Globalization and Its Discontents

        Lastly, Stiglitz reasons that the IMF overemphasizes its need to lower inflation rates as it uses the same policies on all of the countries it lends to.  It is important, nonetheless, to reduce inflation rates, however, Stiglitz stresses that if they are lowered too much it will lead to a slowdown in economic growth.  The results of the IMF decreasing inflation rates led to a downward cycle in economies, such as the Czech Republic, whose economy experienced a decline after lowering their inflation rate to 2 percent as it suppressed new investment.  In contrast, Poland decided to go against the IMF’s recommendations and they turned out to be successful after keeping inflation around 20 percent.  Evidently, the IMF’s general policies are not specific enough to effectively adjust to the specific needs of a particular nation.

        Stiglitz’s pessimistic outlook on the IMF is validated through his strong arguments dealing with their “one size fits all” policies involving rapid capital market liberalization, rapid market privatization, and forceful push on lowering inflation rates.  Stiglitz illustrates the distinct pattern of the IMF’s failures throughout the book and their lack of trying to amend their policies until problems have become out of control.  Stiglitz’s case specifies the many flaws of the IMF and changes that have to be implemented in order to reach their goal of global economic stability.

        Africa’s most populous country, Nigeria, became an independent nation within the Commonwealth on October 1, 1960.  Successive governments have pursued wide-ranging adjustment programs aimed at monitoring the rapid decline of the Nigerian economy in the 1970s.  The IMF and World Bank have played key roles in the formation and structure of Nigeria throughout the years including implementing an adjustment on the exchange rate, trade liberalization and market privatization in order to help the efficiency of allocating resources and becoming a stable country.  

        Nigeria joined the IMF on March 30, 1961 in a state of capitalism which had created a high import-dependency as a result of relying too much on oil revenues for economic development and expansion.  In 1976 and 1977, the country did experience a growth; however, this did not signify that the future was going to be optimistic.  There was a large amount of waste, over-invoicing and misuse of investment capital which led to an economic decline.  The Nigerian industry was heavily dependant on foreign inputs due to liberalized imports, reduced tariffs, and increased public expenditure.  There was a massive rise in investment and trade credits and external loans doubled in 1983.  The dramatic decrease in oil revenues had a harsh impact on the balance of payments, public finances and the economy as a whole. With all of this disorder embedded in Nigeria, the economy entered a serious debt crisis. 

        The IMF and World Bank were at the base of the formation of Nigeria’s Structural Adjustment Program (SAP) and they had to make sure that developing countries with crisis’s, such as Nigeria, were approved before aiding their problems.  The main strategies used to conduct international finance and trade by avoiding currency and trade blocks were put into place.  “Convertibility and multilateralism are to be governed by market forces rather than by state regulation…market forces can allocate global resources according to comparative advantage.”  The IMF’s polices focused on macroeconomic factors that included removing subsidies and trade restrictions, privatizing markets and devaluing the currency and wage rates in order to liberate the allocation of resources.  The World Bank policies have consistently run in line with the loan polices of the IMF with the SAP.  SAPs encourage countries to focus on the production and export of primary commodities to earn foreign exchange. But these commodities have infamous irregular prices subject to the whims of global markets which can lower prices just when countries have invested.  The government applied for an IMF Extended Fund Facility in 1983 which would allow 102 to 125 percent of Nigeria’s Special Drawing Rights Quota to be drawn over a period of three years.  The fund recommended, with the assistance of the World Bank, a review of interest rates and an export promotion to increase the export of non-oil products.  The government wasn’t able to comply fully with the investment program and the industrial sector diminished quite rapidly in 1983 due to businesses closing.  As a result, social services weakened and the regime collapsed late 1983.  Since Nigeria’s independence, it has been subjected to stunted growth from military ruling and internal conflict.  Due to their high dependency on oil, Nigeria has experienced rapid fluctuations that depended solely on international oil prices.  Consequently, Nigeria had a period of stability in the 1990s and now prices are slowly creeping up.  In 1999, Nigeria was facing its worst economic crisis since independence after 15 years of military misrule.  The Nigerian government rejected loans from the IMF because they had doubts and were frustrated with exchange rate controls and subsidies on fertilizers and fuel.  Negotiations were made and the IMF continues to recommend very similar macroeconomic policies that it originally gave to Nigeria including prescriptions for budget cutting, privatization and a decrease in regulation.

