Sample on Social Effects of the World Bank and IMF on Kenya

Social Effects of the World Bank and IMF on Kenya

No country, particularly in Africa, has been able to achieve development out of its resources. Many countries, particularly African nations continually have budgetary deficits, most of which borrowing both locally and internationally, donor funding and grants help to plug. Kenya is not an exception to this phenomenon and has used international borrowing extensively to meet its budgetary deficits in the past and present. In the 1980s and 1990s, most African countries had exhausted their ability to take loans from developed countries and private banks. The countries were swamped in debts, even as some of their loans had reached maturity and pressure was mounting for the countries to pay up. Pushed to corners, Kenya and other countries looked to the IMF (International Monetary Fund) and World Bank for help. While the IMF and the World Bank agreed to help, they put conditionality’s on the African countries for acquiring the loans. These conditionalities are known as Structural Adjustment Programs. While the loans were a welcome reprieve in Kenya and other African countries, their negative effect on the economy and social lives of the people was felt immediately and continues to be felt to date.

The relationship between IMF/World Bank and Kenya (as well as other African countries) follows the dependency theory fronted by Hans Singer and later developed by Raul Prebish and published in 1949. The two front the idea that the terms of trade between the developing and developed nations, such as Kenya, have worsened over time (Cardoso & Faletto, 1979). The theory contends that the poor supply wealthy states with resources, enriching the rich at the expense of the poor. Therefore, the concept’s premise is that through the integration of the poor into the world system, poor nations are continually impoverished, while the opposite happens to the rich.

The IMF and World Bank were created by the rich countries during the Second World War. In the confusion caused by the Second World War, rich nations, such as the U.S. and Britain, gathered at the Bretton Woods Conference creating the World Bank and IMF for Europe’s construction. The two institutions were also birthed to provide mechanisms for international cooperation in the management of the global financial system (Shapcott, 2011). However, developed nations have been criticized for using the institutions as fronts for advancing their interests.

The theory argues that poor nations, Kenya and other developing economies, provide cheap labor and natural resources, and have become destinations for obsolete technology and market for finished products from developed nations. The industrialized countries, through their MNCs (Multinational Corporations), influence developing nations by interfering with their laws and policies for their benefit. Sociologists argue that despite the benefits MNCs bring to developing nations, there are concerns over the power that they hold in the world (Tirimba & Macharia, 2014). One of the major concerns is MNCs’ power to impact policy decisions through their lobbying activities. Through powerful lobbyists, MNCs exert their influence over decisions made by governments concerning their operations. This way, only laws and policies that favor them are implemented.  MNCs exercise this power not only in their home countries but also in their international operations, with an extension to international organizations. Such measures and influence on policymaking actively perpetuate dependency among developing nations. Dependency, in this case, is intricate cutting across politics, banking, social life, education, media control, and human resource development.

As fronts for propagating the interests of, the IMF and World Bank have caused harm to the social fabric in developing countries. The conditionalities that they have set, mostly influenced by developed nations to prepare a ready market, cripple the developing nations by denying them any wiggle room for negotiations or meaningful development. The conditionalities set by IMF and World Bank became known as Structural Adjustment Programs (SAPs), whose underpinnings were on the economic crisis that hit African countries (and the world) in the 1970s. Christina et al. (2011) point out that in the 1970s, rising oil prices, falling of primary commodities, and rising interest rates left many African countries economically maimed thus unable to pay their mounting foreign debts. The 1980s saw a worsening debt crisis among African countries, whose ratio of foreign debt to export income had grown to 500%.

The worsening economic crisis has led African countries to require huge amounts of money not to default on their debts. their declining share of world trade has worsened the situation for African countries given their dwindling export earnings from declining primary commodity prices. Moreover, Africa’s reliance on the importation of manufactured goods exacerbated its trade imbalance making its foreign debt burden unsustainable (Christina et al., 2011). The worsening debt situation meant that African countries urgently needed new loans to repay their debts and meet urgent domestic expenditures. The countries, therefore, looked to the IMF and World Bank, which became the main creditors to nations that could not borrow from other sources. The two institutions “took over from wealthy governments and private banks as the main source of loans to poor countries”(Christina et al., 2011, p. 116). Colgan (2012) informs that they extended “hard currency” loans to the crisis-ridden countries for insured payment of external debts and restoration of economic stability. Through this, the two organizations fronted themselves as saviors to the struggling African nations.

The IMF/World Bank loans did not come without conditionalities. The extension of the grants and loans came with a standard policy package attached to the financial bailout. The two institutions introduced SAPs/conditionalities to their loans, which they claimed aimed at amending trade imbalances and government fiscal deficits. The design of SAPs was such that they would introduce structural adjustments to the African economies through the removal of “excess” government controls (Colgan, 2012). Removing governments’ control aimed at promoting free-market competition, underpinned in the neo-liberal agenda the institutions followed. SAPs also meant fronting the private sector as the main driver of the economy.

Although introduced in the early 1980s, SAPs did not take effect in Kenya until later in the mid-1980s. Rono (2012) points out that the publication of Session Paper No. 1 of 1986 marked the beginning of SAPs serving as economic management ideologies in Kenya. Over the years, SAPs in Kenya have evolved from their initial focus on eliminating fiscal and external imbalances to “the liberalization of prices and marketing systems; financial sector policy reforms; international trade regulation reforms; government budget rationalization; divestiture and privatization of parastatals and civil service reforms” (Rono, 2012, p. 83). All these reforms have had a great impact on the social life of Kenyans since their implementation.

