Monday, September 26, 2005
Structural Adjustment:Helping or Harming Africa?
Bono made a stand with his Live8 concerts urging the G7 + Russia (G8) to give 100% debt relief to poverty-stricken countries. But is this the most effective way of helping African countries? The International Monetary Fund (IMF) and the World Bank (IBRD) have encouraged African countries to engage in structural adjustment -- to embrace neo-liberalism and globalization, focusing on each country's comparative advantage. How effective has this been? Two African countries, Ghana and Uganda, underwent structural adjustment in the 1980s and now qualify for 100% debt relief. But overall, have SAPs helped or harmed African countries?
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Since achieving independence, most African countries have struggled to accomplish economic growth and development. Structural Adjustment was the answer presented by the International Monetary Fund and the World Bank, two western financial institutions. These organizations would like to argue that these programs helped set up Infrastructure and point developing nations in the direction of economic prosperity. However, this is not the case for most participants in the Structural Adjustment programs. These programs have sent many countries that have been helped spiraling to large amounts of debt, decreased already lacking public institutions, and increased the innabilities of providing sufficient food levels for domestic use.
The basic concept of these programs revolved around fulfilling certain requirements in order to receive loans. These requirements were based around the Neo-Classical orthodox paradigm for development, which stresses the ideas of Smith and Ricardo of free markets and comparative advantage. Ultimately this could be the problem with the Structural Adjustment Programs. Some of the requirements of the SAPs were privatization, government spending cuts, open markets, currency devaluation. If a country undertook these steps, they qualified for loans that were meant for specific economic purposes such as buidling of damns or ports. Some of the projects did lead to growth and development but only in the short-run. Interest Rates sky-rocketed and countries sank further into debt.
If one were to look at debt levels throughout the world, they, not surprisingly, would see that some of the largest indebted countries are found in Africa. Large portions of these debts were built up through loans received during the period of their Structural Adjustment Programs. Ghana, for instance, increased its national debt level from $1 billion in 1983 prior to the SAP’s, to $6 Billion in 2000. Indebtedness hinders any countries growth.
Often these high debt levels force the countries to put a good portion of their GDP towards their repayment. According to The Globalization of Poverty, “In 1997 Zimbabwe was spending seven times more on debt servicing than on health and education.” This money is greatly needed for reinvestment in the economy, or in public institutions in order to help stimulate more growth. This process of indebtedness has been curbed for several countries with the support of debt relief by the G8, and hopefully will continue to relieve others.
There is also an enormous population of undernourished people found in Africa. People are going hungry in many of these countries, yet they still export food fat very loq prices. The emphasis for an open market and exporting of “cash crops” has contributed to the increasing number of undernourished people. Tanzania, for instance, has grown its number of exports and GDP over the past ten years, but the number of undernourished people has increased from 37% to 44% in 1992 and 2002. If structural adjustment did not promote exporting these foods, they may have been used domestically for the starving population. One could argue there is no incentive for the increase in production without money, but I think having enough food for a starving population is incentive.
Government spending was also a point in which Structural Adjustment damaged the future of many of these countries. The programs required the countries to cut government spending as much as possible. This led to large cuts in education and health care, as stated earlier, in the case of Zimbabwe, which they had spent seven times more on debt servicing than health care and education. It is very obvious these are not in favor of development and growth. As a result of these cuts, according to the Human Development report, Zimbabwe has one of the highest prevalence of HIV, Malaria cases, and tuberculosis in the world. Money needs to be redirected from debt servicing to health-care sectors if it is not already too late for that.
These programs have done far worse than good. Yes, SOME infrastructure was built with the SAPs, but many countries are faced with even more problems now than they did before the programs. It leads one to question the need for an economy based on free markets and comparative advantage. Debt forgiveness is a good start to helping these countries, but that does not reverse the damage already done. The money must be invested into the economy and into public institutions, such as schools and hospitals. Policies must be changed away from those inherent in the Structural Adjustment requirements.
Additional Web-sites about Atructural Adjustment:
Globalization of Poverty
http://www.doublestandards.org/sap1.html
How Structural Adjustment Worsens Poverty
http://www.essentialaction.org/imf/saps.htm
I apologize anonymous would be me.
Before I began investigating the alleged failure of Structural Adjustment Programs (SAPs), I had to question “Who said Africa needed a restructuring and how relevant were the measurements used to determine the restructuring?” The reports filed by the World Bank state that investments in African economies had much lower returns than development projects in other developing nations and that agricultural export levels were steadily slipping and that the export base had failed to diversify. As a result of falling income, these countries were also unable to repay their fast accumulating debt. Consequently, the World Bank (WB) and International Monetary Fund (IMF) formulated the ‘solution’ to the economic stagnation problem with the implementation of the Structural Adjustment Programs in Sub Saharan Africa.
