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by William Easterly

  This is not to automatically canonize democratically elected governments. They, too, can make terrible choices—this reinforces the main point of this chapter: it is awfully hard to get democracy working well. And the IMF and World Bank could conceivably take a stand for unpopular positions that are the best thing for the country. Yet outside interference doesn’t have a great record on improving matters, on making governments do the “right” thing.

  Ventriloquism

  The Planners are aware that it looks bad to boss around poor-country governments, and increasingly they deny that they do so. At the same time, the IMF and World Bank want to put conditions on aid and loans to ensure that the governments use the money well. The Planners tie themselves up in rhetorical knots as they try to resolve the unresolvable contradiction between conditions and sovereignty. In 2001, the World Bank described the Poverty Reduction Strategy Paper as a means to resolve the contradiction: “the PRSP…was a crucial step towards greater national ownership of development programs which is essential for increased effectiveness of external assistance.56 The IMF agreed: “The broadest and most fundamental changes to the work of the IMF arise from the fact that the targets and policies embodied in [IMF]-supported programs will emerge directly from the country’s own poverty reduction strategy.57 (The “country” here means the government, as it almost always does in foreign aid.)

  Cornell political scientist Nicolas Van de Walle describes the PRSP process as one of “ventriloquism” by the IMF and World Bank.58 The IMF and World Bank have allegedly given up on telling governments what to do. So, instead, they want a government to tell them what it will do in order to get a loan. Of course, the IMF and World Bank will approve only acceptable actions in return for infusions of cash. So the poor-country governments, instead of being told what to do, are now trying to guess what the international agencies will approve their doing. The PRSP plans are similar to the long lists of conditions that the IMF and the World Bank impose on the poor countries. If the government doesn’t guess the right answer the first time, the IMF and World Bank prepare a “joint staff assessment” of each PRSP.

  Peer Review

  Another device by which donors try to get “local ownership” of good government reforms is “peer review” of some African rulers by others. This is part of what is called the New Partnership for African Development (NEPAD), which is supposed to have African rulers enforcing standards of good governance on one another. It is a little mysterious why the donors embrace a mechanism of accountability for African governments that they would never apply to their own countries. (Would the American government submit to peer review by the Canadians?) Anyway, “peer review” misses the whole point of democracy, which is government accountability to its own citizens—not to some other government.

  The International Monetary Fund and the Gangsters

  The IMF’s charter bans it from considering domestic politics. Sometimes this approach leads to happy outcomes. Over the last decade, Mexico has made a transition to democracy and has pursued pro-market reforms and macroeconomic stabilization. It did this with the support of IMF lending (short-term crisis loans called standbys), although corruption, drug trafficking, and violence remain problems. The IMF tactfully overlooked Mexico’s previous autocratic government.

  But a problem with the apolitical approach is that it is not apolitical. Supporting a sitting government with funds is unavoidably a political act. Such an approach doesn’t have much of a safeguard against the IMF enabling some really awful rulers. To see some of the consequences, answer the following trivia question: Who got the most standbys from the IMF over the last half century? The answer is Haiti, with twenty-two. And not just Haiti, but the Duvalier family (Papa Doc and Baby Doc), under whom Haiti got twenty of the twenty-two standbys from 1957 to 1986.

  The politics were bad, but the Duvaliers made up for it with even worse economics. The income of the average Haitian was lower at the end of the Duvalier era than at the beginning. Half of all children did not go to elementary school when Papa Doc came to power; half of all children were still out of school when Baby Doc left power.

  The Duvalier dynasty was only the latest installment in a toxic history. Haiti has known some degree of democracy for only five recent years out of its two hundred-year history (1990, 1994–1998); for most of that history it had the worst possible democratic rating on a scale of zero to ten.59 After almost two hundred coups, revolutions, insurrections, and civil wars since independence, Haiti today still has one of the world’s most undemocratic, corrupt, violent, and unstable governments.60 The IMF didn’t check the history: how much could it help a state that had been dysfunctional for two centuries?

