3:40 PM EDT

Dennis Kucinich, D-OH 10th

Mr. KUCINICH. Mr. Chairman, I offer an amendment to direct the Department of Treasury to report to Congress on the IMF and World Bank's international advocacy of privatization, deregulation, and trade liberalization. Policies such as privatizing government services, reforming bank laws, and reforming labor standards are debated here in the United States, in Congress, and in State legislatures. There is no consensus on whether and in what measure these policies are good for the U.S. economy. Good

arguments can be made on both sides.

I believe that the evidence shows that rapid privatization, deregulation, and trade liberalization when applied to poor countries, have worsened short-term poverty, aggravate economic instability and increased indebtedness. At the appropriate time, I would like to submit for the RECORD reports by the Development Group for Alternative Policies, Friends of the Earth and the Preamble Center which make this point.

Mr. Chairman, but one does not have to agree with me to want the report that I propose. There is no question that the IMF and World Bank are important institutions that have considerable influence, particularly among developing countries.

When those countries seek loans or relief from payment on their debts, they enter into agreements with the IMF and the World Bank in which they pledge to make changes in their economies that the IMF and the World Bank desires.

Every Member of Congress would appreciate knowing the extent to which the IMF and World Bank use that influence, that leverage, to push debtor countries towards privatization, deregulation and trade liberalization.

One way of obtaining this information is through the agreements and documents exchanged between the debtor countries and the IMF and the World Bank. My amendment would direct the Secretary of Treasury to [Page: H6636]

produce a report to Congress on the contents of agreements and documents between the IMF and the debtor countries and the World Bank and the debtor countries. In preparing the report, the Secretary would report all provisions of those agreements and

documents that require countries to privatize State-owned enterprises and public services; lower barriers to imports including basic food products; privatize their public pension or Social Security systems; raise bank interest rates; reform regulations on the environment and national resources; and reform their labor laws and regulations, including legal minimum wages, benefits and the right to strike.

While the objection could be raised that information sought in this request is available in thousands of pages of documents on the Web and elsewhere, there is no easy, centralized location where this information can be found. The government routinely compiles information so that citizenry and Congress can get a better grasp.

All sides of the many debates we have had in this House regarding trade and economic policy would benefit from having an accurate and centralized accounting of such requirements.

Mr. Chairman, I would be pleased to withdraw this amendment and would hope to work with the gentleman from Arizona (Chairman KOLBE) to obtain a report from the Secretary of the Treasury.

3:40 PM EDT

Dennis Kucinich, D-OH 10th

Mr. KUCINICH. Mr. Chairman, I offer an amendment to direct the Department of Treasury to report to Congress on the IMF and World Bank's international advocacy of privatization, deregulation, and trade liberalization. Policies such as privatizing government services, reforming bank laws, and reforming labor standards are debated here in the United States, in Congress, and in State legislatures. There is no consensus on whether and in what measure these policies are good for the U.S. economy. Good

arguments can be made on both sides.

I believe that the evidence shows that rapid privatization, deregulation, and trade liberalization when applied to poor countries, have worsened short-term poverty, aggravate economic instability and increased indebtedness. At the appropriate time, I would like to submit for the RECORD reports by the Development Group for Alternative Policies, Friends of the Earth and the Preamble Center which make this point.

Mr. Chairman, but one does not have to agree with me to want the report that I propose. There is no question that the IMF and World Bank are important institutions that have considerable influence, particularly among developing countries.

When those countries seek loans or relief from payment on their debts, they enter into agreements with the IMF and the World Bank in which they pledge to make changes in their economies that the IMF and the World Bank desires.

Every Member of Congress would appreciate knowing the extent to which the IMF and World Bank use that influence, that leverage, to push debtor countries towards privatization, deregulation and trade liberalization.

One way of obtaining this information is through the agreements and documents exchanged between the debtor countries and the IMF and the World Bank. My amendment would direct the Secretary of Treasury to [Page: H6636]

produce a report to Congress on the contents of agreements and documents between the IMF and the debtor countries and the World Bank and the debtor countries. In preparing the report, the Secretary would report all provisions of those agreements and

documents that require countries to privatize State-owned enterprises and public services; lower barriers to imports including basic food products; privatize their public pension or Social Security systems; raise bank interest rates; reform regulations on the environment and national resources; and reform their labor laws and regulations, including legal minimum wages, benefits and the right to strike.

While the objection could be raised that information sought in this request is available in thousands of pages of documents on the Web and elsewhere, there is no easy, centralized location where this information can be found. The government routinely compiles information so that citizenry and Congress can get a better grasp.

All sides of the many debates we have had in this House regarding trade and economic policy would benefit from having an accurate and centralized accounting of such requirements.

Mr. Chairman, I would be pleased to withdraw this amendment and would hope to work with the gentleman from Arizona (Chairman KOLBE) to obtain a report from the Secretary of the Treasury.

3:40 PM EDT

Dennis Kucinich, D-OH 10th

Mr. KUCINICH. Mr. Chairman, I offer an amendment to direct the Department of Treasury to report to Congress on the IMF and World Bank's international advocacy of privatization, deregulation, and trade liberalization. Policies such as privatizing government services, reforming bank laws, and reforming labor standards are debated here in the United States, in Congress, and in State legislatures. There is no consensus on whether and in what measure these policies are good for the U.S. economy. Good

arguments can be made on both sides.

I believe that the evidence shows that rapid privatization, deregulation, and trade liberalization when applied to poor countries, have worsened short-term poverty, aggravate economic instability and increased indebtedness. At the appropriate time, I would like to submit for the RECORD reports by the Development Group for Alternative Policies, Friends of the Earth and the Preamble Center which make this point.

Mr. Chairman, but one does not have to agree with me to want the report that I propose. There is no question that the IMF and World Bank are important institutions that have considerable influence, particularly among developing countries.

When those countries seek loans or relief from payment on their debts, they enter into agreements with the IMF and the World Bank in which they pledge to make changes in their economies that the IMF and the World Bank desires.

Every Member of Congress would appreciate knowing the extent to which the IMF and World Bank use that influence, that leverage, to push debtor countries towards privatization, deregulation and trade liberalization.

One way of obtaining this information is through the agreements and documents exchanged between the debtor countries and the IMF and the World Bank. My amendment would direct the Secretary of Treasury to [Page: H6636]

produce a report to Congress on the contents of agreements and documents between the IMF and the debtor countries and the World Bank and the debtor countries. In preparing the report, the Secretary would report all provisions of those agreements and

documents that require countries to privatize State-owned enterprises and public services; lower barriers to imports including basic food products; privatize their public pension or Social Security systems; raise bank interest rates; reform regulations on the environment and national resources; and reform their labor laws and regulations, including legal minimum wages, benefits and the right to strike.

While the objection could be raised that information sought in this request is available in thousands of pages of documents on the Web and elsewhere, there is no easy, centralized location where this information can be found. The government routinely compiles information so that citizenry and Congress can get a better grasp.

All sides of the many debates we have had in this House regarding trade and economic policy would benefit from having an accurate and centralized accounting of such requirements.

Mr. Chairman, I would be pleased to withdraw this amendment and would hope to work with the gentleman from Arizona (Chairman KOLBE) to obtain a report from the Secretary of the Treasury.

3:43 PM EDT

Jim Kolbe, R-AZ 5th

Mr. KOLBE. Mr. Chairman, listening to the remarks of the gentleman from Ohio (Mr. KUCINICH), I would just say that I think that the information that the gentleman seeks from Treasury about these loans would be useful information to Congress. And if the gentleman does agree to withdraw his amendment, I will certainly work with him to find language that is mutually acceptable to us, that we could include in the conference report requiring such a study to get this information.

3:43 PM EDT

Jim Kolbe, R-AZ 5th

Mr. KOLBE. Mr. Chairman, listening to the remarks of the gentleman from Ohio (Mr. KUCINICH), I would just say that I think that the information that the gentleman seeks from Treasury about these loans would be useful information to Congress. And if the gentleman does agree to withdraw his amendment, I will certainly work with him to find language that is mutually acceptable to us, that we could include in the conference report requiring such a study to get this information.

3:43 PM EDT

Jim Kolbe, R-AZ 5th

Mr. KOLBE. Mr. Chairman, listening to the remarks of the gentleman from Ohio (Mr. KUCINICH), I would just say that I think that the information that the gentleman seeks from Treasury about these loans would be useful information to Congress. And if the gentleman does agree to withdraw his amendment, I will certainly work with him to find language that is mutually acceptable to us, that we could include in the conference report requiring such a study to get this information.

3:44 PM EDT

Steny Hoyer, D-MD 5th

Mr. HOYER. Mr. Chairman, I thank the gentleman for his comments and his intensive observations. I agree with the gentleman from Arizona (Chairman KOLBE), and I certainly look forward to working with the gentleman from Ohio (Mr. KUCINICH) who has been, I think, one of the most tenacious and thoughtful voices on issues like this, and I certainly want to make sure that we do have information that is accurate and full so that we can understand exactly what is going on.

[Time: 15:45]

Quite obviously, as the gentleman knows, there have been issues raised and we will work with him and with the administration to see if they can be resolved.

Mr. Chairman, I would include for the RECORD a Survey of the Impacts of IMF Structural Adjustment in Africa.

A Survey of the Impacts of IMF Structural Adjustment in Africa: Growth, Social Spending, and Debt Relief--April 1999

(By Robert Naiman and Neil Watkins)

EXECUTIVE SUMMARY

The role of the International Monetary Fund (IMF) in managing the economies of developing countries has come under increasing criticism in the last two years, especially since the Asian financial crisis.

Presently, increasing calls for international debt cancellation and debates over United States economic policy in Africa have focused attention on the IMF's policies in Africa, home of many of the world's poorest and most indebted countries. Several initiatives currently being considered by Congress would have the effect of reducing the role of the IMF in Africa, while others would continue and even increase its role.

This paper relies largely on the IMF's own data to consider the results of the IMF's intervention in the economies of sub-Saharan Africa. We examine the record of countries that have participated in the IMF's Enhanced Structural Adjustment Facility (ESAF), the IMF's concessional lending facility for the least developed countries.

Among this report's main findings:

Developing countries worldwide implementing ESAF programs have experienced lower economic growth than those who have been outside of these programs. African countries subject to ESAF programs have fared even worse than other countries pursuing ESAF programs; countries in Africa subject to ESAF programs have actually seen their per capita incomes decline. It will be years before these populations recover the per capita incomes that they had prior to structural adjustment.

While African countries urgently need to increase spending on health care, education, and sanitation, IMF structural adjustment programs have forced these countries to reduce such spending. In African countries with ESAF programs, the average amount of government spending on education actually declined between 1986 and 1996.

Neither IMF-mandated macroeconomic policies nor debt relief under the IMF-sponsored HIPC (Heavily Indebted Poor Countries) Initiative have reduced these countries' debt burdens. Total external debt as a share of GNP for ESAF countries increased from 71.1% to 87.8% between 1985-1995. For sub-Saharan Africa debt rose as a share of GDP from 58% in 1988 to 70% in 1996. IMF debt relief has not significantly reduced the debt service burden of Uganda or Mozambique, two of the three African HIPC countries

that have proceeded furthest under the HIPC initiative. Poor countries continue to divert resources from expenditures on health care and education in order to serve external debt.

In light of this track record, it appears that efforts to increases economic growth, increase access to health care and education, and reduce the burden of debt repayment are likely to fail so long as the IMF remains in control of the economic policies of countries in sub-Saharan Africa. Efforts to reduce Africa's debt burden should be coupled with efforts to reduce the role of the IMF. Debt cancellation or relief should not be conditioned on compliance with the IMF's structural adjustment programs

or policies.

COUNTRY EXPERIENCES WITH IMF STRUCTURAL ADJUSTMENT

The External Review examined the experiences of five African countries under IMF adjustment. Below, we take a closer look at three of these countries--Zimbabwe, Cote d'Ivoire, and Uganda. We also briefly consider the experience of Mozambique--a country not examined in the External Review--under the IMF/World Bank HIPC Initiative.

1. Zimbabwe

During the 1980s, Zimbabwe's economy grew briskly: real growth averaged about 4% per year. During the early and mid-part of the decade, Zimbabwe's exports were diversified and became increasingly oriented toward manufacturing; debts were regularly repaid without the need for rescheduling; a reasonable degree of food security was attained; and the provision of educational and health services was dramatically expanded (due to major increases in government spending on social services). As a result

of increased government spending on health care provision in particular, health indicators showed dramatic improvement during the 1980s: the infant mortality rate declined from 100 per 1,000 live births to 50 between 1980 and 1988; life expectancy increased from 56 to 64 years (External Review, p. 179). Primary school enrollment doubled over the decade.

The External Review team summarized the achievements of the 1980s: ``The core of the government's redistributive agenda was through (sic) increased public expenditures on education, health, and public sector employment. During the 1980s, much was achieved both in terms of an expansion of these expenditures and in terms of measurable indicators of performance'' (p. 172).

Though it had entered agreements with the World Bank in the late 1980s, Zimbabwe began structural adjustment in earnest in 1991 when it signed a stand-by arrangement with the IMF in exchange for a $484 million loan. Unlike many of the countries that undertake IMF adjustment programs, Zimbabwe did not institute structural adjustment in response to a ``crisis,'' but rather in an effort to ``jump start economic growth.''

Among the policy changes required by the IMF in exchange for the loan were cuts in Zimbabwe's fiscal deficit, tax rate reductions, and the deregulation of financial markets. The arrangement also required Zimbabwe to dismantle protections for the manufacturing sector and ``deregulate'' the labor market, lowering the minimum wage and eliminating certain guarantees of employment security (External Review, p. 173-176).

Impact on the economy

IMF policies which mandated the removal of protections for the manufacturing sector, trade liberalization, and reduced government spending combined with the effects of a severe drought on agricultural production to send the Zimbabwe economy into recession in 1992--real GDP fell by nearly 8% that year. In Zimbabwe, economic crisis actually followed rather than preceded the implementation of structural adjustment.

Among the indicators of economic performance that declined over the period of adjustment:

Between 1991-96, manufacturing output contracted 14%;

Real GDP per capita declined by 5.8% from 1991-1996;

Real GDP fell by about 1% between 1991 and 1995. (A January 1992 IMF staff report [Page: H6637]

predicted 18% GDP growth over the same period);

Nominal and real interest rates were high and volatile throughout the period, with nominal rates often exceeding 40%. The result of high real interest rates was to reduce private domestic investment.

Total private investment declined by 9% in real terms between 1991-96 (External Review, p. 172-175).

Furthermore, private per capita consumption fell by 37% between 1991-1996. As the External Review concluded, ``This alone transformed the group of those who lost from the reforms from a minority to a majority'' (p. 177).

The combination of reduced protection of the manufacturing sector, the reduction in public spending, and labor market deregulation led to higher unemployment and lower real wages. Between

1991-96, formal sector employment in manufacturing fell 9% and real wages declined by 26%. Meanwhile, food prices rose much faster than other consumer prices; this disproportionately affected the rural poor, who spend a larger share of their income on food (External Review, p. 180, 182).

Impact on health and education spending

In order to meet the IMF's fiscal targets in the 1991 ESAF program, the government had to reduce non-interest expenditures by 46%. The External Review describes this requirement as a ``draconian reduction'' and found it unsurprising that Zimbabwe never met the fiscal target. Though Zimbabwe never met the IMF target, between 1990/91-1995/96, spending on health care declined as a share of the budget from 6.4% to 4.3%, and as a share of GDP from 3.1% to 2.1% (External Review, p. 178). The IMF's

prescriptions for fiscal adjustment included reductions in the real wages of public health sector workers. As a result of the wage cuts, many doctors moved to the private health sector, and the quality of public health care dropped. As health care became

less a public service and more a function of the private sector, health services became less accessible to the poor. Because non-wage health spending fell dramatically as well, shortages of prescription drugs became commonplace (External Review, p. 178).

Compared to the previous era in which health care services were made more widely available to all Zimbabweans through increased government spending, the era of IMF adjustment was characterized by decreased access to health services. This trend was reflected in the deterioration of health indicators. For example, between 1988 and 1994, wasting (a phenomenon linked to AIDS) in children quadrupled and maternal mortality rates appear to have increased. And after many years of decline, the number

of cases of tuberculosis began to rise in 1986 and by 1995 had quadrupled (External Review, p. 178-179).

The decline in government health care spending occurred during a period of increasing need by the population for more access to health care. AIDS was spreading rapidly in Zimbabwe. Given the present cost of treating AIDS patients, the World Bank predicted that the total cost of treating Zimbabwean citizens already infected with AIDS was four times the entire 1996 government health budget. The IMF's fiscal targets meant that the government was unable to respond to growing health needs of the population

effectively. The External Review concluded that access to health care fell under adjustment, compared to the pre-IMF era: ``There is no doubt that the previous trend of improving health outcomes was reversed during the period of the reform program'' (p. 179).

Expenditure on education also fell sharply under IMF adjustment. Real per capita expenditure on primary and secondary education declined by 36% and 25% respectively between 1990/91 and 1993/94. As in the health sector, wages for teachers and educational staff fell by between 26% and 43% between 1990 and 1993.

Impact on external indebtedness

The External review team analyzed Zimbabwe's external viability (i.e., their debt burden). The results show that on the basis of nearly every generally accepted indicator of a country's debt burden, Zimbabwe became significantly more indebted during the period of adjustment. But Zimbabwe still does not qualify for the IMF/World Bank HIPC initiative.

On April 11, 1999, the Associated Press reported that Zimbabwe had ``severed ties with the International Monetary Fund and the World Bank,'' saying that they had ``made `unrealistic demands' '' as a requirement for releasing funds. A day later the Zimbabwean Finance Ministry denied the report, ``in a bid to reassure markets.'' The Wall Street Journal noted that ``Other donors have indicated they would take their cue from the IMF on whether to release additional financial support,'' again indicating

the tremendous power which the IMF wields as a result of the fact that other creditors and donors follow its lead.

2. Cote d'Ivoire

Cote d'Ivoire experienced a long period of growth following its independence in 1960, with much of its growth attributable to agricultural exports. Economic decline ensued in the early 1980s as

world prices for coffee and cocoa, two of Cote d'Ivoire's main exports, fell. After a brief restoration in growth by 1985, the economic decline resumed in the late 1980s (External Review, 95).

The IMF became involved in Cote d'Ivoire in November 1989, when it reached a stand-by arrangement with the government, which was followed by another agreement in 1991. Following the initial stand-by arrangements with the IMF, there were six World Bank Structural Adjustment Loans from 1989-1993. Then, beginning in 1994, Cote d'Ivoire entered into an ESAF program with the IMF.

Over the first period of adjustment, from 1989-1993, IMF fiscal adjustment requirements were introduced in an effort to reduce the government budget deficit. These included substantial reductions in current government expenditures (-30%) and capital expenditures (-15%), in addition to tax increases. Structural reforms also began during this period, including privatizations and some financial reforms.

The objectives of the next phase (from 1994-1997), under the ESAF program, were threefold:

To generate a primary budget surplus of 3% of GDP, ``in order to finance debt service'' (External review, p. 97);

To attain GDP growth of 5% by 1995; and

To ``protect the most vulnerable during adjustment.''

In order to reach the budget surplus target, the IMF required labor market deregulation, price decontrol, trade reform, reductions in civil service employment, and faster privatization (External review, p. 97). The IMF also advocated devaluation of Cote d'Ivoire's currency, the Franc CFA, which occurred in January 1994.

Impact on the economy

From 1989-1993, per capita GDP fell by 15%, pushed along by the overvaluation of the exchange rate and deterioration in the terms of trade (External Review, p. 95-96). The social impact of IMF structural adjustment on Cote d'Ivoire was severe. Between 1988-1995, the incidence and intensity of poverty doubled, with the number of people making under $1/day increasing from 17.8% of the population to 36.8%. In Abidjan, the rate of urban poverty rose from 5% to 20% between 1993 and 1995 (External

Review, p. 101).

Impact on Health and Education Spending

Between 1990 and 1995, real per capita spending on health care fell slightly and education spending fell dramatically (External Review, p. 101, 105). During the period of IMF structural adjustment (1990-1995), real per capita public spending on education declined by more than 35 percent. Moreover, reductions in the wages of civil servants required by the IMF also led to a reduction in teachers salaries (external review, p. 103). The Review points out that lower wages probably lowered teachers'

motivation, and educational quality may have suffered as a result. Despite an improvement in gross enrollment in primary schools over the period 1986-1995, educational indicators overall showed poor results. By 1995, only 45% of girls from the poorest quintile of households were receiving primary education. At the secondary level, the gross enrollment rate declined from 34% to 31% between 1986-1995 (External Review, p. 104).

