Currently in Zimbabwe the IMF is big. It is big among economists, investors, business, government officials, the media and politicians. It is also big because Zimbabwe’s much talked about re-engagement has deliberately encompassed the IMF as spearheaded by Finance Minister Patrick Chinamasa who brought home the much celebrated breakthrough from Lima in 2015((The Herald – Zim hammers out debt clearance deal)).
While they maybe hope mixed with concern as the Zimbabwe government wobbles towards the goal missing some deadlines along the way, the real elephant in the room to Zimbabwe’s hopes of economic stability and prosperity with help from the Bretton Woods Institutions, in particular, remains the United States.
In our domestic politics the thought of the United States playing an unavoidable role in our economic recovery is taboo due to the ongoing and now 16 year long fall-out between the two once friendly countries.
However, confronting reality is bound to save money, time and other resources.
A brief history of the IMF
“If you don’t know history, then you don’t know anything. You are a leaf that doesn’t know it is part of a tree. ”
― Michael Crichton
The International Monetary Fund (IMF) is one of the two well known Bretton Woods Institutions. The other one being the World Bank (WB) which began as the International Bank of Reconstruction and Development (IBRD) but now continues to exist as one of the key institutions within the World Bank Group.
The name Bretton Woods comes from a town in New Hampshire, United States. This is where several hundred dignitaries representing victors of WWII gathered in July of 1944. The 21 day meeting was called by the United States in an attempt at finding means of reconstructing an utterly WWII destroyed Europe.
More importantly, the meeting was a gathering to set a new world order that would address the causes of WWII that were themself rooted in selfish economic and trade practices that eventually drove countries to war.
While it never really happened, the Bretton Woods Conference was also supposed to come up with a third institution – an International Trade Organisation (ITO) – to accompany the IMF and WB. However, this did not materialize.
The reason for this was that the United States Congress could not give in to what was thought to be an erosion of US sovereignty as a result of the demands of developing countries led by India and Brazil. The idea of an international trade organisation inevitably collapsed.
A parallel process that was already underway took centre stage leading to the adoption of GATT or the General Agreement on Tariffs and Trade in 1948 which itself was not an organisation per se but a set of rules guiding “contracting parties”((WTO – The GATT years: from Havana to Marrakesh)) by facilitating and regulating multilateral trade.
GATT became one of the three fundamental multilateral trade agreements behind the World Trade Organisation (WTO) in 1995. Zimbabwe had been a member of GATT as Rhodesia since 11 July 1948((WTO – Zimbabwe and WTO)).
The Bretton Woods Conference was the culmination of a prolonged contest of global dominance between an American technocrat Harry Dexter White and celebrity economist and English man John Maynard Keynes who happened to be the real architects behind the Bretton Woods Institutions.((For a detailed account on the dynamics and great power politics behind the creation of the Bretton Woods Institutions I recommend Bein Steil (2013) The Battle of Bretton Woods available on Amazon))
This historical context explains President Obama’s April 2016 “we’re bound at the hip”((BBC – ‘We’re bound at the hip’ – Obama tells UK, in EU exit warning)) Brexit speech comment in London persuading Britain to stay in the EU.
The United States having been out of direct WWII battle field was to a destroyed Europe and a world desperate for solutions a deliverer. This was an opportunity for the United States to begin building and asserting global leadership by taking a lead in defining a new world order.
Surrounded by a weak and beaten down neighborhood and desperate for a bail-out, Great Britain agreed to give up the Pound as the leading currency as well as its global imperial and colonial dominance to allow US companies to begin accessing those once virtually exclusive and lucrative British markets.
Everyone else at the meeting were in essence rubber stamping passengers, some occasionally shouting passengers but never skillful enough nor prepared to take control of the driver’s seat.
The Bretton Woods Conference is one of the most important meetings in the history of the modern world. It gave the United States a grand opportunity to define a world economic and financial system that Minister Patrick Chinamasa and others before him and others to come must contend with.
As WWII ended, a new world order fully in the clutches of the United States was in motion with the American dollar becoming the world’s gold-convertible currency until 1974.
Contemporary US-IMF nexus
Events that took place between 1944 and the 80s such as the world coming off the gold standard under US President Nixon in August 1974 did nothing to erode America’s hegemonic control of the IMF, WB and the entire global currency system.
The IMF and the WB adjusted to the new realities of a post 1974 world but lost nothing about their DNA. The IMF of today has this to say about itself:
“The IMF’s mandate and governance have evolved along with changes in the global economy, allowing the organization to retain a central role within the international financial architecture”((IMF – Governance Structure)).
This in other words means despite global economic headwinds that have come and gone and still continue coming, the United States still retains a central role in the international financial architecture. It is the US which holds the biggest voting rights within the IMF’s Executive Board which Board “takes care of the daily business of the IMF”.
That the US holds 16.61% of voting power on the Board which is the highest and totally unparalleled followed by Japan at 6.18% and by China at 6.12% as the third most powerful, should be a clear wake-up call to many who are expecting anything serious in terms of Zimbabwe’s economic salvage without equally engaging the United States.
