Is International Monetary Fund friend or foe to Kenya’s development?

International Monetary Fund managing director Christine Lagarde speaks during a meeting with the Members of Parliament at County Hall on January 7, 2014. PHOTO | EMMA NZIOKA  NATION MEDIA GROUP

In Summary

• Some analysts are questioning the timing and intention of Ms Lagarde’s visit
• The jargon employed by the IMF’s top brass is seen by some as demonstrating its overbearing attitude towards its African clients

By GRIFFINS OMWENGA
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The visit to Kenya by the International Monetary Fund managing director has stirred debate on the growing influence of the lender on the Kenyan economy.

Even though Ms Christine Lagarde’s January 5-8 visit was a far cry from the media-generated excitement that would accompany such visits during the Moi era, it has still generated some interest.

The last time an IMF head came to Kenya was in 2010 when Mr Dominique Strauss-Kahn visited, a year before he was forced out of office over allegations of sexual impropriety.

Some analysts are questioning the timing and intention of Ms Lagarde’s visit, especially after the government signalled its intention to retrench civil servants to cut the wage bill.

And in an opinion article in the January 6 issue of Business Daily, Mr Mohamed Wehliye, senior vice-president in charge of financial risks at Saudi-based Riyadh Bank, said the visit by the IMF boss “comes with no bag of goodies but policies that constrain the economy.” (READ: Why Uhuru team should be cautious on IMF boss visit)

“As Ms Lagarde pays us a visit, perhaps to ‘programme us’ for the little help she gave us, President Uhuru Kenyatta and his administration should be very careful with how they engage her institution,” he wrote.

RIGID PROGRAMME

The visit also came at a time when the Treasury and the Central Bank of Kenya (CBK) have committed themselves to adopting a rigid programme to contain inflation, despite implications for economic growth and employment.

Kenya’s domestic and foreign debt levels have been rising.

At the end of last year Kenya’s gross public debt hit a new high of Sh2.1 trillion, equivalent to 56.2 per cent of the gross domestic product.

Domestic debt rose by Sh51.44 billion to stand at Sh1.17 trillion while external loans climbed by Sh1.77 billion to Sh889.31 billion.

Despite this, Kenya has just completed drawing down a Sh65 billion ($750 million) three-year foreign currency support loan facility from the IMF, and talks for the next round of financing arrangement are set for March.

 

The IMF said in a report last year that it had signed a deal with the government to cut the wage bill to seven per cent of GDP in the next three years from the current 13 per cent.

The IMF noted that the government has to devise mechanisms to bring down the wage bill that currently stands at Sh500 billion.

The lender also noted that the government had committed to bring down the wage bill over the next five years to seven per cent of GDP, down from 12.1 per cent, signaling massive lay-offs or wage cuts.

“Efforts should now focus on reining in recent increases in the wage bill that could crowd out spending in much-needed infrastructure investment and social protection,” said IMF in the report.

The fund’s pronouncement was the clearest indication yet that the ongoing push for job cuts may be informed by commitments the government has made to external financiers.

The IMF was clear that it prepared the report in consultation with various arms of government, including the Treasury, independent commissions and CBK.

According to the IMF, salaries must be cut, social spending scaled back and subsidies done away with. (READ: IMF boss says Kenya economy on track)

OVERBEARING ATTITUDE

The jargon employed by the international lender’s top brass is seen by some as demonstrating its overbearing attitude towards its African clients.

To this end, different experts have expressed varied views on some of these proposals.

“The IMF has had a mixed record in Africa that is more disappointing than exciting,” Prof Ng’ethe Njuguna Sospeter, associate professor at the University of Nairobi, told Sunday Nation.

Prof Njuguna said that most of what the IMF is proposing in its deliberations with African countries is only aimed at ensuring debt obligations are met at the expense of other social benefits like improving living standards.

“The most controversial discussions have been centred on how to tame inflation, and the IMF only and always insists on tightening monetary policy,” said Prof Njuguna.

These decisions, he said, lead to actions that contract the economy by making the cost of money expensive.

Prof Njuguna said the IMF is cautious because they are aware how, when he was Finance minister, President Uhuru Kenyatta loved packages to stimulate the economy.

“Sometimes policymaking requires you to think about the lives of people, but the IMF is impervious to all other reasoning other than controlling monetary policy,” said the scholar.

Africa Corporate Governance Advisory Services chief executive Karugor Gatamah said the IMF has been seen as serving the interests of the West.

“It is tricky now because you can never know if they are honest or not. If they have come because they really want to give honest help, that is welcome. However, it should not be lost on us that the West has seen resources like oil and minerals, and now they want to be warm in order to control us,” he said, adding that over the last two decades Kenya has developed the capacity to analyse its own situations and should not allow external forces to indirectly manage internal affairs.

The mistrust of the IMF stems from the failed structural adjustment programmes (SAPs), which the international lender advanced to many African countries between 1979 and 1990 to help stimulate economic growth; one of the results was massive job losses.

Ms Lagarde has also visited Ivory Coast, Malawi, Niger, Nigeria, and South Africa.

When she visited Malawi, she urged President Joyce Banda to soldier on with reforms. Praising her “bold” steps, Ms Lagarde stressed the “need to stay the course”.

But while these reforms have been taking place, the cost of fuel in Malawi has soared, and living conditions have deteriorated. Ms Banda bears the brunt of local criticism, and there are threats of civil unrest.

Other examples abound across the continent. In December 2011, just after she had been elected, Ms Lagarde met Nigeria’s President Goodluck Jonathan and Finance minister Ngozi Okonjo-Iweala in Abuja.

Referring to an economic reform plan mooted by the two, she told reporters: “My mission is to come and listen and appreciate and understand exactly what economic programme will be implemented in Nigeria,” she said.

Some of those reforms included removing the fuel subsidies that led to a rise in the cost of living and stirred protests.