The Multinational Monitor

July 1980 - VOLUME 1 - NUMBER 6

G L O B A L   S I G H T I N G S

IMF, Tanzania Bury Hatchet

Tanzania, an outspoken critic of the International Monetary Fund (IMF) over the past year, has recently come to terms with the agency. A tentative agreement was reached August 8 in Dar-es-Salaam, perhaps signalling a shift to less stringent requirements for loans.

Although the IMF and Tanzania are keeping the details vague, the outlines of the new agreement are clear: Tanzania will receive $200 million in standby credits over the next two years, as well as $20 million in "compensatory financing" if Tanzania's economy suffers from adverse fluctuations in its export prices. For its part, Tanzania will slash government expenditures in an effort to meet some of its balance of payments deficits, current estimated at U.S.$570 million..

Both parties have termed the negotiations leading to the agreement as "sensitive," hence their unwillingness to discuss the specific terms of the arrangement until the IMF board of governors considers it in late September. Sources at the Fund, however, suggested that the accord represented substantial compromises from the positions taken by each side when negotiations broke off last fall.

Relations over the past year have been tense, with Tanzanian President Julius Nyerere denouncing the Fund as "a device by which powerful economic forces in some rich countries increase their power over the poor nations of the world." In early July, Tanzania hosted a "South-North Conference on the International Monetary System and the New International Order" at Arusha. The document drafted by conference participants from 13 countries in Africa, the Caribbean, Latin America, and Eastern and Western Europe criticized the IMF's orientation as "fundamentally incompatible with an equitable conception of structural change, self- reliance and endogenous development."

The greatest stumbling block in last year's negotiations had been the issue of currency devaluation, with Tanzania resisting the Fund's demand for an immediate 10 percent devaluation. Tanzania has clearly won some concessions on this score. The parties have agreed not to consider devaluing the currency until April, 1981, when a joint IMF-Tanzania study on the issue will be completed.

Certainly, Tanzania was moved back to the bargaining table by its pressing economic problems, with the U.S.$500 million costs of last year's war against Uganda compounded by declining export prices and soaring oil bills. Tanzania has largely been stymied in its efforts to meet the foreign exchange shortfall from alternative sources, with commercial banks refusing to extend new loans and Tanzania's traditional leading bilateral aid-givers, Great Britain, Sweden and the Netherlands, failing to bridge the gap.

At the same time, Tanzania appears to have benefited from the Fund's new found benevolence toward the East African nation, as well as perhaps from a just-approved loosening of the conditions the Fund imposes on Third World governments.

Sources at the Fund confirm that proposals for the relaxation of IMF conditionality were a subject of the July 18 meeting of the board of directors. Although the Fund has declined to disclose the results of that preliminary meeting, other than to say that it has been decided to launch an official review of its Third World lending, press reports indicate that the Fund tentatively moved to modify existing policies that require client countries to cut funding for state-owned enterprises. This issue had been a source of tension in last year's negotiations. During the July meetings, "the Fund was very sensitive to recent criticism" of its programs coming from Third World countries, according to a World Bank official briefed by the IMF mission team upon its return.

Informed observers of Fund operations suggest that the gentler approach may result largely from Tanzania's political importance to the West. Michael Moffitt, a Fellow at the Institute for Policy Studies and one of the organizers of the recent "South-North" conference at Arusha, reasons that the U.S. and other leading Fund members view the Tanzanian administration of President Nyerere as a "democratic, efficiently-run socialist government" that "is a major force for ostability" in Africa. "The West wants Nyerere to stay in power," says Moffitt, so the Fund "was not about to push him to the wall."

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