Evaluation Of The International Monetary Fund (I.M.T) Loan Policy On Developing Economy
(A Case Study Of Nigeria)
The International Monetary Fund (IMF) plays a crucial role in supporting developing economies through its loan policies, which are designed to address balance of payments problems and foster economic stability. When a developing country faces external imbalances, the IMF provides financial assistance to help stabilize its economy and restore confidence in the international financial system. However, these loans typically come with conditions that require the borrowing country to implement economic reforms and policy adjustments. The IMF aims to promote sustainable growth and reduce vulnerabilities by advocating for measures such as fiscal discipline, monetary policy reforms, and structural adjustments. While the IMF’s loan policies aim to assist developing economies, they have been subject to criticism for potentially imposing stringent conditions that may impact social programs and exacerbate economic inequalities. The challenge lies in finding a balance between addressing immediate economic challenges and promoting long-term development.
The trust of this paper is the evaluation of the I.M.F loan policy on developing nations with Nigeria as a case study
The paper begins by giving a brief stored perspective of fund. The structure, it’s operating procedure and its lending policies.
The study also tries to know why the implementation of funds loan usually goes with adverse effect on the economy of the developing nations.
It further tries to know whether the western countries are using the fund as an instrument for controlling the economy of the developing nations. The study as can be seen will be of a great interest to both the developing nations and their financial accommodators. By using a set of questionnaire, a number of selected bankers and research centers were used for the study in order to find out their opinion on the issue at hand.
Analysis of the data using percentage and Chi – square were used in analyzing questions and testing of the hypothesis.
This reveals that IMF is not meeting up with it’s objectives, especially in the areas of helping out countries that are in financial difficulties by making the funds resources temporary available to them and equate safeguard this providing them with opportunity to correct mere adjustments in their balance of payment.
The funds only does this by providing these funds under harsh condition which if adopted by the developing nations normally compound their economic problems.
Secondly, the conditionalities given by the fund on their loans diffter between the developed nations and the developing nations.
Thirdly, the loading condition of the fund to the developing nations are usually unfavourable to them.
Lastly, the study also revealed that the developed nations are using the fund to control the economy of the developing nations.
From the research findings, specific and generalized suggestions are made for the gradual and systematic solution to the problem. These include.
1. Relaxation of the harsh conditionalities being given to developing countries by IMF as the fund was mainly established having in mind the need to help out countries that are in econominc difficulties without special concession to any country or group of countries.
2. Mere lowering of the funds interest rate on borrowed funds thereby attracting countries experiencing economic difficulties to borrow from the fund.
3. the fund should be acting in depending of any nation be it developed or not.
Title page ii
Approval page iii
Dedication iv
Acknowledgement v
Abstract vi
Table of content viii
CHAPTER ONE
1.0 Introduction 1
1.1 Statement of problem 5
1.2 Objectives of the study 6
1.3 Research questions 7
1.4 Research hypothesis 7
1.5 Significance of the study 8
1.6 Scope of the study 9
1.7 Definition of term 10
Reference 12
CHAPTER TWO
2.0 Review Of Related Literature 13
2.1 Organization and structure of fund 13
2.2 I.M.F debate in Nigeria 26
2.3 An approval of the I.M.F Loan in Nigeria 42
Reference 45
CHAPTER THREE
3.0 Research Design And Methodology 47
3.1 Introduction 47
3.2 research method 47 Research population analytical techniques. 49
Reference 52
CHAPTER FOUR
4.0 DATA PRESENTATION AND ANALYSIS 53
4.1 Test of Hypothesis 63
CHAPTER FIVE
5.0 Summary of findings, conclusion and recommendation 70
5.1 Findings 70
5.2 Recommendation 70
5.3 Conclusion 71
5.4 Additional Conclusion 72
Bibliography 73
Questionnaire 74
1.0 INTRODUCTION
International monetary fund is the most important international financial institution established by the world powers at the end of second world war. it is an intergovernmental plan supporting the structure of the world’s economic and financial order. As a voluntary and co-operative institution, it attracts to its membership nations that are prepared, in spirit of enlightened self interest to relinquish some measure of national sovereignty by abjuring factices injurious to the economic well being of their fellow member nations.
The effect of the world war 11 was devastating in most European countries and allied countries. Most economics were destroyed and the excessive imports and borrowing to prosecute the war allied to the convening of a meeting called the united Nations monetary and financial conference by all the allied that fraught the world war 11 against Germany.
IMF was formed in reaction to the unresolved financial problems instrumental in initiating and protracting the great depression of the 1930’s. Anyanwu (1993).
As a result of the great depression of the 1930’s sudden unpredictable varieties in the exchange values of national currencies and a wide spreed disinclination among governments to allow their national currency to be enchanged for foreign currency. Indeed, agreements on the constitution and function of the IMF to supervise and promote an open stable monetary system was reached by the delegates of 44 countries and a representatives of Denmark at the united Nations and financial conference held at Bretton woods. Hew Hamsphine, U.S.A on 122 July, 1944. Anibueze (1998).
