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Zambia: Condemned to Debt
AfricaFocus Bulletin
Jun 3, 2004 (040603)
(Reposted from sources cited below)
Editor's Note
"The evidence suggests that the past twenty years of IMF and World
Bank intervention have exacerbated rather than ameliorated Zambia's
debt crisis. Ironically, in return for debt relief, Zambia is
required to do more of the same. The country has been condemned to
debt." - World Development Movement report
This new report, coauthored for the World Development Movement
(WDM) by an economist at the Bank of Zambia and an analyst with the
Jubilee-Zambia campaign, is a devastating indictment of
international policy on the debt crisis in Africa and other
developing countries. The fault is not only inadequate funding for
debt relief through the Heavily Indebted Poor Countries (HIPC)
initiative that creditors advance as the solution. It is also that
debt and the HIPC initiative itself are used as leverage to
reinforce failed policies that contributed to the debt crisis in
the first place.
Significantly, according to the report, claims that previous
weaknesses are being addressed by the "participatory" Poverty
Reduction Strategy Paper (PRSP) process do not hold up. The
process, the researchers note, has provided a discussion forum,
but all the important decisions on policy are still being imposed on the basis of
rigid macroeconomic conditions defined externally.
Parallel conclusions are documented on a wider scale, including
cases from Ghana, Uganda, Mozambique, and South Africa as well as
countries in Latin America and Asia, in other recent reports from
ActionAID USA, ActionAID Uganda, ActionAID UK, War on Want, and the
Public Services International Research Unit (PSIRU)
This AfricaFocus Bulletin contains the executive summary of the WDM
report, followed by links to three other recent reports and to the
Jubilee Zambia debt cancellation campaign. For additional
background and links on Zambia, visit
http://www.africafocus.org/country/zambia.php
Recent AfricaFocus bulletins on related issues include:
Africa: World Bank Protests/Policy
http://www.africafocus.org/docs04/wb0404a.php
and
Africa: Who Owes Whom?
http://www.africafocus.org/docs04/debt0402.php
For ongoing debt cancellation campaigns in the USA and UK, see
http://www.jubileeusa.org,
http://www.afsc.org/africa-debt, and
http://www.jubileedebtcampaign.org.uk.
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World Development Movement
April 2004
Zambia: Condemned to debt
by Lishala C. Situmbeko, Bank of Zambia and
Jack Jones Zulu, Jubilee-Zambia
[Executive summary: full report and additional background articles
available at http://www.wdm.org.uk/campaign/colludo/zambia
Despite the disadvantage of being land-locked, Zambia was once one
of the wealthiest countries in sub-Saharan Africa. This began to
change in the early 1970s. After the oil crisis (increasing the
price of imports) and relative commodity price collapse (reducing
the revenue from exports), Zambia had to turn to the International
Monetary Fund (IMF) and World Bank for assistance. So began some
thirty years of Bank and Fund intervention in the Zambian economy.
In return for loans, Zambia was required to implement Bank and Fund
endorsed economic policies over three decades. Unfortunately, this
period is a sad story of increasing debt, economic stagnation or
collapse, and social crisis.
After the external economic shocks suffered in the early 1970s,
Zambia's total external debt rose from US$814 million to US$3,244
million by the end of the decade. The situation then further
deteriorated with Zambia's external debt more than doubling to
US$6,916 million by the end of the 1980s. By the late 1990s the
debt crisis in countries such as Zambia led to the creation of the
much vaunted Heavily Indebted Poor Countries (HIPC) initiative.
Unfortunately, the relief that Zambia is getting under the HIPC
initiative is proving to be inadequate in removing its debt burden.
By the start of 2003, Zambia had received only 5 per cent of the
debt service reduction committed to it under HIPC. Even when it has
reached completion point, Zambia's debt service will continue to
rise. As Zambian Finance Minister Peter Magande has pointed out,
"Zambia's current levels of debt even after it receives its full
quota of debt relief as defined in the decision point document
under HIPC initiative will continue to be unsustainable."
Since 1991, in order to qualify for debt relief, Zambia has
implemented such economic policies as privatisation, trade
liberalisation, subsidy cuts and public sector wage freezes.
Just as worrying as Zambia's continuing debt crisis is the fact
that the HIPC initiative is being used as another lever with which
the IMF and World Bank can wield influence over Zambia's economy.
In return for debt relief, Zambia must implement economic policies,
such as privatisation and cuts in public spending, that meet with
Bank and Fund approval. The conditions tied to the HIPC initiative
are just the latest in a long line of 'free market' policy
interventions that have included: trade liberalisation; investment
deregulation; privatisation; cutting or abolishing subsidies;
laying-off civil service staff; public sector wage cuts or freezes
and reduced state intervention in the agricultural sector.
