKED BY ALL SIDES
Africa and the IMF – Mark Ellyne 69
From the right: Nationalists are dislike
supranational i...
DISCUSSION
72
Is the IMF (BWIs) a conspiracy to
undermine the economies of low
income countries?
Are Africa’s problems a...
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Does africa need the bw is challenges v4

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This is a talk about the IMF structural adjustment program in Africa

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Does africa need the bw is challenges v4

  1. 1. DR. MARK ELLYNE CHALLENGES IN AFRICA JULY 2013 Does Africa Need the Bretton Woods Institutions?
  2. 2. WHO ARE THE NEW RULERS OF THE WORLD? Africa and the IMF – Mark Ellyne 1/29/20152
  3. 3. CONSPIRACY OR COOPERATION? 1/29/2015Africa and the IMF – Mark Ellyne 3 International Conspiracy to Impose Western Hegemony on Africa/Developing World? or Western economic support to Africa/low income countries to raise their economic development?
  4. 4. SECRET PLAN FOR IMF WORLD DICTATORSHIP IDENTIFIED BY THE ILLUMINATI (5/11/2005) 4 …a British-steered attempt to impose the dictatorship of the International Monetary Fund (IMF) on the entire planet, … Under this plan, the IMF would dictate the economic policies of all states. The IMF orthodoxy is austerity, sacrifice, deregulation, privatization, union busting, wage reductions, free trade, a race to the bottom, and prohibitions on advanced technologies. These policies would strangle humanity. Source: http://www.conspiracyarchive.com/Blog/ The Illuminati Conspiracy Archive 1/29/2015Africa and the IMF – Mark Ellyne
  5. 5. WHY IS AFRICA SO POOR? Africa and the IMF – Mark Ellyne 5 1/29/2015
  6. 6. WHO ARE THE BRETTON WOODS INSTITUTIONS? Africa and the IMF – Mark Ellyne 6 World Trade Organ.  Develop global rules of trade  Provide mechanisms to resolve trade disputes World Bank Promote economic development World Bank motto: “Our dream is a world free of poverty” IMF Promote global financial stability Promote macro- economic stability 1/29/2015
  7. 7. PURPOSE OF THE IMF Africa and the IMF – Mark Ellyne 7 • Prevent another great depression • Promote exchange rate stability and convertibility o Facilitate growth and trade • Lender of last resort for balance of payments problems o Policy based lending 1/29/2015
  8. 8. WORLD BANK VS. IMF Africa and the IMF – Mark Ellyne 8 World Bank • Development projects • Raises money on international markets • Mission is to reduce poverty IMF • Policy-based lending • Use members’ contributions • Mission is to maintain financial and economic stability 1/29/2015
  9. 9. IMF INTERVENTION MODEL Africa and the IMF – Mark Ellyne 9 1. Economic problem/shock affects country’s balance of payments, i.e. ability to pay for imports 2. Government invites IMF assistance 3. IMF proposes loan and demands conditionality 1/29/2015
  10. 10. WORLD BANK INTERVENTION MODEL Africa and the IMF – Mark Ellyne 10 1. Economic development affects country’s income and poverty 2. Government asks for loans and technical assistance for large-scale investment projects 3. WB finances development projects to reduce poverty and raise income 1/29/2015
  11. 11. POVERTY IS LINKED TO GROWTH 1/29/2015Africa and the IMF – Mark Ellyne 11 Why hasn’t Africa improved as much as Asia? Poverty Headcount (%) 1993 1999 2002 2005 2008 2010 SSA 59.4 58.0 55.7 52.3 49.2 48.5 South Asia 51.7 45.1 45.1 39.4 36.0 31.0 Latin America 11.4 11.9 11.9 8.7 6.5 5.5 Source: Povacal, World Bank
  12. 12. THE DOWNTURN IN GROWTH BEGINNING IN 1980 LED AFRICA TO SEEK ADVICE FROM THE IMF. 1/29/2015Africa and the IMF – Mark Ellyne 12 0.0 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 African GDP per Capita in US$ 1960s 1970s 1980s
  13. 13. ECONOMIC GROWTH THEORY Africa and the IMF – Mark Ellyne 13 Y = TFP KαL (1-α) Growth depends on: Capital accumulation Labour force growth, Education and skills, Technological progress 1/29/2015
  14. 14. AFRICA’S GROWTH IS LOWER THAN THEORY PREDICTS 1/29/2015Africa and the IMF – Mark Ellyne 14 • Sub-Saharan African countries (48) have statistically grown slower than other regions, even after taking account of standard economic variables.
