The state control of capital proved to be a self-undermining institution in Africa. Because the discretionary allocation of credit encouraged inefficient investments as well as strategic defaults by the politically well connected, the region’s financial systems were left vulnerable to solvency crises and exogenous shocks. After the economic downturn of the late 1970s and early 1980s, African leaders found that they could no longer sustain their financial influence without external resources. But, with the end of the Cold War, those resources became increasingly difficult to secure, as Western donors and the international financial institutions (IFIs) began to condition their aid on the implementation of liberalizing reforms.

If the manipulation of finance had been central to the governing strategies of African leaders, why would they undertake reforms aimed at diminishing their discretion? Focusing on the bargaining between African leaders and the IFIs, this chapter shows that reform outcomes have depended on the nature of a country’s financial reprisal regime, namely, on whether business–state relations were conditioned on incentives or constraints, as discussed in previous chapters. The governments that induced the cooperation of business by facilitating their access to capital, as in Kenya, were more likely to comply with external demands for reform. Financial liberalization was less threatening to these governments because they were already less invested in using the financial system to subdue business. Liberalizing reforms posed considerably higher costs for governments that relied on constraints in managing business–state relations, as in Cameroon. The enactment of reforms in such cases would have required dismantling the controls that permitted leaders to secure the allegiance of business.