Global Policy Forum

Debt and Adjustment under


By Geepu Nah Tiepoh

April 24, 2000

Recently, various activist groups backed by hundreds of supporters converged on Washington D.C. to protest against the policies of the International Monetary Fund (IMF) and the World Bank. The groups accused the two Bretton Woods financial institutions and the World Trade Organization (WTO) of pursuing policies that promote global economic injustice predicated on enriching wealthy nations, placing corporate profitability over social and environmental concerns, and increasing poverty in developing countries. Among the specific demands of the groups were that the IMF and World Bank cancel all debts owed them by poor countries; cease imposition of economic austerity in the form of macroeconomic and structural adjustment on developing countries; and assume responsibility for the negative impact of previous adjustment imposition by paying reparations to the peoples and communities affected.

This article examines the relevance of these demands for Africa, and argues that while IMF/World Bank adjustment policies have not fundamentally improved over the years Africa's resistance to them has abated. The rise in the 1990s of the new international consensus on globalization is partly responsible for this weakening of Africa's resistance to adjustment, because globalization is now rendering legitimacy to adjustment policies. African governments and "civil society" forces must go beyond this smokescreen of globalization to realize that the promised benefits of globalization may not be worth the social, economic, and political costs of adjustment.

There is no doubt that the demands for change in the policies of these institutions are relevant to Africa. Since the eruption of the international debt crisis two decades ago, African economies continue to wobble under huge external debt burdens and the negative impacts of economic adjustment imposed to cope with such crisis. One way to gauge the magnitude and unsustainability of these burdens is to apply the conventional debt-cum-growth model which states that in order for debt accumulation to be sustainable, the growth rate of external debt must not be higher than that of domestic output, exports, or tax revenues. Using the domestic output measure, this implies that the ratio of external debt stock to domestic output should either remain constant or decline over time.

Well, Africa's debt-GDP ratios have experienced neither a constant nor declining trend. In fact, the average ratios, calculated from the IMF's own publication, World Economic Outlook, indicate an increasing trend (from 27.5 percent in 1973-83 to 53.7 percent in 1985-90, and to 60.5 percent in 1990-98). Thus, measured against productive capacity, Africa's debt burdens have been severely unsustainable, even though the absolute amounts of debt stocks ($287 billion in 1998) have been lower than those of other regions.

The macroeconomic and structural adjustment policies demanded of African countries to manage the debt crisis have been geared towards increasing current trade surpluses and liquidity through primary export promotion and rapid demand deflation as opposed to increasing the long- term solvency of countries through improvement of productive capacity. Under IMF/World Bank-supported adjustment, African economies have been demanded to produce trade surpluses by reducing imports and domestic absorption and expanding primary exports. A 1996 report by Anne Pettifor and Angela Wood of Debt Crisis Network (DCN), entitled A Fresh Start for Africa, shows that in order for African countries to overcome debt payment difficulties they achieved a 50 percent increase in export volumes and a drastic reduction in purchases of imports after 1985. By 1992 the volume of imports per head had declined by 20 percent of its level in 1980. These efforts at generating trade surpluses were thwarted, however, by deterioration in Africa's terms of trade so that by the early 1990s many African countries began to accumulate large debt payment arrears. Whereas 38 percent of debt services due in 1989- 90 went unpaid, 54 percent of debt services went unpaid in 1994. Countries such as Sudan, Somalia, Liberia, Zambia and Sierra Leone had their drawing rights suspended due to large accumulated arrears to the IMF.

Thus, economic adjustment as supported by the international institutions has failed during the last decades to achieve even its basic objective of forcing indebted African economies to produce ample foreign exchange for sustainable debt servicing. On the other hand, it has led to large capital outflows from these economies. Between 1986 and 1990 the IMF alone extracted over $3 billion in debt service payments from low-income sub-Saharan African countries. Countries such Zambia and Uganda, which have been classified as heavily indebted poor countries, made huge net transfers to the IMF during the 1990s. Between 1991 and 1993 alone, Zambia made a net transfer of $335 million to the Fund, while Uganda transferred $200 million between 1995 and 1998. The DCN report estimates that between 1984 and mid-1990s governments of the poorest African countries transferred $96 billion to rich industrialized countries, which was one and a half times the amount owed them in 1980. In 1993 alone, sub-Sahara African governments paid $196 million more to the IMF than they received from it.

IMF and World Bank's efforts at smoothing the adjustment path for indebted countries have revolved around providing debt relief through bilateral and commercial debt rescheduling under various Net-Present- Value debt-reduction agreements, such as the Toronto, London, Naples, and now the Heavily Indebted Poor Countries (HIPC) Initiative. All of these relief schemes have shared one thing in common. Access to them has been strictly conditional on the ability of debtor countries to establish "good track record" of adjustment performance as defined by the Fund and Bank. In fact, this is one of the areas in which the activist groups have been demanding change. They are demanding that these institutions desist from linking debt relief to adjustment which, by most accounts, has failed to protect physical and human capital investments and thus hampered economic growth in regions like Africa.

