This paper investigates whether or not there is a recognizable pattern of cohesion in economic policy formulation between poor countries (on one hand) and the IMF and World Bank (on the other hand) in the context of change in domestic political dispensation. Malawi provides an appropriate study setting on account of the recent shift from one party dictatorship to multiparty democracy against the background of traditional cooperation with the IMF and World Bank in policy formulation. The paper finds that World Bank and IMF had persistently opposed the strategy of elite agricultural expansion, inward looking industry and state expansion into the private sector. In their place, the Bretton Woods Institutions had suggested policies seeking to revitalize smallholder agriculture, promote outward looking industry and private enterprise. As a result intransigence of the previous regime the IMF and World Bank have taken advantage of political change in Malawi to push a reform program. The new regime is keen to bring rural agricultural sectors into the cash market economy, undertake privatization to ease off pressures on fiscal resources, liberalize industry to promote a competitive culture in business and also liberalize trade policies to continually integrate Malawi to the world trading system. However, thirty years of neglect, dysfunctional markets, weak supply response and fragile fiscal foundations are manifesting themselves in widespread economic stagnation. The enthusiasm of the World Bank and IMF in pushing for continued reform is further hurting the economy and pushing the regime into a crisis of confidence. The main conclusion of this paper is that liberal political systems have a higher propensity to conform to free market policy reforms, but rather than emphasize on resolve, credibility, and certainty of the reform process, and also allow reasonable time for adjustment, the Bank and Fund is keen to push for reform without shaping business expectations or minimizing the costs of transition for the firms and people affected. Despite commitment to reform, external financing remains a quid pro quo against specific policy actions. Contrary to existing literature on aid and economic policy, external assistance is yet to evolve to become a reinforcing agent or as a means of reducing the cost of reforms. This paper is a product of ongoing research on interactions between western ideals and economic models (on one hand) and homegrown programs of poor countries (on the other).
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Paper provided by EconWPA in its series Macroeconomics with number
0211003.
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