By Mwaivu Kaluka 

 

President Ruto's visit to Paris for the Financial Pact summit on June 22, 2023, ignited debates around the Pan-African agenda. While outsiders have showered him with praises, calling him the 'new Sankara' of the African continent, little is known about his commitment to the proposals he's been making. During his visit, he delivered a powerful speech in front of the famous Eiffel Tower in Paris, France. He eloquently played to the gallery, captivating the crowd that cheered him and the international media.

 

Most notably, he called for the establishment of a new financial and economic order, leaving his host, President Emmanuel Macron, surprised. Ruto criticized the existing financial system: "At this global citizen event, we call for a financial system that is fit for purpose. One that does not divide the West and the East, the North and the South, or emitters and non-emitters, and that does not pit the developing against the developed. We want a system that is fair and transparent, and this is not too much to ask," Ruto declared.

 

Later, during a roundtable discussion with President Macron, World Bank and International Monetery Fund (IMF) staff, and other private investors, he began by commending the IMF for its role in Africa. However, he also requested debt relief, emergency liquidity, and credit resettlement arrangements from these institutions. In the conference, it became evident that Ruto was trying to strike a balance, avoiding antagonizing the so-called investors. He paid lip service while simultaneously playing to the Pan-African rhetoric. At one point, he even proposed a new currency and trade terms with the global North.

 

It's imperative that President Ruto aligns his actions with his words, as one of the key objectives of Kenya Kwanza was self-reliance. The phrase "self-reliance" has been tossed around in Kenya for some time. This article delves into the historical conditions that led to the establishment of the IMF and the World Bank, their impact on the global South, and narrows down to Kenya, from Independence to contemporary times.

 

The IMF and the World Bank emerged during the monopoly stage of capitalism, immediately after World War II. There was a transition from bilateral imperialism to multilateral imperialism. In the former system, balance of payments deficits were automatically corrected because gold was physically transported to pay the creditor country. This was the era of the gold standard, which posed challenges in the currency exchange field and ultimately led to the collapse of the gold standard. The new institutions were established to supposedly ensure stability in the international monetary system and avoid the previous problems.

 

In July 1944, the United States convened a delegation from 44 countries in the luxurious ski resort of Bretton Woods, New Hampshire. The conference aimed to discuss a new economic order for the post-war period, ensuring a stable balance of payments for member countries. The conference was a rescue operation for capitalism, as Britain, the former "workshop of the world," had been devastated by the war. Europe was grappling with high inflation, unemployment, trade protectionism, fluctuating exchange rates, and a shortage of gold reserves. In contrast, the United States had emerged as the new superpower, holding nearly two-thirds of the world's gold reserves and already being an industrial giant.

 

This meant that the conference favoured economically strong countries, leaving others as mere onlookers. John Maynard Keynes, one of the conference attendees representing Britain, even remarked that "21 countries have been invited which have nothing to contribute and will merely encumber the ground." Keynes proposed the establishment of an international payment union to provide member countries with loans and the creation of an international unit called 'Bancor' to serve as a reserve currency.

 

Keynes from a position of a debtor imperialist country,  envisaged the setting up of this international clearing Union 'bancor', which would make large overdrafts available for its members, facilities which were to be related to their pre-war share of world trade. This, of course, favoured Britain and according to Keynes's plan, this overdraft should have amounted to $26 billion. There was no limit set on the value of individual credit balances ' [Nabudere,,2009 pg 51]

 

Bancor was to be defined as defined as gold, and members were required to accept it as the equivalent of gold for settling international balances. The plan assumed stable exchange rates and assigned other functions to Bancor, such as serving as a unit of account and a medium of exchange. Gold was intended to serve as a form of international liquidity.

 

However, this plan was rejected by the United States. Assistant Secretary of State for the Treasury, Harry Dexter White, who in his plan proposed an international stabilization fund that would place the burden of trade deficits on debtor nations. White spoke on behalf of a creditor imperialist nation. Unlike Keynes's plan, which required no initial contributions from members, the White plan mandated member countries to contribute a specified amount or quota of at least $5 billion. This quota was determined based on an agreed formula that considered a country's gold holdings, foreign exchange fluctuations, balance of payments issues, and national income. Member countries' subscriptions were to be 25% in gold and 75% in their national currency.