Data from the IMF's World Economic Outlook (various years) indicate that Africa's domestic savings rates fell from 26.0 percent in 1977-81 to 15.7 percent in 1993, and the investment rate declined from 29.5 percent to 18.1 percent over the same period. This fall in the region's savings and investment levels supports the claim that, faced with binding external financing constraints, investment spending was the main target of IMF/World Bank-imposed "fiscal discipline". Through a regression analysis involving 33 African countries implementing adjustment in the 1980s, David Woodward found clear negative impacts of macroeconomic adjustment on economic growth, consumption, and investment in these countries.

Thus, the recent protests in Washington D. C. and the demands of the activists have clear relevant to Africa. Unfortunately, Africa's resistance to continuing imposition of neo-liberal adjustment has weakened under the growing international consensus on globalization. There are at least two levels on which this loss of steam for resistance is being felt. The first is on the level of African governments. The macroeconomic and structural adjustment policies accompanying the debt crisis of the 1980s were adopted by African states insofar as such polices were deemed inevitable for coping with the prevailing external financing constraints. Adjustment entailed austere fiscal and monetary contraction, and most post-colonial African governments, which had embarked upon debt-prone accelerated modernization since independence, did not consider it palatable to change course. Thus, contrary to some popular accounts, African governments did express strong discontent with adjustment, however in a quasi manner. While such discontent of the state was never crystallized into sustained and coherent international protests and strategies to challenge the imposition of neo-liberal adjustment, many African governments implemented these policies with much grudging.

State quasi-disagreements with adjustment took various forms including regional efforts at instituting alternative development policy frameworks. Such policy frameworks as the Lagos Plan of Action, the African Priority Programme for Economic Recovery, and the African Alternative Framework to Structural Adjustment Programmes for Socioeconomic Recovery and Transformation, are examples of regional attempts by African governments to operationalize their quasi- resistance to adjustment. And while such attempts should not be construed as radical policy departures from the logic of global capitalism, they represented minimal challenges to the neo-liberal adjustment orthodoxy.

In fact, some observers believe that it is because of such differences that the Bank and Fund persistently rejected African policy initiatives in the 1980s and substituted their own counter policy frameworks, such as the Berg Report and the "Sub- Saharan Africa from Crisis to Sustainable Growth: A Long-term Perspective Study". State quasi-discontents with adjustment were further reinforced as adjustment policies became increasingly socially unsustainable in the 1980s, and the very survival and stability of governments came under growing threats from both domestic and international social forces. These discontents were also grounded in African governments' realization that the creditor nations, international institutions, and commercial banks advocating these adjustment policies were equally responsible for the eruption of the debt crisis.

However, the growth in the 1990s of the international consensus on globalization has led to the neutralizing of state quasi-resistance to adjustment in Africa. Most African governments have now become content with the prevailing thesis that neo-liberal macroeconomic and structural adjustment is sine qua non for achieving some higher national and international 'good' in the form of globalization. Thus, contrary to the 1980s when adjustment generated relatively strong resentment in African governments because its raison d'etre (i.e. coping with external financing constraints and restoring external balance) was considered an insufficient imperative, in the 1990s it produced less discontent because achieving globalization is now accepted as a higher objective.

African governments are now being told, and they appear convinced, that globalization offers new higher economic opportunities for which Africa must, in the words of IMF deputy managing director, "sharply accelerate reforms to fully integrate itself into the world economy and take full advantage of the opportunities of globalization". Thus, the attitude in most African governments now appears to be that of complacency and resignation. They now appear to believe that the ascribed opportunities of globalization are so great that they are worth the enormous social, economic, and political costs associated with adjustment.

The second level on which the decline of resistance to adjustment is being felt in Africa is within "civil society". There is now a consistent effort on the part of Western donor governments, agencies, and international financial institutions to reinvent and reshape the African civil society. The agenda has been that of funding the development of domestic non-governmental and professional organizations capable of providing critical intellectual support and social legitimacy to the ongoing neo-liberal experiments on the continent. Now, African intellectuals and professionals located in "civil society", instead of working to come up with alternative development policy path for Africa, are agitating for the same liberal policies that have accentuated Africa's marginalization and underdevelopment in the world system. Thus, in the words of Julie Hearn, it is ironic "that at a time when structural adjustment policies stand at their most discredited, African policy institutes are convincing their compatriots that even more severe belt-tightening and policy conditionalities (including social conditionalities) are in their own interests".

Despite Africa's declining resistance to imposition of liberal policies, there is still resilience within the continent against the continuing adjustment of African societies to the demands of global capitalism. Such resilience must however be organized into new social counter-movements, and all existing counter-movements must be strengthened. This is not going to be easy, but it must be done. There is also a need for identifying and building critical bridges between activists in the North and those in the South. Africa must continue to resist.

Geepu Nah Tiepoh is a development economist and consultant with ACLAD Development, Canada.

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.