Museveni’s IMF reforms gamble: What he should’ve done differently

Often, leaders with good intentions make bad decisions. One such leader is Julius Nyerere, Tanzania’s first president. In 1962, he introduced a socialist experiment — Ujamaa— which was declared Tanzania’s official economic development strategy.

Although meant to protect natives from exploitation, and bring them into ownership of means of production; the program failed miserably.

Because it was riddled with poor planning and poor infrastructure, it resulted in a weakened economy, heightened dependence on foreign aid and a massive decline in productivity.

History has been critical of Africa’s leaders, because many of their programs failed. What is down played is the role the West had in designing many of these flawed policies.

Case in point, the International Monetary Fund [IMF] and World Bank’s infamous structural adjustment programs [SAPs].

What are Structural adjustments programs [SAPs]?

SAPs were economic reforms designed by the IMF and World Bank in the ‘80s and ‘90s. These reforms were to be adhered to by countries that wanted to take out loans from these institutions.

They were: Privatisation, removal of subsidies, opening up economies to outsiders, currency devaluations, encouraging the production of raw cash crops, and the like.

The IMF’s earliest involvement in Uganda was first captured in 1975 after the Uganda shilling was pegged to its Special Drawing Rights [SDRs]. This followed the collapse of the fixed exchange rate system.

Because Uganda’s SDR quota was small, and bound to be exhausted fast,  it had to borrow to replenish its international reserve account.

By so doing, Uganda placed itself in an unfavourable position where it had to adhere to policy conditionalities tantamount to SAPs. That is how Uganda ended up in bed with the IMF and World Bank.

SAPs in Uganda

• After the collapse of Amin’s government, the IMF offered Obote’s second government financial support. In return, the new government was to agree to currency reforms, and other conditions.
• These policy recommendations worked for the first three years until Obote and the IMF disagreed over budget policy in 1984. Shortly after, his government fell.
• A new currency was introduced in May 1987 and it was devalued by 76 percent. Successive currency devaluations followed in 1988, 1989 and 1990.
• Government subsidies were reduced; for example, subsidies for fuel and sugar.
• In 1988, an announcement to sell 22 companies that were partially, or fully government owned was made.

Effects of SAPs in Uganda

• Privatisation led to massive job cuts and yet the private sector offered no working alternative. Privatisation was a major vehicle for corruption as the selling of government enterprises to private investors was marred by corruption, insider dealings and hefty kick backs.
• Because of the currency devaluations of the 1980s, people lost a lot of money and poverty levels skyrocketed.
• Inflation, and a reduction in the value of exports depleted the country’s foreign exchange reserves.
• The removal of agricultural subsidies increased the cost of doing agriculture. This heightened food insecurity issues.
• Trade liberalisation opened up the economy to exploitation by multinational corporations who exploit local labour to this day while enjoying long tax holidays.
• When farmers were encouraged to move away from subsistence farming to farming cash crops like coffee, they became vulnerable to western influence. Because in the event that they became obstinate, the West would attack the coffee sector which was the only active economic sector at the time.
• The selling off of the only nationalised bank, Uganda Commercial Bank [UCB], removed the only financial buffer locals had. To this day, the banking sector is in the hands of foreigners because of that transaction.
• SAPs gave Uganda a taste of foreign debt, and created an insatiable appetite for borrowing, and foreign aid

Coincidentally, most of the leaders who accepted to implement SAPs and still have a good working relationship with the IMF and World Bank, are still in power, or have ruled for very long.

Among them are: President Museveni who has been in power since 1986. Paul Biya of Cameron who has been president since 1982, Dennis Sassou Nguesso of the Republic of Congo who has been in and out of power since 1979, and Isaias Afwerki who has led Eritrea since 1993.

Since the IMF and World Bank are superintended by the G7, it raises concerns whether disagreeing with these institutions is viewed as an act of defiance on the West.

What Museveni should’ve done

In fairness, President Museveni’s hands were tied because at the time Uganda was coming out of a difficult political, and economic period and its coffers and international reserves were depleted.

Museveni was very much aware of what would happen if he refused the reforms brought forward by the Bretton Woods institutions.  He knew that his predecessor, Milton Obote’s government, collapsed after a disagreement with them.

He [Museveni] saw no alternative sources of funding then. There was no China. Russia was in the middle of a cold war that it was losing, and none of Uganda’s neighbours or allies at the time was in position to come to her rescue. Therefore, Museveni had to submit to the IMF because there was an urgency to restructure Uganda’s economy, and he could use their expertise.

In spite of that, Museveni should’ve been selective of what policies he took on and should have outrightly rejected some of the Fund’s recommendations.

As an instance, he shouldn’t have let UCB get privatized. During the Asian financial crisis of 1997–99, the IMF advised South Korea to shut down, or sell off two of its major banks to which it disapproved of, and instead went ahead to nationalize them. The Fund, had also recommended that South Korea restructure its computer chips industry, which South Korea objected to.

These two sectors were later instrumental in South Korea’s recovery from the Asian financial crisis which it emerged from faster and better than Thailand and Indonesia, who surgically followed IMF’s policies, but later dealt with political and economic turmoil.

I contacted the IMF concerning the history of SAPs in Uganda, and their callous effect, and this is what an IMF spokesperson had to say:

“We are aware of criticisms of the Fund’s structural adjustment programs in the 1980s and 1990s, in Africa and elsewhere, and we have since acknowledged that some of that criticism is justified. Importantly, we have learned from those experiences and gone on to adapt how we work with countries to design programs, to make sure that they are effective in helping countries in difficult times and serving the interest of the people, including protecting the most vulnerable.

“It’s also important to remember that when countries turn to the IMF for support, they are already dealing with severe economic and financial problems—they come to the Fund as a lender of last resort—and that was the case for countries that came through the structural adjustment path”.

“Nowadays, the IMF is very focused on tailoring our support and advice to meet each country’s needs. We support all our 191 member countries through a mix of capacity development activities, policy advice, and loans. For countries in financial trouble, these loans provide breathing room to implement policies that restore economic stability and growth, and IMF lending is continuously refined to better meet countries’ changing needs. For countries such as Uganda, our loans come with a zero interest rate”.

“We have helped many countries, including Uganda, to weather the COVID-19 pandemic with emergency loans that came with limited or no conditions. In the 1990s and 2000s, the IMF (along with the World Bank) helped Uganda to achieve debt relief through the Heavily Indebted Poor Countries (HIPC) Initiative. Most recently, we have been encouraging Uganda to improve its domestic revenue mobilization, notably by phasing out tax expenditures such as tax holidays, to reduce its reliance on borrowing and fund higher social spending and support to vulnerable households”.

That said, SAPs cannot be fully held responsible for Uganda’s economic paucity because as presently constructed, the primary sectors of the economy are struggling due to poor leadership and incompetence.

Uganda like other countries that were victims of the infamous reforms should move on from the debacle and thrive. Namely: India, which was the biggest beneficiary of SAPs, but is currently a trillion dollar economy.

Turkey, Mexico, the Philippines, and Tunisia are flourishing with high per capita incomes, decent standards of living conditions, and toned down income inequalities. Uganda should borrow a page from their stories.

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