The meeting at Bretton woods, united states of America in 1944 gave birth to two international financial institutions.
i. The international Bank for reconstruction and Development (IBRD) which was meant to source and provide funds for reconstruction of economic of member countries and for other development purposes.
ii. The international monetary fund (IMF) was formed to proffer solutions to the balance of payments problems and other financial problem facing the member countries. Ugwuanyi (1997).
Thus, IMF came unto excistence on 27 December 1945. there are 29 countries that signed the trtides of Agreement. The inaugurat meeting of the governors was held in Savanna, Georgia, USA on 8 March, 1946 and the first meting of the excutive board took place at the funds headquarters in Washington DC on 6 May, 1946. the IMF then started financial operation on 1st March, 1947 and then had 59 members but had 151 members by 1989. as at Dec. 1992, the fund had a membership of 178 countries. Ugwuanyi (1997). Thus, the same way that a banker grants advances to his customers, Basic objectives were stated to which the signatiories of the agreement are committed according to Ejili (1996) the objectives are
a. To promate international co-operation by providing the machinery for consultation and collaboration by members on international monetary issues.
b. To facilities the balanced growth of international trade and though this,contribute to high levels of employment and real income and the development of productive capacity.
c. To promote exchange stability and orderly exchange arrangements and facilitate the avoidance of competitive currency depreciation.
d. To make financial resources available to members, on temporary basis and with adequate safeguards, to permit them to correct payments imbalances without resorting to measure destructive of national and inter national prosperity.
e. To foster a multilateral system and transfers for current transactions and seek the elimination of exchange destructions.
f. To seek reduction of both the duration and magnitude.
Since after the original drafting of funds article in 1944, it has been amended tuice, in 1978 when changes made to reflect the variety of exchange rate practices and the erosion of the system of fixed exchange rate pertices. According to Ndekwu (1983) the articles required the fund to!
a. Ensure that its members obsenced a code of international behaviour with respect to payment restrictions and exchange rates.
b. Acts as an international institution providing financial assistance to members experiencing balance of payment difficulties its ability to perform the first function depends on the financing it can make available in its second role.
1.1 STATEMENT OF THE PROBLEM
In most developing nation (Nigeria) today, one of the major problem facing them is usually that of economic crisis which result to them having deficit deficit experiences in them budget and then seeking ways of correcting it. Hence, they usually resort to obtaining loan from IMF .
With the grant of loan, the IMF, acts then as a monitoring agency to profect the interest of the external debt policies of its members, hailing the disbursement where a debtor country defaults on any of the accepted terms or conditionality.
As can be seen, during Nigeria’s second republic when the economy was druindling Nigeria applied for a loan from the institution but was met with its harsh conditionalities which they will fulfil before such loan will be given to them. The country then resorted to a National debate on whether to accept or eject the loan in which they later prevailied. Should they have taken it, Nigeria should have furned into a new colonized nation by way of dancing to the tune of the fund. The statement of the problem therefore is to know if the western countries that formed the fund is using it as an instrument for controlling the economy of the developing nations and also why some of the developing nations that accepted such loan from the IMF are usually faced with an adverse effect.
1.2 OBJECTIVES OF THE STUDY
The objectives of the study is to investigate the following experiment on the evaluation of IMF loan policy on developing economy with special reference to Nigeria.
1. To know the implementation of IMF loan policy always goes with adverse effect on the economy of the developing nations or countries with special reference to Nigeria.
2. To know if the westen countries, are using the IMF as an instrument for controlling the economy of the developing nation.
1.3 RESEARCH QUESTION.
In this project the researcher tries to answer the following question in relation to the topic.
1. Why do the implementation of the IMF loan policy always goes with adverse effect on the economy of the developing nations or countries with special reference to Nigeria.?
2. Is the western countries using the IMF as an instrument for controlling the economy of the developing nations.
1.4 RESEARCH HYPOTHESIS.
The hypothesis below will be tested to get the answer of the objectives question.
i. Ho: There is no significant differences that the implementation of IMF loan policy always goes with adverse effect on the economy of the developing nations.
H1: There is a significant differences that the implementation of the IMF loan policy always goes with adverse effect on the economy of the developing nations.
ii. Ho: There is no acceptable news that the western countries are using the IMF as an instrument for controlling the economy of the developing nation.
H1: There is an acceptance that the western countries are using the IMF as an instrument for controlling the economy of developing nations.
1.5 SIGNIFICANCE OF THE STUDY.
This study will be of great interest to both the developing nations and their financial accommodations e.g. the IMF for the developing nations like Nigeria who may seek to obtain financial help from the IMF, by mere drawing from the experiences of other countries on the conditional ties to which the individuals countries have been subjected the cause of their journey of IMF, the nature and magnitude of the loan sought and received and the impact of such assistance on the individuals economy, they will usually take a positive decision.
On the part of the financial institution (IMF) the study will bring ti their knowledge the experiment of countries that have sought and received loan from the based fund on the conditional ties given to such countries especially the developing countries that normally come out worse that they were, before obtaining such loan from the fund. From this the management of fund can easily relax such countries (Nigeria) to reject loan with contempt.