  The dysfunctional state reflects in part the legacy of minority European settlement of the worst kind. In 1789, Haiti (then known as Saint-Domingue) was one of the richest places in the world, and the most unequal. A population of 40,000 whites, 30,000 freed mulattoes (the offspring of slave owner wenching), and 450,000 slaves produced $800 million in exports in today’s dollars. These exports included sugarcane, coffee, cotton, indigo, and cocoa.61 Saint-Domingue provided 60 percent of the world’s coffee and 40 percent of the sugar imports of France and England.62 The value of production per worker was far higher than that in the United States.63

  Today, Haiti is the poorest country in the Western Hemisphere and among the poorest tenth of countries worldwide. Its population of 8.3 million produces $463 million in exports of goods and services. Exports per person were thirty-one times higher in 1789 than in 2002.

  A slave regime produced the 1789 exports. The legacy of slavery has something to do with Haiti’s failure at political and economic development. The exports of 1789 showed just how much potential the land of Haiti had; the exports of 2002 show how two centuries have passed moving the country ever further away from that potential.

  The Haitian Revolution of 1791–1804 overthrew the hated slave owners. However, the mulattoes and their descendants took the whites’ place as the oligarchy, which dominates to this day, and the black majority transferred its hatred of the white slave owners to the mulatto elite. Much of Haiti’s history consists of struggles between the mulatto elite and the black military elite (who originated in the leaders of the war of independence), with all possible permutations of alliances, betrayals, and divisions making any stability or prosperity a distant dream.

  Throughout the nineteenth century, blacks and mulattoes in Haiti alternated in power. Of the thirty-four signers of the Haitian declaration of independence, only five died a natural death. Only one Haitian ruler finished his constitutional term alive.64 In the second half of the century, political life was polarized between a mulatto Liberal Party and a black National Party.65

  For example, the mulatto leader Jean-Pierre Boyer ruled from 1818 to 1843, with all important political posts filled by mulattoes.66 Emulating French colonial policy, he founded schools for mulattoes but none for blacks. An Englishman observed at the time, “The present government seems to consider the poverty and ignorance of the people as the best safeguards of the security and permanence of their own property and power.67 The illiteracy and powerlessness of the majority of the population had condemned Haiti to underdevelopment long before the Duvaliers and the IMF arrived, and it still does today. The IMF giving Haiti credit after credit did nothing to address the centuries-old political roots of macroeconomic instability, not to mention the country’s underdevelopment.

  The International Financial Institutions Get Taken Again

  One test of how donor agencies deal with government is to see how they respond to some of the worst cases. Haiti is not the only failed state getting IMF credits. Another notorious case is Mobutu’s Zaire. The IMF gave Mobutu eleven bailout loans during his tenure. It was not that his thefts were a secret. The IMF had sent a German banker named Erwin Blumenthal to the Central Bank of Zaire in 1978–1979. He carefully documented how much Mobutu was stealing, and reported back to the IMF and the World Bank.

/>   Mobutu could use thuggery as well as bribery: In the late 1970s, a Zairean army unit attacked an uncooperative resident representative of the IMF and the World Bank. The soldiers beat him up and raped his wife and daughters, with strong signs of Mobutu’s complicity.68

  The two institutions nevertheless kept on lending. Zaire spent 74 percent of the time during the years 1976–1989 in an IMF program. The fund thought giving Mobutu a carrot to reform would help the country’s people. The IMF and World Bank finally cut him off in 1990, twenty-five years into his misrule. Altogether, the country had received twenty billion dollars in foreign aid during Mobutu’s tenure.69 Of course, Mobutu was a cold war protégé of the West, but the IMF and World Bank claim to be apolitical.

