Political Economy and IMF in Nigeria and Cameroon - Research Paper Example

Political Economy and IMF in Nigeria and Cameroon Introduction IMF as an international financial has played a very important role in molding the growth of Third World nations. The discussion below focuses on what IMF is; what it does; and its origins and original aims. Further, the success and failures of IMF are as well covered, and the influence IMF had on African nations notably Nigeria and Cameroon on the political and economic situations. The impact of IMF and the role it played in the two nations, the changes enacted due to IMF, and a comparative analysis of the supposed failure. That is whether the nations would have performed better without IMF or whether they had influence in preventing the prosperity of the changes suggested by IMF. The economic and political state of the nations due to IMF influence at present and the opinions why or why not did the nations recover are in addition discussed. What IMF is International Monetary Fund (IMF) is a global institution that offers monetary assistance and advice to member nations. IMF came into existence at the conclusion of World War II, because of the Bretton Woods Meeting in 1945. It was formed out of demand to curb economic crises such as the Great Depression. The institution has turned to an enduring organization integral to the formation of monetary markets globally and to the development of the growing nations (Tenney & Norman, 2011, 149). What IMF does The job of IMF is of three major kinds: Surveillance includes the supervising of economic and monetary growths, and the offering of rule advice, targeted mainly at crisis-avoidance. IMF as well lends to nations with balance of payments hardships, to offer temporary funding and to promote rules targeted at rectifying the underlying challenges. Loans to low revenue nations are in addition targeted mainly at poverty lowering. Lastly, IMF offers nations with technical aid and coaching in its fields of professionalism. Promoting all three of these functions is IMF job in economic study and statistics. In current years, as section of its attempts to reinforce the global monetary system, and to improve its efficiency at curbing and evaluating crises, IMF has used both its surveillance and technical aid job to the growth of norms and codes of good exercise in its fields of responsibility, and to the reinforcing of monetary departments. IMF as well plays a significant role in the battle against funds laundering and violence (Fritz-Krockow & Parmeshwar, 2007, 2). Origins and original aims of IMF IMF is a global institution that was started in 1944 at the Bretton Woods Meeting and officially formed during 1945 by twenty-nine member nations. IMF’s expressed objective was to aid in the rebuilding of the sphere’s global payment system after World War II. Nations contribute funds to a pool by a quota scheme from which nations with payment disparities may scrounge money temporarily. By this task and others like observation of its members’ economies and the requirement for personal-rectifying rules, IMF does job to enhance the economies of its member nations. IMF defines itself like an institution of one hundred and eighty eight nations, doing job to foster international financial cooperation, protect monetary steadiness, enable global trade, support great employment and maintainable economic development, and lower poverty across the sphere. Its headquarters are in Washington, D.C., United States. The original aims of IMF included: Offering a forum for cooperation on global financial challenges Enable the development of global trade, therefore supporting job formation, economic development, and poverty lowering Support exchange rate steadiness and an open scheme of global payments; and Loaning nation’s foreign exchange when required, on a temporary basis and under sufficient securities to aid them handle balance of payments challenges (Jacobsen & Ramesh, 2008, 268). Success and failures of IMF vision Global trade grew rapidly from the 1950’s. There was no global depression instantly following the Second World War as had happened following World War 1. The lack of such an economic catastrophe had little to do with IMF that really carried out little task in the initial ten years of its existence; however, was rather because of the Marshall Plan, the Pax Americana and the organization of stabilization rules along the developed sphere. Executing the Bretton Woods Articles, in specific the achievement of current account convertibility (Article VIII) took a lengthy time for the developed nations of Western Europe. Other sections of the original vision ran into growing challenges; 1. Current account convertibility in the developed nations of Western Europe took extra longer than had first been envisaged, up to December 1958. It was attained by the attempts of the European Payments Union financed halfway through the Marshall Plan. The achievement of convertibility was heralded through a surge of IMF credit in 1956-7, and by 1958, majority European nations had agreed the significant article (Article VIII) of the Articles of Agreement. Japan acted as such during 