As part of the policy reforms required by the Fund, user fees were introduced into the public health care system in 1991. The devaluation of the franc CFA made it especially difficult for the urban poor to pay for health care services, and as a result there was a shift towards traditional medicine. Many

health problems worsened. For example, the incidence of stunted growth in children increased from 20% in 1988 to 35% in 1995. As access became more expensive, health issues became a more pressing concern. A survey by UNICEF and the Government of Cote d'Ivoire found that when women were asked to identify their problems, health ranked first (External Review, p.103).

The team of external reviewers concluded that in Cote d'Ivoire, ``The required reductions in public expenditures were imposed on a system which was already failing to meet basic social needs.''

Debt burden

In the first two years of adjustment alone (from the end of 1989 to the end of 1991), Cote d'Ivoire's external debt burden grew by $3.7 billion (or from 141% to 175% of GDP). In its analysis of external viability, the External Review found that Cote d'Ivoire's external debt burden increased from 132.4% to 210.8% of GDP. Before ESAF, its debt stock to export ratio was 452.8%; following ESAF, it had risen to 545.4% (External Review, p. 190).

Although Cote d'Ivoire has completed the required three consecutive years of structural adjustment to reach its ``decision point'' for eligibility under the IMF/WorldBani HIPC Initiative, it will not reach the ``completion point'' (of actually receiving debt relief) until March 2001, assuming it does not go off track from the adjustment program. Although the country has an urgent need for increased government spending on health care and education, it is unlikely that this could happen under the

terms of structural adjustment.

3. Uganda

When President Yoweri Musevini came to power in Uganda in 1986, his government faced the challenge of rebuilding an economy devastated by the dictatorships of Idi Amin and Milton Obote. Between 1971 and 1986, the Ugandan economy had deteriorated in per capita terms. But in the ten years that followed (between 1986-1996), per capita GDP grew by roughly 40%.

The IMF first became involved in Uganda in 1987, with a loan through its Structural Adjustment Facility (SAF), and it later extended its mission under the ESAF program [Page: H6638]

from 1989-1992 and again from 1992-1997. Real per capita GDP growth averaged 4.2% in Uganda between 1992-1997, and as a result, the IMF often presents Uganda as an example of the success of its structural adjustment policies.

As noted in the External Review, part of this rapid growth can be explained by the terrible decline of preceding years. But it is also worth looking at how various sectors of the population fared under the growth that coincided with structural adjustment in Uganda

Two principal reforms mandated by the IMF arrangements were trade liberalization and the progressive reduction of export taxation. But as the external review points out, ``Liberalization of cash crops had only limited beneficiaries.'' This was the case because only a small number of rural households grow coffee. Liberalization had little impact on rural incomes over the period of adjustment--rural per capita private incomes increased just 4% over the period from 1988/89 to 1994/95.

The IMF also mandated the privatization of state-owned industries, a process that has met particularly criticism in Uganda. The Structural Adjustment Participatory Review International Network (SAPRIN), which was launched jointly with the World Bank, national governments, and Northern and Southern NGOs in 1997, has reported that the privatization process in Uganda has gone too fast and has been flawed from the start. A report by Ugandan NGOs who participated in SAPRIN found that ``The privatization

process in Uganda has benefitted the government and corporate interests more than the Ugandan people ...... The privatization process was rushed, and as a result, workers suffered. Some 350,000 people were retrenched and, with the private sector not expanding fast enough, unemployment sharply increased. Those laid off were not prepared for life in the private sector, with no training being provided.''

During the period of IMF structural adjustment, public spending on health care increased as government spending rose overall. However, health care spending did not rise as a share of the recurrent budget, and its share was slightly lower in 1994 than it had been in 1989. Government spending grew over the period but from a very low stating level at the beginning of Museveni's term: in 1986,

government expenditure represented just 9% of GDP. At the same time prices of health care services rose much faster than inflation. This was caused in part by the large depreciation of the exchange rate from 1988-1991, which raised the cost of imported inputs in the health sector. As a result, a given level of public health spending bought fewer health services. Real per capita output in health care was lower in each of the years from 1992-1994 than it had been in 1989. (External Review, p. 139-141).

The SAPRIN review of Uganda's experience with adjustment found that ``cost-sharing,'' where patients are expected to pay for a portion of their health care or education, has led to less access for the poor to health care and public education. The policy of cost-sharing was introduced by the Ugandan government in response to IMF fiscal requirements and high debt service payments, which have made it difficult for the government to channel funds into payments for health care and public education.

The NGOs in SAPRIN report that:

``It [higher costs] has made hospitals and institutes of higher education too costly for the poor. People testified that those who cannot pay for critical health care simply die. Cost-sharing is also poorly administered in the hospitals, and it was pointed out that in areas where people have been unable to pay, the local hospital has simply been closed down. Citizen representatives reported that in villages where the people themselves decide on how much to pay, access to care is much better,

so it is best to scrap cost-sharing, which does not benefit the poor.''

Despite some limited progress in the area of health service provision during the era of adjustment, general health indicators have not improved. In particular, the proportion of children who are malnourished has not declined. As the external review observes, ``This is consistent with the evidence on rural incomes which, as we have seen, suggests little change'' (p. 139). Since rural incomes did not rise in tandem with increasing health care costs, the rural poor have not been able to share in

increased access to health service provision.

Moreover, a declining share of the recurrent budget has been spent on education over the adjustment period, and this led to an overall reduction (over the period 1987 to 1996) in the provision of educational services per capita. (External Review, p. 140-141).

Debt burden

The IMF and World Bank often present Uganda as an example of the success of its HIPC (Heavily Indebted Poor Country) debt initiative. Uganda was the first country to receive debt relief under the IMF/World Bank HIPC Initiative in April 1998, when roughly $650 million of its multilateral debt stock was forgiven.

However, the process has, first of all, been plagued by several delays. Uganda was originally scheduled to receive debt relief in April 1997, but this was pushed back one year. This delay occurred despite the fact that Uganda had been following structural adjustment programs for nearly a decade. According to Ugandan government projections, the cost of the one year delay was $193 million in lost relief. This amount is more than double the projected spending on education or six times total government

spending on health in that year. With the delay, public funds were diverted from priority health care services into debt repayments.

Moreover, less than one year after receiving relief, Uganda's debt burden has once again become unsustainable according to HIPC criteria. This is mainly because of an overestimation by the World Bank/IMF of revenues Uganda would receive from coffee exports and from trade with the former Zaire, whose economy has recently gone into decline. The United Kingdom's Secretary of State for International Development, Clare Short, confirmed this is a statement before the British House of Commons, noting

that, ``the review of Uganda, which has just received debt relief, was very disappointing. As a result of the fall in world coffee prices, it is just as badly off as it was in the first place.'' Uganda's return to an unsustainable debt service burden illustrates the problem with IMF and World Bank projections

of export earnings that do not materialize, even over a period of less than a year. It also shows that the debt burdens set by HIPC as ``sustainable'' are much too high, and that much deeper debt relief--preferably cancellation--will be necessary to set these countries on a sustainable growth path.

CASE STUDY: MOZAMBIQUE AND DEBT RELIEF

Unlike the other countries examined in this study, Mozambique's experience with the IMF's structural adjustment was not examined in the External Review of the impact of ESAF programs. But Mozambique is one of just three African countries (the others are Uganda and Cote d'Ivoire) that have reached the final stage under the World Bank/IMF Highly Indebted Poor Countries (HIPC) Initiative. It is therefore worth examining how Mozambique has fared under this initiative, including the required conditions

of structural adjustment.

Mozambique is one of the poorest countries in the world, if not the poorest. According to the United Nations Development Program (UNDP) and UNICEF, only 37% of the population has access to clean water; 39% has access to health services; and just 23% of women can read and write.

Following a decade of war supported by external powers, Mozambique began a modified form of World Bank structural adjustment in 1987, and in 1990 it entered into an IMF directed ``stabilization program'' under ESAF. Two of the main components of the IMF stabilization program were fiscal adjustment (cuts in government spending) and cuts in credit to the economy (through policies such as higher interest rates). As part of the fiscal adjustment process, government salaries fell. For example, a doctor

on the government payroll earned $350/month in 1991, $175/month in 1993, and by 1996, took in less than $100/month. For nurses and teachers, monthly salaries fell from $110/month to $60 or $40--levels at which it is impossible to support a family.

The IMF's primary aim in Mozambique was to contain inflation; the Fund argued that broad post-war reconstruction efforts should be scaled back on the grounds that such actions could be inflationary. While the IMF focused on stabilization policies, World Bank adjustment simultaneously mandated privatization as well as trade and investment liberalization.

Mozambique and the HIPC initiative

In a press release issued on April 7, 1998, the IMF announced that, along with other creditors, it had agreed to ``provide exceptional support amounting to nearly US$3 billion in nominal terms in debt-service relief for Mozambique,'' claiming that this would ``reduce the external debt burden, free budgetary resources and allow Mozambique to broaden the scope of its development effort.''

While $3 billion may seem like substantial debt relief for a country as poor as Mozambique, it does not necessarily make a significant dent in the country's debt service burden. Since countries like Mozambique owe far more in external debt than they have the capacity to pay, it is quite possible to reduce their outstanding debt stock considerably, without any commensurate reduction in the net drain of resources out of the country. This happens when creditors cancel that part of the debt that

was not being serviced previously. Therefore, in order to know whether poor countries--and poor people in those countries--actually benefit from IMF/World Bank debt relief, it is necessary to know what the impact of this debt reliefs is on the actual debt service paid by these countries.

In response to criticism from non-governmental organizations, in May the IMF released estimates for these numbers. According to the IMF's own projections, the actual debt service paid by Mozambique will be as high or higher in each of the years from 2000-2003 as it was in 1997. Even after IMF debt relief, the government will be paying roughly as much in debt service as it is spending on health care and education.

Speaking at a conference on the issue, World Bank representative James Coates noted that more than half of all money allocated to HIPC countries went to cancel Mozambique's debt, and that more debt could not be canceled because the funds allocated under HIPC constituted the maximum that creditors could afford. But the $100 million that Mozambique pays in debt service each year represents barely one-tenth of one percent of the increase in resources which the IMF alone received last year from member

[Page: H6639]

governments. This indicates that the lack of meaningful debt relief so far is not the result of scarce resources, but a lack of commitment to significantly reducing the debt service burden of these highly indebted and very poor countries.

Human impact of the IMF's policies

The importance of debt relief can be illustrated by estimates of the results, in terms of human welfare, that could be achieved if some of the resources now spent on debt service were reallocated to spending on vital needs. In 1997, the United Nations Development Program estimated that, relieved of their debt payments, severely indebted countries in Africa could have saved the lives of 21 million people and provided 90 million girls and women with access to basic education by the year 2000. In

the case of Mozambique, Oxfam estimated that debt relief could save the lives of 600,000 children over seven years. Other advocates of debt relief have made similar estimates: based on United Nations Development Program estimates of the impact of increased health

and education spending, Jubilee 2000 estimated that if Mozambique were allowed to spend half the money on health care and education which it is now spending on debt service, it would save the lives of 115,000 children every year and 6,000 mothers giving birth.

HAS AFRICA `TURNED THE CORNER' IN RECENT YEARS?

In 1998, the IMF released a series of publications and public statements claiming credit for an ``African economic renaissance'' and ``a turnaround in growth performance.'' The claim from the IMF and World Bank is that structural adjustment is beginning to pay off, at least in macroeconomic terms. But examining just-released growth projections by the World Bank, one discovers that the ``growth turnaround'' has been short-lived. According to the World Bank, real GDP per capita grew by 1.4% in

1996, but by 1997, growth slowed to 0.4% and in 1998, per capita incomes fell by 0.8%. The World Bank projects a further decline of -0.4% in 1999. In short, if there was an ``economic renaissance'' for Africa, it appears to be over.

Why has there been a sudden downturn in growth? The UN Economic Commission for Africa (ECA) reports that Africa's economic performance in 1997 showed ``the fragility of the recovery and underscored the predominance of exogenous factors'' in the determining African economic outcomes. Africa's growth prospects are inexorably linked to world prices for its exports. IMF and World Bank structural reforms had actively promoted this strategy, known as export-led growth. The ECA also emphasized this

fact: ``The major thrust of economic policy making on the continent has been informed for the last decade or so by the core policy content of adjustment programs (of the type supported by the IMF and the World Bank).*.*.*''

In addition to slower growth in 1997 and 1998, recently released data indicate that the relationship between the IMF and sub-Saharan Africa has taken a turn for the worse during these years.

FIGURE 6. IMF RELATIONSHIP WITH SUB SAHARAN AFRICA 1991-1998[Millions of U.S. dollars]

1991

1992

1993

1994

1995

1996

1997

1998

IMF purchases

579

527

1146

918

2994

652

524

837

IMF repurchases

614

530

455

467

2372

596

1065

1139

IMF charges

228

186

138

170

559

124

101

88

Balance

-263

-189

553

281

63

-68

-642

-390

\1\ Preliminary.

The Balance shows the net transfer of funds from the IMF to Sub-Saharan Africa; the negative sign indicate a net transfer from the countries to the Fund. IMF Purchases represent new resources (loans) taken out from the IMF. IMF Repurchases represent repayments of the principal of IMF loans. IMF Charges represent repayments of the interest on IMF loans.

Source: World Bank, Global Development Finance 1999, in Jubilee 2000 coalition, ``IMF takes $1 billion in two years from Africa,'' April 1999.

As Figure 6 shows, repayments by African governments to the IMF outpaced new resources in the past two years, resulting in a net transfer from Africa to the IMF of more than $1 billion in 1997 and 1998. Meanwhile, despite increasing repayments to the IMF, total African debt continued to rise: between 1997 and 1998, Africa's debt increased by 3% to $226 billion. This occurred even as African countries paid back $3.5 billion more than they borrowed in 1998.

CONCLUSION

The data reviewed in this study suggest that the International Monetary Fund has failed in Africa, in terms of its own stated objectives and according to its own data. Increasing debt burdens, poor growth performance, and the failure of the majority of the population to improve their access to education, health care, or other basic needs has been the general pattern in countries subject to IMF programs.

The core elements of IMF structural adjustment programs have remained remarkably consistent since the early 1980s. Although there has been mounting criticism and calls for reform over the last year and a half--as a result of the Fund's intervention in the Asian and Russian financial crises--no reforms of the IMF or its policies have been forthcoming. And there are as yet no indications from the Fund itself that it sees any need for reform. In fact, IMF Managing Director Michel Camdessus has repeatedly

referred to the Asian economic collapse as ``a blessing in disguise.''

In the absence of any reform at the IMF for the foreseeable future, the need for debt cancellation for Africa is all the more urgent. This enormous debt burden consumed 4.3% of sub-Saharan Africa's GNP in 1997. If these resources had been devoted to investment, the region could have increased its economic growth by nearly a full percentage point--sadly this is more than twice its per capita growth for that year. But the debt burden exacts another price, which may be even higher than the drain

of resources out of the country: it provides the means by which the IMF is able to impose the conditions of its structural adjustment programs on these desperately poor countries.

Any debt relief that is tied to structural adjustment, or other conditionality imposed by the IMF--as it is in the HIPC initiative--could very well cause more economic harm than good to the recipients. Debt relief should be granted outside the reach of this institution, preferably without conditions. Moreover, the role of the Fund in Africa and developing countries generally, and especially its control over major economic decisions, should be drastically reduced. Any efforts to provide additional

funding or authority to the IMF, before the institution has been fundamentally reformed, would be counter-productive.

--

ON THE WRONG TRACK:

A SUMMARY ASSESSMENT OF IMF INTERVENTIONS IN SELECTED COUNTRIES

January 1998.

OVERVIEW

As Asian economies continue to unravel, investors have looked to the International Monetary Fund for guidance on whether prospective economic performance warrants their continued participation in the economies of those countries. With a war chest of funds and a staff of neoliberal economists at its disposal and the power and influence of Northern governments and financial markets behind it, the IMF not only sets the standards for such performance, but it forces compliance with the carrot of emergency

funding and the stick of discouraging the flow of private-sector and other public-sector financing. When the going gets rough under IMF tutelage, the refrain is always the same: deepen the reforms with more of the same medicine.

But how good has IMF advice been, and how accurate a guide has the Fund's stamp of approval been for investors? To start, investments in IMF-touted emerging-market countries over the past five years have performed no better than much safer investments at home, and the Fund failed to warn of the two big crashes of the decade--Mexico and East Asia. In fact, right up to the currency and stock-market collapses, the IMF was praising these countries as models of economic success and rationality. Perhaps

blinded by its own prescriptions (and the interests of investors) to open these--and other--economies before the necessary institutional, financial and social infrastructure was in place, the Fund has consistently failed to recognize, or at least publicly acknowledge, the underlying weaknesses in these economies and its own contribution to the debacles.

Friends of the Earth and The Development GAP, with the support of the Charles Stewart Mott Foundation, have engaged partners in six countries to assess, through short case studies, IMF performance in a representative cross-section of economies. Drafts of four of the studies--Mexico, Senegal, Tanzania and Hungary--have been completed, and summaries are attached, the profiles of the Philippines and Nicaragua are still in progress. These cases paint a consistent picture of an institution bent on

fully opening economies to foreign investors on advantageous terms at almost any cost--the destruction of domestic productive capacity and local demand, growing poverty and inequality, the deterioration of education and health-care systems, and, as has been seen, a dangerously expanding vulnerability of these economies themselves to external forces beyond their governments' control.

What is clear from these studies, and from IMF intervention across the board, is that the Fund's economic conditions--which have gone beyond tight monetary and fiscal policies and other stabilization measures to include the liberalization of trade, direct investment and financial capital flows, as well as the dismantling of labor protections and economic infrastructure that supports small producers--have been imposed without linkage to a long-term development strategy [Page: H6640]

aimed

at sustainable and equitable growth and economic competitiveness.

In Mexico, a program of rapid trade liberalization, economic and financial-sector deregulation and large-scale privatization, accompanied by policies that undercut local demand and production, had created a growing current-account deficit well before the December 1994 collapse of the peso. The increasing dependency on foreign capital inflows required to finance the deficit eventually led to massive capital flight and the crisis. Subsequent IMF conditions attached to the bailout of foreign

investors, which in essence deepened the reform program while ignoring its underlying weaknesses, caused an economic depression, pushing millions of farmers out of agriculture, bankrupting thousands of small businesses, and drastically slashing jobs and wages. Likewise, in Nicaragua, financial-sector deregulation, narrowly focused and without adequate prior institutional reform, has directed capital toward short-term, high-interest deposits and away from productive investment, particularly the

activities of small-scale producers in both the agricultural and manufacturing sectors.

In Africa, the IMF record has been even worse. Tanzania, forced to adopt a program of trade liberalization, devaluation, tight monetary policy and the dismantling of state financing and marketing mechanisms for small farmers, has experienced expanding rural poverty, income inequality and environmental degradation amidst growing agricultural export trade. Food security, housing conditions and primary-school enrollment has fallen while malnutrition and infant mortality have been on the rise. The

country, under Fund supervision, is today more dependent than ever on foreign aid. Across the continent, Senegal, an IMF pupil for 18 years, has experienced declining quality in its education and health-care systems and a growth in maternal mortality, unemployment and the use and abuse of child labor. Official IMF statistics underestimate the real inflation rate faced by most

of the population, while economic growth has not effectively reached the poor. As women constitute the vast majority of the poor and depend more on social services, experience lower education and literacy rates, and are least likely to receive support for their agricultural (food-crop) activities than are men, they have suffered disproportionately under the adjustment program.

With the IMF as its guide, Hungary has led the reform process in Eastern Europe, similarly liberalizing its trade regime, tightening its money supply and selling off assets (on questionable terms) to foreign interests with little concern for the productive contributions of workers and domestic producers in the ``real'' economy. As a result, an increasing portion of resources are being directed away from investment in human capital and infrastructure formation toward unemployment benefits and

payments to wealthy bondholders. A more fragmented and troubled society has emerged in which other big losers include: the elderly, who often cannot afford the cost of medicines or home heating, pensioners, whose stipends will further decrease, gypsies, who are losing access to jobs and public housing, youth, who face decreased access to education and employment, particularly in rural areas, and children, who, for the first time, are experiencing malnutrition as poverty expands in Hungary.

The IMF claims that it is not a development assistance agency and its track record proves its point. Yet, while destroying the basis for sustainable, equitable and stable development around the globe with the imposition of both stabilization and adjustment measures, the Fund has also greatly increased the economic vulnerability of nation after nation. By opening the door prematurely to fickle and unregulated foreign capital flows, liberalizing trade and investment regimes and pushing up interest

rates to attract bondholders without adequate support for local production, developing cheap production bases for foreigners and export at the expense of underpaid and undereducated work forces, domestic demand and the natural environment, and rewarding speculators instead of financing critical social

investments and equilibrium, the IMF has demonstrated both its biases and its ignorance of local conditions. It should be neither a guide for the market nor a dictator of national development programs. At this point in history, the less influence, the less money, the less power it has, the better.

