In the JCTR Bulletin No.62 fourth quarter 2004, in Charles Chilufya’s article, “Why is Poor Africa so Poor”, the author rightly expressed Africa’s economic quagmire. He stated, “Indeed I have seen the various efforts and plans to develop Africa, but sadly they have not helped much.” In the same article Chilufya succinctly highlights what I think is the essential problem with most IMF and World Bank structural adjustment programmes; “Most programmes like SAP, ESAF, HIPC initiative, PRSP, etc., are so focused on national output (GDP), quantitative poverty reduction, macroeconomic balancing and targeting that they miss the whole picture.”(emphasis mine).
The key issue for me is that "reform programmes" should be owned by our governments.
Is there really a way out of the poverty situation in Zambia? A few months ago, our national papers including our own Zambia national broadcasting corporation television (ZNBC TV) carried news concerning the fact that Zambia had finally reached the HIPC completion point. Remember that Zambia had missed the “completion point” in December 2003. This is because the country had detoured from IMF and World Bank programmes, due to various factors, key among them being the delay in privatizing the national commercial bank coupled with the budget overrun closely linked to the salary increments awarded to the civil servants.
The Government and a lot of people seemed to have expressed such optimism about reaching the HIPC completion point. How did I feel? I had mixed feelings about reaching the HIPC completion point. Why did I have these mixed feelings?
FIRST AID IN MEDICAL PRACTICE
This article attempts to find a solid basis for my mixed feelings, and perhaps to articulate them. Maybe, this could open doors for further public discourse. The title of the article questions World Bank and IMF policies; are they “First Aid” or panacea for poverty reduction? In order to appreciate the situation, I will give a brief definition of the term “first aid” as understood in medical practice. First aid is defined as “the immediate care given to a person who has been injured or has beensuddenly taken ill”. There are three aims of first aid; “to sustain life, to prevent the condition from becoming worse, and to promote recovery.” One point that can be properly appreciated by first aiders is that after one has provided the first aid, what remains is to place the patient in a recovery position.
A challenge for our government is to develop the ability to draw up reform programs that are feasible and relevant to our situation.
I provide the above information in order to provide us with a basis by which to judge and evaluate the IMF and World Bank policies. How effective are they? Can we really be optimistic about them? Are they merely “first aid” policies or can they be really a panacea for poverty reduction? I will provide more questions than answers in this article. How should we understand the HIPC completion point? Can we really trust the IMF and World Bank to help us reduce poverty? Does the IMF and World Bank really have the capacity to help us with our problems?
WHO OWNS THE REFORM PROGRAMMES?
This makes me think that our government must be careful about uncritically opting for economic models that prescribe textbook solutions to its problem of policy reforms and industrial adjustment. The key issue for me is that "reform programmes" should be owned by our governments. A challenge for our government is to develop the ability to draw up reform programs that are feasible and relevant to our situation.
I begin a cursory analysis of the World Bank and IMF structural adjustment policies by first starting with the defunct Structural Adjustment Programme (SAP), and then taking a quantum leap to HIPC to see if lessons learned from SAP were taken into consideration when fully embracing the HIPC initiative. The Structural Adjustment Programme was based on the neoclassical competitive model and Heckscher-Ohlin theories of trade. Under this paradigm, specializing in goods and services where a country had a comparative advantage was the critical issue. According to this model, whatever goods and services turn out to be depends on which factors of production a country had in abundance.
ANALYSIS OF SAP
The SAP, as was proposed by the World Bank involved two elements. The first aspect involved elements of restructuring. This included decontrolling prices, eliminating trade barriers that prevented the realisation of the competitive situation, promoting export orientation in order to earn foreign exchange, and inviting outside investment in order to promote diversification and competition. Its second aspect involved elements of stabilisation. This involved devaluing currencies to encourage exports by discouraging imports and also privatizing state companies to promote productivity.
MERITS OF SAP
On the positive side, two points can be made about the impact of SAP. Firstly, a country like Zambia needed restructuring, as most of its industries “had collapsed under the weight of inefficiencies and loss of industrial productivity, coupled with their inability to relate effectively to a rapid changing and competitive global economic environment.” Secondly, the restructuring as was believed would bring up some “improvement such as decline of inflation, and opening up to foreign investment”.
DEMERITS OF SAP
But on the negative side, SAP, as was proposed by the World Bank, had many flaws. It did not provide the real solution to the “more general dilemma of policy reforms and industrial adjustment in Africa: An initial favourable response of manufacturing to adjustment may not lead to sustained growth and diversification if all structural adjustment programs do is "get prices right". In a way, getting the prices right was a necessary condition but not a sufficient condition. What SAP ended up doing was “unleashing market forces”, and in the event ignored the impediments to the development of new capacities. The borne of contention here is that Sap as was proposed by the World Bank for the application to Africa, Zambia in this respect, was very unrealistic. Eliminating trade barriers only led to limited industrialization, as many companies went down. This is because “established world industries have competitive advantage over African newcomers”.