  15. 15. UNTIL THE MID-1990S, GROWTH IN SSA WAS DRIVEN PRIMARILY BY FACTOR ACCUMULATION IN ALL COUNTRY GROUPS. 1985-89 1990-94 1995-99 2000-06 Sub-Saharan Africa Real GDP growth 3.5 1.7 4.4 4.2 Factor accumulation 3.2 3.0 3.3 3.0 TFP growth 0.3 -1.3 1.1 1.2 High-growth countries Real GDP growth 5.1 2.7 7.3 5.1 Factor accumulation 4.0 3.9 4.8 3.3 TFP growth 1.1 -1.2 2.5 1.8 Low-growth countries Real GDP growth 3.7 2.8 2.3 1.1 Factor accumulation 2.5 2.9 2.7 2.2 TFP growth 1.2 -0.1 -0.4 -1.1 HIPC post-completion point countries Real GDP growth 2.6 0.6 4.3 5.2 Factor accumulation 3.2 2.9 3.1 3.4 TFP growth -0.6 -2.3 1.2 1.8 Fragile countries 1 Real GDP growth 2.3 1.7 1.7 0.8 Factor accumulation 2.4 2.2 2.0 1.6 TFP growth -0.1 -0.5 -0.3 -0.8 Source: IMF, World Economic Outlook and staff calculations. 1 Excluding HIPC post-completion point countries (The Gambia, Sao Tome and Principe, and Sierra Leone). Sources of Growth in Sub-Saharan Africa: 1985-2006
  16. 16. WHAT MAKES AFRICA DIFFERENT? Why is TFP growth lower than elsewhere? • Geography? • Demographics? • Culture? • Resource endowment? • Politics: Internal & External? • Institutions • Governance? • Policies? 1/29/2015Africa and the IMF – Mark Ellyne 16
  17. 17. WHY DOES AFRICA GROW SLOWER? Geography (Bloom and Sachs) • Geography and Climate: African soils, topography, and disease ecology raise obstacles to growth, including low agricultural productivity and high disease burdens. “Geography, Demography, and Economic Growth in Africa” (Bloom and Sachs 1998) Mark Ellyne - Do We Need the IMF 17
  18. 18. WHY DOES AFRICA GROW SLOWER? Geology • Resource Curse • Heavy dependence on a small number of primary exports, which have shown long- term price declines (terms of trade declines) and high volatility; Lifting the Oil Curse: Improving Petroleum Revenue Management in Sub-Saharan Africa (IMF 2004) 18
  19. 19. THE PROBLEM IS “THE RESOURCE CURSE” • The exploitation of Africa’s prolific natural resources encourages rent seeking (payments for nonproductive work), and ultimately the Dutch Disease (a high value- added export appreciates the exchange rate and may make traditional exports noncompetitive). Mark Ellyne - Do We Need the IMF 19
  20. 20. WHY DOES AFRICA GROW SLOWER? Politics External politics • The legacy of the slave trade; • Colonial rule; • Cold War manipulations of African politics; and • Foreign aid Mark Ellyne - Do We Need the IMF 20
  21. 21. THE IMF EXPLANATION Africa and the IMF – Mark Ellyne 21 Poor economic policies • Excessive protectionism--inefficient; • Excessive government regulation--slows business and creates rents; • Excessive fiscal spending; • Tendency for governments to print money, which causes inflation; • High economic rents (corruption), and • Lack of domestic capital. 1/29/2015
  22. 22. TO ALLEVIATE CAPITAL SHORTAGE, DONORS GAVE LOANS DURING THE 1980S 1/29/2015Africa and the IMF – Mark Ellyne 22 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ExternalDebt/GDP (%) Asia SSA Forecast
  23. 23. BAD GOVERNMENT POLICIES ARE OFTEN THE SOURCE OF THE PROBLEM 1/29/2015Africa and the IMF – Mark Ellyne 23
  24. 24. THE BWI SOLUTION TO AFRICA’S DEFICIENT POLICIES 1/29/2015Africa and the IMF – Mark Ellyne 24 Structural Adjustment Programs (SAPs), created in the 1980s, promoted the traditional economic wisdom of the time, which became embodied in what was called the Washington Consensus (1999), which was at the center of adjustment policies. (“Neoliberal policies”)
  25. 25. WASHINGTON CONSENSUS 1/29/2015Africa and the IMF – Mark Ellyne 25 Fiscal Policy 1. Fiscal discipline is good; 2. Public expenditure priorities should be social infrastructure and public goods; 3. Tax reform should broaden the tax base.
