Sunday, September 2, 2007

The IMF and World Bank Economic Adjustment Programme (ESAP) In Zimbabwe

A number of scholarly works, reviews and reports have attempted to shade light on the complex mix of factors that are responsible for Zimbabwe's current crisis of poverty. While there are sharp differences in views on the relationship between neo-liberal globalization policies and poverty in Zimbabwe, there appears to be a consensus that there is also a link between the country's agrarian issue and the government's political decisions largely taken without any economic considerations. This review therefore does four things. First, it analyzes debates on an historical bookmark for the period of colonial economic policies in the hope that lessons from that experience will not be lost in the process of the review. Second, it reviews some of the major outcomes of pre-ESAP period economic policies. Third, it sets the stage for debate on the major issue of this review by examining the World Bank poverty paradigm of economic development. What is the World Bank strategy for poverty reduction and why has it come under severe attack from independent academics and activists worldwide? Finally, as a caution of those who will shape Zimbabwe's future, it provides some reminders of the interlocking relationships among property, poverty and conflict.
Background to the Review
Poverty has been on the increase in Zimbabwe, particularly since the implementation of the structural adjustment program (ESAP) in 1991 leading people to blame the reforms for increased poverty. It has been difficult to pinpoint those policies, which have had an adverse effect on poverty and income distribution. This is because a wide range of policies, ranging from trade, to exchange rate to monetary to fiscal and other social policies have been implemented, often at the same time. In addition there were other exogenous shocks such as droughts during the reform period which would have contributed to poverty. Since it is difficult to pinpoint specific policies as the culprits for the growing suffering of Zimbabweans, it is difficult for policy makers to react to these increasing problems. However, there has been substantial literature praising ESAP for the economic, political and social successes the country experienced during and after the period of implementation. The literature argue that the program supported by the World Bank (WB) and the International Monetary Fund (IMF), dismantled many of the controls confining the country's economy. Implemented during a severe recession brought on by Zimbabwe's worst drought in more than a century, the program made impressive strides in trade and domestic regulatory policy, creating the basis for self-sustaining growth (World Bank Report 1998). However, opponents of this view strongly argue that the program failed to meet its goals. Poverty and unemployment increased , fiscal reforms made slow and uncertain progress, keeping the budget deficit higher than its 1989 level ( Richard Saunders 1996:8).
Problems of Absolute Conclusions and the Poverty Profile.
Poverty has many manifestations, including lack of income and productive resources sufficient to ensure sustainable livelihoods; hunger and malnutrition, ill health, limited or lack of access to education and other basic services; increased morbidity and mortality; homelessness and inadequate housing; unsafe environments; and social discrimination and exclusion; it is also characterized by a lack of participation in decision-making and in civil, social and cultural life (World Summit for Social development 1995). Thus, it is defined and interpreted in different ways and academic debates on the subject are packed with controversies over how to differentiate the poor from the non-poor and ascertain the different levels and causes of poverty among the former. Indeed, there are also competing and complimentary conceptions of poverty and inevitably the ongoing debates are, in my view, politically and ideologically charged. I also think that constructions of poverty by researchers and policy advisors, vary due to disciplinary biases and ideological values. They also vary over time and space due to differences in the political, economic, cultural and ecological conditions of the contexts in question and these contexts are neither static nor closed to the outside world. It should also be noted that the distinction between absolute and relative deprivation/poverty has also been a controversial issue ( Sen,1985, 1985, Townsend 1985). In the context of this review, globalization has become a major frame of reference for debates on poverty whether the focus is sub-national, national or international. The World Bank is actively engaged in the formation and dissemination of paradigms and interpretations of international poverty, including generally adopting a strong optimistic view of the benefits such as poverty reduction that would accrue to developing countries like Zimbabwe which have adopted its policy prescriptions for global integration. I also note that there are others who have taken more radical positions on globalization and its implications for people's well-being and constantly remind the world of the power structures behind the growing global inequalities ( Bircham and Charlton, 2001).This overview is meant to give an idea of the diversity of perspectives in examining the real factors contributing to poverty in Zimbabwe.
Methodology and Purpose of the Review
This review undertaken here compares interdisciplinary quantitative and qualitative literature , reports, conference deliberations and public opinion in order to make an assessment of the extent to which other factors apart from ESAP, are responsible for the poverty crisis in Zimbabwe. The method used is based on comparing and contrasting different literal views to determine outcomes. The review examines historical perspectives of the impact of Zimbabwean economic policies and the origins of structural adjustment, the targets of the program and an assessment of the achievement of its goals.