--

April 1999.

Conditioning Debt Relief on Adjustment: Creating the Conditions for More Indebtedness

(By The Development Group for Alternative Policies)

Over the past year there has been growing public recognition, even within official circles, that foreign-debt burdens, particularly those of the least-developed countries, are unsustainable and constitute severe constraints on those countries' future development. The dire situations in Honduras and Nicaragua after Hurricane Mitch serve to highlight the impossibility of those countries garnering sufficient resources to rebuild their devastated infrastructures while foreign-debt payments continue

to absorb much of their governments' and export earnings.

Various proposals have been developed for the cancellation of bilateral and multilateral debt. Most prominent among these proposals is the Heavily Indebted Poor Countries (HIPC) initiative. The stated intention of this program, which is administered by the International Monetary Fund (IMF) and the World Bank, is to enable highly indebted poor countries to achieve sustainable debt levels within six years. After three years of implementation of structural adjustment programs (SAPs), countries reach

a ``decision point'', at which time some debt rescheduling may be granted and the level of additional debt reduction needed is calculated. That reduction, however, is typically available only after another three years of adjustment. It could take even longer than six years for a country to receive any debt relief, as the ``clock'' stops if a country fails to fully adhere to the

adjustment program and restarts only when the IMF has certified that it is in compliance once again. In fact, given the long time frame for debt cancellation, it appears that a central goal of the HIPC initiative is to keep countries locked into adjustment programs, with debt reduction now used--as has been both access to finance and debt itself--as leverage toward that end.

While the recognition that debt levels must be reduced is a step in the right direction, the requirement that countries continue to implement SAPs in order to qualify for and receive that relief greatly diminishes or even negates the benefits that might accrue from debt cancellation. Not only have adjustment programs devastated national economies across the South and caused misery for hundreds of millions of people, evidence shows that, in the large majority of countries implementing those policies

at the insistence of the international financial institutions (IFIs), debt levels have increased.

In fact, a study carried out by two researchers affiliated with The Development GAP demonstrates that there is a positive linear relationship between the number of years that countries implement adjustment programs and increases in debt levels. Rather than leading countries out of situations of unpayable debt levels, the HIPC program and others conditioned on the implementation of SAPs would likely push participating countries further into a tragic circle of debt, adjustment, a weakened domestic

economy, heightened vulnerability, and greater debt.

METHODOLOGY

The Development GAP study covers 71 economies of the South with a history of at least three years operating under World Bank-supported structural and sectoral adjustment programs during the period 1980-1995. Many of these countries have also implemented IMF adjustment programs. On average, the countries included in the study had implemented SAPs for 7.8 years. Some 42 African and Middle Eastern countries were included and comprised 59.2 percent of the sample. Eleven Asian countries, or 15.5 percent

of the total, and 18 Latin American countries, comprising 25.4 percent of the cases, were also included in the study. A list of the countries included in he study, along with data related to SAPs and debt, is provided in the Annex.

The independent variable used in the study analysis was the number of years a country had been implementing a structural adjustment program. The dependent variable was the change in the ratio of debt to GNP. The total debt level used was the sum total of debt and the debt and interest cancelled during the period (so that official debt-reduction plans do not skew the results). Changes in the ratio of debt to GNP were derived by calculating percentage changes in the ratio from the first to last

year of a country's SAP. In the cases in which the program was still ongoing, 1995 was used as the final year for calculation due to the unavailability of data on debt after that date. All figures are based on official World Bank information.

RESULTS

Of the countries included in the study, a full two-thirds saw their debt burdens increase during the adjustment period. Furthermore, as cited above and contrary to assertions by the IFIs that ``sound economic policy'' is the best road out of debt, statistical analysis of the data demonstrates a positive relationship between the number of years under adjustment and increases in debt levels. The longer these countries implemented the neoliberal programs, the worse their debt burdens typically became.

It is striking that none of the countries currently being considered for debt relief under the HIPC initiative has experienced a drop in the debt-to-GNP ratio under their respective adjustment programs. In some countries, the inverse relationship was especially strong. Guyana and Cote d'Ivoire, two countries that are scheduled to receive such debt relief, have experienced phenomenal increases in the debt/GNP ratio. In the former, the ratio grew by 147 percent after 13 years of adjustment, and,

in the latter, 13 years of SAPs produced a 120-percent increase in debt to GNP. Of the 35 countries listed by the World Bank as HIPCs, only three

experienced decreases in debt-to-GNP levels under adjustment. All others experienced increases, ranging from an 11-percent rise in Mauritania to a 670-percent increase in Nigeria.

The average, or mean, increase in debt for all of the countries in the sample was 49.2 percent. The median, or most frequent, increase was 28.2 percent. The top 25 percent of the countries showed a 75-percent increase in foreign debt.

TRAGIC CIRCLES OF DEBT AND ADJUSTMENT

There are a number of reasons for the rise in debt levels. In some countries, the trade [Page: H6641]

liberalization required under adjustment programs leads to a flood of imports and, consequently, higher trade and current-account deficits. Those deficits need to be compensated for by higher foreign investment, foreign assistance or foreign borrowing. In many countries, such as Brazil, the maintenance of high real interest rates, as often mandated by the IFIs, in

order to appease nervous foreign investors, is increasing the cost of domestic debt, thus adding to the government's budget deficit, raising the specter of further devaluation, and, consequently, creating greater difficulty in servicing the foreign debt.

One of the central objectives of structural adjustment programs is to reorient economic activity away from production for domestic consumption and toward production for export. In making this shift, nations become exceeding vulnerable to the vagaries of the global economy. Countries export more and more as commodity prices continue to fall. Governments deregulate economic activity, ``flexibilize'' labor markets and raise interest rates in increasingly desperate efforts to attract and maintain

fickle foreign investment. The recent crises in Mexico, East Asia, Russia and Brazil demonstrate the hazards of countries betting their future well-being on the erratic global financial market. Indeed, those countries receiving IMF-orchestrated ``bailouts'' could

very likely constitute the next group of debt-crisis countries, as the adjustment conditions attached to these packages include the requirement that governments guarantee payments to private international banks, thus making private debt a public obligation.

High foreign-debt levels are both a result and a symptom of the extreme risk that governments take in tying their economies too closely to the global market. The causes of that debt are flawed economic policies that fail to develop domestic productive capabilities or raise local income levels so as to reduce the need for external financing. For this reason alone, the requirement that governments adhere to the structural adjustment programs designed by the international financial institutions

is pure folly. Instead, governments should be encouraged to develop national economic plans designed democratically to expand the domestic financial resource base, incomes and markets and, consequently, reduce their extreme dependence on foreign debt. Otherwise, we can expect the tragic circle of debt and adjustment to continue into the foreseeable future--debt-relief programs not withstanding.

Prepared by Karen Hansen-Kuhn and Doug Hellinger based on research and analysis by Matt Marek and Nan Dawkins.

ANNEX: COUNTRIES INCLUDED IN THE STUDYAfrica and Middle East

Years under SAP

Percent increase in debt/GNP

Algeria

5

72.05

Benin

6

17.74

Burkina Faso

4

65.98

Burundi

9

155.96

Cameroon

6

156.96

Central African Rep.

7

110.76

Chad

66

81.43

Comoros

4

30.30

Congo

7

75.59

Cote d'Ivoire

13

119.53

Egypt

3

-22.89

Equatorial Guinea

4

23.10

Ethiopia

3

28.25

Gabon

7

62.58

The Gambia

5

-25.88

Ghana

12

148.31

Guinea

8

10.92

Guinea-Bissau

10

64.57

Jordan

5

-29.72

Kenya

15

120.50

Madagascar

9

87.87

Malawi

4

142.92

Mali

7

29.06

Mauritania

9

10.55

Mauritius

8

-15.91

Morocco

10

-28.19

Mozambique

7

30.92

Niger

9

63.92

Nigeria

11

669.66

Rwanda

4

106.65

Sao Tome and Principe

8

287.91

Senegal

14

56.66

Sierra Leone

3

-9.77

Somalia

6

37.75

Sudan

7

-25.54

Tanzania

14

361.07

Togo

12

14.43

Tunisia

8

-22.69

Uganda

13

33.19

Zambia

11

61.19

Zimbabwe

11

121.14

Asia

Years under SAP

Percent increase in Debt/GNP

Bangladesh

15

75.76

China

3

15.94

India

3

-16.32

Indonesia

5

-9.32

Lao PDR

5

-33.23

Nepal

6

57.68

Pakistan

4

30.61

Papua New Guinea

5

-35.86

Philippines

14

7.57

Sri Lanka

5

-12.38

Thailand

3

6.72

Latin America and Caribbean

Years under SAP

Percent increase in Debt/GNP

Argentina

9

-11.85

Bolivia

15

51.43

Brazil

9

-8.99

Chile

3

-19.99

Colombia

10

-33.56

Costa Rica

12

-56.61

Dominica

4

-19.22

Ecuador

9

13.80

El Salvador

4

-20.69

Guatemala

3

-13.86

Guyana

13

147.32

Honduras

6

38.97

Jamaica

14

75.13

Mexico

11

30.83

Nicaragua \1\

13

726.07

Panama

11

8.87

Peru

3

8.42

Trinidad and Tobago

3

-5.10

Uruguay

9

-55.72

Venezuela

5

-3.71

\1\ Nicaragua was excluded from the analysis because of the unorthodox nature of its debt and because adjustment was implemented sporadically during the period (and at times without support from the international financial institutions), making it difficult to identify beginning and end years for the program.

--

Environmental Consequences of the IMF's Lending Policies

(By Friends of the Earth)

Environmentalists around the world have long been concerned about the impact of International Monetary Fund (IMF) structural adjustment policies on the global environment. While economic instability is a threat to the environment, the IMF's approach to economic reform generally induces a blatant disregard for environmental impacts, even when the economic goals go hand in hand with environmental goals.

The result: too many economic policies that promote environmental degradation and too few policies that could promote positive environmental gains.

PRESSURE TO EXPORT

Structural Adjustment Programs (SAPs) treat natural resources as commodities, exported as cheap products to over-consuming markets in the Northern rich countries. Exports of natural resources have increased at astonishing rates in many IMF adjusting countries, with no consideration of the sustainability of this approach. For example, Benin, under SAPs since 1993, had sawnwood exports increase four fold between 1992 and 1998. (1)

Furthermore, it is often raw resource exports, whose prices are notoriously volatile, that are being promoted, rather than finished products, which would capture more value-added, employ more people in different enterprises, help diversify the economy, and disseminate more know-how.

BUDGET CUTS AND WEAKENED LAWS

Structural adjustment's goal of balancing the government budget can also hurt the environment. In the effort to shrink budget deficits, cuts in government programs weaken the ability to enforce environmental laws and diminish efforts to promote conservation. Budget cuts in Brazil, Russia, Indonesia and Nicaragua have greatly reduced these governments' ability to protect the environment. Governments may also relax environmental regulation to meet SAP objectives for increased foreign investment.

WORLD BANK IS NO EXAMPLE

The IMF explains that it relies on the World Bank to assess the environmental implications of its adjustment lending. Yet the World Bank has proven to be no help. A recent review found that fewer than 20% of World Bank adjustment loans included any environmental assessment. (2)

Another consequence of the IMF's narrow approach to economic reform is that economic policies that could help promote environmental sustainability are being ignored. Tax promote environmental sustainability are being ignored. Tax policy, for example, could emphasize green taxes in order to generate revenue and discourage excessive resource use. In the IMF's effort to build countries' accounting systems and statistics capabilities, full cost accounting could be pursued to help both countries and

international financial institutions realize the value of natural resources and would therefore encourage countries to use them prudently. Immediate steps must be taken to make sure that environmental protection is considered as a core component of economic policy reform.

FORESTRY

Many countries under the IMF's Structural Adjustment Programs are rich in forest resources. SAP's economic incentives for increasing exports of forest products can lead to more foreign exchange earnings, but when uncontrolled can result in unsustainable forestry management and high deforestation rates.

In Cameroon, IMF-recommended export tax cuts, accompanied by the January 1995 devaluation of the currency, provided great economic incentives to export timber. As a result, the number of logging enterprises increased from 194 in 1994 to 351 in 1995 (3) and lumber exports grew by 49.6% between 1995/96 and 1996/97 (4), threatening the country's rainforests and natural habitat (see inset). In a recent report the IMF finally acknowledged the precarious nature of Cameroon's export strategy and encouraged

a strengthening of the government's institutional capacity to promote the rational use of forest resources.

Between 1990 and 1995, forest loss for the 41 Heavily Indebted Poor Countries (HIPC) greatly exceeded the rate of forest loss for the world. For example, the two Central American HIPC countries, Nicaragua and Honduras, lost almost 12% of their forest, which is 7.5 times greater than the world rate. Approximately 75% of these HIPC countries had an IMF SAP at some point during this time period. (5)

FOREST LOSS, 1990-1995[In percent]Region

HIPCs

Non-HIPCs

World

Tropical Africa

3.65

2.60

1.6

Tropical Asia

8.33

4.60

1.6 [Page: H6642]

Central America

11.6

5.12

1.6

America

4.2

2.60

1.6

FAO, 1997

MINING

Like forestry, mineral resources are seen as a quick source of export earnings and a locus for foreign investment. Mining is one of the most environmentally destructive activities, contaminating ground water through acid mine drainage, threatening fish, animal and bird life, and destroying wildlife habitats. SAP policies have promoted the exploitation of mineral resources, and done so without regard to disruption to local communities and indigenous peoples and requirements for land rehabilitation.

(6)

Under SAP guidance since the mid 1980s, Guyana implemented policies to increase large-scale, foreign-owned mining ventures. This has led to river pollution, the decline of fish populations, and deforestation (see inset). There are now 32 foreign mining companies active in Guyana and large scale mining permits now cover an estimated 10% of the country. (7) The IMF is encouraging Guyana's government to transform mining and petroleum into one of the country's critical economic sectors by the year

2000. (8)

Under IMF guidance, Cote d'Ivoire has targeted mineral resources for export intensification and is stepping up exploration efforts. The results are new surface mining projects, three new gold mining companies since 1994, and 80 permits issued for mineral exploration to 27 international mining companies in 1995. (9)

AGRICULTURE

Agriculture is another sector SAPs target for export growth. In order to increase yields, farmers must either increase land intensity through fertilizer and pesticide use, or clear new land for more crops. Large-scale agriculture often involves monocropping, resulting in erosion, loss of soil fertility and increased industrial inputs.

SAPs led Cote d'Ivoire to devalue its currency and eliminate export taxes creating incentives for increased agricultural output. From 1992 to 1996 cocoa production dramatically increased by 44%. The environmental implications included soil degradation, deforestation and loss of biodiversity. (11)

SAP programs in Tanzania resulted in rising input costs for the agricultural sector. Consequently, the need for production increases has led to land clearing at the rate of 400,000 ha per year. Between 1980 and 1993, one quarter of the country's forest area was lost, 1993, one quarter of the country's forest area was lost, forty percent for cultivation. (12)

WEAKENED ENVIRONMENTAL SAFEGUARDS--BUDGET CUTS REPRESENT A TYPICAL RESPONSE TO IMF POLICY MANDATES

In Brazil, government spending on environmental programs was cut by two-thirds in order to meet the fiscal targets set by the IMF. (13)

In Russia the budget for protected areas was cut by 40%. (14)

In Indonesia, budget cuts have forced officials in Jakarta, one of the world's most polluted cities, to suspend environmental programs. (15)

In Nicaragua, the budget of the Ministry of the Environment and Natural Resources was cut by 36% in order to adhere to IMF budget targets.

CHANGES IN LAWS AND POLICIES

Many countries have changed their laws and regulations to attract foreign investment. In the mining sector, for example, many countries under IMF policy reforms have relaxed regulations for investment and exploration. Some countries still try to assess the environmental impacts of mining, but it is yet to be seen whether concerns for environment will be overshadowed by economics in these cash strapped economies.

Guyana changed its mining policies, giving large mining companies the majority stake in large operations. (16)

Benin and Guinea both revised their mining codes to promote mining and increase exploration.

The Central African Republic established new mining codes citing that mineral resources were ``insufficiently exploited.''

Mali established a new mining code in 1999 to encourage development, also including plans to consider environmental impact.

Mauritania established a new mining code to increase development and will also formulate policies to assess the environmental impact.

RECOMMENDATIONS

The IMF needs to take immediate steps to reverse the negative ecological impact of structural adjustment. Natural resources are finite, and need to be recognized for their full ecological, social, and economic values. The current model of economic development that is being pursued by the IMF and World Bank is fundamentally unsustainable as it seeks growth at all costs, without regard to ecological limits.

The IMF and WB should take the following steps to integrate environmental concerns into economic development, including:

Conduct environmental and social assessments of SAPs,

Encourage the protection of environmental programs by publishing environmental spending figures,

Refrain from cutting environmental spending or weakening conservation laws,

Publish changes in environmental laws that are the result of structural adjustment discussions,

Include environmental ministers in negotiations on IMF programs,

Pursue environmental accounting as part of IMF technical assistance and data gathering, and

Implement green taxes that could generate revenue and discourage excessive resource use.

SOURCES

1. Food and Agriculture Organization. Statistical Database. www.fao.org.

2. Environmentally and Socially Sustainable Development. 1999. Social and Environmental Aspects. A Desk Review of SECALs and SALs Approved During FY98 and FY99. Washington, DC: World Bank.

3. Verolme, Hans J.H., Moussa, Juliette. 1999 Addressing the Underlying Causes of Deforestation and Forest Degradation-Case Studies, Analysis and Policy Recommendations, Washington, DC: Biodiversity Action Network.

4. International Monetary Fund. 1998. ``Cameroon Statistical Appendix,'' IMF Staff Country Report No. 98/17. Washington, DC: IMF.

5. Food and Agriculture Organization. 1997. State of the World's Forests.

6. ``Mining's Environmental Impacts.'' http:/www.mineralpolicy.org/Environment.html

7. Project Underground. 1997. ``Investing in Guyana Does Not Bring Riches for All.'' Drillbits and Tailings. (November 1997).

8. International Monetary Fund. 1998. ``Cote d'lvoire: Enhanced Structural Adjustment Facility Policy Framework Paper 1998-2000.'' Washington, DC: IMF. (February 9, 1998: Section 37).

9. Melvis, Dzisah. 1998. ``Mining, Energy Sectors Attract Investors.'' Panafrican News Agency. (September 1, 1998).

10. Jodah, Desiree Kisson. 1996, ``Courting Disaster in Guyana,'' The Multinational Monitor. 16:11 (November 1995).

11. International Monetary Fund. 1998. ``Cote d'lvoire: Selected Issues and Statistical Appendix.'' IMF Staff Country Report: No. 98/46. Washington, DC: IMF. (May 1998).

12. Hammond, Ross. 1999. ``The Impact of IMF Structural Adjustment Policies on Tanzanian Agriculture.'' The All Too Visible Hand. Washington, DC: The Development Gap, Friends of the Earth.

13. Schemo, Diana Jean. 1991, ``Brazil Slashes Money for Project Aimed at Protecting Amazon.'' New York Times (January 1

3:44 PM EDT

Steny Hoyer, D-MD 5th

Mr. HOYER. Mr. Chairman, I thank the gentleman for his comments and his intensive observations. I agree with the gentleman from Arizona (Chairman KOLBE), and I certainly look forward to working with the gentleman from Ohio (Mr. KUCINICH) who has been, I think, one of the most tenacious and thoughtful voices on issues like this, and I certainly want to make sure that we do have information that is accurate and full so that we can understand exactly what is going on.

[Time: 15:45]

Quite obviously, as the gentleman knows, there have been issues raised and we will work with him and with the administration to see if they can be resolved.

Mr. Chairman, I would include for the RECORD a Survey of the Impacts of IMF Structural Adjustment in Africa.

A Survey of the Impacts of IMF Structural Adjustment in Africa: Growth, Social Spending, and Debt Relief--April 1999

(By Robert Naiman and Neil Watkins)

EXECUTIVE SUMMARY

The role of the International Monetary Fund (IMF) in managing the economies of developing countries has come under increasing criticism in the last two years, especially since the Asian financial crisis.

Presently, increasing calls for international debt cancellation and debates over United States economic policy in Africa have focused attention on the IMF's policies in Africa, home of many of the world's poorest and most indebted countries. Several initiatives currently being considered by Congress would have the effect of reducing the role of the IMF in Africa, while others would continue and even increase its role.

