IMF World Bank Advice Caused Increase In Poverty

September 12, 1997

Washington - Joseph Hanlon, author of "Peace Without Profit," a book about the IMF in Mozambique said during mid 1996 (Multinational Monitor July/August 1996) that the failure of the IMF policies in Mozambique "is more obvious each day."

He has been vindicated. Not only has the World Bank noted in its World Development Report 1997 that "Mozambique was ill-advised" during the last decade but the United Nations Development Program's Report on Human Development 1997 states that the World Bank and the IMF policies "caused an increase in poverty."

But what exactly were the advices? According to Hanlon, the IMF advised Mozambique to curb inflation at any cost which meant that "post-war reconstruction should be deferred because it is inflationary." Following this advice, Mozambique's reconstruction after a brutal civil war that killed about one million people and inflicted damages estimated at $20 billion was indefinitely postponed.

Other IMF instructions included, among 15 targets, an increase in tax revenue from "17.6 percent of GDP in 1994 to 22.6 percent in 1997, an increase of $93 million in just two years," in a country that is one of the poorest in the world and where per capita GDP is a paltry $87. The government was also instructed to lower its deficit from "29.7 per cent of GDP in 1994 to 16.8 percent in 1996, a decrease of $173 million" before any grant would be awarded to it.

As a result, pay increases for nurses and teachers, already below the poverty line could not be increased and repair to roads and bridges had to be curtailed. The IMF further instructed that Mozambique's foreign reserves be increased by $100 million. This is money that would be kept in a foreign bank that the government could not spend. To cap these hideous admonitions, the IMF said that "debt write-offs for Mozambique will count as government spending in the deficit-before-grant-equation."

What did this mean to most ordinary Mozambicans? As a result of the "cuts in government spending and cuts in credit to the economy... salaries fell dramatically." For example, "a doctor earned $350 a month in 1991, $175 in 1993 and ...less than $100 in 1996... for nurses and teachers, monthly salaries fell from $110 to $60 to $40 - not enough to support a family." Immediately, "corruption rose... as people sought extra money to survive ..." Credit to the economy was significantly reduced so that it was only a third in 1995 of what it was in 1990. The "credit crunch crippled [the] productive sectors of the economy, particularly agriculture and industry, which faced interest rates of 44 percent."

In real terms, the "3,000 rural shops destroyed by RENAMO [during the war] remained closed, because shopkeepers lacked credit... peasants who had returned to their old farms could not sell their crops because no one would buy - due to lack of shops and roads, but also because the credit squeeze meant smaller traders could not obtain working capital." The 1996 forecast of maize harvest was one of the best in a decade but uncertainty abounded that it could be sold.

In Mozambique's privatization efforts, as advised by the World Bank and IMF, 90,000 jobs were lost. This added to the 100,000 demobilized soldiers who are without a job or an income and the impending dismissal of Mozambican mine workers in South Africa and 15,000 workers who had returned from the former Soviet Union. In the words of a Mozambican newspaper, "privatization has been a 'shock therapy' effort that has only brought uncertainty to thousands... who urgently need to find work, or the nation will walk into the new millennium with 'feet of clay'."

The World Bank has now owned up to its errors and agrees that "a weak state encourages disorder and crime, which in turn curbs development." It also admits that low salaries for civil servants "encourage corruption" and the Bank says that "it also has been proved that to reform civil service, to restrict the political clientele and improve civil servants salaries, also reduces corruption since this gives civil servants more incentives to respect the rules of the game."

The UNDP report pointed out that "reducing poverty and inequality would help avoid conflict." It noted the need for "strategy in favor of the poor in ... post-conflict reconstruction. Health services should be restored, and a system of education for all should be introduced to restore normality and reconstruct peace. The construction of public houses generates employment."

As the Maputo Imparcial, a Mozambican newspaper noted, "the IMF... prevented Mozambique from following this strategy since 1990" even though Prime Minister Pascoal Mocumbi "warned donors that inequality was a threat to peace." It is about time that the IMF wakes up and smells the coffee. Mozambicans have already paid with their lives in the form of joblessness, homelessness and malnutrition. Admission of mistakes is grossly inadequate, corrective measures must follow in the shortest possible time.

(Sources for the article include: Strangling Mozambique: International Monetary Fund "Stabilization" in the World's Poorest Country; by Joseph Hanlon in Multinational Monitor July/August 1996; Army of Unemployed, an Editorial in Maputo Demos 30 July 1997; World Bank "Mistakes" in Maputo Imparcial 6 August 1997.)

Distributed by Africa Faith and Justice Network; P.O. Box 29378; Washington, D.C. 20017; Tel: 202 832 3412. Fax: 202 832 9051; email: afjn@igc.apc.org.