Lamenting the plight of Third world countries strangled by debt, Megan Ferstenfeld (1998), work traces the origins of structural adjustment and, and why the World Bank and IMF have come to exercise so much influence over the economies of countries whose debt crisis has its roots in the larger and inherently unequal system. Historically, he documents the underpinnings of these countries' current financial disaster and traces them back to the end of World War 11, when the USA found itself in a position of great surplus relative to the rest of the world. His argument is that, not wanting to sacrifice the high levels of output it had achieved during wartime, the USA, through commercial banks, began to administer loans to developing countries in Africa, Asia and Latin America, so that these countries, I believe, could keep purchasing American goods. Ferstenfeld further notes that this North-South pattern of capital flow continued to gather momentum through the 1970s when unprecedented increases in the price of oil on the part of the nascent Organization of Petrolium Exporting Countries (OPEC) created massive profits for its members, who, in turn, inundated Northern Banks with Deposits. Thus, to properly recycle these “petroldollar” many of these banks greatly augmented their loans to developing world, resulting in virtual lending frenzy ( ibid: 35).The consequences of this situation has provoked debate among economists, academicians and politicians as Third World debt burden began to mount because of mounting interests rates caused by global recession. This meant that many donor countries were rapidly approaching the point of default, or that their accumulated debt would overtake their income from foreign aid, portending financial ruin for Northern Banks. In a desperate attempt to stop this burgeoning debt crisis the World Bank and the IMF stepped in, offering to effectively bail out the commercial banks. It was therefore in this context the concept of Structural Adjustment Lending first came into light. In my opinion , the heart of the matter is essentially that these two institutions offered to provide debtor countries with necessary loans to enable them to continue servicing their debt provided they 'adjust' their economies according to specific requirements and these requirements as Zimbabwe was to realize, soon came to be in the country’s ESAP and were reflective of a concomitant neo-liberal revolution in economic thought. In my view the granting of a loan from the World Bank and the IMF implied two issues for the country. First, obtaining a loan in order to service a debt is a confirmation that Zimbabwe would be perpetually indebted. And, second, the loan has too many strings attached to the extent that the country's economic, political and social development is very much dependent on the lender. A study by Allen (1995) picked up the argument by asserting that the IMF and World Bank guidelines are not intended to benefit the implementing country but to guarantee that these two institutions could cover money loaned to Third World countries.
. It has been observed that an important theoretical strand within academics and reporters on the causes of poverty in Zimbabwe revisits the colonial period to re-assess the impact of ESAP on the poverty crisis in the country. Challenging the neo-liberal view that amid the seeming success story of post-colonial Zimbabwe, there existed inherent weaknesses in the country's economy, many academics and economists are increasingly asserting the generally expressed view that the World Bank and the IMF poverty reduction program, more than any other variable, devastated the Zimbabwean economy to the extent that the incidence of poverty was immediate. (Saunders 1996) documents the manner in which the Zimbabwean government has allowed its embrace of the structural adjustment to drive many more Zimbabweans closer to the wall of poverty. Havena S .Dashwood (2000) documents the Zimbabwe government shift from a social welfare orientation in the early 1980s to a market-based development strategy with little to no emphasis on developing rural areas or meeting the needs of the poor. She explains this shift in terms of the embourgeoiesiement of the ruling elite rather than the pressure from the IMF or the WB. It can therefore be argued that ESAP was not harmful to the poor; instead, the failure of the ruling elite to integrate poverty-related policies within ESAP hurt the interests of the poor. To support the argument, Dashwood analyzes both the domestic and international levels. At the domestic level, she argues, three factors led to the shift away from social welfarism: 1) an agreement among some senior decision makers that market based reforms were necessary; 2) support from entrepreneurial and agrarian elites for market reforms; and 3) the embourgeoisement of the ruling elite which refers to the acquisition of large-scale farms and big business by senior politicians and their associated desire for market reforms. At the international level, the evidence is that Zimbabwe was not in a state of crisis,(as is shown later in this review) prior to the introduction of ESAP. This indeed gave the government room to negotiate the conditions attached to ESAP. For an example the government made some attempt to protect the industrial sector during the reform period and this shows that the government had some control over the design of ESAP and could have included measures to address poverty-related concerns. In fact it was obvious that the World Bank tried to persuade a reluctant government to increase investment in social services and include a social dimensions of adjustment component within ESAP. In fact, I find this argument interesting because, I think it contributes to the debate on the African political economy literature over the relative pressure from international finance institutions versus internal domestic factors that lead to changes in economic policies. A common perception is that structural adjustment programs are forced on countries against the will of the government or the people. Thus, in my opinion, while the World Bank did exert some pressure, the impetus for reform in the case of Zimbabwe came from changes in the domestic class structure.