This paper relies largely on the IMF's own data to consider the results of the IMF's intervention in the economies of sub-Saharan Africa. We examine the record of countries that have participated in the IMF's Enhanced Structural Adjustment Facility (ESAF), the IMF's concessional lending facility for the least developed countries.

Among this report's main findings:

Developing countries worldwide implementing ESAF programs have experienced lower economic growth than those who have been outside of these programs. African countries subject to ESAF programs have fared even worse than other countries pursuing ESAF programs; countries in Africa subject to ESAF programs have actually seen their per capita incomes decline. It will be years before these populations recover the per capita incomes that they had prior to structural adjustment.

While African countries urgently need to increase spending on health care, education, and sanitation, IMF structural adjustment programs have forced these countries to reduce such spending. In African countries with ESAF programs, the average amount of government spending on education actually declined between 1986 and 1996.

Neither IMF-mandated macroeconomic policies nor debt relief under the IMF-sponsored HIPC (Heavily Indebted Poor Countries) Initiative have reduced these countries' debt burdens. Total external debt as a share of GNP for ESAF countries increased from 71.1% to 87.8% between 1985-1995. For sub-Saharan Africa debt rose as a share of GDP from 58% in 1988 to 70% in 1996. IMF debt relief has not significantly reduced the debt service burden of Uganda or Mozambique, two of the three African HIPC countries

that have proceeded furthest under the HIPC initiative. Poor countries continue to divert resources from expenditures on health care and education in order to serve external debt.

In light of this track record, it appears that efforts to increases economic growth, increase access to health care and education, and reduce the burden of debt repayment are likely to fail so long as the IMF remains in control of the economic policies of countries in sub-Saharan Africa. Efforts to reduce Africa's debt burden should be coupled with efforts to reduce the role of the IMF. Debt cancellation or relief should not be conditioned on compliance with the IMF's structural adjustment programs

or policies.

COUNTRY EXPERIENCES WITH IMF STRUCTURAL ADJUSTMENT

The External Review examined the experiences of five African countries under IMF adjustment. Below, we take a closer look at three of these countries--Zimbabwe, Cote d'Ivoire, and Uganda. We also briefly consider the experience of Mozambique--a country not examined in the External Review--under the IMF/World Bank HIPC Initiative.

1. Zimbabwe

During the 1980s, Zimbabwe's economy grew briskly: real growth averaged about 4% per year. During the early and mid-part of the decade, Zimbabwe's exports were diversified and became increasingly oriented toward manufacturing; debts were regularly repaid without the need for rescheduling; a reasonable degree of food security was attained; and the provision of educational and health services was dramatically expanded (due to major increases in government spending on social services). As a result

of increased government spending on health care provision in particular, health indicators showed dramatic improvement during the 1980s: the infant mortality rate declined from 100 per 1,000 live births to 50 between 1980 and 1988; life expectancy increased from 56 to 64 years (External Review, p. 179). Primary school enrollment doubled over the decade.

The External Review team summarized the achievements of the 1980s: ``The core of the government's redistributive agenda was through (sic) increased public expenditures on education, health, and public sector employment. During the 1980s, much was achieved both in terms of an expansion of these expenditures and in terms of measurable indicators of performance'' (p. 172).

Though it had entered agreements with the World Bank in the late 1980s, Zimbabwe began structural adjustment in earnest in 1991 when it signed a stand-by arrangement with the IMF in exchange for a $484 million loan. Unlike many of the countries that undertake IMF adjustment programs, Zimbabwe did not institute structural adjustment in response to a ``crisis,'' but rather in an effort to ``jump start economic growth.''

Among the policy changes required by the IMF in exchange for the loan were cuts in Zimbabwe's fiscal deficit, tax rate reductions, and the deregulation of financial markets. The arrangement also required Zimbabwe to dismantle protections for the manufacturing sector and ``deregulate'' the labor market, lowering the minimum wage and eliminating certain guarantees of employment security (External Review, p. 173-176).

Impact on the economy

IMF policies which mandated the removal of protections for the manufacturing sector, trade liberalization, and reduced government spending combined with the effects of a severe drought on agricultural production to send the Zimbabwe economy into recession in 1992--real GDP fell by nearly 8% that year. In Zimbabwe, economic crisis actually followed rather than preceded the implementation of structural adjustment.

Among the indicators of economic performance that declined over the period of adjustment:

Between 1991-96, manufacturing output contracted 14%;

Real GDP per capita declined by 5.8% from 1991-1996;

Real GDP fell by about 1% between 1991 and 1995. (A January 1992 IMF staff report [Page: H6637]

predicted 18% GDP growth over the same period);

Nominal and real interest rates were high and volatile throughout the period, with nominal rates often exceeding 40%. The result of high real interest rates was to reduce private domestic investment.

Total private investment declined by 9% in real terms between 1991-96 (External Review, p. 172-175).

Furthermore, private per capita consumption fell by 37% between 1991-1996. As the External Review concluded, ``This alone transformed the group of those who lost from the reforms from a minority to a majority'' (p. 177).

The combination of reduced protection of the manufacturing sector, the reduction in public spending, and labor market deregulation led to higher unemployment and lower real wages. Between

1991-96, formal sector employment in manufacturing fell 9% and real wages declined by 26%. Meanwhile, food prices rose much faster than other consumer prices; this disproportionately affected the rural poor, who spend a larger share of their income on food (External Review, p. 180, 182).

Impact on health and education spending

In order to meet the IMF's fiscal targets in the 1991 ESAF program, the government had to reduce non-interest expenditures by 46%. The External Review describes this requirement as a ``draconian reduction'' and found it unsurprising that Zimbabwe never met the fiscal target. Though Zimbabwe never met the IMF target, between 1990/91-1995/96, spending on health care declined as a share of the budget from 6.4% to 4.3%, and as a share of GDP from 3.1% to 2.1% (External Review, p. 178). The IMF's

prescriptions for fiscal adjustment included reductions in the real wages of public health sector workers. As a result of the wage cuts, many doctors moved to the private health sector, and the quality of public health care dropped. As health care became

less a public service and more a function of the private sector, health services became less accessible to the poor. Because non-wage health spending fell dramatically as well, shortages of prescription drugs became commonplace (External Review, p. 178).

Compared to the previous era in which health care services were made more widely available to all Zimbabweans through increased government spending, the era of IMF adjustment was characterized by decreased access to health services. This trend was reflected in the deterioration of health indicators. For example, between 1988 and 1994, wasting (a phenomenon linked to AIDS) in children quadrupled and maternal mortality rates appear to have increased. And after many years of decline, the number

of cases of tuberculosis began to rise in 1986 and by 1995 had quadrupled (External Review, p. 178-179).

The decline in government health care spending occurred during a period of increasing need by the population for more access to health care. AIDS was spreading rapidly in Zimbabwe. Given the present cost of treating AIDS patients, the World Bank predicted that the total cost of treating Zimbabwean citizens already infected with AIDS was four times the entire 1996 government health budget. The IMF's fiscal targets meant that the government was unable to respond to growing health needs of the population

effectively. The External Review concluded that access to health care fell under adjustment, compared to the pre-IMF era: ``There is no doubt that the previous trend of improving health outcomes was reversed during the period of the reform program'' (p. 179).

Expenditure on education also fell sharply under IMF adjustment. Real per capita expenditure on primary and secondary education declined by 36% and 25% respectively between 1990/91 and 1993/94. As in the health sector, wages for teachers and educational staff fell by between 26% and 43% between 1990 and 1993.

Impact on external indebtedness

The External review team analyzed Zimbabwe's external viability (i.e., their debt burden). The results show that on the basis of nearly every generally accepted indicator of a country's debt burden, Zimbabwe became significantly more indebted during the period of adjustment. But Zimbabwe still does not qualify for the IMF/World Bank HIPC initiative.

On April 11, 1999, the Associated Press reported that Zimbabwe had ``severed ties with the International Monetary Fund and the World Bank,'' saying that they had ``made `unrealistic demands' '' as a requirement for releasing funds. A day later the Zimbabwean Finance Ministry denied the report, ``in a bid to reassure markets.'' The Wall Street Journal noted that ``Other donors have indicated they would take their cue from the IMF on whether to release additional financial support,'' again indicating

the tremendous power which the IMF wields as a result of the fact that other creditors and donors follow its lead.

2. Cote d'Ivoire

Cote d'Ivoire experienced a long period of growth following its independence in 1960, with much of its growth attributable to agricultural exports. Economic decline ensued in the early 1980s as

world prices for coffee and cocoa, two of Cote d'Ivoire's main exports, fell. After a brief restoration in growth by 1985, the economic decline resumed in the late 1980s (External Review, 95).

The IMF became involved in Cote d'Ivoire in November 1989, when it reached a stand-by arrangement with the government, which was followed by another agreement in 1991. Following the initial stand-by arrangements with the IMF, there were six World Bank Structural Adjustment Loans from 1989-1993. Then, beginning in 1994, Cote d'Ivoire entered into an ESAF program with the IMF.

Over the first period of adjustment, from 1989-1993, IMF fiscal adjustment requirements were introduced in an effort to reduce the government budget deficit. These included substantial reductions in current government expenditures (-30%) and capital expenditures (-15%), in addition to tax increases. Structural reforms also began during this period, including privatizations and some financial reforms.

The objectives of the next phase (from 1994-1997), under the ESAF program, were threefold:

To generate a primary budget surplus of 3% of GDP, ``in order to finance debt service'' (External review, p. 97);

To attain GDP growth of 5% by 1995; and

To ``protect the most vulnerable during adjustment.''

In order to reach the budget surplus target, the IMF required labor market deregulation, price decontrol, trade reform, reductions in civil service employment, and faster privatization (External review, p. 97). The IMF also advocated devaluation of Cote d'Ivoire's currency, the Franc CFA, which occurred in January 1994.

Impact on the economy

From 1989-1993, per capita GDP fell by 15%, pushed along by the overvaluation of the exchange rate and deterioration in the terms of trade (External Review, p. 95-96). The social impact of IMF structural adjustment on Cote d'Ivoire was severe. Between 1988-1995, the incidence and intensity of poverty doubled, with the number of people making under $1/day increasing from 17.8% of the population to 36.8%. In Abidjan, the rate of urban poverty rose from 5% to 20% between 1993 and 1995 (External

Review, p. 101).

Impact on Health and Education Spending

Between 1990 and 1995, real per capita spending on health care fell slightly and education spending fell dramatically (External Review, p. 101, 105). During the period of IMF structural adjustment (1990-1995), real per capita public spending on education declined by more than 35 percent. Moreover, reductions in the wages of civil servants required by the IMF also led to a reduction in teachers salaries (external review, p. 103). The Review points out that lower wages probably lowered teachers'

motivation, and educational quality may have suffered as a result. Despite an improvement in gross enrollment in primary schools over the period 1986-1995, educational indicators overall showed poor results. By 1995, only 45% of girls from the poorest quintile of households were receiving primary education. At the secondary level, the gross enrollment rate declined from 34% to 31% between 1986-1995 (External Review, p. 104).

As part of the policy reforms required by the Fund, user fees were introduced into the public health care system in 1991. The devaluation of the franc CFA made it especially difficult for the urban poor to pay for health care services, and as a result there was a shift towards traditional medicine. Many

health problems worsened. For example, the incidence of stunted growth in children increased from 20% in 1988 to 35% in 1995. As access became more expensive, health issues became a more pressing concern. A survey by UNICEF and the Government of Cote d'Ivoire found that when women were asked to identify their problems, health ranked first (External Review, p.103).

The team of external reviewers concluded that in Cote d'Ivoire, ``The required reductions in public expenditures were imposed on a system which was already failing to meet basic social needs.''

Debt burden

In the first two years of adjustment alone (from the end of 1989 to the end of 1991), Cote d'Ivoire's external debt burden grew by $3.7 billion (or from 141% to 175% of GDP). In its analysis of external viability, the External Review found that Cote d'Ivoire's external debt burden increased from 132.4% to 210.8% of GDP. Before ESAF, its debt stock to export ratio was 452.8%; following ESAF, it had risen to 545.4% (External Review, p. 190).

Although Cote d'Ivoire has completed the required three consecutive years of structural adjustment to reach its ``decision point'' for eligibility under the IMF/WorldBani HIPC Initiative, it will not reach the ``completion point'' (of actually receiving debt relief) until March 2001, assuming it does not go off track from the adjustment program. Although the country has an urgent need for increased government spending on health care and education, it is unlikely that this could happen under the

terms of structural adjustment.

3. Uganda

When President Yoweri Musevini came to power in Uganda in 1986, his government faced the challenge of rebuilding an economy devastated by the dictatorships of Idi Amin and Milton Obote. Between 1971 and 1986, the Ugandan economy had deteriorated in per capita terms. But in the ten years that followed (between 1986-1996), per capita GDP grew by roughly 40%.

The IMF first became involved in Uganda in 1987, with a loan through its Structural Adjustment Facility (SAF), and it later extended its mission under the ESAF program [Page: H6638]

from 1989-1992 and again from 1992-1997. Real per capita GDP growth averaged 4.2% in Uganda between 1992-1997, and as a result, the IMF often presents Uganda as an example of the success of its structural adjustment policies.

As noted in the External Review, part of this rapid growth can be explained by the terrible decline of preceding years. But it is also worth looking at how various sectors of the population fared under the growth that coincided with structural adjustment in Uganda

Two principal reforms mandated by the IMF arrangements were trade liberalization and the progressive reduction of export taxation. But as the external review points out, ``Liberalization of cash crops had only limited beneficiaries.'' This was the case because only a small number of rural households grow coffee. Liberalization had little impact on rural incomes over the period of adjustment--rural per capita private incomes increased just 4% over the period from 1988/89 to 1994/95.

The IMF also mandated the privatization of state-owned industries, a process that has met particularly criticism in Uganda. The Structural Adjustment Participatory Review International Network (SAPRIN), which was launched jointly with the World Bank, national governments, and Northern and Southern NGOs in 1997, has reported that the privatization process in Uganda has gone too fast and has been flawed from the start. A report by Ugandan NGOs who participated in SAPRIN found that ``The privatization

process in Uganda has benefitted the government and corporate interests more than the Ugandan people ...... The privatization process was rushed, and as a result, workers suffered. Some 350,000 people were retrenched and, with the private sector not expanding fast enough, unemployment sharply increased. Those laid off were not prepared for life in the private sector, with no training being provided.''

During the period of IMF structural adjustment, public spending on health care increased as government spending rose overall. However, health care spending did not rise as a share of the recurrent budget, and its share was slightly lower in 1994 than it had been in 1989. Government spending grew over the period but from a very low stating level at the beginning of Museveni's term: in 1986,

government expenditure represented just 9% of GDP. At the same time prices of health care services rose much faster than inflation. This was caused in part by the large depreciation of the exchange rate from 1988-1991, which raised the cost of imported inputs in the health sector. As a result, a given level of public health spending bought fewer health services. Real per capita output in health care was lower in each of the years from 1992-1994 than it had been in 1989. (External Review, p. 139-141).

The SAPRIN review of Uganda's experience with adjustment found that ``cost-sharing,'' where patients are expected to pay for a portion of their health care or education, has led to less access for the poor to health care and public education. The policy of cost-sharing was introduced by the Ugandan government in response to IMF fiscal requirements and high debt service payments, which have made it difficult for the government to channel funds into payments for health care and public education.

The NGOs in SAPRIN report that:

``It [higher costs] has made hospitals and institutes of higher education too costly for the poor. People testified that those who cannot pay for critical health care simply die. Cost-sharing is also poorly administered in the hospitals, and it was pointed out that in areas where people have been unable to pay, the local hospital has simply been closed down. Citizen representatives reported that in villages where the people themselves decide on how much to pay, access to care is much better,

so it is best to scrap cost-sharing, which does not benefit the poor.''

Despite some limited progress in the area of health service provision during the era of adjustment, general health indicators have not improved. In particular, the proportion of children who are malnourished has not declined. As the external review observes, ``This is consistent with the evidence on rural incomes which, as we have seen, suggests little change'' (p. 139). Since rural incomes did not rise in tandem with increasing health care costs, the rural poor have not been able to share in

increased access to health service provision.

Moreover, a declining share of the recurrent budget has been spent on education over the adjustment period, and this led to an overall reduction (over the period 1987 to 1996) in the provision of educational services per capita. (External Review, p. 140-141).

Debt burden

The IMF and World Bank often present Uganda as an example of the success of its HIPC (Heavily Indebted Poor Country) debt initiative. Uganda was the first country to receive debt relief under the IMF/World Bank HIPC Initiative in April 1998, when roughly $650 million of its multilateral debt stock was forgiven.

However, the process has, first of all, been plagued by several delays. Uganda was originally scheduled to receive debt relief in April 1997, but this was pushed back one year. This delay occurred despite the fact that Uganda had been following structural adjustment programs for nearly a decade. According to Ugandan government projections, the cost of the one year delay was $193 million in lost relief. This amount is more than double the projected spending on education or six times total government

spending on health in that year. With the delay, public funds were diverted from priority health care services into debt repayments.

Moreover, less than one year after receiving relief, Uganda's debt burden has once again become unsustainable according to HIPC criteria. This is mainly because of an overestimation by the World Bank/IMF of revenues Uganda would receive from coffee exports and from trade with the former Zaire, whose economy has recently gone into decline. The United Kingdom's Secretary of State for International Development, Clare Short, confirmed this is a statement before the British House of Commons, noting

that, ``the review of Uganda, which has just received debt relief, was very disappointing. As a result of the fall in world coffee prices, it is just as badly off as it was in the first place.'' Uganda's return to an unsustainable debt service burden illustrates the problem with IMF and World Bank projections

of export earnings that do not materialize, even over a period of less than a year. It also shows that the debt burdens set by HIPC as ``sustainable'' are much too high, and that much deeper debt relief--preferably cancellation--will be necessary to set these countries on a sustainable growth path.

CASE STUDY: MOZAMBIQUE AND DEBT RELIEF

Unlike the other countries examined in this study, Mozambique's experience with the IMF's structural adjustment was not examined in the External Review of the impact of ESAF programs. But Mozambique is one of just three African countries (the others are Uganda and Cote d'Ivoire) that have reached the final stage under the World Bank/IMF Highly Indebted Poor Countries (HIPC) Initiative. It is therefore worth examining how Mozambique has fared under this initiative, including the required conditions

of structural adjustment.

Mozambique is one of the poorest countries in the world, if not the poorest. According to the United Nations Development Program (UNDP) and UNICEF, only 37% of the population has access to clean water; 39% has access to health services; and just 23% of women can read and write.

Following a decade of war supported by external powers, Mozambique began a modified form of World Bank structural adjustment in 1987, and in 1990 it entered into an IMF directed ``stabilization program'' under ESAF. Two of the main components of the IMF stabilization program were fiscal adjustment (cuts in government spending) and cuts in credit to the economy (through policies such as higher interest rates). As part of the fiscal adjustment process, government salaries fell. For example, a doctor

on the government payroll earned $350/month in 1991, $175/month in 1993, and by 1996, took in less than $100/month. For nurses and teachers, monthly salaries fell from $110/month to $60 or $40--levels at which it is impossible to support a family.

The IMF's primary aim in Mozambique was to contain inflation; the Fund argued that broad post-war reconstruction efforts should be scaled back on the grounds that such actions could be inflationary. While the IMF focused on stabilization policies, World Bank adjustment simultaneously mandated privatization as well as trade and investment liberalization.

Mozambique and the HIPC initiative

In a press release issued on April 7, 1998, the IMF announced that, along with other creditors, it had agreed to ``provide exceptional support amounting to nearly US$3 billion in nominal terms in debt-service relief for Mozambique,'' claiming that this would ``reduce the external debt burden, free budgetary resources and allow Mozambique to broaden the scope of its development effort.''

While $3 billion may seem like substantial debt relief for a country as poor as Mozambique, it does not necessarily make a significant dent in the country's debt service burden. Since countries like Mozambique owe far more in external debt than they have the capacity to pay, it is quite possible to reduce their outstanding debt stock considerably, without any commensurate reduction in the net drain of resources out of the country. This happens when creditors cancel that part of the debt that

was not being serviced previously. Therefore, in order to know whether poor countries--and poor people in those countries--actually benefit from IMF/World Bank debt relief, it is necessary to know what the impact of this debt reliefs is on the actual debt service paid by these countries.

In response to criticism from non-governmental organizations, in May the IMF released estimates for these numbers. According to the IMF's own projections, the actual debt service paid by Mozambique will be as high or higher in each of the years from 2000-2003 as it was in 1997. Even after IMF debt relief, the government will be paying roughly as much in debt service as it is spending on health care and education.

