IMF loan reignites costly battle with Bretton Woods institutions
Following the general elections of 1992, the World Bank and the International Monetary Fund (IMF) pressured the Kenyan government to introduce structural economic reforms.
It was post-Cold War and after the break-up of the Soviet Union, the West stepped up its foreign policy and influence in an effort to maintain a powerful ally that saved the world during WWII.
The Bretton Woods institutions were sent to developing countries as part of a campaign of debt diplomacy and by 1992, 27 countries, including Kenya, had signed agreements with the IMF and the World Bank on policies. economic.
Following the elections which were contested by the opposition, the West led by the IMF and the World Bank, froze loans and grants to the Kenyan government in an attempt to push the country to introduce economic reforms and attract investors.
Without the loans, public financing slowed to a trickle, GDP growth froze and by 1993 inflation had reached 50 percent.
It was around the same time that the new finance minister, Musalia Mudavadi, led a government delegation on a shuttle diplomacy tour to Europe.
The trip led the government team to a donor convention in France and later in Britain, where Kenya engaged donors in a fiery attempt to convince them that the country was undertaking the proposed economic and political reforms.
Mudavadi and his colleagues told donors that “there will be no turning back on reforms this time and Kenya will look to dialogue in all troubled areas.”
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The government followed up on his remarks with a series of economic reforms, which resulted in the privatization of state assets, the elimination of price controls, the removal of exchange controls and the dismissal of civil servants to reduce the wage bill.
Micah Cheserem was kicked out of Malawi where he worked for Unilever as the head of the Central Bank of Kenya (CBK), where he worked with the IMF on a debt restructuring program.
Soon after, however, inflation hit a record 100 percent and job creation fell to 1.9 percent, with more Kenyans than ever falling below the poverty line, the gap d Inequality has widened, as crime rates and ethnic animosity have skyrocketed.
Kenya called the Bretton Woods policies dictatorial and suicidal, and in 1993 President Moi announced that he was withdrawing Kenya from the structural adjustment program of the IMF and the World Bank.
News that Kenya would chart its own way out of debt of 616 billion shillings, at the time nearly 90% of the country’s GDP, sent shock waves through the donor community.
In the months that followed, relations between the West and Kenya remained strained as each side held ground. In the background, however, Moi’s government had taken an ad hoc approach to implementing piecemeal economic policies within the confines of economic recovery.
The gradual improvement in economic performance and the interventions of pressure groups such as the East African Association, which represented important British business interests in Kenya, brought the two sides to common ground. .
In the following years, reforms led to a new supervisory framework at the CBK and several troubled banks were liquidated or merged.
The two large state-owned banks – the National Bank of Kenya and KCB Group (then Kenya Commercial Bank) – which held huge non-performing loans were restructured and then floated on the Nairobi Stock Exchange during IPOs.
Other reforms included the break-up of the state monopoly of the Kenya Post and Telecommunications Corporation, which was split into Communications Authority, Telkom Kenya and Postal Corporation of Kenya.