African Union countries last week approved a proposal to create an African Monetary Fund in line with plans for greater economic integration on the continent.

Broadly, the AMF would be charged with maintaining macro-economic stability in the continent, a mandate that mirrors that of the International Monetary Fund.

“The purpose of the Fund shall be to foster macroeconomic stability, sustainable shared economic growth and balanced development in the continent, to facilitate the effective and predictable integration of African economies,” reads the protocol for the establishment of the AMF.

The body, to be headquartered in Yaoundé, Cameroon, is one of three institutions stipulated in the treaty that constitutes the AU as necessary in the creation of an African Economic Community.

The other two bodies are the African Central Bank and the African Investment Bank.

The protocol on the AMF will only come into force after it is ratified by at least 50 member countries of the African Union.

The body is expected to promote macro-economic stability by extending loans to countries in need of foreign exchange to meet international obligations such as imports and debt payment. In the long term, the AMF will provide advice and technical assistance to governments in crafting economic policies.

In addition to feeding into pan-African ambitions of integration, the AMF is also an answer to long-held dissatisfaction of African countries with the IMF and its perceived biases in favour of advanced economies.

Days after the AU general assembly adopted the AMF protocol, a report released by the IMF’s internal auditors revealed that the body was still dogged by concerns that it is still a rich nations’ club.

“Ultimately, the perception of even-handedness is rooted in the uneven decision-making power within the IMF,” reads the report by the IMF’s Independent Evaluation Office (IEO).

Significant sway

In the IMF, the voting power of countries is determined by the size of their economies. Therefore, countries like the United States and the United Kingdom legitimately hold a significant sway in terms of the policies of the IMF.

In particular, the IEO said, various surveys had shown that IMF staff usually adopt sterner assessment approaches when dealing with poor nations, in comparison with advanced economies facing similar challenges.

Perceptions of bias become acute with the recent economic crises in Europe and the subsequent bailouts, some of which came from the IMF.

“The Euro Area programmes had created the perception that European member countries had excessive weight on decisio-making in the IMF, relative to their economic power, and that the IMF’s programs in the EU had more lenient conditions than those in Asia,” says the IEO.

The IMF is currently attempting to reform its structures in order to shift more power to emerging economies following the criticisms. 

Despite the grousing over the structure of the IMF, the African countries have closely emulated the system as they set up their own monetary fund.

Within the AMF, voting rights will also be determined by the size of a country’s economy. According to a draft of the AMF statute seen by Sunday Nation, South Africa will have the largest voting rights at 8.05 per cent followed by Nigeria at 7.94 per cent, Egypt at 6.12 per cent and Algeria at 4.59 per cent.

Only countries with at least four per cent voting rights will hold permanent seats on the AMF board of directors.

Similarities with the IMF also extend to funding limits put in place for countries. The IMF limits the amount of credit countries can access in correlation with their shares in the body. Therefore, larger economies with larger shares can borrow more.

This is replicated in the AMF where loans cannot exceed three times the value of shares states have in the body without special authorisation.

Relations between African countries and the IMF, as well as its sister Betton Woods organisations, began to deteriorate in the late 1980s with the implementation of the structural adjustment programmes. In bailing out countries that had been left heavily indebted during the oil crisis and commodity prices crash of the 1970s, the IMF required governments to institute a series of policy reforms.

These structural adjustment programmes involved privatisation of government assets as well as budget cuts. African countries remain suspicious of international bodies and donors that attach “strings” to aid or loans.

Yet, the AMF seems to follow a similar script. The AMF will be required to ensure that the countries with which it works maintain sound policies.

“The Fund shall ensure strict compliance with principles of good governance including principles of integrity and transparency in its financial arrangements and those of its partners,” says the African Union.

The AU is often cash-strapped and has been criticised as lacking bite. It is therefore unclear whether the AMF will succeed or gain the level of independence and impact envisioned.

However, the AMF, once it stands on its own feet, is envisioned as a body that will be outside the influence of political winds both within the AU and from individual member countries.