Speaking at a conference on the issue, World Bank representative James Coates noted that more than half of all money allocated to HIPC countries went to cancel Mozambique's debt, and that more debt could not be canceled because the funds allocated under HIPC constituted the maximum that creditors could afford. But the $100 million that Mozambique pays in debt service each year represents barely one-tenth of one percent of the increase in resources which the IMF alone received last year from member

[Page: H6639]

governments. This indicates that the lack of meaningful debt relief so far is not the result of scarce resources, but a lack of commitment to significantly reducing the debt service burden of these highly indebted and very poor countries.

Human impact of the IMF's policies

The importance of debt relief can be illustrated by estimates of the results, in terms of human welfare, that could be achieved if some of the resources now spent on debt service were reallocated to spending on vital needs. In 1997, the United Nations Development Program estimated that, relieved of their debt payments, severely indebted countries in Africa could have saved the lives of 21 million people and provided 90 million girls and women with access to basic education by the year 2000. In

the case of Mozambique, Oxfam estimated that debt relief could save the lives of 600,000 children over seven years. Other advocates of debt relief have made similar estimates: based on United Nations Development Program estimates of the impact of increased health

and education spending, Jubilee 2000 estimated that if Mozambique were allowed to spend half the money on health care and education which it is now spending on debt service, it would save the lives of 115,000 children every year and 6,000 mothers giving birth.

HAS AFRICA `TURNED THE CORNER' IN RECENT YEARS?

In 1998, the IMF released a series of publications and public statements claiming credit for an ``African economic renaissance'' and ``a turnaround in growth performance.'' The claim from the IMF and World Bank is that structural adjustment is beginning to pay off, at least in macroeconomic terms. But examining just-released growth projections by the World Bank, one discovers that the ``growth turnaround'' has been short-lived. According to the World Bank, real GDP per capita grew by 1.4% in

1996, but by 1997, growth slowed to 0.4% and in 1998, per capita incomes fell by 0.8%. The World Bank projects a further decline of -0.4% in 1999. In short, if there was an ``economic renaissance'' for Africa, it appears to be over.

Why has there been a sudden downturn in growth? The UN Economic Commission for Africa (ECA) reports that Africa's economic performance in 1997 showed ``the fragility of the recovery and underscored the predominance of exogenous factors'' in the determining African economic outcomes. Africa's growth prospects are inexorably linked to world prices for its exports. IMF and World Bank structural reforms had actively promoted this strategy, known as export-led growth. The ECA also emphasized this

fact: ``The major thrust of economic policy making on the continent has been informed for the last decade or so by the core policy content of adjustment programs (of the type supported by the IMF and the World Bank).*.*.*''

In addition to slower growth in 1997 and 1998, recently released data indicate that the relationship between the IMF and sub-Saharan Africa has taken a turn for the worse during these years.

FIGURE 6. IMF RELATIONSHIP WITH SUB SAHARAN AFRICA 1991-1998[Millions of U.S. dollars]

1991

1992

1993

1994

1995

1996

1997

1998

IMF purchases

579

527

1146

918

2994

652

524

837

IMF repurchases

614

530

455

467

2372

596

1065

1139

IMF charges

228

186

138

170

559

124

101

88

Balance

-263

-189

553

281

63

-68

-642

-390

\1\ Preliminary.

The Balance shows the net transfer of funds from the IMF to Sub-Saharan Africa; the negative sign indicate a net transfer from the countries to the Fund. IMF Purchases represent new resources (loans) taken out from the IMF. IMF Repurchases represent repayments of the principal of IMF loans. IMF Charges represent repayments of the interest on IMF loans.

Source: World Bank, Global Development Finance 1999, in Jubilee 2000 coalition, ``IMF takes $1 billion in two years from Africa,'' April 1999.

As Figure 6 shows, repayments by African governments to the IMF outpaced new resources in the past two years, resulting in a net transfer from Africa to the IMF of more than $1 billion in 1997 and 1998. Meanwhile, despite increasing repayments to the IMF, total African debt continued to rise: between 1997 and 1998, Africa's debt increased by 3% to $226 billion. This occurred even as African countries paid back $3.5 billion more than they borrowed in 1998.

CONCLUSION

The data reviewed in this study suggest that the International Monetary Fund has failed in Africa, in terms of its own stated objectives and according to its own data. Increasing debt burdens, poor growth performance, and the failure of the majority of the population to improve their access to education, health care, or other basic needs has been the general pattern in countries subject to IMF programs.

The core elements of IMF structural adjustment programs have remained remarkably consistent since the early 1980s. Although there has been mounting criticism and calls for reform over the last year and a half--as a result of the Fund's intervention in the Asian and Russian financial crises--no reforms of the IMF or its policies have been forthcoming. And there are as yet no indications from the Fund itself that it sees any need for reform. In fact, IMF Managing Director Michel Camdessus has repeatedly

referred to the Asian economic collapse as ``a blessing in disguise.''

In the absence of any reform at the IMF for the foreseeable future, the need for debt cancellation for Africa is all the more urgent. This enormous debt burden consumed 4.3% of sub-Saharan Africa's GNP in 1997. If these resources had been devoted to investment, the region could have increased its economic growth by nearly a full percentage point--sadly this is more than twice its per capita growth for that year. But the debt burden exacts another price, which may be even higher than the drain

of resources out of the country: it provides the means by which the IMF is able to impose the conditions of its structural adjustment programs on these desperately poor countries.

Any debt relief that is tied to structural adjustment, or other conditionality imposed by the IMF--as it is in the HIPC initiative--could very well cause more economic harm than good to the recipients. Debt relief should be granted outside the reach of this institution, preferably without conditions. Moreover, the role of the Fund in Africa and developing countries generally, and especially its control over major economic decisions, should be drastically reduced. Any efforts to provide additional

funding or authority to the IMF, before the institution has been fundamentally reformed, would be counter-productive.

--

ON THE WRONG TRACK:

A SUMMARY ASSESSMENT OF IMF INTERVENTIONS IN SELECTED COUNTRIES

January 1998.

OVERVIEW

As Asian economies continue to unravel, investors have looked to the International Monetary Fund for guidance on whether prospective economic performance warrants their continued participation in the economies of those countries. With a war chest of funds and a staff of neoliberal economists at its disposal and the power and influence of Northern governments and financial markets behind it, the IMF not only sets the standards for such performance, but it forces compliance with the carrot of emergency

funding and the stick of discouraging the flow of private-sector and other public-sector financing. When the going gets rough under IMF tutelage, the refrain is always the same: deepen the reforms with more of the same medicine.

But how good has IMF advice been, and how accurate a guide has the Fund's stamp of approval been for investors? To start, investments in IMF-touted emerging-market countries over the past five years have performed no better than much safer investments at home, and the Fund failed to warn of the two big crashes of the decade--Mexico and East Asia. In fact, right up to the currency and stock-market collapses, the IMF was praising these countries as models of economic success and rationality. Perhaps

blinded by its own prescriptions (and the interests of investors) to open these--and other--economies before the necessary institutional, financial and social infrastructure was in place, the Fund has consistently failed to recognize, or at least publicly acknowledge, the underlying weaknesses in these economies and its own contribution to the debacles.

Friends of the Earth and The Development GAP, with the support of the Charles Stewart Mott Foundation, have engaged partners in six countries to assess, through short case studies, IMF performance in a representative cross-section of economies. Drafts of four of the studies--Mexico, Senegal, Tanzania and Hungary--have been completed, and summaries are attached, the profiles of the Philippines and Nicaragua are still in progress. These cases paint a consistent picture of an institution bent on

fully opening economies to foreign investors on advantageous terms at almost any cost--the destruction of domestic productive capacity and local demand, growing poverty and inequality, the deterioration of education and health-care systems, and, as has been seen, a dangerously expanding vulnerability of these economies themselves to external forces beyond their governments' control.

What is clear from these studies, and from IMF intervention across the board, is that the Fund's economic conditions--which have gone beyond tight monetary and fiscal policies and other stabilization measures to include the liberalization of trade, direct investment and financial capital flows, as well as the dismantling of labor protections and economic infrastructure that supports small producers--have been imposed without linkage to a long-term development strategy [Page: H6640]

aimed

at sustainable and equitable growth and economic competitiveness.

In Mexico, a program of rapid trade liberalization, economic and financial-sector deregulation and large-scale privatization, accompanied by policies that undercut local demand and production, had created a growing current-account deficit well before the December 1994 collapse of the peso. The increasing dependency on foreign capital inflows required to finance the deficit eventually led to massive capital flight and the crisis. Subsequent IMF conditions attached to the bailout of foreign

investors, which in essence deepened the reform program while ignoring its underlying weaknesses, caused an economic depression, pushing millions of farmers out of agriculture, bankrupting thousands of small businesses, and drastically slashing jobs and wages. Likewise, in Nicaragua, financial-sector deregulation, narrowly focused and without adequate prior institutional reform, has directed capital toward short-term, high-interest deposits and away from productive investment, particularly the

activities of small-scale producers in both the agricultural and manufacturing sectors.

In Africa, the IMF record has been even worse. Tanzania, forced to adopt a program of trade liberalization, devaluation, tight monetary policy and the dismantling of state financing and marketing mechanisms for small farmers, has experienced expanding rural poverty, income inequality and environmental degradation amidst growing agricultural export trade. Food security, housing conditions and primary-school enrollment has fallen while malnutrition and infant mortality have been on the rise. The

country, under Fund supervision, is today more dependent than ever on foreign aid. Across the continent, Senegal, an IMF pupil for 18 years, has experienced declining quality in its education and health-care systems and a growth in maternal mortality, unemployment and the use and abuse of child labor. Official IMF statistics underestimate the real inflation rate faced by most

of the population, while economic growth has not effectively reached the poor. As women constitute the vast majority of the poor and depend more on social services, experience lower education and literacy rates, and are least likely to receive support for their agricultural (food-crop) activities than are men, they have suffered disproportionately under the adjustment program.

With the IMF as its guide, Hungary has led the reform process in Eastern Europe, similarly liberalizing its trade regime, tightening its money supply and selling off assets (on questionable terms) to foreign interests with little concern for the productive contributions of workers and domestic producers in the ``real'' economy. As a result, an increasing portion of resources are being directed away from investment in human capital and infrastructure formation toward unemployment benefits and

payments to wealthy bondholders. A more fragmented and troubled society has emerged in which other big losers include: the elderly, who often cannot afford the cost of medicines or home heating, pensioners, whose stipends will further decrease, gypsies, who are losing access to jobs and public housing, youth, who face decreased access to education and employment, particularly in rural areas, and children, who, for the first time, are experiencing malnutrition as poverty expands in Hungary.

The IMF claims that it is not a development assistance agency and its track record proves its point. Yet, while destroying the basis for sustainable, equitable and stable development around the globe with the imposition of both stabilization and adjustment measures, the Fund has also greatly increased the economic vulnerability of nation after nation. By opening the door prematurely to fickle and unregulated foreign capital flows, liberalizing trade and investment regimes and pushing up interest

rates to attract bondholders without adequate support for local production, developing cheap production bases for foreigners and export at the expense of underpaid and undereducated work forces, domestic demand and the natural environment, and rewarding speculators instead of financing critical social

investments and equilibrium, the IMF has demonstrated both its biases and its ignorance of local conditions. It should be neither a guide for the market nor a dictator of national development programs. At this point in history, the less influence, the less money, the less power it has, the better.

--

April 1999.

Conditioning Debt Relief on Adjustment: Creating the Conditions for More Indebtedness

(By The Development Group for Alternative Policies)

Over the past year there has been growing public recognition, even within official circles, that foreign-debt burdens, particularly those of the least-developed countries, are unsustainable and constitute severe constraints on those countries' future development. The dire situations in Honduras and Nicaragua after Hurricane Mitch serve to highlight the impossibility of those countries garnering sufficient resources to rebuild their devastated infrastructures while foreign-debt payments continue

to absorb much of their governments' and export earnings.

Various proposals have been developed for the cancellation of bilateral and multilateral debt. Most prominent among these proposals is the Heavily Indebted Poor Countries (HIPC) initiative. The stated intention of this program, which is administered by the International Monetary Fund (IMF) and the World Bank, is to enable highly indebted poor countries to achieve sustainable debt levels within six years. After three years of implementation of structural adjustment programs (SAPs), countries reach

a ``decision point'', at which time some debt rescheduling may be granted and the level of additional debt reduction needed is calculated. That reduction, however, is typically available only after another three years of adjustment. It could take even longer than six years for a country to receive any debt relief, as the ``clock'' stops if a country fails to fully adhere to the

adjustment program and restarts only when the IMF has certified that it is in compliance once again. In fact, given the long time frame for debt cancellation, it appears that a central goal of the HIPC initiative is to keep countries locked into adjustment programs, with debt reduction now used--as has been both access to finance and debt itself--as leverage toward that end.

While the recognition that debt levels must be reduced is a step in the right direction, the requirement that countries continue to implement SAPs in order to qualify for and receive that relief greatly diminishes or even negates the benefits that might accrue from debt cancellation. Not only have adjustment programs devastated national economies across the South and caused misery for hundreds of millions of people, evidence shows that, in the large majority of countries implementing those policies

at the insistence of the international financial institutions (IFIs), debt levels have increased.

In fact, a study carried out by two researchers affiliated with The Development GAP demonstrates that there is a positive linear relationship between the number of years that countries implement adjustment programs and increases in debt levels. Rather than leading countries out of situations of unpayable debt levels, the HIPC program and others conditioned on the implementation of SAPs would likely push participating countries further into a tragic circle of debt, adjustment, a weakened domestic

economy, heightened vulnerability, and greater debt.

METHODOLOGY

The Development GAP study covers 71 economies of the South with a history of at least three years operating under World Bank-supported structural and sectoral adjustment programs during the period 1980-1995. Many of these countries have also implemented IMF adjustment programs. On average, the countries included in the study had implemented SAPs for 7.8 years. Some 42 African and Middle Eastern countries were included and comprised 59.2 percent of the sample. Eleven Asian countries, or 15.5 percent

of the total, and 18 Latin American countries, comprising 25.4 percent of the cases, were also included in the study. A list of the countries included in he study, along with data related to SAPs and debt, is provided in the Annex.

The independent variable used in the study analysis was the number of years a country had been implementing a structural adjustment program. The dependent variable was the change in the ratio of debt to GNP. The total debt level used was the sum total of debt and the debt and interest cancelled during the period (so that official debt-reduction plans do not skew the results). Changes in the ratio of debt to GNP were derived by calculating percentage changes in the ratio from the first to last

year of a country's SAP. In the cases in which the program was still ongoing, 1995 was used as the final year for calculation due to the unavailability of data on debt after that date. All figures are based on official World Bank information.

RESULTS

Of the countries included in the study, a full two-thirds saw their debt burdens increase during the adjustment period. Furthermore, as cited above and contrary to assertions by the IFIs that ``sound economic policy'' is the best road out of debt, statistical analysis of the data demonstrates a positive relationship between the number of years under adjustment and increases in debt levels. The longer these countries implemented the neoliberal programs, the worse their debt burdens typically became.

It is striking that none of the countries currently being considered for debt relief under the HIPC initiative has experienced a drop in the debt-to-GNP ratio under their respective adjustment programs. In some countries, the inverse relationship was especially strong. Guyana and Cote d'Ivoire, two countries that are scheduled to receive such debt relief, have experienced phenomenal increases in the debt/GNP ratio. In the former, the ratio grew by 147 percent after 13 years of adjustment, and,

in the latter, 13 years of SAPs produced a 120-percent increase in debt to GNP. Of the 35 countries listed by the World Bank as HIPCs, only three

experienced decreases in debt-to-GNP levels under adjustment. All others experienced increases, ranging from an 11-percent rise in Mauritania to a 670-percent increase in Nigeria.

The average, or mean, increase in debt for all of the countries in the sample was 49.2 percent. The median, or most frequent, increase was 28.2 percent. The top 25 percent of the countries showed a 75-percent increase in foreign debt.

TRAGIC CIRCLES OF DEBT AND ADJUSTMENT

There are a number of reasons for the rise in debt levels. In some countries, the trade [Page: H6641]

liberalization required under adjustment programs leads to a flood of imports and, consequently, higher trade and current-account deficits. Those deficits need to be compensated for by higher foreign investment, foreign assistance or foreign borrowing. In many countries, such as Brazil, the maintenance of high real interest rates, as often mandated by the IFIs, in

order to appease nervous foreign investors, is increasing the cost of domestic debt, thus adding to the government's budget deficit, raising the specter of further devaluation, and, consequently, creating greater difficulty in servicing the foreign debt.

One of the central objectives of structural adjustment programs is to reorient economic activity away from production for domestic consumption and toward production for export. In making this shift, nations become exceeding vulnerable to the vagaries of the global economy. Countries export more and more as commodity prices continue to fall. Governments deregulate economic activity, ``flexibilize'' labor markets and raise interest rates in increasingly desperate efforts to attract and maintain

fickle foreign investment. The recent crises in Mexico, East Asia, Russia and Brazil demonstrate the hazards of countries betting their future well-being on the erratic global financial market. Indeed, those countries receiving IMF-orchestrated ``bailouts'' could

very likely constitute the next group of debt-crisis countries, as the adjustment conditions attached to these packages include the requirement that governments guarantee payments to private international banks, thus making private debt a public obligation.

High foreign-debt levels are both a result and a symptom of the extreme risk that governments take in tying their economies too closely to the global market. The causes of that debt are flawed economic policies that fail to develop domestic productive capabilities or raise local income levels so as to reduce the need for external financing. For this reason alone, the requirement that governments adhere to the structural adjustment programs designed by the international financial institutions

is pure folly. Instead, governments should be encouraged to develop national economic plans designed democratically to expand the domestic financial resource base, incomes and markets and, consequently, reduce their extreme dependence on foreign debt. Otherwise, we can expect the tragic circle of debt and adjustment to continue into the foreseeable future--debt-relief programs not withstanding.

Prepared by Karen Hansen-Kuhn and Doug Hellinger based on research and analysis by Matt Marek and Nan Dawkins.

ANNEX: COUNTRIES INCLUDED IN THE STUDYAfrica and Middle East

Years under SAP

Percent increase in debt/GNP

Algeria

5

72.05

Benin

6

17.74

Burkina Faso

4

65.98

Burundi

9

155.96

Cameroon

6

156.96

Central African Rep.

7

110.76

Chad

66

81.43

Comoros

4

30.30

Congo

7

75.59

Cote d'Ivoire

13

119.53

Egypt

3

-22.89

Equatorial Guinea

4

23.10

Ethiopia

3

28.25

Gabon

7

62.58

The Gambia

5

-25.88

Ghana

12

148.31

Guinea

8

10.92

Guinea-Bissau

10

64.57

Jordan

5

-29.72

Kenya

15

120.50

Madagascar

9

87.87

Malawi

4

142.92

Mali

7

29.06

Mauritania

9

10.55

Mauritius

8

-15.91

Morocco

10

-28.19

Mozambique

7

30.92

Niger

9

63.92

Nigeria

11

669.66

Rwanda

4

106.65

Sao Tome and Principe

8

287.91

Senegal

14

56.66

Sierra Leone

3

-9.77

Somalia

6

37.75

Sudan

7

-25.54

Tanzania

14

361.07

Togo

12

14.43

Tunisia

8

-22.69

Uganda

13

33.19

Zambia

11

61.19

Zimbabwe

11

121.14

Asia

Years under SAP

Percent increase in Debt/GNP

Bangladesh

15

75.76

China

3

15.94

India

3

-16.32

Indonesia

5

-9.32

Lao PDR

5

-33.23

Nepal

6

57.68

Pakistan

4

30.61

Papua New Guinea

5

-35.86

Philippines

14

7.57

Sri Lanka

5

-12.38

Thailand

3

6.72

Latin America and Caribbean

Years under SAP

Percent increase in Debt/GNP

Argentina

9

-11.85

Bolivia

15

51.43

Brazil

9

-8.99

Chile

3

-19.99

Colombia

10

-33.56

Costa Rica

12

-56.61

Dominica

4

-19.22

Ecuador

9

13.80

El Salvador

4

-20.69

Guatemala

3

-13.86

Guyana

13

147.32

Honduras

6

38.97

Jamaica

14

75.13

Mexico

11

30.83

Nicaragua \1\

13

726.07

Panama

11

8.87

Peru

3

8.42

Trinidad and Tobago

3

-5.10

Uruguay

9

-55.72

Venezuela

5

-3.71

\1\ Nicaragua was excluded from the analysis because of the unorthodox nature of its debt and because adjustment was implemented sporadically during the period (and at times without support from the international financial institutions), making it difficult to identify beginning and end years for the program.