The World Bank in its study, Adjustment in Africa, proclaims success for its programs of structural adjustment policies. It strongly endorses adjustment as the central piece of its reform package for Africa. It begins by asserting that , "In the African countries that have undertaken and sustained major policy reforms, adjustment is working", and goes on to note a particularly strong response to adjustment in
Eliminating trade barriers only led to limited industrialization, as many companies went down.
the area of industrial production and exports. As we know now, these are quiet extraordinary assertions as many other assessments have lamented the slow response of African countries to adjustments.
Based on its study of 29 countries in Sub-Saharan Africa that are alleged to have undergone adjustments, the World Bank, in Adjustment in Africa, claimed that "countries with the greatest improvement in manufacturing policies enjoyed the greatest median improvement in manufacturing performance and those with the least, the least”. This study assessed the impact of SAP by comparing the growth performance in various sectors, with reference to the country categories of "Policy-Improving", "Policy-Deteriorating" and "Non-adjusting", between a pre-adjustment and post-adjustment period (1981-8, 1987-97, respectively).
The assessment showed that the Bank had committed a fallacy of false cause by trying to link industrial growth as due to adjustments.
As is pointed out in the Agenda for Africa's Economic Renewal (Bueno Ndulu and Nicolas Van de Walle, eds.,), theeffects of SAP on manufacturing emerged as positive when measured in this way. However, the conclusions and calculations drawn by the World Bank were untenable. In fact, the Bank's methodology was questionable. This poses a question on the credibility of the Bank’s statistical
analysis. The question that we can pose is: “How was the Bank able to reach its positive assessment of adjustment programs?” The assessment showed that the Bank had committed a fallacy of false cause by trying to link industrial growth as due to adjustments. These assessments showed that the World Bank supposed some statistical causal connection that did not in fact exist.
One such assessment studied 45 countries, 16 of which had not undergone adjustments. The results generated by this study showed scant grounds for the World Bank's claims. In this assessment, macroeconomic policy improvements rather than impact of SAP are accounted for the economic growth. Under this study, all countries with "improved" policies were grouped together and called "policy-improving" since it found that the "differences between the Bank's subgroups registering 'large' and 'small' improvements were not found to be statistically meaningful".
The study noted highest growth rate of GDP in the adjusting countries with macroeconomic policies. In the periods, 1980-93, 1990-93, the policy improving countries average GDP growth surpassed both the policy deteriorating and non-adjusting countries. The claim of this study was that since it didn't find any statistically significant differences in the group performance, determinants could only be traced in macroeconomic factors that differentiated them.
The Bank's categories of "improving or deteriorating countries" had nothing to do with adjustment". What this meant was that the World Bank had missed the point.
Though this study came to the same conclusion as the Bank that significant higher growth is seen in the policy-improving countries than in the policy-deteriorating and non-adjusting countries, its point of departure was the assertion that "this proves nothing about the impact of structural adjustment programs, since the grouping reflected differences in macroeconomic management only". In other words, the Bank's categories of "improving or deteriorating countries" had nothing to do with “adjustment". What this meant was that the World Bank had missed the point.
This study removed the grounds for attributing growth rate in manufacturing value added as due to the adjustment's liberalisation policies. Of the 15 countries of this group, only five--Burundi, Kenya, Mauritania, Nigeria, and Uganda-- had annual increases in manufacturing value added. What is interesting is that none of these countries was considered by the World Bank to have implemented import liberalisation properly. If they were excluded from its group of policy improving countries, then the rate of growth in manufacturing added value for this group falls to the level of non-adjusting countries.
What the foregoing proves is that we can't yet make causal inferences about the effects of adjustments on GDP or industrial growth, export performance or competitiveness. Even the effect of stabilisation on industrial performance is ambiguous. There is no doubt that adjustments are necessary for industrial development but they are not a sufficient condition for Africa's industrial improvements. Instead of a rapid and sweeping liberalisation policy and exposure to free markets, the development of our industries was supposed to be a gradual and controlled process where both the government and the industrial sector retained the power to guide resource allocation in a clear and transparent manner.
It was also important that the World Bank policies should develop and sustain supply-side measures such as developing skills by investing in education and the training of employee firms. More financial support should have been provided to restructure and upgrade the African industrial sector.
ANALYSIS OF HIPC INITIATIVE
At this point in time, I want to turn my attention to the HIPC initiative. The purpose of HIPC, as I have gathered is “to provide a comprehensive debt relief to the poorest and most indebted countries”. In the beginning, it was mainly aimed at “offering relief to developing countries on arrears to official and commercial creditors organized under the Paris and London Clubs”. The dynamics and scope of the HIPC as we know it now has evolved to include “all debts and arrears owed to the IMF and World Bank”. The modus operandi of the HIPC initiative seeks to “reduce the debt burden” of indebted countries like Zambia to “sustainable levels in order to ensure that no country faces a debt burden that it can’t manage”.