1964. Majority of the developing countries nevertheless retained current account limitations up to the 1980’s or 1990’s. During 1960, 13% of IMF’s members had agreed account convertibility under Article VIII, in 1970 30%, and by 1990 45%. By 1998, nevertheless, of IMF’s 182 members, 142 (or 79%) had agreed Article VIII. 2. The pulls on the par value scheme grew in the 1960’s. Pulls constituted a progressive tension between nations in chronic shortage such as the UK, which was prohibited through outside restrictions from growth and was under progressive pressure to undervalue. The UK being the issuer of the globe’s second most significant reserve money at that time, therefore encountered nearly progressive disaster. The excess nations; Germany and Japan, found it hard or impractical to undervalue. Moreover, the scheme itself encountered substantial pull like the core nation the U.S, which ran nearly progressive balance of payments shortages and unrelenting gold depletes. Many attempts to curb the unavoidable crumple of the scheme constituted U.S drawings from IMF, and the scheme finally broke down in a sequence of money disasters between 1971 and 1973. Following the breakdown, the risk of trade battles rose. 3. After 1978, no main industrial nations drew on IMF for short-term funds since the global capital markets currently offered such finances. The development of capital markets that had led to the collapse of the set exchange rate system during 1971-3, shocked everyone. 4. IMF was not at first an international organization, as had been imagined at the era of Bretton Woods; however became a section of Cold War politics. The USSR had refuted to join during 1945, and IMF became an organization of the non-communist (liberated) globe (Freytag, 2002, 80). Political and economic situation in Nigeria before and after IMF came into play The political and economic situation in Nigeria before IMF came into play was characterized by discussion over the force of decolonization, freedom, and modernization. Between 1951 and 1960, the main political movements played leading responsibilities in uniting and locally bringing together the economic leaders. Leaders from most of the movements in the regional assemblies who worked with the governing federal alliance distributed a broad range of prizes and sanctions, therefore keeping their personal locations and authority and maintaining the masses inferiority. Locations in state services and public firms, permits for market stands, authorizations for agricultural export manufacturing, rights to set up ventures, electrical service, running water, roads, and the ruling team assigned scholarships to its promoters. Every key movement was supported by a bank that aided in the transfer of considerable public finances to the movement. At all stages, local and regional following 1951 and central after 1954, political elites would apply variance of regulations, stretching over local councils, district governance, judiciaries, and police, to restrain any rebel minority, mainly in the distance north, where clientage was the societal glue of the emirate scheme. Political seniors provided security, support, and economic protection in exchange for faithfulness and the compliance of minors (Falola & Mathew, 2008, 75). Reforms in Nigeria by IMF After the assenting of an IMF stand-by treaty during August 2000, Nigeria got a debt-rebuilding contract from the Paris Club and a $ 1 billion loan from IMF, both dependent on economic and political changes. Nigeria withdrew from IMF due to failure to fulfill consumption and exchange rate goals; however, the economy of Nigeria fluctuated so much in the following years and Nigeria had to get an intervention to join IMF once more in 2005. As from 2008, the administration has started to express the political intention to execute the market –oriented changes advised by IMF, which include: Improving the banking scheme to contemporary status Getting rid of subsidies Solving regional disagreements over the allocation of income from the oil firm Improving transparency and expanding economic development (Falola & Saheed, 2010, 204). Political and economic situation in Cameroon before IMF came into play The Cameroonian economic and political disaster was a slump in the economy of Cameroon since the middle of 1980s to the start of 2000. The disaster led to increased costs in Cameroon, trade shortages, and loss of state income. The administration of Cameroon admitted the disaster in 1987. External viewers and critics laid responsibility on bad administration stewardship of the economy. The government instead laid responsibility on the decline of the costs of export items, specifically a steep decrease in the cost of petroleum. The president at that time; Paul Biya, claimed that the total export items declined at the same moment. Several Cameroons trade associates offered to assist the nation; however, Cameroon drew back at their state that the nation follow stern cost cutting proposals provided by IMF. Instead, they implemented their personal plan, which resulted into adverse effects to the Cameroonians, and this called for urgent measures to be taken to curb the situation. The