--

Environmental Consequences of the IMF's Lending Policies

(By Friends of the Earth)

Environmentalists around the world have long been concerned about the impact of International Monetary Fund (IMF) structural adjustment policies on the global environment. While economic instability is a threat to the environment, the IMF's approach to economic reform generally induces a blatant disregard for environmental impacts, even when the economic goals go hand in hand with environmental goals.

The result: too many economic policies that promote environmental degradation and too few policies that could promote positive environmental gains.

PRESSURE TO EXPORT

Structural Adjustment Programs (SAPs) treat natural resources as commodities, exported as cheap products to over-consuming markets in the Northern rich countries. Exports of natural resources have increased at astonishing rates in many IMF adjusting countries, with no consideration of the sustainability of this approach. For example, Benin, under SAPs since 1993, had sawnwood exports increase four fold between 1992 and 1998. (1)

Furthermore, it is often raw resource exports, whose prices are notoriously volatile, that are being promoted, rather than finished products, which would capture more value-added, employ more people in different enterprises, help diversify the economy, and disseminate more know-how.

BUDGET CUTS AND WEAKENED LAWS

Structural adjustment's goal of balancing the government budget can also hurt the environment. In the effort to shrink budget deficits, cuts in government programs weaken the ability to enforce environmental laws and diminish efforts to promote conservation. Budget cuts in Brazil, Russia, Indonesia and Nicaragua have greatly reduced these governments' ability to protect the environment. Governments may also relax environmental regulation to meet SAP objectives for increased foreign investment.

WORLD BANK IS NO EXAMPLE

The IMF explains that it relies on the World Bank to assess the environmental implications of its adjustment lending. Yet the World Bank has proven to be no help. A recent review found that fewer than 20% of World Bank adjustment loans included any environmental assessment. (2)

Another consequence of the IMF's narrow approach to economic reform is that economic policies that could help promote environmental sustainability are being ignored. Tax promote environmental sustainability are being ignored. Tax policy, for example, could emphasize green taxes in order to generate revenue and discourage excessive resource use. In the IMF's effort to build countries' accounting systems and statistics capabilities, full cost accounting could be pursued to help both countries and

international financial institutions realize the value of natural resources and would therefore encourage countries to use them prudently. Immediate steps must be taken to make sure that environmental protection is considered as a core component of economic policy reform.

FORESTRY

Many countries under the IMF's Structural Adjustment Programs are rich in forest resources. SAP's economic incentives for increasing exports of forest products can lead to more foreign exchange earnings, but when uncontrolled can result in unsustainable forestry management and high deforestation rates.

In Cameroon, IMF-recommended export tax cuts, accompanied by the January 1995 devaluation of the currency, provided great economic incentives to export timber. As a result, the number of logging enterprises increased from 194 in 1994 to 351 in 1995 (3) and lumber exports grew by 49.6% between 1995/96 and 1996/97 (4), threatening the country's rainforests and natural habitat (see inset). In a recent report the IMF finally acknowledged the precarious nature of Cameroon's export strategy and encouraged

a strengthening of the government's institutional capacity to promote the rational use of forest resources.

Between 1990 and 1995, forest loss for the 41 Heavily Indebted Poor Countries (HIPC) greatly exceeded the rate of forest loss for the world. For example, the two Central American HIPC countries, Nicaragua and Honduras, lost almost 12% of their forest, which is 7.5 times greater than the world rate. Approximately 75% of these HIPC countries had an IMF SAP at some point during this time period. (5)

FOREST LOSS, 1990-1995[In percent]Region

HIPCs

Non-HIPCs

World

Tropical Africa

3.65

2.60

1.6

Tropical Asia

8.33

4.60

1.6 [Page: H6642]

Central America

11.6

5.12

1.6

America

4.2

2.60

1.6

FAO, 1997

MINING

Like forestry, mineral resources are seen as a quick source of export earnings and a locus for foreign investment. Mining is one of the most environmentally destructive activities, contaminating ground water through acid mine drainage, threatening fish, animal and bird life, and destroying wildlife habitats. SAP policies have promoted the exploitation of mineral resources, and done so without regard to disruption to local communities and indigenous peoples and requirements for land rehabilitation.

(6)

Under SAP guidance since the mid 1980s, Guyana implemented policies to increase large-scale, foreign-owned mining ventures. This has led to river pollution, the decline of fish populations, and deforestation (see inset). There are now 32 foreign mining companies active in Guyana and large scale mining permits now cover an estimated 10% of the country. (7) The IMF is encouraging Guyana's government to transform mining and petroleum into one of the country's critical economic sectors by the year

2000. (8)

Under IMF guidance, Cote d'Ivoire has targeted mineral resources for export intensification and is stepping up exploration efforts. The results are new surface mining projects, three new gold mining companies since 1994, and 80 permits issued for mineral exploration to 27 international mining companies in 1995. (9)

AGRICULTURE

Agriculture is another sector SAPs target for export growth. In order to increase yields, farmers must either increase land intensity through fertilizer and pesticide use, or clear new land for more crops. Large-scale agriculture often involves monocropping, resulting in erosion, loss of soil fertility and increased industrial inputs.

SAPs led Cote d'Ivoire to devalue its currency and eliminate export taxes creating incentives for increased agricultural output. From 1992 to 1996 cocoa production dramatically increased by 44%. The environmental implications included soil degradation, deforestation and loss of biodiversity. (11)

SAP programs in Tanzania resulted in rising input costs for the agricultural sector. Consequently, the need for production increases has led to land clearing at the rate of 400,000 ha per year. Between 1980 and 1993, one quarter of the country's forest area was lost, 1993, one quarter of the country's forest area was lost, forty percent for cultivation. (12)

WEAKENED ENVIRONMENTAL SAFEGUARDS--BUDGET CUTS REPRESENT A TYPICAL RESPONSE TO IMF POLICY MANDATES

In Brazil, government spending on environmental programs was cut by two-thirds in order to meet the fiscal targets set by the IMF. (13)

In Russia the budget for protected areas was cut by 40%. (14)

In Indonesia, budget cuts have forced officials in Jakarta, one of the world's most polluted cities, to suspend environmental programs. (15)

In Nicaragua, the budget of the Ministry of the Environment and Natural Resources was cut by 36% in order to adhere to IMF budget targets.

CHANGES IN LAWS AND POLICIES

Many countries have changed their laws and regulations to attract foreign investment. In the mining sector, for example, many countries under IMF policy reforms have relaxed regulations for investment and exploration. Some countries still try to assess the environmental impacts of mining, but it is yet to be seen whether concerns for environment will be overshadowed by economics in these cash strapped economies.

Guyana changed its mining policies, giving large mining companies the majority stake in large operations. (16)

Benin and Guinea both revised their mining codes to promote mining and increase exploration.

The Central African Republic established new mining codes citing that mineral resources were ``insufficiently exploited.''

Mali established a new mining code in 1999 to encourage development, also including plans to consider environmental impact.

Mauritania established a new mining code to increase development and will also formulate policies to assess the environmental impact.

RECOMMENDATIONS

The IMF needs to take immediate steps to reverse the negative ecological impact of structural adjustment. Natural resources are finite, and need to be recognized for their full ecological, social, and economic values. The current model of economic development that is being pursued by the IMF and World Bank is fundamentally unsustainable as it seeks growth at all costs, without regard to ecological limits.

The IMF and WB should take the following steps to integrate environmental concerns into economic development, including:

Conduct environmental and social assessments of SAPs,

Encourage the protection of environmental programs by publishing environmental spending figures,

Refrain from cutting environmental spending or weakening conservation laws,

Publish changes in environmental laws that are the result of structural adjustment discussions,

Include environmental ministers in negotiations on IMF programs,

Pursue environmental accounting as part of IMF technical assistance and data gathering, and

Implement green taxes that could generate revenue and discourage excessive resource use.

SOURCES

1. Food and Agriculture Organization. Statistical Database. www.fao.org.

2. Environmentally and Socially Sustainable Development. 1999. Social and Environmental Aspects. A Desk Review of SECALs and SALs Approved During FY98 and FY99. Washington, DC: World Bank.

3. Verolme, Hans J.H., Moussa, Juliette. 1999 Addressing the Underlying Causes of Deforestation and Forest Degradation-Case Studies, Analysis and Policy Recommendations, Washington, DC: Biodiversity Action Network.

4. International Monetary Fund. 1998. ``Cameroon Statistical Appendix,'' IMF Staff Country Report No. 98/17. Washington, DC: IMF.

5. Food and Agriculture Organization. 1997. State of the World's Forests.

6. ``Mining's Environmental Impacts.'' http:/www.mineralpolicy.org/Environment.html

7. Project Underground. 1997. ``Investing in Guyana Does Not Bring Riches for All.'' Drillbits and Tailings. (November 1997).

8. International Monetary Fund. 1998. ``Cote d'lvoire: Enhanced Structural Adjustment Facility Policy Framework Paper 1998-2000.'' Washington, DC: IMF. (February 9, 1998: Section 37).

9. Melvis, Dzisah. 1998. ``Mining, Energy Sectors Attract Investors.'' Panafrican News Agency. (September 1, 1998).

10. Jodah, Desiree Kisson. 1996, ``Courting Disaster in Guyana,'' The Multinational Monitor. 16:11 (November 1995).

11. International Monetary Fund. 1998. ``Cote d'lvoire: Selected Issues and Statistical Appendix.'' IMF Staff Country Report: No. 98/46. Washington, DC: IMF. (May 1998).

12. Hammond, Ross. 1999. ``The Impact of IMF Structural Adjustment Policies on Tanzanian Agriculture.'' The All Too Visible Hand. Washington, DC: The Development Gap, Friends of the Earth.

13. Schemo, Diana Jean. 1991, ``Brazil Slashes Money for Project Aimed at Protecting Amazon.'' New York Times (January 1

3:44 PM EDT

Steny Hoyer, D-MD 5th

Mr. HOYER. Mr. Chairman, I thank the gentleman for his comments and his intensive observations. I agree with the gentleman from Arizona (Chairman KOLBE), and I certainly look forward to working with the gentleman from Ohio (Mr. KUCINICH) who has been, I think, one of the most tenacious and thoughtful voices on issues like this, and I certainly want to make sure that we do have information that is accurate and full so that we can understand exactly what is going on.

[Time: 15:45]

Quite obviously, as the gentleman knows, there have been issues raised and we will work with him and with the administration to see if they can be resolved.

Mr. Chairman, I would include for the RECORD a Survey of the Impacts of IMF Structural Adjustment in Africa.

A Survey of the Impacts of IMF Structural Adjustment in Africa: Growth, Social Spending, and Debt Relief--April 1999

(By Robert Naiman and Neil Watkins)

EXECUTIVE SUMMARY

The role of the International Monetary Fund (IMF) in managing the economies of developing countries has come under increasing criticism in the last two years, especially since the Asian financial crisis.

Presently, increasing calls for international debt cancellation and debates over United States economic policy in Africa have focused attention on the IMF's policies in Africa, home of many of the world's poorest and most indebted countries. Several initiatives currently being considered by Congress would have the effect of reducing the role of the IMF in Africa, while others would continue and even increase its role.

This paper relies largely on the IMF's own data to consider the results of the IMF's intervention in the economies of sub-Saharan Africa. We examine the record of countries that have participated in the IMF's Enhanced Structural Adjustment Facility (ESAF), the IMF's concessional lending facility for the least developed countries.

Among this report's main findings:

Developing countries worldwide implementing ESAF programs have experienced lower economic growth than those who have been outside of these programs. African countries subject to ESAF programs have fared even worse than other countries pursuing ESAF programs; countries in Africa subject to ESAF programs have actually seen their per capita incomes decline. It will be years before these populations recover the per capita incomes that they had prior to structural adjustment.

While African countries urgently need to increase spending on health care, education, and sanitation, IMF structural adjustment programs have forced these countries to reduce such spending. In African countries with ESAF programs, the average amount of government spending on education actually declined between 1986 and 1996.

Neither IMF-mandated macroeconomic policies nor debt relief under the IMF-sponsored HIPC (Heavily Indebted Poor Countries) Initiative have reduced these countries' debt burdens. Total external debt as a share of GNP for ESAF countries increased from 71.1% to 87.8% between 1985-1995. For sub-Saharan Africa debt rose as a share of GDP from 58% in 1988 to 70% in 1996. IMF debt relief has not significantly reduced the debt service burden of Uganda or Mozambique, two of the three African HIPC countries

that have proceeded furthest under the HIPC initiative. Poor countries continue to divert resources from expenditures on health care and education in order to serve external debt.

In light of this track record, it appears that efforts to increases economic growth, increase access to health care and education, and reduce the burden of debt repayment are likely to fail so long as the IMF remains in control of the economic policies of countries in sub-Saharan Africa. Efforts to reduce Africa's debt burden should be coupled with efforts to reduce the role of the IMF. Debt cancellation or relief should not be conditioned on compliance with the IMF's structural adjustment programs

or policies.

COUNTRY EXPERIENCES WITH IMF STRUCTURAL ADJUSTMENT

The External Review examined the experiences of five African countries under IMF adjustment. Below, we take a closer look at three of these countries--Zimbabwe, Cote d'Ivoire, and Uganda. We also briefly consider the experience of Mozambique--a country not examined in the External Review--under the IMF/World Bank HIPC Initiative.

1. Zimbabwe

During the 1980s, Zimbabwe's economy grew briskly: real growth averaged about 4% per year. During the early and mid-part of the decade, Zimbabwe's exports were diversified and became increasingly oriented toward manufacturing; debts were regularly repaid without the need for rescheduling; a reasonable degree of food security was attained; and the provision of educational and health services was dramatically expanded (due to major increases in government spending on social services). As a result

of increased government spending on health care provision in particular, health indicators showed dramatic improvement during the 1980s: the infant mortality rate declined from 100 per 1,000 live births to 50 between 1980 and 1988; life expectancy increased from 56 to 64 years (External Review, p. 179). Primary school enrollment doubled over the decade.

The External Review team summarized the achievements of the 1980s: ``The core of the government's redistributive agenda was through (sic) increased public expenditures on education, health, and public sector employment. During the 1980s, much was achieved both in terms of an expansion of these expenditures and in terms of measurable indicators of performance'' (p. 172).

Though it had entered agreements with the World Bank in the late 1980s, Zimbabwe began structural adjustment in earnest in 1991 when it signed a stand-by arrangement with the IMF in exchange for a $484 million loan. Unlike many of the countries that undertake IMF adjustment programs, Zimbabwe did not institute structural adjustment in response to a ``crisis,'' but rather in an effort to ``jump start economic growth.''

Among the policy changes required by the IMF in exchange for the loan were cuts in Zimbabwe's fiscal deficit, tax rate reductions, and the deregulation of financial markets. The arrangement also required Zimbabwe to dismantle protections for the manufacturing sector and ``deregulate'' the labor market, lowering the minimum wage and eliminating certain guarantees of employment security (External Review, p. 173-176).

Impact on the economy

IMF policies which mandated the removal of protections for the manufacturing sector, trade liberalization, and reduced government spending combined with the effects of a severe drought on agricultural production to send the Zimbabwe economy into recession in 1992--real GDP fell by nearly 8% that year. In Zimbabwe, economic crisis actually followed rather than preceded the implementation of structural adjustment.

Among the indicators of economic performance that declined over the period of adjustment:

Between 1991-96, manufacturing output contracted 14%;

Real GDP per capita declined by 5.8% from 1991-1996;

Real GDP fell by about 1% between 1991 and 1995. (A January 1992 IMF staff report [Page: H6637]

predicted 18% GDP growth over the same period);

Nominal and real interest rates were high and volatile throughout the period, with nominal rates often exceeding 40%. The result of high real interest rates was to reduce private domestic investment.

Total private investment declined by 9% in real terms between 1991-96 (External Review, p. 172-175).

Furthermore, private per capita consumption fell by 37% between 1991-1996. As the External Review concluded, ``This alone transformed the group of those who lost from the reforms from a minority to a majority'' (p. 177).

The combination of reduced protection of the manufacturing sector, the reduction in public spending, and labor market deregulation led to higher unemployment and lower real wages. Between

1991-96, formal sector employment in manufacturing fell 9% and real wages declined by 26%. Meanwhile, food prices rose much faster than other consumer prices; this disproportionately affected the rural poor, who spend a larger share of their income on food (External Review, p. 180, 182).

Impact on health and education spending

In order to meet the IMF's fiscal targets in the 1991 ESAF program, the government had to reduce non-interest expenditures by 46%. The External Review describes this requirement as a ``draconian reduction'' and found it unsurprising that Zimbabwe never met the fiscal target. Though Zimbabwe never met the IMF target, between 1990/91-1995/96, spending on health care declined as a share of the budget from 6.4% to 4.3%, and as a share of GDP from 3.1% to 2.1% (External Review, p. 178). The IMF's

prescriptions for fiscal adjustment included reductions in the real wages of public health sector workers. As a result of the wage cuts, many doctors moved to the private health sector, and the quality of public health care dropped. As health care became

less a public service and more a function of the private sector, health services became less accessible to the poor. Because non-wage health spending fell dramatically as well, shortages of prescription drugs became commonplace (External Review, p. 178).

Compared to the previous era in which health care services were made more widely available to all Zimbabweans through increased government spending, the era of IMF adjustment was characterized by decreased access to health services. This trend was reflected in the deterioration of health indicators. For example, between 1988 and 1994, wasting (a phenomenon linked to AIDS) in children quadrupled and maternal mortality rates appear to have increased. And after many years of decline, the number

of cases of tuberculosis began to rise in 1986 and by 1995 had quadrupled (External Review, p. 178-179).

The decline in government health care spending occurred during a period of increasing need by the population for more access to health care. AIDS was spreading rapidly in Zimbabwe. Given the present cost of treating AIDS patients, the World Bank predicted that the total cost of treating Zimbabwean citizens already infected with AIDS was four times the entire 1996 government health budget. The IMF's fiscal targets meant that the government was unable to respond to growing health needs of the population

effectively. The External Review concluded that access to health care fell under adjustment, compared to the pre-IMF era: ``There is no doubt that the previous trend of improving health outcomes was reversed during the period of the reform program'' (p. 179).

Expenditure on education also fell sharply under IMF adjustment. Real per capita expenditure on primary and secondary education declined by 36% and 25% respectively between 1990/91 and 1993/94. As in the health sector, wages for teachers and educational staff fell by between 26% and 43% between 1990 and 1993.

Impact on external indebtedness

The External review team analyzed Zimbabwe's external viability (i.e., their debt burden). The results show that on the basis of nearly every generally accepted indicator of a country's debt burden, Zimbabwe became significantly more indebted during the period of adjustment. But Zimbabwe still does not qualify for the IMF/World Bank HIPC initiative.

On April 11, 1999, the Associated Press reported that Zimbabwe had ``severed ties with the International Monetary Fund and the World Bank,'' saying that they had ``made `unrealistic demands' '' as a requirement for releasing funds. A day later the Zimbabwean Finance Ministry denied the report, ``in a bid to reassure markets.'' The Wall Street Journal noted that ``Other donors have indicated they would take their cue from the IMF on whether to release additional financial support,'' again indicating

the tremendous power which the IMF wields as a result of the fact that other creditors and donors follow its lead.

2. Cote d'Ivoire

Cote d'Ivoire experienced a long period of growth following its independence in 1960, with much of its growth attributable to agricultural exports. Economic decline ensued in the early 1980s as

world prices for coffee and cocoa, two of Cote d'Ivoire's main exports, fell. After a brief restoration in growth by 1985, the economic decline resumed in the late 1980s (External Review, 95).

The IMF became involved in Cote d'Ivoire in November 1989, when it reached a stand-by arrangement with the government, which was followed by another agreement in 1991. Following the initial stand-by arrangements with the IMF, there were six World Bank Structural Adjustment Loans from 1989-1993. Then, beginning in 1994, Cote d'Ivoire entered into an ESAF program with the IMF.

Over the first period of adjustment, from 1989-1993, IMF fiscal adjustment requirements were introduced in an effort to reduce the government budget deficit. These included substantial reductions in current government expenditures (-30%) and capital expenditures (-15%), in addition to tax increases. Structural reforms also began during this period, including privatizations and some financial reforms.

The objectives of the next phase (from 1994-1997), under the ESAF program, were threefold:

To generate a primary budget surplus of 3% of GDP, ``in order to finance debt service'' (External review, p. 97);

To attain GDP growth of 5% by 1995; and

To ``protect the most vulnerable during adjustment.''

In order to reach the budget surplus target, the IMF required labor market deregulation, price decontrol, trade reform, reductions in civil service employment, and faster privatization (External review, p. 97). The IMF also advocated devaluation of Cote d'Ivoire's currency, the Franc CFA, which occurred in January 1994.