  An even more extreme example of what the apolitical approach can yield comes from the period just before the Rwandan genocide that began on April 7, 1994. In fairness to the international financial institutions (IFIs), they could not have anticipated such a rare cataclysmic event as that genocide. Yet there were plenty of ugly things going on beforehand. Rwanda’s Hutu government had long had an official program of discrimination against Tutsis; there was not a single Tutsi head of Rwanda’s 143 communes (local governments). Things got worse after a Tutsi-led rebel army invaded Rwanda in 1990. The Hutu government was complicit in massacres of hundreds of Tutsis by Hutu mobs in separate incidents in October 1990, January 1991, and February 1991.70 Despite these events, the IMF concluded that Rwanda’s problem was “structural adjustment,” for which it gave the Hutu government a loan on April 24, 1991. (The loan was cut off before being fully disbursed, but it is hard to understand why it was made at all.) Before the genocide, foreign observers noted in the early 1990s the Hutu hate speech and the Tutsis’ well-justified fears. The World Bank in 1991 somehow concluded that “Rwanda has made a creditable effort toward social and economic development.” The World Bank also made a large loan in 1991, and gave additional credits in 1992–1993. Led by the IFIs, foreign aid to Rwanda increased by 50 percent from 1989–1990 to 1991–1993. Aid worker Peter Uvin, from whom these facts come, described the situation:

  The development aid system knew of the disintegration of Rwandese society; saw the many Tutsis working for aid agencies or partner NGOs being harassed, threatened, or killed; discussed these matters and surely regretted them; but seemingly felt it was outside its mandate or capacity to intervene, that all it could do was to continue business as usual. Thus aid continued to muddle through, trying to make its usual projects work with a faltering government, until the day the genocide began..71

  In what was perhaps the worst timing in the history of foreign aid, the World Bank issued an anodyne report on development in Rwanda in May 1994—while the genocide was in progress. The foreword to the report notes the horrific massacres beginning in April 1994, but goes ahead with its bland recommendations.72 The report makes no mention of the accelerating persecution of the Tutsis that was taking place while the report was being written in late 1993.73

  Things have improved over the last decade, as the IFIs are more aware of the problems of corruption, autocracy, and violence. Unfortunately, instead of shunning awful governments altogether, IFIs have made more hubristic attempts to transform bad government. So they have continued to be involved recently with some very bad actors under the rubric of “post-conflict reconstruction”—that is, lending in the wake of a civil war. These include Angola and the successor state to Zaire, the Democratic Republic of the Congo.

  Maybe there is a case for aiding societies trying to find peace. But note that “post-conflict reconstruction” means you have to do deals with even worse gangsters than under peacetime conditions. And what incentives does it create to give aid money to the men of violence in post-conflict societies, many of whom committed war crimes, while shunning peaceful democratic politicians?

  In Angola, a movement away from a Stalinist economic system and toward a market economy in the late 1980s stirred enthusiasm at the IMF and World Bank, but corruption undermined all attempts at economic reform. The abundant oil revenues disappeared somewhere in the Bermuda Triangle of the treasury, the central bank, and the state oil company (Sonangol).74 President José Eduardo dos Santos is at the end of a long receiving line for plundered oil revenue. The temporary European minority settlers in Angola left behind the “one hundred families” who are the traditional mestiço / assimilado elite, who control both the economy and politics.75 Out of 195 countries, the World Bank ranks Angola as the fifteenth most corrupt country in the world.

  The World Bank had already given $180 million to the Angolan government from 1992 to 1999, despite civil war and corruption. Now that peace had finally come to Angola after years of civil war, the country received $421 million in foreign aid in 2002, despite abundant oil revenues for its population of thirteen million.76

  After the civil war ended, the World Bank did a new report, in 2003. Following the usual language of “catastrophic but improving,” it detected that “reformists within the Government have been achieving incremental improvements in the transparency and accountability of public resource management.” The World Bank acknowledged that “much more remains to be done.77

  For its part, the IMF mission “explained” to the Angolan civil servants in 2003 “that a regular reporting and auditing of Sonangol’s operations was needed…to reduce the risk of corruption and mismanagement.78 The IMF mission records that “the authorities agreed.”