One of the areas that have suffered much since the implementation of SAPs is employment. Restructuring the civil service and privatization of parastatals have led many working in the civil service and parastatals to lose their jobs (and livelihoods) as the government implements austerity measures. Comparing employment growth before and after implementation of SAPs, Rono (2012) points out that between 1964 and 1973 waged employment had an annual growth rate of 3.6% improving to 4.2% between 1974 and 1979. Growth tanked in the 1980s to 3.5%, further declining to 1.9% per year in the 1990s. The situation has recently worsened since the job growth rate is below the country’s population growth rate.

The decline in jobs is a continuing trend. The majority of the people do not have formal employment in Kenya. According to Owino, Wamalwa, and Ndekei (2017), between 2009 and 2015, there was a 42% increase in the number of jobs, which increased from 10.7 million to 15.2 million. Salaried formal employment increased by 28% in the same period in comparison to 44% for informal employment (Wamalwa, and Ndekei, 2017). Interestingly, following the government’s austerity measures since the implementation of SAPs, the bulk of the formal employment jobs were created by the private sector. While the statistics point to an increase in the number of jobs, the sad fact is that these are not quality jobs nor are they permanent. Timmis (2018) states, “Limited growth in the country’s formal sector means that over 80 percent of workers are confined to informal jobs, which are typically low pay and low skill” (p. 2). With a declining agriculture sector and migration of people from rural to urban centers for employment, the country’s unemployment rate stood at 9.3% in 2018 (Timmis, 2018). There are fears that it is bound to continue growing.

The high unemployment rates occasioned by parastatal privatization and civil service restructuring are the main culprit for the increase in crime and deviant behavior. Rono (2012) posits that SAPs led to the stagnation of real per capita income growth associated with poverty and unemployment, which are both linked to the increase in the culture of violence and crimes in Kenya. According to Rono (2012), the full deployment of SAPs-inspired policies between 1991 and 1993 had a consequential result of increased crime rates. It is not a mere coincidence, therefore, that statistics show that the total number of prisoners in Kenya increased from 106,200 in 1989 to 111,712in 1991 to 115,689in 1992 to 124,949in 1993 and jumped to 130,173in1994, only dipping to 118,050in 1995, following a slight improvement in the economy (Central Bureau of Statistics,1996). All these points to a causal relationship between the introduction of SAPs and increased crime rates.

1989-1993 saw an increase in the number of property crimes. Rono (2012) informs that there was a general increase in property crimes during the SAPs implementation period following the loss of jobs and the need for a livelihood. It is given that loss of jobs would cause individuals to resort to desperate measures for their livelihood and to maintain their lifestyle. Moreover, mass loss of employment (through retrenchment) has a rippling nationwide effect on the dependents of those retrenched.

At independence (1963) education became one of the major pillars of focus for the new government. Investment and enrolment in education and educational institutions increased tremendously. The idea was to improve literacy rates and build skilled human capital for development (Rono, 2012). Additionally, during this time of exponential education expansion, the government of Kenya footed most of the bills, including the cost of higher education. SAPs, however, introduced the policy of cost-sharing, which forced parents/students to pay part of the cost of their education. The policy has since rapidly increased the cost of education for most families in Kenya. The high cost of education today is responsible for non-enrolment, grade repetition, and dropout from educational institutions. The poor continue to be marginalized with declining quality of education especially in public schools. Besides, the high cost of education has been associated with the marginalization of girls from education. Until recently, the enrolment of girls in primary, secondary, and higher education was dismal as families favored educating males over females (who would eventually be married anyway). Worse is the effect of non-enrollment and dropping out of school on future earnings. According to Rono (2012), those who failed to complete school find it difficult to get employment informal institutions, generally increasing their frustration and relegating them to live as social misfits. Moreover, the fact that only the rich can afford quality education in Kenya (and consequently able to secure the few quality jobs) promotes social inequality and underdevelopment.

The economic adversities of the 1970s hit African countries hard, increasing their foreign debts. Payment of the debts became a challenge, forcing the countries to look to the IMF and World Bank. Although they advanced loans, the conditionalities set on loan advancement have had a longstanding effect on the social lives of the citizens. Increasing poverty levels through unemployment, increased crime rates, healthcare and education burden on the citizens are among the social impacts of the conditionalities. SAPs have had and continue to have negative spiraling effects on Kenya’s (and other developing countries) economic, social, and political development.

References

Cardoso, F., H. &Faletto, E. (1979). Dependency and Development in Latin América. California: University of CaliforniaPress

Central Bureau of Statistics (1996). Welfare Monitoring Survey II,1994: Basic Report. Nairobi: Government Printer

Christina, K. et al. (2011). The impacts of the World Bank and IMF structural Adjustment programs on Africa: The study of Cote D’Ivoire, Senegal, Uganda, and Zimbabwe. Sacha Journal of Policy and Strategic Studies, 1(2), 110-130.

Colgan, A. (2012). Hazardous to Health: The World Bank and IMF in Africa. Africa Action Position Paper

Owino, K., Wamalwa, N., &Ndekei, I. (2017). How Kenya is failing to Create Decent Jobs. Africa Research Institute. Retrieved from https://www.africaresearchinstitute.org/newsite/publications/kenya-failing-create-decent-jobs/

Rono, J., K. (2012). The impact of structural adjustment programs on Kenyan society. Journal of Social Development in Africa, 17(1), 81-93.

Shapcott, R. (2011). International Ethics. In Baylis, J., et al. The Globalization of World Politics: An introduction to International Relations,5 ed. Oxford: OUP

Timmis, H. (2018). Jobs in Kenya: Opportunities and Challenges. K4D. Retrieved from https://assets.publishing.service.gov.uk/media/5afacd43ed915d0df4e8ce4d/Jobs_in_Kenya.pdf.

Tirimba, O., I. & Macharia, G., M. (2014). Economic Impact of MNC’s on Development of Developing Nations. International Journal of Scientific and Research Publications, 4(9), 1-6.