Africa, Development & Aid, Europe, Headlines

DEVELOPMENT: If the IMF Could Do This to Zambia…

Sanjay Suri

LONDON, May 24 2004 (IPS) - The Zambian economy has collapsed heavily as a result of World Bank and IMF intervention, a major new study reveals.

The reforms forced on Zambia by the World Bank and the International Monetary Fund (IMF) have “directly resulted in making tens of thousands unemployed, destroyed key industries, caused extensive social unrest and increasing poverty,” says a report published by the World Development Movement (WDM), a leading London-based non-governmental organisation.

The report ‘Zambia: Condemned to Debt’ charts in detail how “sweeping trade liberalisation, deregulation, dismantling of the public sector and massive privatisation” has led to a drop in Zambia’s UN human development rankings from a still poor 130 (but which made it one of the most developed countries in sub-Saharan Africa in 1990) to 163 in 2001.

The report written by Zambian economists Jack Jones Zulu and Lishala C. Situmbeko points to a near all-round decline as a result of IMF-World Bank policies.

And while this report looks at Zambia, the situation is similar in several other African countries, the WDM says.

“Our case study of Malawi last year and of Senegal led us to very similar conclusions but to a different degree,” Dave Timms from WDM told IPS. “Similar policies of the IMF and the World Bank are leading to similar outcomes.”

But Zambia which took to democracy fairly early and has not been at war is “one of the worst and one of the most clear-cut cases of the failure of IMF and World Bank policies,” Timms said.

The impact of the policies in some areas has been dramatic, the report shows. Lowering of import tariffs on textile products and the removal of tariffs on used clothes brought large-scale import of cheap second-hand clothing, the report says.

The result is that from more than 140 textile manufacturing firms in 1991 the number fell to just eight by 2002. Employment in this sector fell from 34,000 to just 4,000.

“We used to supply retailers with three and a half thousand tonnes of clothing annually, we’re down to less than 500 tonnes now,” Ramesh Patel from a textile company is quoted as saying. The firm that employed 250 people eight years ago now employs 25, he said.

The report documents several startling facts about the falling Zambian economy.

Between the early seventies and late eighties Zambia’s external debt rose from 814 million dollars to 6,916 million dollars. By the start of last year Zambia had received only 5 percent of the debt service reduction committed to it under the Heavily Indebted Poor Countries (HIPC) initiative, the report says.

This initiative is being used as “another lever with which the IMF and World Bank can wield influence over Zambia’s economy,” it says.

In return for debt relief the IMF and the World Bank are making policy interventions on deregulation, privatisation, lay-offs, freeze in wages and reduced state support to the agricultural sector, but the record in these areas is one of “dismal failure.”

The report points out that the World Bank itself had acknowledged in 2000 that removal of subsidies on maize and fertiliser had led to “stagnation and regression instead of helping Zambia’s agricultural sector.”

The “one-size-fits all privatisation programme” has improved the running of some failing state-run economies but “many companies have collapsed, jobs have been lost and welfare programmesàhave not been continued by private companies.”

The report quotes Zambian President Levy Mwanawasa as saying last year that the IMF privatisation programme has “been of no significant benefit to the countryàprivatisation of crucial state enterprises has led to poverty, asset stripping and job losses.”

Zambia’s real gross national income (GNI) has fallen from 1,455 dollars in 1976 to 892 dollars by 2000, the report says.

“Not surprisingly, employment has suffered,” it says. “Formal manufacturing employment fell from 75,400 in 1991 to 43,320 in 1998. Paid employment in agriculture fell from 78,000 in 1990 to 50,000 in 2000.”

The failed policies have led to widespread dissatisfaction, the report says. The government was asked to privatise the state electricity company and state bank in return for debt relief.

The government cancelled the move at first following a major protest march in state capital Lusaka but then had to reverse its decision under pressure from the IMF and the World Bank.

Zambia had been told that it could not increase its fiscal deficit from 1.55 percent to 3 percent. That contrasts with a U.S. budget deficit of 3.4 percent projected to rise to 4.1 percent this year.

“It is time to cancel Zambia’s debt and fundamentally rethink the role of the IMF and the World Bank,” the report says.

“It is not acceptable that these institutions have effective control over policy-making in countries like Zambia. Policies need to be developed which are genuinely home grown alternatives that put the Zambian people, especially the poor, first.”

The IMF and the International Development Association (IDA) of the World Bank agreed last week to support a comprehensive debt reduction package for Zambia under HIPC. The total debt service relief from all of Zambia’s creditors is worth more than 3.8 billion dollars, the IMF says.

The enhanced HIPC Initiative will “help Zambia to advance its poverty reduction programmes and stimulate economic growth, which will be essential in supporting efforts to achieve the International Development Goals of 2015,” the IMF declared following a meeting on its new Zambia initiative May 18.

Compared to projected debt service obligations without HIPC assistance, Zambia’s annual payments will be reduced by about 260 million dollars over 2001-2005 and roughly 130 million dollars over 2006-15, the IMF says. “This corresponds to a reduction in debt service obligations of about 45 percent.”

But “Zambia will receive the bulk of the assistance under the enhanced HIPC Initiative when it satisfies a number of conditions,” the IMF declared. These include implementation of an IMF prescription for poverty reduction.

The IMF praises Zambia for making “substantial progress in implementing an ambitious set of economic reforms, including important efforts in the areas of privatisation, deregulation and exchange and trade liberalisation.” It says hyperinflation has been contained and economic management has been improved.

But it acknowledges that “these steps have yet to be reflected in sustained economic growth, and Zambia remains one of the poorest countries in the world.”

The IMF says that social indicators “remain stubbornly low” and a “high incidence of HIV-AIDS presents further challenges to Zambia’s poverty reduction efforts."

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