  26. 26. IMPLIED POLICY PRESCRIPTIONS 26  Reduce the fiscal deficit • To take pressure off interest rates, stop crowding out the private sector, and reduce the current account deficit  Raise taxes or cut expenditure Painful 1/29/2015Africa and the IMF – Mark Ellyne
  27. 27. WASHINGTON CONSENSUS 27 Price Liberalization 4. Deregulation to encourage market- determined prices, which create more efficient allocation. Eliminate price controls and subsidies; 5. Maintain a single exchange rate determined by the market. 1/29/2015Africa and the IMF – Mark Ellyne
  28. 28. IMPLIED POLICY PRESCRIPTIONS 28 Depreciate the exchange rate to increase competitiveness • To raise exports and reduce imports, (reduce the trade deficit) and stimulate domestic production Raises inflation Painful 1/29/2015Africa and the IMF – Mark Ellyne
  29. 29. WASHINGTON CONSENSUS 29 Free Trade 6. Trade liberalization is good for growth and consumer welfare. 7. Encourage privatization and eliminate barriers to foreign direct investment to encourage more & efficient investment. 1/29/2015Africa and the IMF – Mark Ellyne
  30. 30. WASHINGTON CONSENSUS 30 8. Liberalize the financial sector to obtain efficient allocation of capital, including market interest rates, including free flow of international capital. 9. Create secure property rights to encourage investment. 10. Maintain macroeconomic stability. 1/29/2015Africa and the IMF – Mark Ellyne
  31. 31. IMPLIED POLICY PRESCRIPTIONS 31 Raise the real interest rate • To reduce inflation, encourage savings, and make efficient use of capital. Hurts business and reduces jobs Painful 1/29/2015Africa and the IMF – Mark Ellyne
  32. 32. RESULTS OF POLICIES IN AFRICA 1/29/2015Africa and the IMF – Mark Ellyne 32 Average GDP Growth Rates (in Percent) 1981-90 1991-2000 World 3.3 3.1 Advanced economies 3.2 2.8 Developing Asia 6.7 7.4 Sub-Saharan Africa 2.4 2.3 Source: World Bank and WEO
  33. 33. THE COUNTER ATTACK TO THE WC STIGLITZ (2002) 1/29/2015Africa and the IMF – Mark Ellyne 33
  34. 34. ATTACK ON THE WASHINGTON CONSENSUS 1/29/2015Africa and the IMF – Mark Ellyne 34 We don’t live in textbook neoclassical world - incomplete information and imperfect markets. Shock therapy is worse than the gradualist approach—especially for transition economies
  35. 35. ATTACK ON THE WASHINGTON CONSENSUS 1/29/2015Africa and the IMF – Mark Ellyne 35 Need to build new institutions, like land titles, commercial courts, and relevant laws before implementing new policies.
  36. 36. ATTACK ON THE WASHINGTON CONSENSUS 1/29/2015Africa and the IMF – Mark Ellyne 36 Privatization is not always the answer o State-owned enterprises may provide socially beneficial services and employment.
  37. 37. ATTACK ON THE WASHINGTON CONSENSUS 1/29/2015Africa and the IMF – Mark Ellyne 38 • Trade liberalization need to done slowly and may not always be good o Should consumers pay more to facilitate domestic employment? o Protection may give an infant industry a chance to succeed
  38. 38. ATTACK ON THE WASHINGTON CONSENSUS 1/29/2015Africa and the IMF – Mark Ellyne 39 • Financial liberalization: oCan be dangerous without appropriate supervision oFree flow of capital may be dangerous, especially for small economies
  39. 39. TREVOR MANUEL: MARKET FAILURES WERE THE PROBLEM (2003) 1/29/2015Africa and the IMF – Mark Ellyne 41 • World trade regime not favourable to Africa. External shocks very damaging to undiversified exporters. • International financial system and aid practices caused frequent disruptions to developing country markets • Grants were needed in place of loans
  40. 40. DOMESTIC MARKET FAILURES 42 • State-owned enterprises can be good (Asia) but the African State was too weak to manage them • Shortage of social capital--needed more human capital and physical infrastructure • Africa’s rural economy is to dependent on the more modern urban and fiscal sectors 1/29/2015Africa and the IMF – Mark Ellyne
  41. 41. DOES IMF CREATE AUSTERITY? THE IMF RESPONSE 1/29/2015Africa and the IMF – Mark Ellyne 43 • “Saying the IMF causes austerity is like saying doctors cause plagues because you often find them around sick people.” • “Emerging-market debtors typically come to the IMF only when their finances are under extreme duress ... and other creditors have turned their backs.” The IMF Strikes Back By Kenneth Rogoff , Economic Counselor and Director of the Research Department International Monetary Fund
  42. 42. WHAT WAS WRONG WITH SAP ADVICE? 1/29/2015Africa and the IMF – Mark Ellyne 44 I. Fundamentally flawed? II. Faulty implementation? III. Reform program not wrong, but incomplete?
