Wade: Capital and Revenge: The IMF and Ethiopia

RH Wade, “Capital and Revenge: The IMF and Ethiopia,” Challenge 44, no. 5 (2001): 67-75.

“Ever since the financial crisis of 1997, the International Monetary Fund and the US Treasury have been less insistent on opening capital markets around the world. But the author has little doubt that when the dust settles, the push for unrestricted capital flows will strengthen again. Ethiopia provides a case study of the interest involved” (67). “Once memories of the Asian crisis fade, the Fund and the Treasury are likely to move again to secure the lifting of restrictions on capital movements worldwide” (68).

The story of Ethiopia is told in relation to IMF lending in the late 1990s. Ethiopia was elegiable for a loan from the IMF at very favorable conditions because their level of economic development was relatively quite low. They took the loan, though it came with a certain set of conditions that were tied to tranche payments. The first payments went according to plan and the government adjusted according to the agreement. The author then highlights an unfortunate situation involving a US banks, Ethiopian Airlines and the Ethiopian government. The airlines bought four planes from Boeing, and entirely financed by the US bank. The conditions of that loan were not entirely favorable. The airlines Wanted to renegotiate the conditions of that loan, but the US bank refused. The Ethiopian government then loaned the airlines the money to pay off the bad loan. This angered the US bank, and the IMF became more picky when it followed up with an assessment of Ethiopia’s progress according to the structural adjustment policies that were agreed upon. Ethiopia called in Stiglitz to help them understand what they could do with the IMF. Stiglitz went, thus angering the fund further.

Ethiopia eventually got its way and the Fund renegotiated the conditions of its loan. However, the following year, both the Fund and Ethiopia found themselves in another bind. This caused delay in Ethiopia’s ability to receive debt relief, for one.

“The other striking point about the story is the invisible power of the Fund officials as the gatekeepers to not only concessional finance but also country reputation. When they began to call Ethiopia a ‘reluctant reformer’ and to talk about the ‘break-down of the program,’ virtually no one who heard them was in a position to know that these comments were largely untrue—for example, that the apparent failure to meet the foreign exchange reserve requirement was a technical failure, not a real one” (74-5).

Collier and Gunning: Explaining African Economic Performance

Collier, P, and JW Gunning. 1999. Explaining African Economic Performance. JOURNAL OF ECONOMIC LITERATURE 37: 64-111.

Why has Africa experienced such a slow rate of economic growth? This is explored through a literature review of growth studies, specifically those that focus on endogenous growth. These models are grouped into six categories, but the results are still problematic: Africa is growing even slower than it would be expected to. The later focus of the article is on different national agents: farming households and manufacturing firms. "Drawing on the new literature on 'social capital,' we argue that neither households or firms have as yet sufficiently created the social institutions that promote growth" (64). Section four explores the impact of regulation. "In Section 5 we bring together the argument. Both a hostile environment, particularly high risks, and inadequate social capital, particularly dysfunctional government, have lowered the returns on investment. The low returns on investment have caused capital flight on a massive scale" (65).

That is a summary of the introduction.

"Above, we have made two distinctions in the causes of slow growth. The first was between those that are intrinsic, notably geography, and those that are policy-dependent. The second was between those causes well-proxied in the regression analysis, which are predominantly macro, and those identified at the levels of agents and markets, which are microeconomic. There are thus three conceptually distinct causes of slow growth: geography, macroeconomic policies, and microeconomic policies" (100).