Negotiating with the IMF: The Case of Somalia and Jamaica

Abstract

IMF was founded in 1944 after World War II, following the devastations of the European economies during the war to help countries with balance of payment (BOP) difficulties, amongst other objectives. At the time, most of the developing economies were under the colonial domination of developed European nations. These developing economies had no inputs into the policy directions of the IMF nor were they factored into the emerging economic world order. Independence brought them into the world economy and membership of IMF, but they continued to feed the needs and tastes of the metropole. Being producers of raw materials without a diversified economy, developing economies operated at the mercy of the merchants of the developed economies in pricing their raw commodities, which fluctuates in the international markets and sometime crashes. Their BOP problem forced them to approach the IMF for short-term loans. Loans advanced to developing economies are laced with poison pills which worsen their economies instead of improving them and leave them worse off than they started before the loans. There is need for competing sources of loans, such as sovereign foreign funds, which the developing economies can access without the draconian prescriptions of the IMF, World Bank and the “Washington Consensus”. This could ameliorate the challenges for loan seekers if the competitor would consider the circumstances and peculiar needs of the developing economies in granting those loans. Using the dependency theory, the study found that developing economies and particularly Somalia and Jamaica in this case found themselves in a mirage of economic development with loans from IMF. It explored both countries’ economies, being producers of raw materials and net importers of manufactured or refined goods from developed nations which help force them into BOP difficulties. It also examined the IMF conditions to granting the loans and the actions these respective governments undertook to comply with the IMF.