        The impact of the IMF’s terms and conditions on the Nigerian economy since 1961 were not as successful as they had planned, in fact they were poor.  The political costs of unregulated market forces were a concern of state officials.  Many of the policies were delayed to avoid an immediate fluctuation in the economy which could cause an upheaval in the social and political balance such as privatization.  SAP had eroded the purchasing power of the average consumer.  Goods were not selling and prices of essential goods were sky rocketing so the government openly started a “campaign against the rising cost of living”.  Foreign airlines were not allowed to increase their fares by 300 percent and the government also tried to reduce wages.  Another collapse in oil revenues left Nigeria with a dwindling amount of foreign exchange. Without an increase in foreign exchange, companies had to adjust their production targets to fit the market effectively.  The SAP turned out to contain many contradictions that led to unpleasant movements in Nigeria’s economic and social structures.  Nigeria’s current foreign debt is relatively high and they desperately need an increased amount of resources in order to finance causes such as their ongoing AIDS crisis.  They cannot afford to fail to pay their debts, which are long-term overdue, it will only abolish any confidence that they have left with foreign creditors and investors.  Nigeria, instead, should focus on lowering their level of corruption and making sure that current and future oil revenues are being spent on the appropriate needs. The IMF is presently discussing what they should do to improve Nigeria’s resource problem.  They are proposing that oil revenues be distributed directly to the people of Nigeria, which could have a negative macroeconomic impact.  However, its bearing could also promote an improvement of public institution which would, in turn, shape the Nigerian environment for years to come.  The IMF and Nigeria have undoubtedly had many high and low points during the course of their relationship.  Issues regarding debt and resources seem to be stabilizing in the Nigerian economy as a result of recent guidance and support from the IMF.

        Stiglitz’s arguments directed to the IMF are rather accurate when analyzing the history of Nigeria and the IMF.  The Nigerian government has had a rough account during the last 50 years partly due to the unfit policies that were implemented on them by the IMF.  The developing Nigerian economic and social structure has always been corrupt and, therefore, should not have been dealt with the same way as other countries.  Stiglitz proves his “one size fits all” theory of the IMF’s unitary policies quite clearly.  Policies should have be applied that would not only stabilize the global economy but, more importantly in Nigeria’s case, balance the economy to a social equilibrium.  Perhaps if Nigeria would have taken initiative and gone against the policies they disagreed with they would have been more successful.  The force of privatization and liberalization was too much of a shock to the Nigerian economy and, therefore, brought about rapid fluctuations which generated an increased instability in the market.  In the case of Nigera’s developing market, they were not ready to satisfy the instructions of the IMF and when they tried it ended in chaos.  It becomes quite evident that the IMF’s general polices are not effective in simply any country.  They must be tailored to fit the specific issues and needs of each country they are dealing with.  As countries such as Nigeria and institutions such as the IMF, it is important to understand that “Globalization itself is neither good nor bad.  It has the power to do enormous good…”  In order to achieve the goal of economic growth, the entire picture of the economic and social factors of country should be examined to effectively improve and maintain each specific situation.

 

References

Brooker,Salih, and William Minter. 2003. The US and Nigeria:  Thinking Beyond Oil.  Great Decisions

Ghai, Dharam. 1991. The IMF and the South: The Social Impact of Crisis and Adjustment.  London and New Jersey: Zed Books Ltd, pg. 43-45

Havnevik, Kjell J. 1987.  The IMF and the World Bank in Africa.  Sweden: Ekblad & Co., Va Stervik, pg. 95-112

International Monetary Fund: Nigeria and the IMF, http://www.imf.org/external/country/NGA/index.htm

Sala-i-Martin, Xavier; and Arvind Subramanian. 2003. IMF Working Paper- Addressing the Natural Resource Curse:  An Illustration from Nigeria. International Monetary Fund.

Stiglitz, Joseph E. 2003. Globalization and its Discontents.  New York:  W.W. Norton & Company, Inc.

Wallis, William.  “Nigeria rejects IMF Internal Bank Check” Financial Times. ProQuest Direct.  Weldon Lib., London, 17 March 2004 http://proquest.umi.com/pqdweb?index=3&did=000000043617292&SrchMode=1&sid=6&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1079707725&clientId=11263

Whirled Bank Group, The: Structural Adjustment Program, http://www.whirledbank.org/development/sap.html

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