Yet a close examination of economic and social indicators suggests
the kind of policies being foisted on Zambia by these institutions
over the past twenty years have been a dismal failure.
For example, trade liberalisation, a key plank of Bank and Fund
economic orthodoxy, has been disastrous for Zambia's manufacturing
sector. Textile manufacturing has been one sector particularly
badly hit. The lowering of tariffs on textile products, and
particularly the removal of all tariffs on used clothes, led to
large increases in imports of cheap, second-hand clothing from
industrialised countries. The Zambian textile industry could not
compete with these imports, and the sector has all but vanished.
There were more than 140 textile manufacturing firms in 1991, but
this had fallen to just eight by 2002. Ramesh Patel, director of
SWAPP Ltd commented, "We used to have factories everywhere, but
Ndola is a ghost town now. We are one of the lucky ones who have
managed to survive, but there's no comparison. We used to supply
retailers with 3.5 thousand tons of clothing annually; we're down
to less than 500 tons now. We had 250 employees eight years ago;
we're down to 25 now."
Agricultural liberalisation has had a similarly poor record. A 2000
World Bank study acknowledged that the removal of all subsidies on
maize and fertilizer under World Bank/IMF structural adjustment
loans led to "stagnation and regression instead of helping Zambia's
agricultural sector." And the United Nations Conference on Trade
and Development (UNCTAD) concluded that, in Zambia, "Agricultural
credit and marketing by the private sector turned out to be uneven
and unpredictable, and once market forces had eliminated the
implicit subsidies to remote and small farmers, many farmers were
left worse off."
Privatisation was one of the strongest features of IMF and World
Bank conditionality from 1992 onwards. But despite attracting
praise from the Bank for the 'success' of its privatisation
programme, the reality is that privatisation has had a very mixed
record in Zambia. Although some failing state run enterprises have
been transferred into private hands and are now operating more
effectively; post-privatisation, many companies have collapsed,
jobs have been lost and welfare programmes originally performed
through a parastatal have not been continued by private companies.
The patchy record of past sell-offs has resulted in the
one-size-fits-all privatisation programme being doubted even at the
highest levels. In 2003, the Zambian President, Levy Mwanawasa,
said, "[The IMF's privatisation programme] has been of no
significant benefit to the country - privatisation of crucial state
enterprises has led to poverty, asset stripping and job losses."
The real impact of these core IMF and World Bank policies: trade
liberalisation, agricultural liberalisation and privatisation, can
clearly be seen in Zambia's economic and social performance.
Zambia's economic record since the oil price shocks of the 1970s
has been woeful. Real GDP per capita fell from US$1455 in 1976 to
US$1037 by 1987, an average of -3.6 per cent per year. This decline
stabilised or even reversed from 1987 to 1991, before the economy
entered a massive recession again in 1992, the year an extensive
reform programme began. By 2000, real GDP per capita had fallen to
US$892.
The IMF has even failed to achieve one of its core aims for
intervention - to stem temporary balance of payments problems.
Statistics from the United Nations Development Programme (UNDP)
suggest that Zambia's trade deficit has actually increased through
the 1990s. At the start of the decade the difference between
imports and exports was around -5 per cent of GDP, but since 1994
its range has tended to be between -9 and -15 per cent.
Not surprisingly, employment has suffered. Formal manufacturing
employment fell from 75,400 in 1991 to 43,320 in 1998. Paid
employment in mining and manufacturing fell from 140,000 in 1991 to
83,000 in 2000. Paid employment in agriculture fell from 78,000 in
1990 to 50,000 in 2000 and employment in textile manufacturing fell
from 34,000 in the early 1990s to 4,000 in 2001.
Economic decline has been mirrored by a social decline. For
example, the proportion of the population classed as
undernourished, having a calorie consumption below their minimum
energy requirement, has increased from 45 per cent in 1990 to 50
per cent in 2001. Without radical change, it looks increasingly
unlikely that Zambia will achieve most of the Millennium
Development Goals (MDGs) by the globally agreed target date of
2015. In fact, the indicators for eradicating hunger, achieving
universal primary education and reducing child mortality are
actually in reverse, so, if current trends continue, these goals
will never be met.
Overall, Zambia's level of human development has been in freefall
in comparison to other countries. In 1990 it was ranked 130 on the
UNDP's Human Development Index, falling to 163 in 2001. Although
very poor in 1990, Zambia was ranked as one of the most developed
countries in sub-Saharan Africa. It is now one of the poorest.
Such a dismal performance has led to widespread dissatisfaction
with Bank and Fund policies. Yet time and again public protest has
simply been ignored while 'more of the same medicine' has been
prescribed. This exposes the fundamental lack of democracy in World
Bank and IMF intervention in Zambia.