  43. 43. NEW THINKING 1/29/2015Africa and the IMF – Mark Ellyne 45 • Joseph Stiglitz – How to make Globalization Work • Jeff Sachs – The End of Poverty • Dembisa Moyo – Dead Aid • Paul Collier – The Bottom Billion; Wars, Guns and Votes • Governance
  44. 44. SOLUTIONS TO THE PROBLEM Africa and the IMF – Mark Ellyne 46 1/29/2015
  45. 45. THE END OF POVERTY: ECONOMIC POSSIBILITIES FOR OUR TIME 1/29/2015Africa and the IMF – Mark Ellyne 47 Jeffrey Sachs (2005) argues that extreme poverty—defined by the World Bank as incomes of less than 1 dollar per day—can be eliminated globally by the year 2025, through carefully planned development aid, that reaches the "bottom rung" of the ladder.
  46. 46. SACHS: MORE AID Africa and the IMF – Mark Ellyne 48 In order to achieve the goal of eliminating global poverty, development aid must be raised from $65 billion globally as of 2002 to between $135 and $195 billion a year by 2015, including debt cancellation for the world's poorest countries. 1/29/2015
  47. 47. DEAD AID BY DAMBISA MOYO (2009) 1/29/2015Africa and the IMF – Mark Ellyne 49
  48. 48. MOYO’S HYPOTHESES: Africa and the IMF – Mark Ellyne 50 Foreign aid fosters dependence; Foreign aid fosters corruption; Foreign aid encourages bureaucracy; Foreign aid reduces tax revenue; Foreign aid reduces private investment; Foreign aid creates bottlenecks; 1/29/2015
  49. 49. DONOR AID AND CORRUPTION 1/29/2015Africa and the IMF – Mark Ellyne 51 Historically: “Corrupt governments do not receive less Foreign aid.” “Countries that receive more aid, tend to have higher levels of corruption.” Source: Do Corrupt Governments Receive Less Foreign Aid? (NBER Working Paper No. 7108)
  50. 50. MOYO: LESS AID - MORE BUSINESS Africa and the IMF – Mark Ellyne 52 • Advanced economies should reduce aid while increasing trade • LIC governments should use bond markets to raise funds—not the central bank or donor grants • LICs should welcome foreign investment • Governments must make “Doing Business” easier 1/29/2015
  51. 51. PAUL COLLIER 1/29/2015Africa and the IMF – Mark Ellyne 53 • The Natural Resource Trap - The exploitation of Africa’s prolific natural resources encourages rent seeking (payments for nonproductive work), and can stifle other economic activity (Dutch Disease). • Africa is heavily dependent on a small number of primary exports that have shown long-term price declines (terms of trade declines) and high volatility.
  52. 52. PAUL COLLIER 1/29/2015Africa and the IMF – Mark Ellyne 54 • Political risk is results from conflict and is one of the greatest risk factors reducing investment in Africa. • Ethnic loyalty to leaders, regardless of their competence/performanc e, reduce their incentive to perform well.
  53. 53. PAUL COLLIER 1/29/2015Africa and the IMF – Mark Ellyne 55 • The Conflict Trap - civil wars and coups have an estimated average cost of $64bn each, according to Collier.