Impact on the economy

From 1989-1993, per capita GDP fell by 15%, pushed along by the overvaluation of the exchange rate and deterioration in the terms of trade (External Review, p. 95-96). The social impact of IMF structural adjustment on Cote d'Ivoire was severe. Between 1988-1995, the incidence and intensity of poverty doubled, with the number of people making under $1/day increasing from 17.8% of the population to 36.8%. In Abidjan, the rate of urban poverty rose from 5% to 20% between 1993 and 1995 (External

Review, p. 101).

Impact on Health and Education Spending

Between 1990 and 1995, real per capita spending on health care fell slightly and education spending fell dramatically (External Review, p. 101, 105). During the period of IMF structural adjustment (1990-1995), real per capita public spending on education declined by more than 35 percent. Moreover, reductions in the wages of civil servants required by the IMF also led to a reduction in teachers salaries (external review, p. 103). The Review points out that lower wages probably lowered teachers'

motivation, and educational quality may have suffered as a result. Despite an improvement in gross enrollment in primary schools over the period 1986-1995, educational indicators overall showed poor results. By 1995, only 45% of girls from the poorest quintile of households were receiving primary education. At the secondary level, the gross enrollment rate declined from 34% to 31% between 1986-1995 (External Review, p. 104).

As part of the policy reforms required by the Fund, user fees were introduced into the public health care system in 1991. The devaluation of the franc CFA made it especially difficult for the urban poor to pay for health care services, and as a result there was a shift towards traditional medicine. Many

health problems worsened. For example, the incidence of stunted growth in children increased from 20% in 1988 to 35% in 1995. As access became more expensive, health issues became a more pressing concern. A survey by UNICEF and the Government of Cote d'Ivoire found that when women were asked to identify their problems, health ranked first (External Review, p.103).

The team of external reviewers concluded that in Cote d'Ivoire, ``The required reductions in public expenditures were imposed on a system which was already failing to meet basic social needs.''

Debt burden

In the first two years of adjustment alone (from the end of 1989 to the end of 1991), Cote d'Ivoire's external debt burden grew by $3.7 billion (or from 141% to 175% of GDP). In its analysis of external viability, the External Review found that Cote d'Ivoire's external debt burden increased from 132.4% to 210.8% of GDP. Before ESAF, its debt stock to export ratio was 452.8%; following ESAF, it had risen to 545.4% (External Review, p. 190).

Although Cote d'Ivoire has completed the required three consecutive years of structural adjustment to reach its ``decision point'' for eligibility under the IMF/WorldBani HIPC Initiative, it will not reach the ``completion point'' (of actually receiving debt relief) until March 2001, assuming it does not go off track from the adjustment program. Although the country has an urgent need for increased government spending on health care and education, it is unlikely that this could happen under the

terms of structural adjustment.

3. Uganda

When President Yoweri Musevini came to power in Uganda in 1986, his government faced the challenge of rebuilding an economy devastated by the dictatorships of Idi Amin and Milton Obote. Between 1971 and 1986, the Ugandan economy had deteriorated in per capita terms. But in the ten years that followed (between 1986-1996), per capita GDP grew by roughly 40%.

The IMF first became involved in Uganda in 1987, with a loan through its Structural Adjustment Facility (SAF), and it later extended its mission under the ESAF program [Page: H6638]

from 1989-1992 and again from 1992-1997. Real per capita GDP growth averaged 4.2% in Uganda between 1992-1997, and as a result, the IMF often presents Uganda as an example of the success of its structural adjustment policies.

As noted in the External Review, part of this rapid growth can be explained by the terrible decline of preceding years. But it is also worth looking at how various sectors of the population fared under the growth that coincided with structural adjustment in Uganda

Two principal reforms mandated by the IMF arrangements were trade liberalization and the progressive reduction of export taxation. But as the external review points out, ``Liberalization of cash crops had only limited beneficiaries.'' This was the case because only a small number of rural households grow coffee. Liberalization had little impact on rural incomes over the period of adjustment--rural per capita private incomes increased just 4% over the period from 1988/89 to 1994/95.

The IMF also mandated the privatization of state-owned industries, a process that has met particularly criticism in Uganda. The Structural Adjustment Participatory Review International Network (SAPRIN), which was launched jointly with the World Bank, national governments, and Northern and Southern NGOs in 1997, has reported that the privatization process in Uganda has gone too fast and has been flawed from the start. A report by Ugandan NGOs who participated in SAPRIN found that ``The privatization

process in Uganda has benefitted the government and corporate interests more than the Ugandan people ...... The privatization process was rushed, and as a result, workers suffered. Some 350,000 people were retrenched and, with the private sector not expanding fast enough, unemployment sharply increased. Those laid off were not prepared for life in the private sector, with no training being provided.''

During the period of IMF structural adjustment, public spending on health care increased as government spending rose overall. However, health care spending did not rise as a share of the recurrent budget, and its share was slightly lower in 1994 than it had been in 1989. Government spending grew over the period but from a very low stating level at the beginning of Museveni's term: in 1986,

government expenditure represented just 9% of GDP. At the same time prices of health care services rose much faster than inflation. This was caused in part by the large depreciation of the exchange rate from 1988-1991, which raised the cost of imported inputs in the health sector. As a result, a given level of public health spending bought fewer health services. Real per capita output in health care was lower in each of the years from 1992-1994 than it had been in 1989. (External Review, p. 139-141).

The SAPRIN review of Uganda's experience with adjustment found that ``cost-sharing,'' where patients are expected to pay for a portion of their health care or education, has led to less access for the poor to health care and public education. The policy of cost-sharing was introduced by the Ugandan government in response to IMF fiscal requirements and high debt service payments, which have made it difficult for the government to channel funds into payments for health care and public education.

The NGOs in SAPRIN report that:

``It [higher costs] has made hospitals and institutes of higher education too costly for the poor. People testified that those who cannot pay for critical health care simply die. Cost-sharing is also poorly administered in the hospitals, and it was pointed out that in areas where people have been unable to pay, the local hospital has simply been closed down. Citizen representatives reported that in villages where the people themselves decide on how much to pay, access to care is much better,

so it is best to scrap cost-sharing, which does not benefit the poor.''

Despite some limited progress in the area of health service provision during the era of adjustment, general health indicators have not improved. In particular, the proportion of children who are malnourished has not declined. As the external review observes, ``This is consistent with the evidence on rural incomes which, as we have seen, suggests little change'' (p. 139). Since rural incomes did not rise in tandem with increasing health care costs, the rural poor have not been able to share in

increased access to health service provision.

Moreover, a declining share of the recurrent budget has been spent on education over the adjustment period, and this led to an overall reduction (over the period 1987 to 1996) in the provision of educational services per capita. (External Review, p. 140-141).

Debt burden

The IMF and World Bank often present Uganda as an example of the success of its HIPC (Heavily Indebted Poor Country) debt initiative. Uganda was the first country to receive debt relief under the IMF/World Bank HIPC Initiative in April 1998, when roughly $650 million of its multilateral debt stock was forgiven.

However, the process has, first of all, been plagued by several delays. Uganda was originally scheduled to receive debt relief in April 1997, but this was pushed back one year. This delay occurred despite the fact that Uganda had been following structural adjustment programs for nearly a decade. According to Ugandan government projections, the cost of the one year delay was $193 million in lost relief. This amount is more than double the projected spending on education or six times total government

spending on health in that year. With the delay, public funds were diverted from priority health care services into debt repayments.

Moreover, less than one year after receiving relief, Uganda's debt burden has once again become unsustainable according to HIPC criteria. This is mainly because of an overestimation by the World Bank/IMF of revenues Uganda would receive from coffee exports and from trade with the former Zaire, whose economy has recently gone into decline. The United Kingdom's Secretary of State for International Development, Clare Short, confirmed this is a statement before the British House of Commons, noting

that, ``the review of Uganda, which has just received debt relief, was very disappointing. As a result of the fall in world coffee prices, it is just as badly off as it was in the first place.'' Uganda's return to an unsustainable debt service burden illustrates the problem with IMF and World Bank projections

of export earnings that do not materialize, even over a period of less than a year. It also shows that the debt burdens set by HIPC as ``sustainable'' are much too high, and that much deeper debt relief--preferably cancellation--will be necessary to set these countries on a sustainable growth path.

CASE STUDY: MOZAMBIQUE AND DEBT RELIEF

Unlike the other countries examined in this study, Mozambique's experience with the IMF's structural adjustment was not examined in the External Review of the impact of ESAF programs. But Mozambique is one of just three African countries (the others are Uganda and Cote d'Ivoire) that have reached the final stage under the World Bank/IMF Highly Indebted Poor Countries (HIPC) Initiative. It is therefore worth examining how Mozambique has fared under this initiative, including the required conditions

of structural adjustment.

Mozambique is one of the poorest countries in the world, if not the poorest. According to the United Nations Development Program (UNDP) and UNICEF, only 37% of the population has access to clean water; 39% has access to health services; and just 23% of women can read and write.

Following a decade of war supported by external powers, Mozambique began a modified form of World Bank structural adjustment in 1987, and in 1990 it entered into an IMF directed ``stabilization program'' under ESAF. Two of the main components of the IMF stabilization program were fiscal adjustment (cuts in government spending) and cuts in credit to the economy (through policies such as higher interest rates). As part of the fiscal adjustment process, government salaries fell. For example, a doctor

on the government payroll earned $350/month in 1991, $175/month in 1993, and by 1996, took in less than $100/month. For nurses and teachers, monthly salaries fell from $110/month to $60 or $40--levels at which it is impossible to support a family.

The IMF's primary aim in Mozambique was to contain inflation; the Fund argued that broad post-war reconstruction efforts should be scaled back on the grounds that such actions could be inflationary. While the IMF focused on stabilization policies, World Bank adjustment simultaneously mandated privatization as well as trade and investment liberalization.

Mozambique and the HIPC initiative

In a press release issued on April 7, 1998, the IMF announced that, along with other creditors, it had agreed to ``provide exceptional support amounting to nearly US$3 billion in nominal terms in debt-service relief for Mozambique,'' claiming that this would ``reduce the external debt burden, free budgetary resources and allow Mozambique to broaden the scope of its development effort.''

While $3 billion may seem like substantial debt relief for a country as poor as Mozambique, it does not necessarily make a significant dent in the country's debt service burden. Since countries like Mozambique owe far more in external debt than they have the capacity to pay, it is quite possible to reduce their outstanding debt stock considerably, without any commensurate reduction in the net drain of resources out of the country. This happens when creditors cancel that part of the debt that

was not being serviced previously. Therefore, in order to know whether poor countries--and poor people in those countries--actually benefit from IMF/World Bank debt relief, it is necessary to know what the impact of this debt reliefs is on the actual debt service paid by these countries.

In response to criticism from non-governmental organizations, in May the IMF released estimates for these numbers. According to the IMF's own projections, the actual debt service paid by Mozambique will be as high or higher in each of the years from 2000-2003 as it was in 1997. Even after IMF debt relief, the government will be paying roughly as much in debt service as it is spending on health care and education.

Speaking at a conference on the issue, World Bank representative James Coates noted that more than half of all money allocated to HIPC countries went to cancel Mozambique's debt, and that more debt could not be canceled because the funds allocated under HIPC constituted the maximum that creditors could afford. But the $100 million that Mozambique pays in debt service each year represents barely one-tenth of one percent of the increase in resources which the IMF alone received last year from member

[Page: H6639]

governments. This indicates that the lack of meaningful debt relief so far is not the result of scarce resources, but a lack of commitment to significantly reducing the debt service burden of these highly indebted and very poor countries.

Human impact of the IMF's policies

The importance of debt relief can be illustrated by estimates of the results, in terms of human welfare, that could be achieved if some of the resources now spent on debt service were reallocated to spending on vital needs. In 1997, the United Nations Development Program estimated that, relieved of their debt payments, severely indebted countries in Africa could have saved the lives of 21 million people and provided 90 million girls and women with access to basic education by the year 2000. In

the case of Mozambique, Oxfam estimated that debt relief could save the lives of 600,000 children over seven years. Other advocates of debt relief have made similar estimates: based on United Nations Development Program estimates of the impact of increased health

and education spending, Jubilee 2000 estimated that if Mozambique were allowed to spend half the money on health care and education which it is now spending on debt service, it would save the lives of 115,000 children every year and 6,000 mothers giving birth.

HAS AFRICA `TURNED THE CORNER' IN RECENT YEARS?

In 1998, the IMF released a series of publications and public statements claiming credit for an ``African economic renaissance'' and ``a turnaround in growth performance.'' The claim from the IMF and World Bank is that structural adjustment is beginning to pay off, at least in macroeconomic terms. But examining just-released growth projections by the World Bank, one discovers that the ``growth turnaround'' has been short-lived. According to the World Bank, real GDP per capita grew by 1.4% in

1996, but by 1997, growth slowed to 0.4% and in 1998, per capita incomes fell by 0.8%. The World Bank projects a further decline of -0.4% in 1999. In short, if there was an ``economic renaissance'' for Africa, it appears to be over.

Why has there been a sudden downturn in growth? The UN Economic Commission for Africa (ECA) reports that Africa's economic performance in 1997 showed ``the fragility of the recovery and underscored the predominance of exogenous factors'' in the determining African economic outcomes. Africa's growth prospects are inexorably linked to world prices for its exports. IMF and World Bank structural reforms had actively promoted this strategy, known as export-led growth. The ECA also emphasized this

fact: ``The major thrust of economic policy making on the continent has been informed for the last decade or so by the core policy content of adjustment programs (of the type supported by the IMF and the World Bank).*.*.*''

In addition to slower growth in 1997 and 1998, recently released data indicate that the relationship between the IMF and sub-Saharan Africa has taken a turn for the worse during these years.

FIGURE 6. IMF RELATIONSHIP WITH SUB SAHARAN AFRICA 1991-1998[Millions of U.S. dollars]

1991

1992

1993

1994

1995

1996

1997

1998

IMF purchases

579

527

1146

918

2994

652

524

837

IMF repurchases

614

530

455

467

2372

596

1065

1139

IMF charges

228

186

138

170

559

124

101

88

Balance

-263

-189

553

281

63

-68

-642

-390

\1\ Preliminary.

The Balance shows the net transfer of funds from the IMF to Sub-Saharan Africa; the negative sign indicate a net transfer from the countries to the Fund. IMF Purchases represent new resources (loans) taken out from the IMF. IMF Repurchases represent repayments of the principal of IMF loans. IMF Charges represent repayments of the interest on IMF loans.

Source: World Bank, Global Development Finance 1999, in Jubilee 2000 coalition, ``IMF takes $1 billion in two years from Africa,'' April 1999.

As Figure 6 shows, repayments by African governments to the IMF outpaced new resources in the past two years, resulting in a net transfer from Africa to the IMF of more than $1 billion in 1997 and 1998. Meanwhile, despite increasing repayments to the IMF, total African debt continued to rise: between 1997 and 1998, Africa's debt increased by 3% to $226 billion. This occurred even as African countries paid back $3.5 billion more than they borrowed in 1998.

CONCLUSION

The data reviewed in this study suggest that the International Monetary Fund has failed in Africa, in terms of its own stated objectives and according to its own data. Increasing debt burdens, poor growth performance, and the failure of the majority of the population to improve their access to education, health care, or other basic needs has been the general pattern in countries subject to IMF programs.

The core elements of IMF structural adjustment programs have remained remarkably consistent since the early 1980s. Although there has been mounting criticism and calls for reform over the last year and a half--as a result of the Fund's intervention in the Asian and Russian financial crises--no reforms of the IMF or its policies have been forthcoming. And there are as yet no indications from the Fund itself that it sees any need for reform. In fact, IMF Managing Director Michel Camdessus has repeatedly

referred to the Asian economic collapse as ``a blessing in disguise.''

In the absence of any reform at the IMF for the foreseeable future, the need for debt cancellation for Africa is all the more urgent. This enormous debt burden consumed 4.3% of sub-Saharan Africa's GNP in 1997. If these resources had been devoted to investment, the region could have increased its economic growth by nearly a full percentage point--sadly this is more than twice its per capita growth for that year. But the debt burden exacts another price, which may be even higher than the drain

of resources out of the country: it provides the means by which the IMF is able to impose the conditions of its structural adjustment programs on these desperately poor countries.

Any debt relief that is tied to structural adjustment, or other conditionality imposed by the IMF--as it is in the HIPC initiative--could very well cause more economic harm than good to the recipients. Debt relief should be granted outside the reach of this institution, preferably without conditions. Moreover, the role of the Fund in Africa and developing countries generally, and especially its control over major economic decisions, should be drastically reduced. Any efforts to provide additional

funding or authority to the IMF, before the institution has been fundamentally reformed, would be counter-productive.

--

ON THE WRONG TRACK:

A SUMMARY ASSESSMENT OF IMF INTERVENTIONS IN SELECTED COUNTRIES

January 1998.

OVERVIEW

As Asian economies continue to unravel, investors have looked to the International Monetary Fund for guidance on whether prospective economic performance warrants their continued participation in the economies of those countries. With a war chest of funds and a staff of neoliberal economists at its disposal and the power and influence of Northern governments and financial markets behind it, the IMF not only sets the standards for such performance, but it forces compliance with the carrot of emergency

funding and the stick of discouraging the flow of private-sector and other public-sector financing. When the going gets rough under IMF tutelage, the refrain is always the same: deepen the reforms with more of the same medicine.

But how good has IMF advice been, and how accurate a guide has the Fund's stamp of approval been for investors? To start, investments in IMF-touted emerging-market countries over the past five years have performed no better than much safer investments at home, and the Fund failed to warn of the two big crashes of the decade--Mexico and East Asia. In fact, right up to the currency and stock-market collapses, the IMF was praising these countries as models of economic success and rationality. Perhaps

blinded by its own prescriptions (and the interests of investors) to open these--and other--economies before the necessary institutional, financial and social infrastructure was in place, the Fund has consistently failed to recognize, or at least publicly acknowledge, the underlying weaknesses in these economies and its own contribution to the debacles.

Friends of the Earth and The Development GAP, with the support of the Charles Stewart Mott Foundation, have engaged partners in six countries to assess, through short case studies, IMF performance in a representative cross-section of economies. Drafts of four of the studies--Mexico, Senegal, Tanzania and Hungary--have been completed, and summaries are attached, the profiles of the Philippines and Nicaragua are still in progress. These cases paint a consistent picture of an institution bent on

fully opening economies to foreign investors on advantageous terms at almost any cost--the destruction of domestic productive capacity and local demand, growing poverty and inequality, the deterioration of education and health-care systems, and, as has been seen, a dangerously expanding vulnerability of these economies themselves to external forces beyond their governments' control.

What is clear from these studies, and from IMF intervention across the board, is that the Fund's economic conditions--which have gone beyond tight monetary and fiscal policies and other stabilization measures to include the liberalization of trade, direct investment and financial capital flows, as well as the dismantling of labor protections and economic infrastructure that supports small producers--have been imposed without linkage to a long-term development strategy [Page: H6640]

aimed

at sustainable and equitable growth and economic competitiveness.

In Mexico, a program of rapid trade liberalization, economic and financial-sector deregulation and large-scale privatization, accompanied by policies that undercut local demand and production, had created a growing current-account deficit well before the December 1994 collapse of the peso. The increasing dependency on foreign capital inflows required to finance the deficit eventually led to massive capital flight and the crisis. Subsequent IMF conditions attached to the bailout of foreign

investors, which in essence deepened the reform program while ignoring its underlying weaknesses, caused an economic depression, pushing millions of farmers out of agriculture, bankrupting thousands of small businesses, and drastically slashing jobs and wages. Likewise, in Nicaragua, financial-sector deregulation, narrowly focused and without adequate prior institutional reform, has directed capital toward short-term, high-interest deposits and away from productive investment, particularly the

activities of small-scale producers in both the agricultural and manufacturing sectors.

In Africa, the IMF record has been even worse. Tanzania, forced to adopt a program of trade liberalization, devaluation, tight monetary policy and the dismantling of state financing and marketing mechanisms for small farmers, has experienced expanding rural poverty, income inequality and environmental degradation amidst growing agricultural export trade. Food security, housing conditions and primary-school enrollment has fallen while malnutrition and infant mortality have been on the rise. The

country, under Fund supervision, is today more dependent than ever on foreign aid. Across the continent, Senegal, an IMF pupil for 18 years, has experienced declining quality in its education and health-care systems and a growth in maternal mortality, unemployment and the use and abuse of child labor. Official IMF statistics underestimate the real inflation rate faced by most

of the population, while economic growth has not effectively reached the poor. As women constitute the vast majority of the poor and depend more on social services, experience lower education and literacy rates, and are least likely to receive support for their agricultural (food-crop) activities than are men, they have suffered disproportionately under the adjustment program.