However, work by Saunders (1998), Ziumbe (1999), Sichone (2003) and Machemedze (2004) contradicts Dashwood's argument by contending that in 1990, the Zimbabwe government succumbed to Western donor pressure and grudgingly agreed to implement the five year economic structural adjustment program, as a response to the economic crisis which had been afflicting the country since independence in 1980. Collaborating this argument, Kanji's(1991) work reveals that some adjustment measures had already been introduced but the adoption by the Zimbabwe government of ESAP marked the beginning of a new, more intensified phase of structural adjustment. Thus the argument presented here, in my view, is that Zimbabwe asked for WB and IMF intervention in order to transform the country's tightly controlled economic system ( a legacy of a sanction-inflicted economy of the colonial regime), to a more open, market-driven economy. In fact, my observations are that there were a number of factors that had held back growth and participation by the poor. A study by Chimanikire (1991-92) also links poverty to the country’s history. His argument is that the pre-independence conditions tended to bestow economic and political benefits on whites as opposed to blacks. It is true that the African population was settled on poor quality and small portions of land whilst whites occupied vast tracts of fertile land. Blacks were also denied equal education and employment opportunities and even salaries for the same job differed with race. These policies introduced great inequalities and also perpetuated poverty among the African population. Works by Nyathi T, and Makoni, K.,(2000) notes that the prolonged liberation struggle which led to independence in 1980, had adverse effects on the entire African population and the resulting economic hardships were felt most severely in the rural areas. Loewenson, and Chisvo (1997) also observed that the imposition of sanctions on the then Rhodesian regime affected the entire country particularly the African urban and rural poor. Thus, my argument here is that colonialism had a determining influence on Zimbabwe’s economic condition. While it is increasingly implausible to attribute the country’s economic ills to colonialism, the neglects of that period—in the development of the physical and human capital stocks, technological capabilities, and institutions—made it predictable that the new state would have great difficulties in sustaining reasonable rates of economic progress, just as it is not surprising that the colonial experience, and the way this interacted with traditional social structures, resulted in a post-independent Zimbabwean state that would often prove incapable of responding adequately to emerging economic deficiencies.
But what of the contemporary influence of the world economy as represented by international institutions? In taking up this set of issues, Rukobo’s ( 1997: 18-19) study examines the methods the new Zimbabwean government adopted in dealing with the economic imbalances of the pre-independent era. At independence, one of the major challenges for the new state was that of redressing the inequalities of the past, as already mentioned above. Rukobo notes that this was done through the adoption of welfarist policies, influenced by socialist convictions of the Zimbabwe African National Union-Patriotic Front (ZANU-PF) government. With growth with equity, as a major objective, accent was placed on education, health, rehabilitation of the war raged infrastructure, removing discriminatory laws and promoting the advancement of women (Chitiga-Mabugu 2001), and the resettlement of the landless people. Studies by Chisvo and Munro (1994) examined agricultural production as the other major area of policy emphasis. The work reveals that agricultural production led to sustained agricultural production by the peasant and small scale sector. It would therefore seem to me that the first 10 years of independence witnessed remarkable progress in redressing social imbalances, and laid a foundation for a sound human resources development policy. Nevertheless, it should be noted that , the economic policy operated on a regime of controls and regulations, which was exacerbated by the monopolistic nature of the economy. Development and growth by 1990, were thus sluggish, unemployment levels rose, and balance of payments problems became intractable. Climatic factors, particularly drought, added a thorn in the flesh, especially in 1992.
