On 4 May, Rodrigo Rato, a former finance minister of Spain, was elected to lead the International Monetary Fund for the coming five years. His appointment as managing director followed the resignation in March of Horst Kohler, a German, which had provoked a flurry of speculation over whether Gordon Brown, the British Chancellor, would take the top international finance job. Another Brit, an Italian and a Frenchman were also mooted as successors. Spanish, British, French, Italian – the one certainty was that the post would be filled by a European, in accordance with the unwritten understanding between Europe and the IMF’s biggest shareholder, the United States. The decision – taken by “a confidential straw poll”, as a spokesman described it – was duly welcomed by the US, put to the IMF board of directors as a done deal, and ratified.
It is a strange modus operandi for an organisation that polices the global economy, inflicts good governance and democratic accountability on sovereign states and boasts at length on its website of its supposed transparency.
Behind the high-handedness lie certain assumptions: give aid without conditions and corrupt leaders will squander it; forgive debts and poor countries will simply borrow with no thought to the future. Above all, the rich west knows best.
The short-term pain that the IMF visits on countries that need a loan is frequently lamented. It has been less easy to prove that the long-term impact of the IMF’s bitter medicine is retrogressive, and that for most borrowing countries there is no shining future which can justify the terrible hardship inflicted on the poor. But a report on the IMF’s dire impact on Zambia, published this month by the World Development Movement, sets out in detail the damage IMF policies have inflicted over the past 20 years.
Zambia, with its copper wealth, was once one of the richest countries in Africa. Now it is one of the poorest. Its long association with the IMF began in the 1970s when, like many other developing countries, the double whammy of rapidly rising oil imports and equally rapidly falling commodity export prices required it to seek international help. By the early 1980s, Zambia’s debt had spiralled and it was unable to continue repayments.
Enter, in 1985, the “structural adjustment loan”, intended in the case of Zambia to revive its agricultural sector and “reorientate” industry. The price for this loan was high. Zambia was obliged to cut government spending (including food and fertiliser subsidies); sacrifice control of foreign-exchange policy and interest rates; open its markets to cheap imports to compete with its own nascent industries; and abolish price controls.
The political fallout was disastrous, with student and industrial uprisings and food riots in the copper belt (where wages had been frozen). Zambia reluctantly abandoned IMF support and tried its own new economic recovery programme. The Zambian government reactivated import controls, limited debt-service payments to 10 per cent of foreign-exchange earnings, reintroduced price controls and reintroduced fixed interest and foreign-exchange rates. The economy grew, first by 3.1 per cent in 1987 and the following year by 5.6 per cent.
Regrettably, there is no happy ending to this attempt to win freedom. The rich aid donors of the Paris Club decided to back the IMF, threatening to withdraw all bilateral aid unless Zambia returned to an IMF-backed adjustment programme. Normal IMF conditions were reimposed: privatisations, further trade liberalisation and withdrawal of subsidies for agriculture.
The Zambian privatisations of the 1990s were hailed by the World Bank as the most successful in sub-Saharan Africa – by which it meant merely that there were alot of them. During that decade, poverty and child mortality increased and the uptake of primary education fell. In the UN league table of development, the country fell from 130th in 1990 to 163rd in 2001.
This has not deterred the IMF from its mission. From privatisation of industries such as brewing, the programme moved on to public services such as transport and electricity, and most recently and controversially, Zambia National Commercial Bank – a privatisation that met with such public resistance that the government withdrew its agreement to it. The IMF responded with the threat to withdraw US$1bn in debt relief.
The copper mining industry, on which Zambia’s wealth was once based, was a state concern that used to operate clinics for its workers. The mines generated sufficient wealth to ensure that the townships where workers lived enjoyed amenities such as water and electricity, sewerage, garbage collection and street lighting. Little of that remains. As a result of privatisation, Luanshya mine, sold to the London-based Metal Distributors Ltd in 1997, went into receivership after little more than two years.
“Go tell the IMF that privatisation is a big disaster in Zambia,” Joyce Nonde, president of Zambia’s trade union federation, told the authors of WDM’s report. “I challenge them to point at a success story – it is being forced down our throats and is highly undemocratic.”
Nonde is right: the IMF’s insistence on just one mode of running the economy rides roughshod over the very idea of the democracy that it purports to encourage.
Compare Zambia’s attempt to run its own economy with Britain’s recent skirmish with the IMF. In 2003, Zambia was hoping to agree a budget with a planned deficit of 3 per cent. The IMF said no. In the same period, the UK planned to increase its deficit to 3.4 per cent. When the IMF publicly criticised Gordon Brown’s economic strategy, the Treasury accused the IMF of having an “ideological opposition” to public spending. “We are not going to accept a stability pact from the IMF, the European Commission or anybody else,” said a spokesman. Zambia might have agreed.
Equally undemocratic have been the attempts of the unelected European and American power-brokers running the IMF to impose trade liberalisation on countries such as Zambia.
The World Trade Organisation was created as the forum for countries to determine trade relations with each other. As a former UK development secretary was fond of telling us, this body is structured democratically, giving weak countries such as Zambia a vote theoretically equal to that of the UK or the US. But the power to vote at the WTO means nothing if the IMF can determine policy back home.
Although the IMF’s richest countries find it politically difficult to establish a timetable for removing subsidies to farmers, they have imposed agricultural liberalisation on Zambia. The consequences have been to weaken the agricultural sector and increase the proportion of the population classed as undernourished.
Such double standards reveal an urgent need for the member nations of the IMF to consider the nature of the democratic principles by which they claim to act. They must start by introducing some basic democracy into the Fund itself. The UK has a major responsibility and some power in this respect: the Chancellor chairs the IMF’s finance committee. With the Prime Minister, he is also dedicated to turning around the economies of Africa.
Both men will have approved, in December 2000, the globalisation white paper, which specifically condemned the sort of behind-the-scenes dealing at the IMF that preceded Rodrigo Rato’s election: “The UK favours open and competitive proces-ses for the selection of top management – in which competence would be put above consideration of nationality.”
However, wider issues of responsibility for past errors must also be addressed. The World Development Movement’s authors lay the blame for Zambia’s plummeting fortunes squarely on the IMF and recommend immediate cancellation of Zambia’s debts.
The IMF should also ask itself a simple question. Why did 20 years of aggressive intervention fail to improve the lives of some of the poorest people in the world?
On 21May, on BBC1’s Ten O’Clock News, David Loyn reports from Zambia. WDM’s report Condemned to Debt by Lishala C Situmbeko and Jack Jones Zulu is available through www.wdm.org.uk/ campaign/colludo/zambia
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