Ngaire Woods in The IMF and Low-Income Countries (edited by James Boughton and Domenico Lombardi, Oxford University Press, 2008). Governance matters: the IMF and Sub-Saharan Africa Ngaire Woods Introduction The IMF has found it extremely difficult to facilitate successful economic growth, development, and policy reform in Africa. This is puzzling from the outside because on the face of it the IMF looks very powerful vis-à-vis African countries. It has considerable resources, knowledge, and expertise compared to its interlocutor agencies on the ground. Borrowers in Africa are among the least likely to have access to alternative sources of finance. And the institution has now worked with African countries for a long time. But after two decades of engagement, the IMF’s main borrowers in sub-Saharan Africa are still deeply affected by the institution and yet seem no closer to the promise of economic growth. This chapter argues that the IMF’s failures in Africa cannot be divorced from the governance of the institution. At the Board level, developing countries have insufficient voting power to give them appropriate incentives to engage meaningfully in deliberations and decisions. The Executive Board of the IMF is dominated by the wealthiest economies who command more than 40% of votes of the organization. By contrast, sub-Saharan African countries, who account for a quarter of the membership of the IMF, have just over 4 percent of the vote. Belgium (population 10 million) has more votes than Nigeria, Ethiopia, Zambia, Tanzania, Mozambique and South Africa combined (total population around 300 million). Although the IMF’s Board typically does not resort to voting, voting power and quotas strongly underpin calculations as to when a decision has been reached (typically described as `consensus’). In recent years Board members report that the collegial and consensual nature of decision-making has eroded sharply making voting power yet more important. This renders the voice of developing countries on the Board yet weaker. As one former Executive Director from South Africa has put it, the miniscule voting power of African and other developing countries renders it almost impossible for them to put items on the agenda in either organization (Rustomjee 2003). Simply to muster enough voice to be heard is a gargantuan task. The international community has recently committed itself to enhance the voice and capacity of developing countries in the institution. Modest steps have been made to help the two Executive Directors on the Board who represent sub-Saharan African countries, including by enhancing their capacity to communicate with the capitals of their members. These may well be helpful steps but properly to assess them requires considering what the real problems with the IMF’s engagement with the continent have been, and whether governance reform of any description could make a difference to the IMF’s work in Sub-Saharan Africa. Why does governance matter? There are three reasons to expect that governance might affect the IMF’s impact in Sub-Saharan Africa. The first reason concerns the responsiveness of the organization. The argument here is that the capacity of the institution to generate pertinent and relevant programs and instruments for its low-income members could be 1 Ngaire Woods in The IMF and Low-Income Countries (edited by James Boughton and Domenico Lombardi, Oxford University Press, 2008). enhanced if low-income members have an incentive to voice their concerns and priorities within and to the organization and if others have an incentive to listen. The presumption would be that a failure to listen in the past has led to insufficient responsiveness which has hindered the quality of efforts on the part of the IMF. To assess this argument, we need to examine the quality of those efforts and to explore under what conditions the IMF has `listened’ (or not), to whom, and why. A second reason why better representation or voice by African countries might alter the IMF’s performance has more directly to do with effectiveness. Here the argument is that for the IMF’s work to have positive effects in Sub-Saharan African countries would require the institution to establish early and deep engagement with governments and sufficient `buy-in’ from them and their societies to make the organization’s work and advice effective. The governance structure of the organization offers one way to build some degree of `buy-in’ – indeed the origins of the current governance structure in which the US is heavily represented and empowered was precisely in order to ensure the US would participate and engage deeply. As the institution has become more heavily involved in Africa, a change in the structure of representation adequately to reflect this has not occurred. By examining the recent history, we can assess why this might make a difference. A third way in which governance affects the IMF’s impact is because it affects the organization’s accountability. The Board of the IMF sets the priorities of the organization and oversees their implementation, their impact, and their evolution. In theory at least, the Board monitors the performance and work of the senior management of the organization. The managing director and senior staff, in turn, hold to account all other staff working for the organization. Needless to say, all players across the organization have an incentive to meet the desiderata of those members of the Board who can most powerfully affect their careers and direction of work. If there is little scope for Sub-Saharan African countries to play a role in this, the risk is that the priorities and needs of the continent will constantly be under-served by a system which skews accountability towards meeting the preferences of other more powerful groups. By examining the recent history we can assess this argument and examine whether alternative arrangements might produce different effects. This chapter will examine the evidence of the past two decades of IMF engagement in Africa to ascertain how responsiveness, effectiveness and accountability have worked, and what, therefore, might be changed by a change in the governance structure of the institution. Setting priorities: the IMF’s approach to Africa In the early 1980s the IMF plunged into a widespread debate about what kind of economic reform would work in Africa. Up until the late 1970s most developing countries had favored a statist approach to development, using economic planning, import-substitution-industrialization, price controls, credit rationing, state-owned enterprises, and government control of agricultural marketing (Van de Walle 2001, Lofchie 1994, Killick 1989, Waterbury 1999). In Africa the approach was reiterated in the Lagos Plan of Action set out by the Organization for African Unity in 1980. The concern of African leaders advancing the plan was to shift the continent away from its dependence on the export of basic raw materials, which “had made African 2 Ngaire Woods in The IMF and Low-Income Countries (edited by James Boughton and Domenico Lombardi, Oxford University Press, 2008). economies highly susceptible to external developments” (Economic Commission for Africa 1980, Preamble). To this end, the plan focused on increasing Africa’s self- reliance, promoting industrialization, and building up regional and subregional cooperation and integration. In the IMF in the early 1980s, the African or Lagos view of Africa’s needs was rejected. The Lagos approach to development faced two severe challenges. First, it required resources and by the early 1980s most African countries were in economic crisis. Hit by the increase in oil prices in 1973-74 as well as a slump in commodity prices, many had increased their borrowing in the 1970s so that by 1980 they faced a world economic downturn with a huge debt burden on their backs. There was a huge gap between the resources required for a renewed push toward industrialization and what was available. External donors were unlikely to come forward, in part because industrialized countries faced problems of inflation and a downturn in their own economies. Also skepticism had grown among governments in several industrialized countries about the statist approach to development. This was the second challenge faced by the Lagos approach. The IMF Board was dominated by members whose ideological climate had changed dramatically in the early 1980s. In the United States, the United Kingdom, and Germany, President Reagan, Prime Minister Thatcher, and Chancellor Kohl espoused a new antistate, antigovernment, free-market rhetoric. Their hostility to government spending, industrial policy, and the welfare state soon spread into their view of aid. Suddenly the focus was on the failures of development policy in the 1970s (Bauer 1984, Tucker 1977). In the worst cases in Africa the state-owned, state-driven economic model had created and sustained a kleptocratic state. Across the continent as a whole, economic development seemed at the time to have failed. In the twenty years from 1960 to 1980 the average annual rate of growth for Africa was about 4.8 percent, dropping to 2.9 percent for the least developed countries (Economic Commission for Africa 1980). At the time these figures were treated as disastrous, although by the late 1990s they looked like a golden age of development on the continent. For example, over the period 1990 - 2001 Africa suffered a negative 0.2 percent average annual percentage decline in gross national income (World Bank 2003, chap. 1). Against the background of scarce aid resources and skepticism about state-centered development, the IMF defined conditionality for Africa in the 1980s within two important assumptions. First, the IMF treated the primary cause of the 1980s crisis in sub-Saharan African countries as internal rather than external to each country. Eschewing African leaders’ concerns about external shocks and constraints and how these might be mitigated (a central theme of the Lagos Plan), the institution focused its attention on actions indebted governments needed to take.