The Zimbabwe government Central Statistical Office ( July 1998: 1-2) shows how imbalance between central government expenditure and revenue compromised the sustainability of the spending program. The Central Statistics reveals that central government expenditure as a share of the national economy was always high and international standards, and revenue fell short of expenditure through the 1980s. It further notes that at independence, central government expenditure accounted for about 35% of GDP, and partially due to the social sector investment of the 1980s, this share rose 47.4% by 1988/89. The gap between expenditure and revenue and interest payment on the national debt began to consume greater share of the government budget. Budget deficits also crowded out private investment and created inflationary pressures. In my view, though the policies of the 1980s seemed conducive to sustained economic growth, the Zimbabwean economy began to stagnate in the mid to late 1980s. This is evidenced by Government’s recognition of the need for a strong economy that could provide resources necessary to combat poverty and redress the imbalances of the past. As a result of the deteriorating economic growth, high inflation rates, high levels of unemployment, and increasing fiscal budget deficits, Zimbabwean authorities fell under pressure to abandon the interventionist policies of the early 1980s in pursuit of market-oriented reforms.
The evidence surveyed would support Zimbabwe’s move to economic reform. My argument is that when the country embarked on its economic structural adjustment program (ESAP) in 1991, the decision came from the recognition that main constraints to growth were the low levels of investment, and the administrative management of the economy inherited from the Unilateral Declaration of Independence (UDI) period, reinforced by the socialist experiment of the 1980s. In the context of this review, it is significant to note that the Zimbabwe government approached the World Bank, the IMF and other donors for financial support for ESAP. Indeed the support was forthcoming, although it was conditional on the implementation required. Indeed, Zimbabwe today faces political and economic crises as a result of multifaceted chain of events emanating from ESAP, which was introduced by the IMF and the World Bank (WB). But to say the IMF and the WB are solely responsible for these crises, in my opinion, would be a misrepresentation of facts but their policies have played a huge part in triggering the problems the country is facing. Allen (1999) and Machemedze ( 2004) h studies on the agreements and implementation of ESAP show that when Zimbabwe started implementing ESAP, a number of sectors of the economy were affected and this led to ordinary people suffering the consequences. The studies also note that in implementing the structural adjustment program, the government adopted the so-called Washington Consensus (WC) principles, which in effect reversed the otherwise steady growth of the economy that the country was experiencing. This view of course is refuted in the studies by Chitiga (2004) and White et al.(2001) who are of the view that there were other exogenous shocks such as droughts during the reform period whichcould have contributed to poverty. However, Allen and Machemedze note that the IMF and WB principles included:
1. Fiscal and monetary policy reforms, including budgetary and monetary stabilization measures, and the liberalization and deregulation of banking and finance.
2. Trade liberalization, including the abolition of quantitative controls and the reduction and harmonization of tariffs and duties.
3. Deregulation of wages, interest rates and exchange rates.
4. Public sector restructuring, entailing the downsizing of the civil service and the reorganization and commercialization of parastatals.
5. A social safety net in the form of Social Dimensions Fund (SDF) for those vulnerable to the adverse effects of structural adjustment.
Critics of the IMF and the WB in Zimbabwe claimed that these guidelines principles and guidelines were intended not to benefit the implementing country but to guarantee that these two institutions could recover money loaned to Third World by the Northern Banks. It was therefore not surprising that in the midst of implementing some of these principles, the government encountered multiple problems from different fronts, including from its own people, labor unions, the private sector, civil society, from multilateral and bilateral donors, including the IMF and the WB. Donors squeezed the country to enforce further changes to the economy that was rather protected from foreign manipulation before the 1990s Machemedze (ibid:1). It was this situation which, in mid 1990, made Zimbabwe agree with the WB to implement a home-grown five year phased program towards a free market. J.Alwang (1990) study shows how during the first year, Zimbabwe was to lift many restrictions on imports, meaning drastically reducing tariffs on products coming into the country. The study also reveals that at the donor’s conference in Paris March 1991, the WB and western countries promised US$690 million to fund the first year of the program. He shows how the donors backtracked, demanding more rapid changes than originally agreed.
In my own interpretation these rapid changes that the donors wanted entailed free fall financial, capital and trade liberalization. The free fall liberalization exposed the country to foreign products and control thus mortgaging the nation to the dictates of foreign commercial interests at the expense of their social and moral well-being.