  54. 54. POLITICAL RISK IS HIGH IN AFRICA 1/29/2015Africa and the IMF – Mark Ellyne 56 2009: Index of Failed States • Top 5 failed states were in Africa (Somalia, Chad, Sudan, Zimbabwe, DRC) • 10 of top 15 in Africa • 21 of 37 States that US Government has on its Alert list for Failed States are in Africa
  55. 55. AVERAGE CORRUPTION PERCEPTION INDEX: AFRICAN COUNTRIES IN YELLOW (2010) 1/29/2015Africa and the IMF – Mark Ellyne 57 2010 Country Rank Country / Territory 101 Dominican Republic 101 Sao Tome and Principe 101 Tonga 101 Zambia 105 Algeria 105 Argentina 105 Kazakhstan 105 Moldova 105 Senegal 110 Benin 110 Bolivia 110 Gabon 110 Indonesia 110 Kosovo 110 Solomon Islands 116 Ethiopia 116 Guyana 116 Mali 116 Mongolia 116 Mozambique 116 Tanzania 116 Vietnam 123 Armenia 123 Eritrea 123 Madagascar 123 Niger 127 Belarus 127 Ecuador 127 Lebanon 127 Nicaragua 127 Syria 127 Timor-Leste 127 Uganda 134 Azerbaijan 134 Bangladesh 134 Honduras 134 Nigeria 134 Philippines 134 Sierra Leone 134 Togo 134 Ukraine 134 Zimbabwe 143 Maldives 143 Mauritania 143 Pakistan 146 Cameroon 146 Côte d´Ivoire 146 Haiti 146 Iran 146 Libya 146 Nepal 146 Paraguay 146 Yemen 2010 Country Rank Country / Territory 154 Cambodia 154 Central African Republic 154 Comoros 154 Congo 154 Guinea-Bissau 154 Kenya 154 Laos 154 Papua New Guinea 154 Russia 154 Tajikistan 164 Congo, Dem Rep 164 Guinea 164 Kyrgyzstan 164 Venezuela 168 Angola 168 Equatorial Guinea 170 Burundi 171 Chad 172 Sudan 172 Turkmenistan 172 Uzbekistan 175 Iraq 176 Afghanistan 176 Myanmar 178 Somalia 2010 Country Rank Country / Territory 1 Denmark 1 New Zealand 1 Singapore 4 Finland 4 Sweden 6 Canada 7 Netherlands 8 Australia 8 Switzerland 10 Norway 11 Iceland 11 Luxembourg 13 Hong Kong 14 Ireland 15 Austria 15 Germany 17 Barbados 17 Japan 19 Qatar 20 United Kingdom 21 Chile 22 Belgium 22 United States 24 Uruguay 25 France 26 Estonia 27 Slovenia 28 Cyprus 28 United Arab Emirates 30 Israel 30 Spain 32 Portugal 33 Botswana 33 Puerto Rico 33 Taiwan 36 Bhutan 37 Malta 38 Brunei 39 Korea (South) 39 Mauritius 41 Costa Rica 41 Oman 41 Poland 44 Dominica 45 Cape Verde 46 Lithuania 46 Macau 48 Bahrain 49 Seychelles 50 Hungary 50 Jordan 50 Saudi Arabia 2010 Country Rank Country / Territory 53 Czech Republic 54 Kuwait 54 South Africa 56 Malaysia 56 Namibia 56 Turkey 59 Latvia 59 Slovakia 59 Tunisia 62 Croatia 62 Macedonia, FYR 62 Ghana 62 Samoa 66 Rwanda 67 Italy 68 Georgia 69 Brazil 69 Cuba 69 Montenegro 69 Romania 73 Bulgaria 73 El Salvador 73 Panama 73 Trinidad and Tobago 73 Vanuatu 78 China 78 Colombia 78 Greece 78 Lesotho 78 Peru 78 Serbia 78 Thailand 85 Malawi 85 Morocco 87 Albania 87 India 87 Jamaica 87 Liberia 91 Bosnia and Herzegovina 91 Djibouti 91 Gambia 91 Guatemala 91 Kiribati 91 Sri Lanka 91 Swaziland 98 Burkina Faso 98 Egypt 98 Mexico
  56. 56. HAS THE IMF CHANGED SINCE SAPS? 1/29/2015Africa and the IMF – Mark Ellyne 58 The 2nd Generation of Reforms: • Concern about poverty; creation of the Poverty Reduction and Growth Facility (1999) • Emphasis on good governance (accountability and transparency in public finances) • Demands government ownership of policies
  57. 57. HAS THE IMF CHANGED SINCE SAP? 59 • Increased concern over financial system regulation and supervision • Provides more capacity building and technical assistance • Offered debt relief for first time (MDRI, 2006) 1/29/2015Africa and the IMF – Mark Ellyne
  58. 58. SOME OLD MESSAGES PERSIST 60 • Growth is the key to poverty reduction • International trade and foreign investment (new technology) are critical for long-term growth • Governments must avoid excessive domestic and foreign debt • African countries need more flexible exchange rates, and more flexible goods and labour markets 1/29/2015Africa and the IMF – Mark Ellyne