measures encountered with global endorsement; however, aggressive crime increased due to that. Cameroon’s arrangement as well failed to bridle in dishonesty. By October 1988, the intended impact was less that had been speculated, and Cameroon accepted to an IMF help package of $150 million and agreed a structural adjustment program (SAP) loan. Cameroon has from then concentrated on reimbursing off its debt and more limiting public wages and pay increases to civil servants, its economy mainly started recovering and by the start of the 2000 era, it had shown signs of recovery. It continuously boomed as time went by due to efficiency in trade operations and implementation of IMF schedules as proposed (Charlier & Charles, 2009, 248). Reforms introduced by IMF to the Cameroon political and economic situation Due to its modest oil reserves and positive agricultural states, Cameroon has one of the precise-bestowed major item economies in sub-Saharan Africa. Yet, it encounters several of the severe challenges facing other developing nations, like the dormant per capita revenue, a comparatively inequitable allocation of revenue, a top-intense civil service, widespread dishonesty, and a commonly negative climate for enterprise venture. From 1990, the government has engaged on different IMF schedules designed to stimulate commerce investment, raise effectiveness in agriculture, enhance trade, and recapitalize the country’s banks. IMF is pushing for extra changes, constituting raised budget transparency, poverty lowering schedules, and privatization. Financial support for electricity, energy, and food has pulled the budget. Current mining schemes, for example in diamond have attracted expatriate venture although big investments will take time to grow. This all will aid in implementing IMF programs and reforms for the success of Cameroonian economical and political fields (Cameroon, 2006, 54). The challenges faced by these nations were due to their failure to implement IMF programs as proposed and instead deciding to work on their own plans. IMF schedules have been of great significance to the political and economical development of these nations and they could not survive without IMF schedules. For example, when Nigeria decided to withdraw from IMF program, it encountered stiff fluctuation in economy and they had to get back to the program as soon as possible to save the situation. Likewise, when the Cameroonian government failed to implement IMF program and instead designed theirs, the Cameroonians encountered several shortages in supplies and this hiked the prices of items so much. Thus, the Cameroonian government had no choice other than to implement IMF programs to restore the growth steadiness of the nation. The political and economic states of these nations have bounced back, although the corruption and unfaithfulness of the leaders is pulling them behind. They are trying as much as possible to eliminate the unethical elites and continue pushing for the progressive development of the nations (Ndulu, 2008, 43). Conclusion International Monetary Fund is an institution that has served so many nations in Africa and the world as a whole. The organization aids a nation in achieving its growth and working towards maintaining it. Their roles are very distinct and as in the cases above, avoiding the organization’s program has severe consequences. IMF schedules have remained of great significance to the political and economical development of several nations and elites who strictly follow them encounter fewer challenges in their administrative role. Although, the implementation is not so smooth, and the strict adherence does not mean success, nations, which follow the program to the latter, have much to rejoice in at the end. Work cited Cameroon: Poverty Reduction Strategy Paper Third Annual Progress Report. Washington, D.C: International Monetary Fund, 2006. Internet resource. Charlier, Florence, and Charles N'cho-Oguie. Sustaining Reforms for Inclusive Growth in Cameroon: A Development Policy Review. Washington, DC: World Bank, 2009. Print. Falola, Toyin, and Matthew M. Heaton. A History of Nigeria. Cambridge, UK: Cambridge University Press, 2008. Print. Falola, Toyin, and Saheed Aderinto. Nigeria, Nationalism, and Writing History. Rochester, NY: University of Rochester Press, 2010. Print. Freytag, Andreas. Success and Failure in Monetary Reform: Monetary Commitment and the Role of Institutions. Cheltenham [u.a.: Elgar, 2002. Print. Fritz-Krockow, Bernhard, and Parmeshwar Ramlogan. International Monetary Fund Handbook: Its Functions, Policies, and Operations. Washington, D.C: International Monetary Fund, Secretary's Dept., 2007. Internet resource. Jacobsen, Trudy, C J. G. Sampford, and Ramesh C. Thakur. Re-envisioning Sovereignty: The End of Westphalia?Aldershot, England: Ashgate, 2008. Print. Ndulu, B J. The Political Economy of Economic Growth in Africa, 1960-2000. Cambridge: Cambridge University Press, 2008. Print. Tenney, Sarah, Norman K. Humphreys, and Norman K. Humphreys. Historical Dictionary of the International Monetary Fund. Lanham, Md: Scarecrow Press, 2011. Print. 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