  Perhaps the World Bank and IMF efforts could be helpful in making a terrible situation better through the reporting, auditing, and transparency of Sonangol. But the IFI efforts have yet to show up in the World Bank’s rating of Angola’s corruption, which has stayed unchanged from 1996 to 2004.

  Next door, in the Democratic Republic of the Congo (DRC), the latest IMF mission has arrived after the state is starting to put itself back together in the wake of two horrific civil wars. Of course, government is going to be pretty awful right after a war, and movement toward good governance is slow in DRC. The U.S. State Department Human Rights Report for 2003 noted that the new Congolese government’s “security forces committed unlawful killings, torture, beatings, acts of rape, extortion, and other abuses, largely with impunity.79 The IMF mission in 2004 met with two of the four vice-presidents in the coalition government, including Jean-Pierre Bemba (the head of the Uganda-backed Mouvement de la Libération du Congo, accused of massacres in early 2003) and Azarias Ruberwa (the de facto head of the Rwanda-backed Rassemblement Congolais pour la Démocratie, accused of summary executions during a revolt in Kisangani in May 2002).80 In 2004, the IMF said that “the staff commends the authorities for their steadfast efforts to consolidate peace.” The IMF and World Bank note that the autocrats and warlords had completed an interim PRSP “through an extensive consultative process.” The rulers promised a shift toward “pro-poor spending.”

  These are extreme examples that illustrate the IFIs’ worst cases: coddling awful gangsters who just call themselves a government. The poor population was going to be liable for IMF loans that were never going to reach them.

  What is the IMF’s overall record on screening out bad governments? The news is a little better than the situations in Angola, DRC, Haiti, and Rwanda would indicate. We have the World Bank’s comprehensive averages of ratings of countries on corruption and democracy from 1996 to 2002, and the time those same countries spent in IMF programs over the same period. The governments rated as among the worst tenth among developing countries in terms of corruption spent an average of 20 percent of the time in IMF agreements, which is significantly less than the average of 41 percent of the time for the rest of the sample. Governments rated as among the worst tenth in terms of dictatorship spent 9 percent of the time in IMF agreements, which is much less than the sample average. So the IMF does show some willingness to lend less to the most awful governments. Unfortunately, once governments get out of the worst tenth, there is no further tendency to penalize bad governments. For example, governm
ents rated among the second-worst tenth on democracy and corruption are no less likely to spend time in IMF programs than the rest of the sample.

  The United Nations and Gangsters

  The UN has not done any better than the IMF and World Bank in dealing with bad government. An international organization in which it is possible for the Libyan government to chair the Human Rights Commission does not seem to have high standards for good government. Human Rights Watch cites such qualifications of the chairman of the commission as “the abduction, forced disappearance or assassination of [Libyan] political opponents; torture and mistreatment of detainees; and long-term detention without charge or trial or after grossly unfair trials. Today hundreds of people remain arbitrarily detained, some for over a decade.81

  The United Nations Millennium Project report in January 2005 argues that bad government is not the primary problem facing poor countries, and if there is bad government, it is because of lack of money (a thesis contradicted by the “oil curse” and “aid curse” studies cited earlier): “Many reasonably well governed countries…lack the fiscal resources to invest in infrastructure, social services, and even the public administration necessary to improve governance. Without adequate public sector salaries and information technologies, public management is chronically weak” (p. 34, main report).

  Although convinced that bad government was not the problem, the UN report did rule out aid to the four most awful rulers in the world. The report identifies these four governments—Belarus, Myanmar, North Korea, and Zimbabwe—as beyond the pale. This is a pretty small number for bad governments of the world. Even a dictator like Saparmurat Niyazov of Turkmenistan, who so terrorizes his country that he has renamed the months of the year after himself and his late mother, can’t get into the UN bad despots club.