Economic Justice in Africa: Adjustment and Sustainable Development

By George W. Shepherd; Karamo N. M. Sonko | Go to book overview

period; and investment rate in the 1983 program year over the one-year comparison period. In all cases, the economic indicators become better after the implementation of a one-year standby arrangement.

Second, "program versus non-program" comparison compares the eight macroeconomic variables of program countries with those of non-program countries during the program year as well as during the three years (or two years in the 1984 program year) after the completion of the IMF conditionality (see Table 3.2). This analysis is to indicate whether changes in the eight macroeconomic variables of program countries occur due to the IMF conditionality rather than due to some exogenous factors, such as a world recession.

The results of this comparison show no statistical significance for all macroeconomic variables, except current account balance, at the 95% level of significance.

The last comparison is the "devaluing program versus non-devaluing program," which compares the economic activities of devaluing program countries with those of non-devaluing program countries (see Table 3.3). There are only two statistically significant variables in this comparison: the saving rate in the 1982 program year and the overall balance in the 1986 program year.


CONCLUSIONS

In general IMF conditionality seems to be ineffective in solving the balance- of-payments problems of developing countries. It has been argued that a devaluation increases production and exports of tradable goods and reduces imported goods, thereby improving the balance of payments. The statistical results indicate otherwise. There may be several reasons why our results are quite plausible.

First, because developing countries are the price takers rather than price determinators, a devaluation has little impact upon foreign currency prices in the market for the products of developing countries.

Second, the main market for the products of developing countries--developed countries--is protected by tariff, quotas, and nontariff barriers. Thus, even when developing countries devalue their domestic currencies in accordance with IMF conditionality, they may not increase their exports very much. The prospects for lower trade barriers on the products of developing countries seem rather remote because of high inflation and unemployment rates in developed countries.

Third, even if the prices of imported goods are increased by a devaluation, developing countries continue to import intermediate goods necessary for their industrialization. Hence, a devaluation does not necessarily reduce the amount of imported goods.

All these are fairly well known facts about the structure of world trade and payments. It is, however, surprising how little the critics of IMF policies have made of these facts, which empirically negate the rather implausible results of studies such as Donovan's. We can, therefore, conclude that IMF conditionality is ineffective even in terms of targets set by the IMF itself.

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