A recent example of this democratic deficit is the required
privatisation of Zambia's state electricity company (ZESCO) and
state bank (ZNCB) in return for debt relief. The Government
initially agreed to implement these measures, but the prospect of
these privatisations provoked large scale public resistance.
Following a major protest march in Lusaka, the Zambian Parliament
voted for a motion urging the government to rescind their decision
to privatise ZNCB.
Following this opposition the Government decided to reverse its
earlier commitment to sell off these companies. The IMF responded
immediately by announcing that Zambia risked forfeiting US$1
billion in debt relief if it did not go ahead with the
privatisation. IMF resident representative Mark Ellyne said, "If
they [the government] don't sell, they will not get the money." The
Government was forced to ignore its own Parliament and go back on
its decision not to privatise ZNCB.
Another condition for receiving debt relief has been to curb public
spending. This has forced the Government to abandon plans to
provide a living wage to public sector workers. The IMF will not
let the Government increase its budget deficit from 1.55 per cent
to 3 per cent.
By way of comparison, the projected 3 per cent Zambian budget
deficit contrasts with a 2003 US budget deficit of 3.4 per cent
(projected to rise to 4.1 per cent in 2004) and a projected UK
budget deficit of 3.4 per cent. In fact the IMF recently criticised
the UK government for planning to increase its budget deficit to
this level, which met with a curt response. A UK Treasury spokesman
said, "We are not going to accept a stability pact from the IMF,
the European Commission or anybody else" and that the IMF had an
"ideological opposition" to public spending. Unfortunately, Zambia
does not have the same luxury of being able to ignore the IMF.
Recent criticism of the undemocratic nature of IMF and World Bank
policies has been met - both by these institutions and the UK
government alike - with the response that the Zambian people chose
these policies through their 'participatory' Poverty Reduction
Strategy Paper (PRSP) process.
But the incorporation of civil society viewpoints in the final PRSP
did not extend to the macroeconomic policies in the PRSP. Despite
its poor record, the IMF and World Bank were unwilling to backtrack
or renegotiate the macroeconomic framework that had been imposed on
Zambia throughout the 1980s and 90s. The IMF's existing Poverty
Reduction Growth Facility (PRGF) programme formed the basis of this
aspect of the PRSP, and so in effect overrode any macroeconomic
discussions within the PRSP process. The result was the so-called
'participatory' PRSP 'endorsing' a predictable mixture of wholesale
privatisation, trade liberalisation and fiscal stringency.
Despite the relatively receptive attitude from civil society
regarding the PRSP process in Zambia, it is still clearly
influenced by donors in its inception and development and by the
fact that the Bank and Fund Boards have the final sign-off to
'approve' it. Also, the PRSP is not the only document that defines
conditionality. Zambia cannot access the HIPC initiative unless its
government has negotiated a 'Decision Point' document with the IMF
and World Bank and has agreed a 'Letter of Intent' for an IMF PRGF
programme.
The undemocratic imposition of policies on Zambia has also
undermined its ability to engage effectively in multilateral fora
such as the World Trade Organisation (WTO). As the WTO was being
created in 1994 through the Uruguay Round of the General Agreement
on Tariffs and Trade (GATT), Zambia was already being required to
unilaterally reduce its tariff barriers, rendering meaningless some
of the results of the WTO process.
Zambia's bound rates on goods at the WTO, agreed as part of the
Uruguay round, are all in the range of 35 to 60 per cent. The vast
majority are 40 to 45 per cent. Yet the actual tariffs practised
since the Bank and Fund required trade liberalisation in the early
1990s are: 0, 5, 15 and 25 per cent, well below what was negotiated
in the WTO. Most of this liberalisation happened before 1994, and
none as part of a multilateral process. None of the WTO negotiated
rates will ever be applied under the four tariff line system
devised with the IMF.
In contrast to industrialised countries, which wait for trade
rounds to reduce their tariffs as part of a multilateral process,
the IMF and World Bank require poor countries such as Zambia to
liberalise unilaterally. This effectively takes away their
bargaining chips in any subsequent negotiations. So there is little
point in developed country Ministers - such as the UK Trade
Secretary or the UK Development Secretary - telling poor countries
such as Zambia to make the most of the multilateral system and
stand up for their rights in the WTO when, through the IMF and
World Bank, these same developed countries are unfairly pushing
poor countries into unilateral liberalisation.
In conclusion, while there is no doubt that pre-IMF/World Bank
Zambian economic policy would have had its flaws, and while it is
possible to lay some of the blame for Zambia's post-IMF/World Bank
economic and social problems at the door of government corruption,
there is no escaping the responsibility the IMF and World Bank, and
their political masters, must shoulder for their interventions.
This report clearly demonstrates that the IMF and World Bank's
involvement in Zambia has been unsuccessful, undemocratic and
unfair. The evidence suggests that the past twenty years of IMF and
World Bank intervention have exacerbated rather than ameliorated
Zambia's debt crisis. Ironically, in return for debt relief, Zambia
is required to do more of the same. The country has been condemned
to debt.