1.6 SCOPE AND LIMITATION OF THE STUDY
The scope of this study will only limit us to appraise the loan policy or conditional ties of the IMF and also to have an insight on their formation and the reason of the following them.
It will further draw some references on the effect of the conditional ties on one of the countries with developing that had experienced the conditional ties by accepting the fund e.g Kenya.
The study does not in any way claim 100% reliability due to some limiting factors that affected the research like time constraint, delay in filling questionnaires, limited ideas and financial constraint experienced as a student research.
1.7 DEFINITION OF TERMS.
IMF: International Monitoring Fund
SOVEREIGNTY: Sovereignty is referred to as power to govern every independent country has it own sovereignty. That is, has power to do whatever it wishes to do.
INTER-GOVERNMENTAL: This means government from different countries of the world.
GREAT DEPRESSION: Lower phase of a business cycle in which the economy is operating with substantial unemployment of its resources and sluggish rate of capital investment and consumption resulting from little business and consumer optimism. This period is characterized by the wide spread unemployment and misery in every sector of the economy.
DEVELOPING NATIONS: Nation who are becoming industrialized Nigeria
HARSH CONDITIONALITIE: Policies or situations which are given by IMF and which must be met before acquiring their loan.
BALANCE OF PAYMENT PROBLEM: Balance of payment exists when a country’s import is more than the export. That is when the country is said to have a deficit or adverse or debit balanced of payment.
ECONOMIC CRISIS: Economic crisis means fluctuations in the general economic activities of a nation.
CURRENCY DEPRECIATION: This is the reduction of the exchange value of country currency with other country’s currencies.
EXTERNAL DEBT POLICIES: These are strategies used in the management of external debt.
Evaluation Of The International Monetary Fund (I.M.T) Loan Policy On Developing Economy:
Evaluating the International Monetary Fund’s (IMF) loan policy on developing economies is a complex task that involves considering various factors, perspectives, and outcomes. The International Monetary Fund provides financial assistance and policy advice to member countries facing balance of payments problems. Here, we’ll examine the key aspects of the International Monetary Fund’s loan policy and its impact on developing economies.
Positive Aspects:
- Financial Support: The International Monetary Fund offers crucial financial assistance to countries facing economic crises, helping them stabilize their economies. This support can prevent or mitigate financial meltdowns and restore investor confidence.
- Policy Advice: As a condition of receiving loans, the International Monetary Fund provides economic policy advice. This advice can be beneficial for developing economies, as it often encourages reforms in areas such as fiscal responsibility, monetary policy, and structural adjustments, which can promote long-term economic stability.
- Crisis Prevention: The IMF’s presence can act as a deterrent to reckless economic policies. Countries are less likely to engage in unsustainable practices when they know they may need to turn to the International Monetary Fund for help.
- Global Coordination: The International Monetary Fund facilitates international cooperation in addressing financial crises. It can help coordinate responses among multiple countries and institutions, which can be particularly important for global economic stability.
Negative Aspects:
- Conditionality: International Monetary Fund loans often come with strict conditions, including austerity measures such as reducing public spending, privatization, and currency devaluation. These measures can lead to social unrest and negatively impact vulnerable populations.
- Lack of Country Ownership: Critics argue that International Monetary Fund policy prescriptions are often one-size-fits-all and may not take into account a country’s unique circumstances, leading to ineffective or harmful policies.
- Debt Sustainability: Some argue that International Monetary Fund loans can lead to a cycle of debt dependency. Borrowing from the International Monetary Fund to repay previous loans can create a never-ending debt spiral, making it challenging for countries to break free from debt burdens.
- Political Influence: The International Monetary Fund is criticized for being influenced by major economic powers, which can lead to policies that serve the interests of these powers rather than those of developing economies.
- Social Impact: The structural adjustment policies often associated with International Monetary Fund loans can result in social hardships, including reduced access to healthcare and education, increased unemployment, and income inequality.
Evaluation Considerations:
- Context Matters: The impact of International Monetary Fund loans can vary widely depending on a country’s unique circumstances, including its level of development, political stability, and the design of the loan program.
- Long-Term vs. Short-Term Impact: While International Monetary Fund loans can stabilize economies in the short term, their long-term effects are often more controversial. Some argue that they can hinder sustainable development.
- Governance and Accountability: Ensuring transparency and accountability in the use of IMF funds and the implementation of policy conditions is essential.
- Alternative Solutions: Evaluating the IMF’s impact should consider whether alternative sources of financing and policy advice could better serve the interests of developing economies.
In conclusion, the evaluation of the International Monetary Fund’s loan policy on developing economies is a nuanced task that requires considering both the positive and negative aspects. While International Monetary Fund support can be a lifeline for countries in financial distress, the conditions attached to loans and their long-term effects on economic and social well-being should be carefully assessed to determine their overall impact. The International Monetary Fund must continually adapt its policies and practices to address the evolving needs and challenges of developing economies.