 

In return, these member countries would receive purchasing rights over other countries' currencies to supplement their normal reserves for balance of payments purposes. They could acquire these drawings by providing more of their currencies. This would assist deficit countries in stabilizing temporary imbalances in their obligations to other countries, resembling the 19th-century gold standard mechanism that applied pressure to both creditors and debtors.

 

'They could purchase these drawings by putting in more of their currencies. This would assist the deficit country to 'stabilise temporary imbalances in their obligations to other countries. The drawing or purchasing of other currencies is called the 'scarce currency ' transaction, and the aim was to imitate the 19th-century gold standard mechanism, which put pressure on both the creditors and debtors ' [Nabudere,1989, pg 55]

 

White also proposed the formation of the International Bank for Reconstruction and Development, which would provide capital for economic reconstruction post-war and stimulate the smooth flow of foreign private investments. The U.S. dollar was to play a central role and would be pegged to other currencies at fixed exchange rates. Its relation to gold was set at $35 per ounce of fine gold, which limited other countries' ability to control their monetary policies and protect their national industries.

 

The United States aimed to elevate the dominance of the dollar to the level of 'world money' to replace gold, much like what the British pound had done in the guise of the gold standard. After the final agreement in 1945, the United States became the largest shareholder by depositing $2.9 billion, twice the amount deposited by our former colonial empire, Britain, which was facing colonial liberation movements and the pressure of an 'open door' policy allowing the penetration of Transnational Finance Capital from other advanced capitalist countries.

 

A package called the standby arrangement was introduced, and it introduced the principle of conditionality for debtor countries. The loan would be disbursed in phases, which allowed the implementation of conditionalities that debtor countries had to adhere to. These agreements were not treated as international treaties, which meant that executive and multinational institutions could make concessions without approval from parliaments or other institutions responsible for checks and balances. These agreements were also kept confidential and treated as classified information, hidden from the public domain.

 

Some of the conditionalities, known as structural adjustment programs or Economic Recovery programs, were attached to these loans. These included currency devaluations, trade liberalization, reduced public expenditures on goods and services, credit restrictions, and privatization of state-owned enterprises. Let's explore some of the different lending facilities available at this multilateral institution:

 

i) Stand-by Arrangement (SBA) - This is the core lending facility that runs for 12-24 months, not exceeding 34 months. Repayments are typically due within 3-5 years, and it aims to address short-term balance of payments deficits [Havernik, 1987].

 

ii) Extended Fund Facility (EFF) - This facility is similar to the SBA but is intended for low-income countries under the Poverty Reduction and Growth Trust (PRGT), which is distinct from the General Resource Account (GRA). The GRA operates with market-based interest rates, while EFF allows low-income member countries to obtain credit or Special Drawing Rights (SDR) beyond their share quota contributions. Repayments for EFF typically extend for 4-10 years.

 

iii) Extended Credit Facility (ECF) - ECF is similar to EFF and falls under the PRGT. It addresses medium-to-long-term structural issues and comes with a grace period of 5 years and a maturity period of 10 years.

 

iv) Flexible Credit Line - This facility is intended for countries with robust policy frameworks that face immediate financial challenges and wish to avoid market reactions that conditionalities typically trigger. These are usually 1-2 years renewable credit lines.

 

v) Rapid Financing Instrument - This facility provides rapid financial assistance to countries experiencing urgent balance of payments problems due to natural disasters, such as floods, diseases, commodity price shocks, and political conflicts, and has a repayment period of 3-5 years.

 

vi) Rapid Credit Facility - This facility is designed for countries under the PRGT and offers financial assistance during crises. It has a grace period of 5 years and a maturity period of 20 years.

 

There are other facilities like Rapid Financing Instruments, precautionary and liquidity lines, and Catastrophe Containment and Relief Trust (CCRT) in the form of grants, which we won't delve into in this article.