MERITS OF HIPC
An aspect of the HIPC initiative that we can applaud is the fact that it “places debt relief in the framework of poverty reduction by aiming to ensure that servicing unsustainable debt does not compromise restructuring and a development of a country”. This is the reason why after Zambia reached the HIPC completion point, part of the package involves embarking on “clearly defined poverty reduction strategies”. The HIPC initiative involves “debt relief/ cancellation and structural and social policy reform” with special emphasis on basic health and education provision. The ultimate goal then is assist indebted countries that have reached the HIPC completion point to “achieve overall debt sustainability and free resources for development”.
There is no doubt that adjustments are necessary for industrial development but they are not a sufficient condition for Africa's industrial problems.
The country selection criteria involved only countries that were on an “Extended Structural Adjustment Facility (ESAF). This was only for countries “which qualified for assistance under the World Bank’s International Development Association”. Another condition involved that a country “implement structural adjustment programmes” as well as “show commitment to poverty reduction”. The International Financing Institutions (IFIs), as per requirement, were to ensure that “eligible countries were monitored over a period of time”. During this probation period, a country was supposed to have been on ESAF and should have “demonstrated good policy performance in return of treatment of its bilateral official debt under Naples term”.
One laudable merit of the HIPC initiative is its “deliberate effort to target the poor and hence channel more budgetary resources to the social sector”. For example, our government spent about 20.5 percent of the revenue in 2003 on the social sector. There has also been a marked increase in spending in health and education, relative to the pre-HIPC era. Again the debt relief resources are being used to rehabilitate many social amenities.
One laudable merit of the HIPC initiative is its “deliberate effort to target the poor and hence channel more budgetary resources to the social sector”.
Again the criticisms for the HIPC initiative are legion. Indeed, it is right that we should pride ourselves for having reached the HIPC completion point. With the HIPC initiative, our debt has been spread over a period of 22 years. But the question we should ask is whether there is a guarantee that our debt stock will not increase during those years as a result of additional borrowing? In qualifying for HIPC completion point, didn’t our country just “improve its system to match donor equirement?” Are we addressing poverty effectively? Does HIPC really guarantee “proper anchorage with priorities of the poor?”
DEMERITS OF HIPC
The demerits of the HIPC initiative flow from the fact that though we have been granted partial debt relief under HIPC (and this is necessary for development), there are “serious social and economic costs” that we have to pay. First, “more and more of our people will continue to lose jobs through donor dictated policies of privatization and retrenchments, which in turn “will refuel more poverty. What this means is that HIPC will in the long run reinforce the very problems it was designed to cure.
IMF and World Bank programmes are merely “first aid” policies; they cannot be a panacea for solving our economic and developmental ills.
What this means is that HIPC will be unable to place us in the “recovery position”. Again, the fact that we have reached the HIPC completion point is not guarantee enough that our “debt will be sustainable”. In fact, our debt will continue to be “unsustainable until 2010 regardless of whether or not the country reaches HIPC completion point”, according to a UK based Jubilee Research Foundation. To date, there is a lot of data accumulating that substantiates that HIPC is failing to “deliver on its promise of sufficient funds”.
CONCLUSION
My conclusion then is that IMF and World Bank programmes are merely “first aid” policies; they cannot be a panacea for solving our economic and developmental ills. Thus, we can’t rely upon them very much. We have continued to see that their programmes are most often “weak both in process and content”. The premises and foundations upon which they are built are “extremely shaky and porous” and hence unreliable. What will be next after HIPC? I am in total agreement with former Mozambican President Joachim Chissano’s declaration at the Beijing Forum which ended on the 7th of September 2005.
“We are trapped in a vicious circle, a helix that pulls downwards, deeper and deeper into poverty, and prevents us from developing”.
His claim was that developmental modes being imposed on most countries in Africa have trapped them into a vicious circle of poverty. Mr. Chissano states. “We are trapped in a vicious circle, a helix that pulls downwards, deeper and deeper into poverty, and prevents us from developing”. He calls for a vision of development that is people-centred, inclusive, pro-poor, a vision that is based on local realities and takes advantages of local knowledge and innovation capabilities. When this is done we will see IMF and World Bank policies not only as first aid but as a panacea for poverty reduction in our country.
Vincent Bwalya Mulenga, S.J.
Luwisha House
Lusaka
This articles makes reference to Charles Chilufya’s article, “Why is Poor Africa so Poor”, from the JCTR Bulletin No.62 fourth quarter 2004 andAgenda for Africa's Economic Renewal (Bueno Ndulu and Nicolas Van de Walle eds)