The idea was wonderful –to promote the neo-classical capitalist ideals of private enterprise and the ‘Invisible Hand’ in these economies to determine market conditions and influence international trade patterns. More specifically free trade was to be promoted by removing tariffs and devaluing currencies and government subsidization was to be removed. The pay off for these African economies for obliging to these rules was to qualify for more loans from the World Bank. These were to be utilized for projects that the World Bank and IMF deemed as beneficial to these economies to develop the capitalist export oriented markets they had set out to create.
The unfortunate result that these organizations failed to anticipate was the subsequent decline in the availability of basic necessities like healthcare, primary education and in some cases a food supply. These had previous been subsidized by the government but were now neglected severely which is a great critique of the SAPs.
While the IMF and WB hoped that economies would diversify its production base, this became even less of a possibility after devaluing currencies. Granted that exports became cheaper and perhaps may have increased in the short term but any benefits from this were quashed because imports became alarmingly more expensive, making new imported technology and equipment a mere dream. All these events, in fact reinforced the dependence of these economies on primary product exports and a study conducted to show the progress made, documented that in most cases nearly 100 percent of exports still constituted of products like iron ore, copper, tobacco, coffee and cocoa.
Another unfortunate result of the reinforcement of primary product dependence was the failure of export diversification. African economies had already suffered the brunt of high import prices and with worsening Terms of Trade (TOT), they were not generating any ‘additional’ income to repay their debt, which was cited as one of the reasons to adopt SAPs. In fact, many of these economies sunk further into debt after adopting the SAPs.
It appears as though an ambitious plan that appeared to have everything carefully mapped out actually was unable to generate bare minimum returns to be called a success. I feel that perhaps the SAPs put the wagon before the horse so to say. How could Africa be expected to compete internationally by only using their currency when they had no other asset to bargain with? How could a continent struggling with civil wars, healthcare and education concerns be expected to leap into the international scene and actually have a substantial market share. European trade blocs (European Union), South Asian Free Agreements (SAFTA) and similar counterparts have steadily become self sufficient especially in the case of primary products. So the first problem is creating an export oriented environment in primary products and then simultaneously trying to diversify. Perhaps a more intensive import substitution plan would have more success or be a better starting point for these economies.
And if we want to get further to the root of the problem, many initiatives taking place currently seem to be heading in the right direction, i.e. debt forgiveness and the UN’s Millenium Development Projects. By starting out with a clean slate, these African economies can start to rectify their internal structural and social problems without the burden of debt repayment weighing them down. The next step in the right direction could possibly be ‘developing’ availability of basic amenities to these societies who are inherently the wheels of productive capability in an economy, so whatever ambitious international or local trade plans an economy can have, what use is it with the equipment if the people are starving and do not have clean water. The International Monetary Fund and World Bank had ambitious plans for Africa just under a decade ago and here we are ten years later and Africa still battles ethnic strife, famine, drought, aids and many other social impediments. In the 21st century, how fair is it to expect Africa to model an internationally competitive economy when it is barely able to meet minimal requirements in it’s social and economic institutions locally?
5:44 PM
How can you expect the IMF and the world bank to to invest in Africa, when Africa seems to show no signs of improvement or any chance of repaying these organizations in any way
Well maybe that's the problem - Africa can't (for now) be a business venture because it needs to rebuild and it's sad to think they have to think of mundane things like primary education and healthcare but perhaps if they started establishing a solid base for the country, it's population would be more empowered and may be condusive to investment and better opportunities. So perhaps the IMF and WB need to step back a bit and think of investing in the people and not just the country.
I see the problem with Structural Adjustment programs as being that the WB and the IMF implement SAP's with "cookie cutter molds." In other words, they need to take into consideration, the situation of the country that they are dealing with when implementing SAP's. SAP's saved Latin America when they went through their debt crises but, because the WB and the IMF implemented the same exact plans without considering the important differences in the countries' situations, these SAP's made the Asian debt crises far worse. Just the same, the WB and the IMF must consider each African country individually and remember that they are still undeveloped nations that are facing different situations than other countries that these institutions have dealt with in the past.
I agree with both Shivani and Joe with the idea that public institutions, such as hospitals and schools, need to be built up first, long before any other long-term goal can be met. The developed world can't expect Africa to compete with it if, like Shivani said, they don't have the basic public institutional structure that we all take for granted.
We should focus on helping these nations form a firm, reliable public health and educational system before anything else. If it requires additional investment from the developed world, I think it should be granted. Health and education are important to every country, rich or poor.
Before the developed world asks anything from the underdeveloped world, in terms of restructuing their countries, etc. We should think about what gave us the opportunity to be developed and stable, reliable healthcare, food and education. These are what need to be focused on.
i feel personally, SAP has hurt women negatively in terms of the privision of health care and education. since SAP focused on privatization, the money given to public expenditure has fallen. most of the time, it is the girls that are not sent to school and the boys that receive the health care - so i question whether SAP has really benefitted or not.
also, the debt forgivness is something that has puzzled me lately. as much as i favor helping african countries, i questions whether forgiving debt really will have a positive outcome. with the amount of corruption there is in africa, i would not be surprised that the money that is being saved is going right into the leaders pockets. also, how can we be assured that africa will not end up in high debt all over again. is there a way of monitering the countries money? this may sound pessimistic but for some reason, it is hard for me to see the positive in the debt forgivness.