 

THE NEOLIBERAL OFFENSIVE 

The IMF and World Bank, often referred to as Bretton Woods institutions together with the World Trade Organisation(WTO) embarked on a systematic exploitation of countries in Africa, Asia, and Latin America whose governments had accepted the conditionalities and credit system imposed by these imperialist institutions. These nations were coerced into implementing a series of measures, including budget cuts, currency devaluation, market liberalization, the removal of trade protectionism (tariffs and levies), the relaxation of restrictions on foreign investments to allow foreign finance capital to control production and trade, and privatization of state-owned enterprises and assets.

 

In 1973, as the global economy faced a downturn during the 1974/75 recession, member organizations of the Petroleum Exporting Countries (OPEC) raised oil prices, leading to an increase in commodity prices. In response, the IMF introduced the Extended Fund Facility (EFF), allowing low-income countries to borrow credit up to 140% of their quotas. However, these loans came with harsh conditionalities that severely affected the people of the global South, leading to widespread public protests and outcry against the austerity measures.

 

In Chile, for instance, the CIA-backed coup in 1973, which toppled Salvador Allende's government, set the stage for a rapid transition to neoliberal policies under Augusto Pinochet. Pinochet privatized healthcare and education, reduced government spending on public goods and services, implemented wage cuts, increased taxes, lowered tariffs, and initiated mass layoffs in the public sector. These austerity measures had a swift and detrimental impact. Unemployment skyrocketed from 3% in 1973 to 18.7% by the end of 1975, pushing inflation to 341% and causing widespread poverty. The result was an exacerbation of social inequality for decades to come.

 

Mexico faced a similar situation in 1979 when it sought assistance from the IMF. The IMF's financial support came with conditions that included reducing wages for public servants and removing subsidies on basic commodities. Within four years, the inflation rate surged to 90%, leading to mass demonstrations and uprisings in many Latin American countries.

 

The IMF remained unresponsive to the adverse effects of its policies as long as it fulfilled its objective: ensuring the rule of finance capital owned by the financial oligarchies of the world's financial centres. By 1983, 16 Latin American countries were compelled to reschedule pre-existing debts. The largest four – Mexico, Brazil, Venezuela, and Argentina – had accumulated debts of $37 billion, a substantial portion owned by major US banks. IMF and World Bank were actualizing this coalescence of Bank Capital and Industrial capital to form International Finance Capital that would now rule the world,

 This underscored the role of banks in the modern stage of monopoly capitalism and its credit system.As Lenin observed;

 

“The principal and primary function of banks is to serve as middlemen in the making of payments. In so doing they transform inactive money capital into active, that is, into capital yielding a profit; they collect all kinds of money revenues and place them at the disposal of the capitalist class” [Lenin,1963]

 

In Africa, the trends were similar. When Ghana gained independence in 1957, President Kwame Nkrumah's government adopted a socialist path. This transition towards socialism was reflected in the introduction of a planned economy, ambitious nationalization of key industries, and industrialization programs. However, by 1983, after a military junta led by Flight Lieutenant Jerry John Rawlings took power, the country began negotiations with the IMF and the World Bank. This led to the implementation of stringent loan conditions and economic recovery program.Charles Amo-Agyomang, 2017]

 

Although it's not possible to delve into the case of every African country subjected to the neoliberal framework in this article, several instances of resistance against these imperialist institutions emerged across major cities in Africa. Protests, strikes, and uprisings in various countries highlighted the discontent and struggles of the people against the adverse effects of these policies.

 

In 1981, for example, Moroccan trade unionists and students demonstrated against the then-government austerity measures where 79 protesters were killed and 550 injured, The trade union had organized a general strike after IMF made a loan of $1.2 billion.

 

In May 1986, about 20 students were killed at Ahmachi Bello University in Zaria in Nigeria, in Benin students were also killed in protests at the Kachira Polytechnic.

In Feb 1990, students at the University of Niamey in Niger boycotted after IMF imposed cuts on education funding.

