Yahoo Finance Protest Deaths in Kenya Echo Decades of Angst Over IMF
(Bloomberg) -- Public anger driving the deadly protests in Kenya this week over President William Ruto’s new taxes is also aimed at the International Monetary Fund, echoing decades of criticism directed at the global lender.
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The Washington-based IMF is often blamed when poor governments struggle to get their financial houses in order and is in the crosshairs in Nairobi, where Ruto abruptly scrapped his $2.3 billion tax plan Wednesday after nearly two dozen people were killed.
More protests were planned for Friday at the IMF’s headquarters in the Kenyan capital, according to social media posts labeling the fund and the World Bank as “enablers” of the government.
Ruto has aimed to raise taxes, sell assets and cut spending in line with fiscal reforms agreed with the IMF in 2021. That deal has since unlocked $3.6 billion in aid from the so-called lender of last resort. It’s also given a stamp of approval for global debt markets by signaling confidence in Ruto’s fiscal discipline and the country’s ability to repay its debts.
But governments closely following the economic orthodoxy of the US-led IMF have often faced popular backlash, from the 1998 collapse of the Suharto regime in Indonesia to explosions of anger over the years in nations including Argentina, Morocco, Yemen, Pakistan and Sri Lanka. And it’s happening again with Kenya.
“It’s bitter medicine,” said Gyude Moore, a former minister of public works in Liberia and now a fellow at the Center for Global Development, a Washington-based think tank. “It happens again and again. Countries go to the IMF, get recommendations, do everything they can to remain on the good side of the IMF. And in the process of doing that, people end up hurt.”
The IMF said in a statement Wednesday that it was “deeply concerned” and “saddened” by the events in Kenya. “Our main goal in supporting Kenya is to help it overcome the difficult economic challenges it faces and improve its economic prospects and the well-being of its people,” it said.
Created at the close of World War II, along with its sister institution the World Bank, the IMF has been tasked over the past 80 years with stabilizing the global economy by ensuring countries don’t slide into financial paralysis. While it spent its early years focused on rich countries navigating the gold standard, its focus shifted more toward developing nations, culminating in one of its most notorious episodes: the painful reforms in Indonesia after the 1997 Asian financial crisis.
In the wake of the crisis, the IMF faced criticism for encouraging open capital markets, which flooded emerging economies with volatile speculative money that fled at the first sign of trouble. And its prescription after — raise interest rates and taxes, cut spending and subsidies — ignored impacts across society.
In 2011, then-Managing Director Dominique Strauss-Kahn issued a mea culpa of sorts, saying in a visit to Indonesia that the fund “learned a lot” from its response to the crisis and that “we have to accept” the missteps.
His successors have tried to soften the IMF’s image and move beyond the cold calculus of fiscal budgets by encouraging governments to develop buffers for poor or vulnerable communities. Christine Lagarde moved the fund’s focus toward issues such as poverty and inequality, while current boss Kristalina Georgieva has highlighted the impacts of climate change.
Kenya is one of several economies struggling with painfully big debt loads, built up over the previous decade amid low interest rates and abundant funding, particularly from China.
Total debt held by 30 emerging-market economies tracked by the International Institute of Finance totaled $28.4 trillion in the first quarter of this year, up from about $11 trillion in the same period of 2014.
Thanks to that debt, developing nations spent a record $443 billion in servicing payments in 2022, according to the World Bank, which warned of a “lost decade” of economic stagnation as government funds are diverted toward creditors.
Of Kenya’s $39.2 billion in external debt at the end of March 2024, it owed $7.2 billion to international bondholders and nearly $5.7 billion to China, the biggest among bilateral creditors, according to data from Kenya’s Treasury.
Payments on loans to China’s Export-Import Bank, its main official lender, are estimated to account for about a quarter of total external debt payments in the fiscal year through June 2025, according to a Kenyan parliamentary report.
Meanwhile, the IMF said in January, Kenya has been the only country in East Africa to see a decline in its tax-to-GDP ratio over the past decade, meaning it was failing to generate much-needed government revenue.
While other African nations facing daunting debt piles defaulted amid the economic fallout of the pandemic, Kenya kept servicing its loans and returned to the bond market again earlier this year, albeit at a painful rate above 10%.
Because it never defaulted, a decision supported by the IMF, Kenya spends about 60% of government revenue to service its debt. But because of poor tax collection, the government will likely need to borrow even more.
To stave that off, the IMF earlier this month said Kenya needed to make “a sizable and upfront” shift in its fiscal position to “correct the course.”
It described Ruto’s tax plan as a “decisive step.”
--With assistance from Colleen Goko, Neil Munshi and Shawn Donnan.
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