Zhara, I think that SAPs would have to be paired with debt relief in order to ensure that corruption was not being furthered as a result of the debt relief. Forcing countries to show where their money goes, forcing transparency, in exchange for debt relief can at least help ensure that corrupt leaders do not pocket money that they would otherwise be spending to pay back their debts.
I absolutely agree with Zahra when she says that debt relief isn't the way to go, but perhaps it's a good place to start because when the country is already so debt ridden, the assumption is that 'any' revenue generated goes towards those repayments. It's almost like the exploitation and outsourcing of resources from Africa to the developed world never stopped.
Apparently loan repayment one of the primary reasons for the SAP's to be adopted whereas it should have just solely had the aim for capital accumulation, structural adjustment and economic growth.
I guess the distinction between debt relief and effective progress is the government system or checks that should be in place. That opens up a whole other can of worms.
Structural re-adjustment program
Mr Anonymous, contrary to what you may know, African counties are making payments to the IMF and the World Bank. Africans are not getting foreign aid for free. What is making African countries difficult to pay off all these debts they owe international institutions is a result of the unequal terms of trade between Africans and their Western partners and the additional interest they have to pay to the these foreign monetary agencies. Due to the high levels of inflation in African counties no matter how much income they generate from their export trade they are incapable of creating and maintaining economic engines to support their economies. Without additional mechanisms to maintain growth servicing of African debts becomes a vicious cycle of paying off modern day Shylocks.
“Between 1970 and 2002, Africa received some $540 billion in loans; but despite paying back close to $550 billion in principal and interest, it still had a debt stock of $295 billion as at the end of 2002. And the figures are even more disconcerting for sub-Saharan Africa (SSA), which received $294 billion in disbursements, paid out $268 billion in debt service and yet remained straddled with a debt stock of some $210 billion. The Report concludes that this amounts to a reverse transfer of resources from the world's poorest continent.”
Reference: United Nations Conference On Trade And Development”
(http://www.unctad.org/Templates/webflyer.asp?docid=5459&intItemID=2807&lang=1) September, 2005
Zahra, it may interest you to know that debt-relief is going a long way to help African countries to a large extent. Since Ghana adopted the Highly Indebted Poor Country Initiative (9th March 2001), it has benefited incredibly. The economy of Ghana has received a tremendous boost. Money previously intended for debt is now being used to develop the Ghanaian economy. When I visited Ghana less than two months ago, I got the opportunity to see the new developments that debt-relief has brought. Aside from the Ghanaian economy receiving a boost, in the local communities there are more schools and health posts springing up. I have seen these developments with my own eyes (side note: my mother has pictures of these beneficial developments on her laptop).
Miss Zahra, I will like to point out to you that African countries who stand the chance of gaining debt-relief have worked to obtain this opportunity. These African countries have had to adjust their budgets to meet the expectations of the IMF and the World Bank.
No African country is getting a free ride. Nigeria, for example, is only going to be forgiven debts incurred under non-corrupt regimes (e.g. General Sani Abacha). The international community expects Nigeria to recover money looted by its corrupt dictators. Nigeria has and is till making several attempts to recover these stolen funds.
I find it difficult to agree with your assertion that the Structural Adjustment Program (SAP) has hurt only women. I believe you are painting a wrong image of Africa to the outside world. Yes, I do agree that women in Africa are being subjugated to several acts of injustices, but in terms of the negative impact of the SAPs entire African communities have suffered in unisim. Men, women and children have suffered quite equally. If a community lacks a health post, when the men fall sick they struggle to gain medical attention. Correct me if I am wrong Miss Zahra, in Africa health-posts are not singled sexed. So, how can you say that since SAPs have affected health the provision of healthcare institutions, only women have suffered?
Miss Zahra,
I cannot tell you how much I am shocked by your comment that only African boys have access to healthcare. What is the basis of your argument ? Please show me empirical evidence that supports your argument.Yes in the rural villages girls are slightly more disadvantaged than boys but, the inability to have access to resources cuts acroos gender line.
"Getting girls to school. Some 13 per cent of children ages 7 to 18 years in developing countries have never attended school. This rate is 32 per cent among girls in sub-Saharan Africa (27 per cent of boys) and 33 per cent of rural children in the Middle East and North Africa." Source: UNICEF MIllenium Decelopment Goals Report.http://www.unicef.org/mdg/poverty.html
I wanted to draw everyone's attention to an excellent website on African debt that features an interview between George Ayittey (the Ghanaian economist) and Jeffrey Sachs (Columbia University) on African debt relief. The url is below:
http://www.pbs.org/newshour/bb/africa/jan-june05/debt_6-13.html#
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