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Lending repression

The Reporter (Addis Ababa)
October 28, 1999

Addis Ababa - It was announced that in recent weeks the World Bank had decided not to approve no new lending for Eritrea and Ethiopia. According to a senior figure in the Bank, the two countries are supposed to be fighting poverty instead of killing one another.

Meanwhile, it has been some time since relations between Ethiopia and the IMF were on a rough course. Neway Gebreab, economic advisor to the Prime Minister had said the IMF was laying down "political criteria" to approve loans. The PM himself had once lashed at the Fund for having used its resources to manipulate poor countries politically.

International financial institutions claim that they are setting their criteria in order to make sure that the economies in the beneficiary countries would take a more liberal course. However, it is interesting to note that the policy of not lending in order to force liberalization is flawed with serious contradictions.

It is a platitude to say that lack of resources always urges leaders to become more repressive. Legal studies have shown that, when the holders of power have scarce resources at their disposal, their ability to conduct reform is diminished; poverty is the "most pervasive source of repression." Hence, although international financial institutions claim that they would like poor economies to be liberal in order to grow, they are, however, driving poor countries not to liberalize their economies, by refusing to lend them money.

To pick but one instance, the finance available to the Ethiopian government would obviously be limited when new loans are suspended. As a result, the government would be forced to depend on other sources of revenue, such as the fees from land lease. Increased charges in such areas would in turn prove to be discouraging to investors, in the absence of which a liberal economy can never be realized. In a way, therefore, international financial institutions are serving to diminish the capacity of poor countries to liberalize their economies. The irony is that they are doing so "in order to ensure liberalization."

This does not mean that the World Bank and the IMF should go around and finance the economies of the most repressive dictators in the world so that they would liberalize their systems; it only means that restricting the availability of resources can never be a means of ensuring liberalization, for scarcity by itself leads to illiberality.

Copyright (c) 1999 The Reporter. Distributed via Africa News Online ( For information about the content or for permission to redistribute, publish or use for broadcast, contact the publisher.

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