With the IMF as its guide, Hungary has led the reform process in Eastern Europe, similarly liberalizing its trade regime, tightening its money supply and selling off assets (on questionable terms) to foreign interests with little concern for the productive contributions of workers and domestic producers in the ``real'' economy. As a result, an increasing portion of resources are being directed away from investment in human capital and infrastructure formation toward unemployment benefits and

payments to wealthy bondholders. A more fragmented and troubled society has emerged in which other big losers include: the elderly, who often cannot afford the cost of medicines or home heating, pensioners, whose stipends will further decrease, gypsies, who are losing access to jobs and public housing, youth, who face decreased access to education and employment, particularly in rural areas, and children, who, for the first time, are experiencing malnutrition as poverty expands in Hungary.

The IMF claims that it is not a development assistance agency and its track record proves its point. Yet, while destroying the basis for sustainable, equitable and stable development around the globe with the imposition of both stabilization and adjustment measures, the Fund has also greatly increased the economic vulnerability of nation after nation. By opening the door prematurely to fickle and unregulated foreign capital flows, liberalizing trade and investment regimes and pushing up interest

rates to attract bondholders without adequate support for local production, developing cheap production bases for foreigners and export at the expense of underpaid and undereducated work forces, domestic demand and the natural environment, and rewarding speculators instead of financing critical social

investments and equilibrium, the IMF has demonstrated both its biases and its ignorance of local conditions. It should be neither a guide for the market nor a dictator of national development programs. At this point in history, the less influence, the less money, the less power it has, the better.

--

April 1999.

Conditioning Debt Relief on Adjustment: Creating the Conditions for More Indebtedness

(By The Development Group for Alternative Policies)

Over the past year there has been growing public recognition, even within official circles, that foreign-debt burdens, particularly those of the least-developed countries, are unsustainable and constitute severe constraints on those countries' future development. The dire situations in Honduras and Nicaragua after Hurricane Mitch serve to highlight the impossibility of those countries garnering sufficient resources to rebuild their devastated infrastructures while foreign-debt payments continue

to absorb much of their governments' and export earnings.

Various proposals have been developed for the cancellation of bilateral and multilateral debt. Most prominent among these proposals is the Heavily Indebted Poor Countries (HIPC) initiative. The stated intention of this program, which is administered by the International Monetary Fund (IMF) and the World Bank, is to enable highly indebted poor countries to achieve sustainable debt levels within six years. After three years of implementation of structural adjustment programs (SAPs), countries reach

a ``decision point'', at which time some debt rescheduling may be granted and the level of additional debt reduction needed is calculated. That reduction, however, is typically available only after another three years of adjustment. It could take even longer than six years for a country to receive any debt relief, as the ``clock'' stops if a country fails to fully adhere to the

adjustment program and restarts only when the IMF has certified that it is in compliance once again. In fact, given the long time frame for debt cancellation, it appears that a central goal of the HIPC initiative is to keep countries locked into adjustment programs, with debt reduction now used--as has been both access to finance and debt itself--as leverage toward that end.

While the recognition that debt levels must be reduced is a step in the right direction, the requirement that countries continue to implement SAPs in order to qualify for and receive that relief greatly diminishes or even negates the benefits that might accrue from debt cancellation. Not only have adjustment programs devastated national economies across the South and caused misery for hundreds of millions of people, evidence shows that, in the large majority of countries implementing those policies

at the insistence of the international financial institutions (IFIs), debt levels have increased.

In fact, a study carried out by two researchers affiliated with The Development GAP demonstrates that there is a positive linear relationship between the number of years that countries implement adjustment programs and increases in debt levels. Rather than leading countries out of situations of unpayable debt levels, the HIPC program and others conditioned on the implementation of SAPs would likely push participating countries further into a tragic circle of debt, adjustment, a weakened domestic

economy, heightened vulnerability, and greater debt.

METHODOLOGY

The Development GAP study covers 71 economies of the South with a history of at least three years operating under World Bank-supported structural and sectoral adjustment programs during the period 1980-1995. Many of these countries have also implemented IMF adjustment programs. On average, the countries included in the study had implemented SAPs for 7.8 years. Some 42 African and Middle Eastern countries were included and comprised 59.2 percent of the sample. Eleven Asian countries, or 15.5 percent

of the total, and 18 Latin American countries, comprising 25.4 percent of the cases, were also included in the study. A list of the countries included in he study, along with data related to SAPs and debt, is provided in the Annex.

The independent variable used in the study analysis was the number of years a country had been implementing a structural adjustment program. The dependent variable was the change in the ratio of debt to GNP. The total debt level used was the sum total of debt and the debt and interest cancelled during the period (so that official debt-reduction plans do not skew the results). Changes in the ratio of debt to GNP were derived by calculating percentage changes in the ratio from the first to last

year of a country's SAP. In the cases in which the program was still ongoing, 1995 was used as the final year for calculation due to the unavailability of data on debt after that date. All figures are based on official World Bank information.

RESULTS

Of the countries included in the study, a full two-thirds saw their debt burdens increase during the adjustment period. Furthermore, as cited above and contrary to assertions by the IFIs that ``sound economic policy'' is the best road out of debt, statistical analysis of the data demonstrates a positive relationship between the number of years under adjustment and increases in debt levels. The longer these countries implemented the neoliberal programs, the worse their debt burdens typically became.

It is striking that none of the countries currently being considered for debt relief under the HIPC initiative has experienced a drop in the debt-to-GNP ratio under their respective adjustment programs. In some countries, the inverse relationship was especially strong. Guyana and Cote d'Ivoire, two countries that are scheduled to receive such debt relief, have experienced phenomenal increases in the debt/GNP ratio. In the former, the ratio grew by 147 percent after 13 years of adjustment, and,

in the latter, 13 years of SAPs produced a 120-percent increase in debt to GNP. Of the 35 countries listed by the World Bank as HIPCs, only three

experienced decreases in debt-to-GNP levels under adjustment. All others experienced increases, ranging from an 11-percent rise in Mauritania to a 670-percent increase in Nigeria.

The average, or mean, increase in debt for all of the countries in the sample was 49.2 percent. The median, or most frequent, increase was 28.2 percent. The top 25 percent of the countries showed a 75-percent increase in foreign debt.

TRAGIC CIRCLES OF DEBT AND ADJUSTMENT

There are a number of reasons for the rise in debt levels. In some countries, the trade [Page: H6641]

liberalization required under adjustment programs leads to a flood of imports and, consequently, higher trade and current-account deficits. Those deficits need to be compensated for by higher foreign investment, foreign assistance or foreign borrowing. In many countries, such as Brazil, the maintenance of high real interest rates, as often mandated by the IFIs, in

order to appease nervous foreign investors, is increasing the cost of domestic debt, thus adding to the government's budget deficit, raising the specter of further devaluation, and, consequently, creating greater difficulty in servicing the foreign debt.

One of the central objectives of structural adjustment programs is to reorient economic activity away from production for domestic consumption and toward production for export. In making this shift, nations become exceeding vulnerable to the vagaries of the global economy. Countries export more and more as commodity prices continue to fall. Governments deregulate economic activity, ``flexibilize'' labor markets and raise interest rates in increasingly desperate efforts to attract and maintain

fickle foreign investment. The recent crises in Mexico, East Asia, Russia and Brazil demonstrate the hazards of countries betting their future well-being on the erratic global financial market. Indeed, those countries receiving IMF-orchestrated ``bailouts'' could

very likely constitute the next group of debt-crisis countries, as the adjustment conditions attached to these packages include the requirement that governments guarantee payments to private international banks, thus making private debt a public obligation.

High foreign-debt levels are both a result and a symptom of the extreme risk that governments take in tying their economies too closely to the global market. The causes of that debt are flawed economic policies that fail to develop domestic productive capabilities or raise local income levels so as to reduce the need for external financing. For this reason alone, the requirement that governments adhere to the structural adjustment programs designed by the international financial institutions

is pure folly. Instead, governments should be encouraged to develop national economic plans designed democratically to expand the domestic financial resource base, incomes and markets and, consequently, reduce their extreme dependence on foreign debt. Otherwise, we can expect the tragic circle of debt and adjustment to continue into the foreseeable future--debt-relief programs not withstanding.

Prepared by Karen Hansen-Kuhn and Doug Hellinger based on research and analysis by Matt Marek and Nan Dawkins.

ANNEX: COUNTRIES INCLUDED IN THE STUDYAfrica and Middle East

Years under SAP

Percent increase in debt/GNP

Algeria

5

72.05

Benin

6

17.74

Burkina Faso

4

65.98

Burundi

9

155.96

Cameroon

6

156.96

Central African Rep.

7

110.76

Chad

66

81.43

Comoros

4

30.30

Congo

7

75.59

Cote d'Ivoire

13

119.53

Egypt

3

-22.89

Equatorial Guinea

4

23.10

Ethiopia

3

28.25

Gabon

7

62.58

The Gambia

5

-25.88

Ghana

12

148.31

Guinea

8

10.92

Guinea-Bissau

10

64.57

Jordan

5

-29.72

Kenya

15

120.50

Madagascar

9

87.87

Malawi

4

142.92

Mali

7

29.06

Mauritania

9

10.55

Mauritius

8

-15.91

Morocco

10

-28.19

Mozambique

7

30.92

Niger

9

63.92

Nigeria

11

669.66

Rwanda

4

106.65

Sao Tome and Principe

8

287.91

Senegal

14

56.66

Sierra Leone

3

-9.77

Somalia

6

37.75

Sudan

7

-25.54

Tanzania

14

361.07

Togo

12

14.43

Tunisia

8

-22.69

Uganda

13

33.19

Zambia

11

61.19

Zimbabwe

11

121.14

Asia

Years under SAP

Percent increase in Debt/GNP

Bangladesh

15

75.76

China

3

15.94

India

3

-16.32

Indonesia

5

-9.32

Lao PDR

5

-33.23

Nepal

6

57.68

Pakistan

4

30.61

Papua New Guinea

5

-35.86

Philippines

14

7.57

Sri Lanka

5

-12.38

Thailand

3

6.72

Latin America and Caribbean

Years under SAP

Percent increase in Debt/GNP

Argentina

9

-11.85

Bolivia

15

51.43

Brazil

9

-8.99

Chile

3

-19.99

Colombia

10

-33.56

Costa Rica

12

-56.61

Dominica

4

-19.22

Ecuador

9

13.80

El Salvador

4

-20.69

Guatemala

3

-13.86

Guyana

13

147.32

Honduras

6

38.97

Jamaica

14

75.13

Mexico

11

30.83

Nicaragua \1\

13

726.07

Panama

11

8.87

Peru

3

8.42

Trinidad and Tobago

3

-5.10

Uruguay

9

-55.72

Venezuela

5

-3.71

\1\ Nicaragua was excluded from the analysis because of the unorthodox nature of its debt and because adjustment was implemented sporadically during the period (and at times without support from the international financial institutions), making it difficult to identify beginning and end years for the program.

--

Environmental Consequences of the IMF's Lending Policies

(By Friends of the Earth)

Environmentalists around the world have long been concerned about the impact of International Monetary Fund (IMF) structural adjustment policies on the global environment. While economic instability is a threat to the environment, the IMF's approach to economic reform generally induces a blatant disregard for environmental impacts, even when the economic goals go hand in hand with environmental goals.

The result: too many economic policies that promote environmental degradation and too few policies that could promote positive environmental gains.

PRESSURE TO EXPORT

Structural Adjustment Programs (SAPs) treat natural resources as commodities, exported as cheap products to over-consuming markets in the Northern rich countries. Exports of natural resources have increased at astonishing rates in many IMF adjusting countries, with no consideration of the sustainability of this approach. For example, Benin, under SAPs since 1993, had sawnwood exports increase four fold between 1992 and 1998. (1)

Furthermore, it is often raw resource exports, whose prices are notoriously volatile, that are being promoted, rather than finished products, which would capture more value-added, employ more people in different enterprises, help diversify the economy, and disseminate more know-how.

BUDGET CUTS AND WEAKENED LAWS

Structural adjustment's goal of balancing the government budget can also hurt the environment. In the effort to shrink budget deficits, cuts in government programs weaken the ability to enforce environmental laws and diminish efforts to promote conservation. Budget cuts in Brazil, Russia, Indonesia and Nicaragua have greatly reduced these governments' ability to protect the environment. Governments may also relax environmental regulation to meet SAP objectives for increased foreign investment.

WORLD BANK IS NO EXAMPLE

The IMF explains that it relies on the World Bank to assess the environmental implications of its adjustment lending. Yet the World Bank has proven to be no help. A recent review found that fewer than 20% of World Bank adjustment loans included any environmental assessment. (2)

Another consequence of the IMF's narrow approach to economic reform is that economic policies that could help promote environmental sustainability are being ignored. Tax promote environmental sustainability are being ignored. Tax policy, for example, could emphasize green taxes in order to generate revenue and discourage excessive resource use. In the IMF's effort to build countries' accounting systems and statistics capabilities, full cost accounting could be pursued to help both countries and

international financial institutions realize the value of natural resources and would therefore encourage countries to use them prudently. Immediate steps must be taken to make sure that environmental protection is considered as a core component of economic policy reform.

FORESTRY

Many countries under the IMF's Structural Adjustment Programs are rich in forest resources. SAP's economic incentives for increasing exports of forest products can lead to more foreign exchange earnings, but when uncontrolled can result in unsustainable forestry management and high deforestation rates.

In Cameroon, IMF-recommended export tax cuts, accompanied by the January 1995 devaluation of the currency, provided great economic incentives to export timber. As a result, the number of logging enterprises increased from 194 in 1994 to 351 in 1995 (3) and lumber exports grew by 49.6% between 1995/96 and 1996/97 (4), threatening the country's rainforests and natural habitat (see inset). In a recent report the IMF finally acknowledged the precarious nature of Cameroon's export strategy and encouraged

a strengthening of the government's institutional capacity to promote the rational use of forest resources.

Between 1990 and 1995, forest loss for the 41 Heavily Indebted Poor Countries (HIPC) greatly exceeded the rate of forest loss for the world. For example, the two Central American HIPC countries, Nicaragua and Honduras, lost almost 12% of their forest, which is 7.5 times greater than the world rate. Approximately 75% of these HIPC countries had an IMF SAP at some point during this time period. (5)

FOREST LOSS, 1990-1995[In percent]Region

HIPCs

Non-HIPCs

World

Tropical Africa

3.65

2.60

1.6

Tropical Asia

8.33

4.60

1.6 [Page: H6642]

Central America

11.6

5.12

1.6

America

4.2

2.60

1.6

FAO, 1997

MINING

Like forestry, mineral resources are seen as a quick source of export earnings and a locus for foreign investment. Mining is one of the most environmentally destructive activities, contaminating ground water through acid mine drainage, threatening fish, animal and bird life, and destroying wildlife habitats. SAP policies have promoted the exploitation of mineral resources, and done so without regard to disruption to local communities and indigenous peoples and requirements for land rehabilitation.

(6)

Under SAP guidance since the mid 1980s, Guyana implemented policies to increase large-scale, foreign-owned mining ventures. This has led to river pollution, the decline of fish populations, and deforestation (see inset). There are now 32 foreign mining companies active in Guyana and large scale mining permits now cover an estimated 10% of the country. (7) The IMF is encouraging Guyana's government to transform mining and petroleum into one of the country's critical economic sectors by the year

2000. (8)

Under IMF guidance, Cote d'Ivoire has targeted mineral resources for export intensification and is stepping up exploration efforts. The results are new surface mining projects, three new gold mining companies since 1994, and 80 permits issued for mineral exploration to 27 international mining companies in 1995. (9)

AGRICULTURE

Agriculture is another sector SAPs target for export growth. In order to increase yields, farmers must either increase land intensity through fertilizer and pesticide use, or clear new land for more crops. Large-scale agriculture often involves monocropping, resulting in erosion, loss of soil fertility and increased industrial inputs.

SAPs led Cote d'Ivoire to devalue its currency and eliminate export taxes creating incentives for increased agricultural output. From 1992 to 1996 cocoa production dramatically increased by 44%. The environmental implications included soil degradation, deforestation and loss of biodiversity. (11)

SAP programs in Tanzania resulted in rising input costs for the agricultural sector. Consequently, the need for production increases has led to land clearing at the rate of 400,000 ha per year. Between 1980 and 1993, one quarter of the country's forest area was lost, 1993, one quarter of the country's forest area was lost, forty percent for cultivation. (12)

WEAKENED ENVIRONMENTAL SAFEGUARDS--BUDGET CUTS REPRESENT A TYPICAL RESPONSE TO IMF POLICY MANDATES

In Brazil, government spending on environmental programs was cut by two-thirds in order to meet the fiscal targets set by the IMF. (13)

In Russia the budget for protected areas was cut by 40%. (14)

In Indonesia, budget cuts have forced officials in Jakarta, one of the world's most polluted cities, to suspend environmental programs. (15)

In Nicaragua, the budget of the Ministry of the Environment and Natural Resources was cut by 36% in order to adhere to IMF budget targets.

CHANGES IN LAWS AND POLICIES

Many countries have changed their laws and regulations to attract foreign investment. In the mining sector, for example, many countries under IMF policy reforms have relaxed regulations for investment and exploration. Some countries still try to assess the environmental impacts of mining, but it is yet to be seen whether concerns for environment will be overshadowed by economics in these cash strapped economies.

Guyana changed its mining policies, giving large mining companies the majority stake in large operations. (16)

Benin and Guinea both revised their mining codes to promote mining and increase exploration.

The Central African Republic established new mining codes citing that mineral resources were ``insufficiently exploited.''

Mali established a new mining code in 1999 to encourage development, also including plans to consider environmental impact.

Mauritania established a new mining code to increase development and will also formulate policies to assess the environmental impact.

RECOMMENDATIONS

The IMF needs to take immediate steps to reverse the negative ecological impact of structural adjustment. Natural resources are finite, and need to be recognized for their full ecological, social, and economic values. The current model of economic development that is being pursued by the IMF and World Bank is fundamentally unsustainable as it seeks growth at all costs, without regard to ecological limits.

The IMF and WB should take the following steps to integrate environmental concerns into economic development, including:

Conduct environmental and social assessments of SAPs,

Encourage the protection of environmental programs by publishing environmental spending figures,

Refrain from cutting environmental spending or weakening conservation laws,

Publish changes in environmental laws that are the result of structural adjustment discussions,

Include environmental ministers in negotiations on IMF programs,

Pursue environmental accounting as part of IMF technical assistance and data gathering, and

Implement green taxes that could generate revenue and discourage excessive resource use.

SOURCES

1. Food and Agriculture Organization. Statistical Database. www.fao.org.

2. Environmentally and Socially Sustainable Development. 1999. Social and Environmental Aspects. A Desk Review of SECALs and SALs Approved During FY98 and FY99. Washington, DC: World Bank.

3. Verolme, Hans J.H., Moussa, Juliette. 1999 Addressing the Underlying Causes of Deforestation and Forest Degradation-Case Studies, Analysis and Policy Recommendations, Washington, DC: Biodiversity Action Network.

4. International Monetary Fund. 1998. ``Cameroon Statistical Appendix,'' IMF Staff Country Report No. 98/17. Washington, DC: IMF.

5. Food and Agriculture Organization. 1997. State of the World's Forests.

6. ``Mining's Environmental Impacts.'' http:/www.mineralpolicy.org/Environment.html

7. Project Underground. 1997. ``Investing in Guyana Does Not Bring Riches for All.'' Drillbits and Tailings. (November 1997).

8. International Monetary Fund. 1998. ``Cote d'lvoire: Enhanced Structural Adjustment Facility Policy Framework Paper 1998-2000.'' Washington, DC: IMF. (February 9, 1998: Section 37).

9. Melvis, Dzisah. 1998. ``Mining, Energy Sectors Attract Investors.'' Panafrican News Agency. (September 1, 1998).

10. Jodah, Desiree Kisson. 1996, ``Courting Disaster in Guyana,'' The Multinational Monitor. 16:11 (November 1995).

11. International Monetary Fund. 1998. ``Cote d'lvoire: Selected Issues and Statistical Appendix.'' IMF Staff Country Report: No. 98/46. Washington, DC: IMF. (May 1998).

12. Hammond, Ross. 1999. ``The Impact of IMF Structural Adjustment Policies on Tanzanian Agriculture.'' The All Too Visible Hand. Washington, DC: The Development Gap, Friends of the Earth.

13. Schemo, Diana Jean. 1991, ``Brazil Slashes Money for Project Aimed at Protecting Amazon.'' New York Times (January 1