The developing nations of Africa, faced with serious double-digit inflation, and international payments deficits, must abandon loose fiscal and monetary policies or risk financial chaos.
Jacques de Larosiere, managing director of the International Monetary Fund, delivered that sober warning to a symposium on monetary issues in Dakar last week.
De Larosiere said these problems, while common everywhere, are more serious in Africa. A deteriorating situation now finds many countries at a point where some are in arrears on their, debt, and others may not find it easy to get new loans.
He blamed this situation on domestic policies that have become too expansionary in an effort to meet political and social commitments and to advance the stage of development in serveral countries. Thus, the 15 largest African members of the IMF allowed an average annual expansion of credit by 73 percent in the three years ending in 1978, he revealed.
Mostly the developing African countries have gotten by through commercial bank borrowing and by the good fortune of commodity price booms for their export products, he said.
He urged African government budget deficts to be trimmed by a courageous effort to establish priorities among social goals, the growth of the money supply to be controlled, and that interest rates be allowed to rise to encourage savings. Although devaluation should not be considered an end in itself, he urged the African nations to lower exchange rates to control economic distortions.