THE IMPACT OF INTERNATIONAL FINANCIAL INSTITUTIONS IN ECONOMIC DEVELOPMENT OF NIGERIA


THE IMPACT OF INTERNATIONAL FINANCIAL INSTITUTIONS IN ECONOMIC DEVELOPMENT OF NIGERIA

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CHAPTER ONE
INTRODUCTION

1.1 Background to the Study

Economic development is regarded as a process of increasing real per capita income of an economy accompanied by reduction in inequalities of income and the attainment of the preferences of the entire masses. In the words of Okun and Richardson (1961), economic development is a sustained secular improvement in material well being which is reflected in an increasing flow of goods and services. Developing countries like Nigeria that are blessed with both human and natural resources but lack the ability to use same to attain economic development rely heavily on resources from financial institutions within and outside the economy.

Among the most important multilateral institutions, besides the United Nations (UN), to emerge out of the suffering and carnage caused by the Second World War was a troika of organisations formed at Bretton Woods in New Hampshire in July, 1944. Those organisations were the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD) – later known as the World Bank (WB), and general Agreement on Tariff and Trade (GATT) – now called the World Trade Organization (WTO). Often collectively referred to as the International Financial Institutions (IFIs), these three organisation were formed to provide new multilateral tools for ensuring lasting global peace through the promotion of economic stability and development in the post–war period. In contrast to the noble objectives set at Bretton Woods in 1944, the role played by the IFIs, especially in global market regulation, surveillance and development policy formulation in the post–war years has largely been controversial. However, looking at the current situation in countries such as Nigeria, it is commonly believed that economic development has not attained the results which one would have hoped for with the introduction of international financial institutions.

For the purpose of this study, we shall beam our searchlight on the International Monetary Fund (IMF) vis-à-vis its contributions to the economic development of Nigeria. We shall carefully study the Structural Adjustment Programme, which is a development instrument of the IMF, to see if it’s programmes of trade liberalisation, privatisation and currency devaluation have in any way reduced poverty, create employment opportunities, solved debt crisis and promote literacy in Nigeria. This is premised on the fact that scholarly opinions are greatly divided on the role of IMF in the economic development of Nigeria. While some argue that IMF’s policies and programmes are well intended to address basic economic needs of Nigeria, others are of the opinion that those policies and programmes are indeed the major causes of poverty, unemployment, illiteracy, inequality and corruption in Nigeria.

1.2 Statement of the Problem
The World Bank and the International Monetary Fund (IMF) are the two most powerful institutions in global Trade and Finance. Since 1980, the United State government which dominates both bodies has used them to economically subjugate the developing World. The World Bank and the IMF have forced third World countries to open their economies to Western Penetration and increase exports of primary goods to wealthy nations. These steps amongst others have multiplied profits for Western Multinational corporations while subjecting third World Countries to horrendous levels of poverty. The region worst affected has been Africa.

For more than two decades now, the World Bank and the IMF have forced developing countries to create conditions that benefit Western corporations and governments (Summers, 1991). These conditions are known as structural Adjustment programmes (SAPs). SAPs, require government to: cut public spending (including eliminating subsidies for food, medical care and education); raise interest rates, this reducing access to credit; privatise state enterprises, increase exports; and reduce barriers to trade and foreign investment, such as tariffs and import duties. These measures are supposed to generates export–led growth that will attract foreign direct investment and can be used to reduce debt and poverty. International Financial Institutions

Financial institutions and Nigeria economists campaigning for SAP continue to insist that there are no alternatives to SAP. They point out that Nigeria had become indebted and seemed unable to repay because it had been involved in indiscriminate importation and had also neglected non-oil export as potential foreign exchange earners. To these economists, the solution to the problem lay in a mechanistic manipulation of the import –export equation, which dictates that a country must export (or earn) more than it imports (spend) to generate a positive balance of trade.

In addition to this, numerous authors have postulated that financial and trade liberalization enhance economic growth. In our study, we assert in simple way that these authors focused mainly on developed countries at the expense of the less Developing Countries (LDCs), especially Nigeria, where little benefits, if any, have been reaped by the supposed beneficiaries of the IFI’s, imposed Structural Adjustment Programmes. It is our understanding that there is a gap in the literature on the impact of international financial institutions, Particularly IMF on the economic development of Nigeria hence, our objective in this study is to analyse the impact the IMF has on the Economic Development of Nigeria through three variables of trade liberalization, Privatization and currency devaluation. Our choice of Nigeria as our focus country is due to it ideal background for analysing the effects of international financial institutions. Nigeria is a country of immense natural resources however; it is still a very poor country. Furthermore, the weaknesses of Nigeria governments and corruption that characterise them have facilitated the insertion of foreign organisations in the form of IFIs. We have selected international Monetary Fund (IMF) for our thesis as it is immensely influential on the country and as we have discovered, have a great impact on Economic Development. In order to address the research problem effectively, the following research questions were answered:
i. in what way does privatisation of public enterprises address the economic problems of Nigeria?
ii. what role does corruption play in the economic development of Nigeria?
iii. how can trade liberalisation trigger economic growth in the present globalised world economy?
iv. how can currency devaluation stimulates economic growth?
v. can IMFs programmes address the problems of poverty in Nigeria?

1.3 Objectives of the Study
The main objective to the study is to analyse the impact of the international financial institutions, with particular reference to IMF, on the economic development of Nigeria.

Subsidiary Objectives
(i) To examine the role of privatisation of public enterprises in the economic development of Nigeria.
(ii) to ascertain whether trade liberalization, as recommended by the IMF, has the capacity to stimulate economic growth in a development country like Nigeria.
(iii) To examine whether environmental factors (like corruption) can thwart the effects of the IFIs in Nigeria.

1.4 Research Hypotheses
Based on the above discussion, several hypotheses emerge regarding the relationship between International Monetary Fund and the economic development of Nigeria. This work shall adopt three of these hypotheses thus:
(1) The more the Nigerian state adopts the IMF’s policy of privatisation of public enterprises, the greater the rate of poverty and unemployment in the country.
(2) The more Nigeria implements the policy of trade liberalization, the more dependent her economy would be on the Western World.
(3) The higher the rate of corruption in Nigeria, the lower the effect of the International Monetary Fund on the Economic Development if Nigeria. International Financial Institutions

1.5 Significance of the Study
The significance of any research of this nature depends on its contribution to further the standard of knowledge, discover new facts, change or modify out-dated body of knowledge and proffer workable solutions and remedies to the problem(s) in question.

Nigeria, like every other country, upholds and pursues development ideology due to her scandalous and shameful problem of underdevelopment with which the third world countries are stigmatised. The underdevelopment of the third world countries is blamed on the developed world; the unequal trade relation and exchange that they established with the third world and of course, their hazardous economic policies imposed on the third world through their international institutions and agents for effective control and domination. Due to the nature of this relations and the trend in the world economic system which Nigeria is part of, her development efforts since independence continues to be illusive and fruitless. International Financial Institutions

As a matter of fact, the cardinal significance for embarking on this study is to show that Nigeria’s underdevelopment conditions and status are not natural but is likely a function of inequality and disequilibrium that characterise the world capitalist economic system. And so, certain uncompromising steps are to be taken to effect a turn-around in Nigeria’s favour. Therefore, this study provides development blueprint to Nigerian leadership at every level of government while formulating intellectual and development models for scholars to benefit from.

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