 

In SA before the 1994 election Mandela and ANC, protests were there in the major cities in South Africa and the IMF was held accountable for the death and devastation that had been caused by the austerity measures they had prescribed to the African government.

 

In Kenya, like many other Third World countries, the period following independence in 1963 was marked by what was referred to as the "Golden years." Despite the economy's continued colonial character, efforts were made to advance the interests of the bourgeois class. The post-1970s oil embargo and the subsequent global economic recession adversely impacted the country, leading to fluctuations in export prices, limited technological advancements, drought, famine, rapid urbanization without corresponding industrialization, and widespread poverty, disease, and ignorance.

 

During this period, Kenya's GDP per capita fell, living standards declined, and economic policies, such as "African socialism" and "self-reliance," proved largely ineffective. The Industrial and Commercial Development Corporation (ICDC), a government parastatal, remained closely tied to imperialism as it relied on credit from foreign banks. This meant that foreign capital continued to control both industrialization and commerce in Kenya.

 

By the early 1980s, Kenya had succumbed to the demands of the IMF and its conditionalities. The structural adjustment programs (SAPs) became the primary policy tools for the country's economic management. SAPs aimed to improve efficiency in all sectors of the economy, with a focus on liberalizing prices and marketing systems, financial sector policy reforms, divestiture, and privatization of state-owned enterprises, along with civil service reforms.

 

As SAPs were implemented, prices and the marketing of goods and services were liberalized, and foreign multinational corporations began to dominate various industries. Local industries, unable to compete with these multinationals' economies of scale, faced the threat of insolvency. Industrial stagnation contributed to rising unemployment rates.

 

"The government had liberalized some aspects of labour markets, leaving market forces to determine appropriate wage levels. The low levels of unemployment in the rural areas reflected corresponding high levels of underemployment among youth, especially family-owned enterprises such as firms," observed UNICEF in 1998.

 

Economic reports often emphasize figures such as Gross Domestic Product (GDP) growth and income per capita. However, little attention is paid to the Human Development Index and income inequality figures, which are essential indicators of the impact of economic policies on the lives of the people. Human development, which allowed humans to distinguish themselves from other primates, arose when they began to produce their material existence and develop the productive forces to achieve freedom from necessity. Development must be people-centred, enhancing their material conditions and increasing their freedom. Kenyan leader Mwalimu Nyerere emphasized that "the purpose of development is the people."

 

Let's look at how these SAPs affected the human development factors of health and education. After independence health was one of the priorities of the Kenyatta government, Kenya had experienced an improvement in the number of health facilities, and health personnel the rates of infant mortality had declined and life expectancy was increasing gradually. After the implementation of the SAPs, the quality of medical goods and services deteriorated due to the insistence of the IMF for the government to cut down spending on public healthcare. In 1988 the government was forced to buy the idea of cost-sharing in the the health sector so that the beneficiaries would have to pay part of the cost of health. This meant that healthcare remained a privilege to only those who could afford it.

The cost-sharing approach was also applied to the education sector, leading to an increase in non-enrolment and dropout rates as education costs became a burden for poor families who could not afford school fees. These policies prioritized economic interests over the welfare of the people.

 

In 1999, President Moi's regime faced growing opposition and public discontent. In response, he appointed a team of technocrats, known as the "dream team," to reverse the economic downturn. However, their policies, influenced by the IMF and the World Bank, did not achieve the desired results. The situation persisted under President Kibaki, who struggled to escape the influence of these institutions. Several state-owned enterprises were privatized during his tenure. Between 2003 and 2008 six state-owned enterprises that is Kenya Reinsurance, Safaricom, Telekom Kenya, Kenya Railways Corporation and Mumias Sugar were privatized as part of the bitter pill of the Bretton Woods institutions.