According to the WB, the reforms under ESAP could hardly be regarded a roaring success. They did not lead to a marked improvement in investment and savings levels as a percent of the national income. The economy became much more outward oriented, and exports increased substantially. Private sector profitability grew principally in agriculture, tourism and transport, and the informal sector had a strong boost. However, fiscal and monetary stability remained elusive and the standard of living declined for many, particularly urban households, with percentage of households classified as poor rising from 40% in 1991 to over 60% in 1995. Unemployment continued its relentless `rise . Little progress was made in land reform. The considerable achievements in health and education made during the first decade after independence also came under threat, with the brunt of the fall in public expenditure being borne by the social sector. Dhliwayo (2001) details a study on the impact of public expenditure management on basic social services. In fact his study assesses the situation of basic services in particular health and education under ESAP examine the impact on various sectors of the population, particularly low-income groups children and the poor from the resulting changes in social welfare. His concludes that according to civil society, the removal of subsidies and cost recovery in education and health sectors has resulted in swelling numbers of children out of school, people dying of curable diseases in their homes and women giving birth at home or in scotch carts on their to health centers. Civil society also contends that several health indicators have deteriorated . Participation in parental services have declined; maternal death and mortality rates of babies born before arrival have increased, etc.,
Also, studies by ( Sachikonye , 1997; Kanyenze, 1999; Loewenson, 1999) extensively examine the effects of ESAP on various other aspects of the national economic activities. The studies draw the following conclusions:
a)---The average of employment growth during ESAP period was half the growth of the labor force, meaning that the new jobs were not being created fast enough to absorb new entrants into the labor market. In any case as I have pointed out earlier in this review, by focusing exclusively on the urban formal sector as the engine of growth , the program neglected the sectors with greatest potential for job creation, i,e., the informal and small, medium-sized enterprises
b)---With reduction, or in some cases elimination of subsidies private companies were forced to reduce costs in order to remain competitive. Deregulation allowed them to make increased use of temporary, part-time contract workers who did not receive benefits and had no job security. These changes increased unemployment and decreased real wages. As a matter of fact, those who found full time jobs were no longer guaranteed a living wage, and the effects of these reduced incomes had been made even more impotent by rising prices. The collapse of wages meant that workers live below poverty line.
c)---The failure to modernize technologically also devastated local industries hit by cheap imports , as well as by the loss of government subsidies, high interest rates, and the increased cost of raw materials. Small and medium-sized industries were forced to reduce production, go out business or switch from manufacturing to importing, leading to a large drop in manufacturing input. With companies forced to lay of workers, employment dropped sharply between 1991 and 1998, accompanied by a serious erosion of wages and salaries.
d) In the agricultural sector, note should be taken that at the time of ESAP, the country met all its domestic food needs and still had enough maize and wheat to export to other countries in the region. With the advent of structural adjustment, trade barriers, price controls, subsidies and price quotas were removed. Farmers were no longer required to produce food for local consumption. In fact, some commercial farmers shifted from maize growing to even producing flowers for the international market.
e) The studies further show that with budget allocations for rural infrastructure in rural areas down, farmers lacked good roads and adequate transport systems, as well as proceesing, storage, and distribution systems, they required in order to be competitive. Other key problems faced by farmers under ESAP, include lack of access to land, difficult with availability and price of farm inputs , the loss of important and timely information previously provided by the marketing boards.
Economic policy during colonial and post-colonial Zimbabwe has not resulted in improved socio-economic welfare of the populace. Consequently, economic decline has resulted in widespread political discontent and disaffection with the present regime. As political tensions have reached a political impasse, there are concerns that Zimbabwe’s economy is on the brink of collapse primarily because of the IMF and WB – sponsored ESAP, and, in my opinion, because both the government and markets have failed the poor. In fact most institutions in the country still have colonial structures not capable of responding to new socioeconomic and cultural demands. Central government institutions still emphasize control and are sectorally structured. To ensure continued human development and poverty reduction , the country needs to provide adequate resources and targeting on activities most in need of public support---and to devise burden-sharing mechanisms that will ensure that the poor have access to basic social services.
Reducing poverty will require growth in employment and increased productivity in smallholder agriculture. These in turn will be dependent on economic growth, continued investment in human capital, and an increase in the assets owned or controlled by the poor, including land. Also, while sound macro management and an improved incentive framework will help to put the economy on a stronger growth path, public expenditure will need to enhance participation , provide supportive infrastructure, and protect those whom the benefits of growth do not reach.
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