It is possible for countries sympathetic to or seeking favours from Zimbabwe such as Japan((The Telegraph – Japan invites Robert Mugabe to summit as it eyes Africa for growth)), China, Russia, and the whole of Africa and other regions to consider diluting the US vote. However, this is easier said than done. For example, up to 39 countries in Africa are currently AGOA beneficiary countries which are not prepared to be kicked off the programme by the US.
Further, the United States has thousands of bilateral treaties in force with just about every country in the world covering a variety of fields((US State Department – Treaties in Force (TIF) )). Few countries are prepared to jeopardize these agreements over a country in southern Africa that won’t do what they themselves have chosen to do or have had to do to remain friends with the United States.
In addition, in a similar fashion as the UN Security Council (UNSC), the United States wields veto power ((CEPR – US and Europe Continue to Maintain Control of IMF Despite Small Changes in Voting Structure)) at the IMF which it can swing virtually at will when presented with matters that oppose its interests in a competitive global arena increasingly welcoming emerging markets.
That the UNSC and the IMF function with a veto system should not be surprising because both institutions emerged out of the same mid-1940s era of a new global order led by the United States.
Other initiatives such as the Asian Infrastructure Investment Bank (AIIB) or the BRICS Development Bank are amateur attempts to increasingly sidestep the self-entrenching Bretton Woods system that many in the Global South are frustrated with due to the slow pace of reform((BRICS Business Council – China, India, Russia Call for More Reforms at IMF)).
The reasoning here is not that Zimbabwe should abandon the current IMF re-engagement. Rather, it is that going after the IMF without any attempt to re-engage the real elephant in the room – which is the United States – is likely a dead end laden with false optimism for everyone else watching from the sidelines looking to this process with hope.
The task here is to show in what way that approach is a dead-end.
I doubt if those at the tip of the spear in this process are ignorant of the facts. Engagement with the United States means one thing – a cul-de-sac to certain political reform. So the avoidance of what looks logical to the outsiders could be very well informed by well known facts internally.
Economic reforms alone will not be enough
Nevertheless, economic reforms alone that do not touch on politics will not be enough.
The Bretton Woods Institutions occasionally bear a fair share of political interference accusations not only in Africa but elsewhere.((Jamaica Observer – Shaw accuses IMF boss of political interference))
In recent years these accusations appear to have somewhat died down as the Institutions appear to have done their best to focus on economic issues. Even in the case of Zimbabwe, the language of reform has been highly technical limiting itself to economic issues.((IMF – Press Release No. 16/194))
This does not in anyway erase the fact that there is a conflation of politics and economics particularly in world economic relations. The global environment is the context in which the Bretton Woods Institutions were created and continue to function.
In any case, its fairly easy to trace deep economic troubles to badly configured domestic politics. A stay away from politics by the IMF is more to do with public relations rather than any serious dichotomy between the two.
Short of far reaching domestic political reforms, the Zimbabwe Democracy and Economic Recovery Act (ZDERA) enacted by the United States Congress in 2001 inevitably remains an albatross on any serious efforts to regain economic stability and growth through the IMF route.
ZDERA ties economic growth to stable domestic politics. It provides a credible basis to predict a United States position concerning any serious attempt by the IMF to give a far reaching economic rescue package to Zimbabwe, for example.
It reads;-
Until the President makes the certification described in subsection (d), and except as may be required to meet basic human needs or for good governance, the Secretary of the Treasury shall instruct the United States executive director to each international financial institution to oppose and vote against—(1) any extension by the respective institution of any loan,credit, or guarantee to the Government of Zimbabwe; or (2) any cancellation or reduction of indebtedness owed by the Government of Zimbabwe to the United States or any international financial institution.
Those of us watching events unfolding around Zimbabwe-IMF re-engagement ought to sober up to these daunting facts.
Power in international economic relations still firmly resides were it belong that is with the United States. I may not like it, many do not like it but that is what it is.
It is a positive development that Zimbabwe has shown a level of commitment ((IMF – Zimbabwe Letter of Intent (PDF))) and has been granted a repayment plan but that is just natural. When seeking help there is need to first pay back your debts, that is basic.
The real test will come when it matters most – the actual loan, credit or rescue package release of the magnitude needed to get Zimbabwe back on its feet once again just like in the good old days. It appears that is were the reality of ZDERA can be expected to be brought to bear by the United States.
Final note
The United States is incredibly powerful than many in Harare care to realize nor admit. What is certain is that China is aware of this and admits it and accepts being classified a developing country((The New York Times – China Is a Special Developing Country)). This is strategic and necessarily helps it guard against a certain delusion when developing national strategy.
In casual conversation with friends and colleagues, I like to call the United States The Beast. It’s influence is wired into just about every aspect of modern life and this is what superpowers do and seek to do.
Even future great power hopefuls such as China, India and Brazil are wiring themselves into us and we find ourselves wiring ourselves into them. They must intentionally wire themselves into The Beast, and they do wire themselves into it, in order to free themselves from it and the process is painfully gradual we may all not be around when its completed.
Finance Minister Patrick Chinamasa Image Credit: Newsday Zimbabwe