  59. 59. THE ALTERNATIVES TO THE BWIS • Hold more reserves to protect against shocks • Need more commercial borrowing (expensive) • Take more bilateral aid (more political strings attached) Mark Ellyne - Do We Need the IMF 61
  60. 60. AFRICA IS EXPERIENCING A RESURGENCE OF GROWTH SINCE 2000 1/29/2015Africa and the IMF – Mark Ellyne 62 0.0 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 900.0 1,000.0 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 African GDP per Capita in US$
  61. 61. AFRICA’S NEW GROWTH SURGE? 1/29/2015Africa and the IMF – Mark Ellyne 63 Average GDP growth rates (in Percent) 1980-1990 1991-2000 2001-2012 World 3.2 3.2 3.6 Advanced Economies 3.1 2.8 1.6 Developing Asia 6.6 7.3 8.4 Latin America 2.0 3.1 3.4 Sub-Saharan Africa 2.6 2.3 5.6
  62. 62. SINCE THE MID-1990S, TFP GROWTH HAS GENERALLY IMPROVED 1985-89 1990-94 1995-99 2000-06 Sub-Saharan Africa Real GDP growth 3.5 1.7 4.4 4.2 Factor accumulation 3.2 3.0 3.3 3.0 TFP growth 0.3 -1.3 1.1 1.2 High-growth countries Real GDP growth 5.1 2.7 7.3 5.1 Factor accumulation 4.0 3.9 4.8 3.3 TFP growth 1.1 -1.2 2.5 1.8 Low-growth countries Real GDP growth 3.7 2.8 2.3 1.1 Factor accumulation 2.5 2.9 2.7 2.2 TFP growth 1.2 -0.1 -0.4 -1.1 HIPC post-completion point countries Real GDP growth 2.6 0.6 4.3 5.2 Factor accumulation 3.2 2.9 3.1 3.4 TFP growth -0.6 -2.3 1.2 1.8 Fragile countries 1 Real GDP growth 2.3 1.7 1.7 0.8 Factor accumulation 2.4 2.2 2.0 1.6 TFP growth -0.1 -0.5 -0.3 -0.8 Source: IMF, World Economic Outlook and staff calculations. 1 Excluding HIPC post-completion point countries (The Gambia, Sao Tome and Principe, and Sierra Leone). Sources of Growth in Sub-Saharan Africa: 1985-2006
  63. 63. Summary of key messages • Until the mid-1990s, growth in SSA was driven primarily by factor accumulation in all country groups. • Since the mid-1990s, TFP growth has improved strongly in all country groups, except for fragile countries. • TFP accelerations associated with improvements in terms of trade, higher aid, and lower economic and social instability • CFA zone countries have a propensity for TFP decelerations Dan Ghura (2007). Growth Accounting in Africa, IMF Conclusions and Policy Implications 66
  64. 64. IS AFRICAN RESURGING? 1/29/2015Africa and the IMF – Mark Ellyne 67 Just a fluke: • Just a commodity boom • Due to China and India • No real industrialization This time is different: • More democracy and ownership • More institutional development • More consumerism • More beneficiation
  65. 65. BWI/IMF BALANCE SHEET 68 PROs Facilitatesinternational cooperation Provides public informationon all economies Technicalassistanceand policy advice Provides lender of last resort financing Voicefor Africa(LICs) CONs Economic policeman/auditor Requirespolicy conditionality(evenif countyis not be ready) Favourscreditorsover debtors Favoursefficiency(private) over equity (government) Overly conservative 1/29/2015Africa and the IMF – Mark Ellyne
  66. 66. IMF IS DISLIKED BY ALL SIDES Africa and the IMF – Mark Ellyne 69 From the right: Nationalists are dislike supranational institutions; From the left: Socialists dislike polices that hurt poor elements of society; IMF is run by rich countries; IMF follows bad “neoliberal” policies. 1/29/2015
  67. 67. DISCUSSION 72 Is the IMF (BWIs) a conspiracy to undermine the economies of low income countries? Are Africa’s problems a result of discrimination, bad advice, or poor policy implementation? Should the IMF (BWIs) be replaced? And with what? 1/29/2015Africa and the IMF – Mark Ellyne

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