If the downward spiral is to be broken, and the MDGs are to be
achieved, radical action must be taken. The evidence presented in
this report points to two obvious conclusions. It is time to cancel
Zambia's debt. And it is time to fundamentally rethink the role of
the IMF and World Bank. 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 responsibility for this change lies with industrialised country
governments such as the UK. The UK Development Secretary (Hilary
Benn) sits on the Board of the World Bank and the UK Chancellor of
the Exchequer (Gordon Brown) sits on the Board, and Chairs the
Finance Committee, of the IMF. Fundamental change in these
institutions can only come from these political decision-makers. As
the holders of power in the IMF and World Bank, it is the
industrialised countries who must take action if they are to turn
their development rhetoric into meaningful results.
Recent Reports on Debt, Conditionality, and Related Issues
Jubilee Zambia
http://www.jctr.org.zm/jubilee-zambia.htm
This active campaign, including churches, trade unions, and NGOs,
is hosted by the Jesuit Centre for Theological Reflection in
Lusaka, and maintains a strong emphasis on the link between debt
cancellation and the wider effect of economic policies. Among other
policy reports and analyses, the Centre publishes a monthly report
of the cost of basic needs for a family of six in Lusaka and other
Zambian cities, available on the JCTR website
(http://www.jctr.org.zm).
Africa's Debt Dilemma and What the African Union Should Do
by Sanou Mbaye in Addis Fortune (Addis Ababa, Ethiopia)
http://allafrica.com/stories/200406020811.html
This column, by a former economist with the African Development
Bank, argues that the IMF and the World Bank should be held legally
accountable for the failure of their policies imposed on African
countries.
"The multilateral lenders advocated a development strategy based on
the theory of comparative advantage and unbridled economic
liberalization. Africa had to open its markets while producing raw
materials and basic products to generate revenues for investment in
industry, education, health, and food production. These assumptions
turned out to be wrong, as export prices fell steadily over four
decades.
But it should have been obvious from the outset that the IMF and
the World Bank strategy was doomed to fail. All developed nations
protected and subsidized their domestic production in the first
phases of their development - and still do whenever it suits them."
"both institutions certainly have much to answer for - and the loan
agreements provide an arbitration clause to bring them to account.
... The AU should seek legal advice, have the issue included on
the agenda of the UN General Assembly, advocate the freezing of
international debt payments while arbitration proceedings are
taking place and secure the support of the international community,
especially NGOs that have a track record in raising awareness about
Africa's debts."
Dogmatic Development: Privatisation and Conditionalities in Six
Countries. A PSIRU Report for War on Want. February 2004. By David
Hall and Robin de la Motte. 41 pp.
http://www.waronwant.org/?lid=7540
"This report looks at how conditionalities and pressures from aid
agencies and development banks force developing countries to adopt
privatisation policies in public services. It focuses specifically
on the sectors of water, electricity, and healthcare, in six
countries: Colombia; El Salvador; Indonesia; Mozambique; South
Africa; and Sri Lanka. It concludes that the pressures for
privatisation have been strengthened through new structures of
'globalised aid'; that they create serious limitations on
independent decision-making by developing countries."
Rethinking Participation: Questions for Civil Society about the
Limits of Participation in PRSPs. An ActionAid USA / ActionAID
Uganda Discussion paper. April 2004. By Rick Rowden and Jane Ocaya
Irama.52 pp.
http://www.actionaidusa.org/images/rethinking_participation_april04.pdf
Despite the official rhetoric of participation, and its use in
giving civil society an opportunity to meet and express their
views, civil society involvement in discussions on poverty
reduction has had little influence in changing the policy framework
imposed by international financial institutions. Instead, key
economic policy questions are regarded as "forbidden areas" for
discussion, and decided in separate fora by these institutions.
These debates need to happen, outside the PSRP process if
necessary.
Money talks: How Aid Conditions Continue to Drive Utility
Privatisation in Poor Countries. ActionAid UK. April 2004. 32 pp.
http://www.actionaid.org/resources/pdfs/money_talks.pdf
"The conditions that donors attach to their aid programmes go far
beyond any legitimate measures to ensure that aid money is used
efficiently for its stated purposes. Indeed, they go to the heart
of the public policy-making process in the countries concerned.
Utility privatisation is a prime example of this trend, and
is particularly worrying given its relevance to poverty reduction.
In a large number of low-income countries, donors are pressuring
governments to sell off and sub-contract services in water and
electricity to private companies. They do so despite the lack of
evidence that this increases access for poor people, accountability
to consumers or cost-effectiveness." Case studies included are
Ghana, Uganda, and India.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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