 

The trends continued under President Uhuru Kenyatta, who sought assistance from the IMF. His second tenure saw increased lending from the IMF. In a mission that was led by Mary Goodman, Kenya through the Extended fund facility(EFF)The extended credit facility would have access to SDR 179.13 million.By 2nd April 2021, IMF Board had approved the Usd $2.34 billion EFF/ECF arrangement for Kenya, the fourth review was undertaken from 25th Oct to 8th Nov and was approved by IMF Executive Board.

 

Kenya's debt increased significantly, and President William Ruto continued to seek financial support from the IMF.Recently IMF deputy managing director Antoinette Sayeh met President Ruto as the IMF executive board completed their fifth review under EFF/ECF arrangement and an immediate disbursement estimated to be 58.7 billion was disbursed, they also approved a 20-month arrangement under the resilience and sustainability facility(RSF) of 88.9 billion. In the disguise of helping in building resilience to climate change and expediting private climate financing.Kenya has also got a reprieve from the lender after IMF extended the fund and credit arrangements from the current 38 months to 48 months through April 1, 2025, but this would however mean we are going to pay more interest.

 

 His government faced criticism and protests against a controversial Finance Act aimed at attracting more funding from the IMF. This Act passed under the influence of the IMF, included measures such as increased VAT on fuel, a housing levy deducted from workers' salaries, and tax reductions for landlords. The IMF also criticized the Kenyan government for reinstating subsidies on certain public goods and services.

 

In summary, Kenya, like many other countries, found itself trapped in a cycle of debt dependence on the IMF and the World Bank, debt is already standing at ksh 10.5 trillion from 1.9 trillion when he took office with these institutions exerting considerable influence on the country's economic policies. Public discontent and protests against the adverse effects of these policies continued, highlighting the class struggle between the people and imperialism. As Kenya moves forward, the country's leaders must carefully consider the implications of their economic policies and the influence of international financial institutions.

 

In conclusion, the Communist Party of Kenya is the only political force that can genuinely start the immediate process for people-centred development. CPK’s approach to countering the neoliberal offensive would involve a comprehensive transformation of the economic system, one that prioritizes the welfare of the people over corporate profits. This transformative agenda includes:

 

1. Dismantling the neoliberal policies that have led to austerity measures, trade liberalization, privatization, and deregulation. These policies have disproportionately harmed the working class and the broader population.

 

2. A shift towards national economic planning, where the state plays a central role in guiding economic development, focusing on the needs of the people rather than corporate interests. This entails industrial policy, trade policy, and the allocation of resources to sectors that benefit society as a whole.

 

3. Public ownership and control of strategic sectors of the economy, including critical industries, utilities, and resources, such as energy, healthcare, education, and natural resources. This ensures they serve the interests of the people rather than corporate profits.

 

4. Worker and community participation, allowing workers to have a say in the decision-making processes of their workplaces, potentially through the formation of workers' cooperatives and factory committees. Local communities should also be involved in regional development decisions to ensure projects serve their interests.

 

5. Addressing income and wealth inequality through progressive taxation and comprehensive social welfare programs to ensure that the burden of economic reform does not fall on the working class and the poor.

 

6. Prioritizing self-reliance in essential goods and services, reducing dependence on global markets. Fairtrade policies should be pursued to protect domestic industries and workers from unfair competition.

 

7. Debt restructuring and economic sovereignty are vital. CPK shall mobilize forces of the South to collectively renegotiate or repudiate unsustainable debts and focus on maintaining the autonomy to make decisions in the best interests of their citizens.

 

8. Investment in human development is paramount. Public spending shall prioritize education, healthcare, and social services to enhance human development and provide equal opportunities for all.

 

9. Environmental sustainability is a core principle. We shall transition to a more sustainable and ecologically responsible economic model, acknowledging the planet's resource limits.

 

10. International solidarity is crucial, given the global nature of the neoliberal world order. Collaboration and solidarity with other nations and movements that share similar goals are essential in the pursuit of a more just and equitable international economic system.

BIBLIOGRAPHY

 

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5. Dani Wadada Nabudere- The crash of International Finance-Capital, 2009, Pambazuka press

6. Central Bureau of Statistics,1993. Demographic and Health Survey, Nairobi, Government Printer 

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