Monday, January 26, 2009

Expediters of Suffering

The International Monetary Fund (IMF) and the World Bank (WB) give loans to developing countries on condition that they introduce certain measures such as elimination of tariffs, subsidies, state intervention, regulation (that includes regulation to protect people against unscrupulous practices), public sector recruitment and many other things. Yet, many of the items that are advised against under WB and IMF Structural Adjustment Policies (SAPs) are widespread in Western countries. Not only did these countries depend on protecting their industries to become as rich as they are now, they still depend on protection today.

Take agricultural subsidies, for example. The European Community and the US insist on the need for everything being market driven, on the need to reduce protectionism. At the same time, they grow sugar that is uneconomical to grow, they produce more cereals and dairy products than they can use. The US is the biggest cotton producer in the world, not because labour is so cheap there or because they are so efficient but because cotton farmers receive such high subsidies. Then these rich countries dump their surplus produce on developing country markets, resulting in farmers in developing countries being unable to sell their products, often having to leave them in the field to rot.

Worse than that, much 'aid' money is spent on buying up surpluses in developed countries and distributing it in developing countries. This has the same effect as dumping surpluses but it has the advantage for developing countries that they can claim it is 'aid'. This trick is even seen as a way of palming off genetically modified (GM) food in the hope that people who are starving will not be in a position to refuse whatever they can get. And the chief beneficiaries of these subsidies in rich countries are big farmers. In developing countries, most agriculture is very small scale. Many small farmers who don't get some form of help go bankrupt and/or starve.

But some developing countries have challenged IMF and WB strictures on subsidies. Malawi, who introduced a subsidy programme in 2005, is a good example. They have realised that SAPs have made them poorer and more vulnerable, despite all the promises they were given by international agencies. Last year they trebled maize production by subsidising seed and fertilizer. Therefore, in the present season they will treble their agricultural subsidies because this policy has worked so well already. They are exporters of grain and have won praise for their success in reducing food insecurity. The IMF and the WB opposed an earlier version of these measures and advised the country to sell its national grain reserve, which it did!

This was followed by a famine that killed more than 1000 people. Donors, belatedly, supported the programme and subsequently, Zambia, Ghana, Senegal and Kenya announced plans for similar subsidies. How far they have got with the plans is still not clear. Mozambique has also decided to subsidise fertilizer for its farmers, a move opposed by the US. But Mozambique realises that, long term, they need to produce their own fertilizer. They also realise that they need to improve roads, something the IMF and the WB would, doubtless, disapprove of (unless foreign, private contractors were to be utilised).

This doesn't mean that Malawian agriculture is sustainable, of course. Malawi, like many other developing countries, is highly dependent on imported pesticides, fertilizers and other technologies. In the long run, it is to be hoped that they will be able to reduce their dependence and achieve better sustainability. More importantly, it is vital that they don't fall for the GM propaganda that claims it to be sustainable and productive. That will only increase their dependence and reverse whatever gains they have made.

But against all advice, especially international agency advice, Malawi went ahead with this programme. Will Kenya eventually do the same thing? They don't have the advantage of a president who is also a minister of agriculture. Worse than that, their president is an economist. So it seems unlikely that the present administration will go for subsidies. But even unlikely things sometimes happen. After all, the current president was re-elected against all odds, wasn't he?

Malawi has reduced their food budget by 120 million dollars and it has reduced their dependence on food aid. That must appeal to an economist, especially given the food insecurity and budgetary problems being faced by Kenya right now. But even if the government were willing to consider it, the IMF and WB would probably object. In fact, a cynic might suggest that these international financial institutions are not really interested in the good of ordinary people in developing countries. After all, in the 1970s Africa was a net food exporter, now it is highly dependent on imports and aid, at least in part as a result of their policies.

Before SAPs were concocted by IMF and WB economists some time in the late 70s or early 80s, Kenya was enjoying a period of relative prosperity. It wasn't to last long because those ruling the country were mainly interested in enriching themselves. (That makes them sound like the present rulers but, hey, most of this lot have been in senior positions since the early days of independence!) The international community went along with this because Kenya was being a good capitalist and opening up the country to foreign direct investment. In fact, the country was dominated by foreign capital, but this also suited the Kenyan elite very well.

Once Kenya accepted loans with SAPs, things changed. The foreign (and native) investors who were doing so well out of subsidised industry found that costs were getting high in Kenya and they left as quickly as they could. Unemployment increased as public sector employees were laid off and recruitment was cut. That's still going on, by the way, and if you think little of public sector employees, just think doctors, nurses, educators and other public service employees. There are good reasons why the roads are so bad in Kenya. There are good reasons why under five mortality, maternal mortality and many other health indicators have been slipping for most of the last three decades. (And from the point of view of this blog, there are good reasons why HIV was able to spread rapidly among people with so many increasing vulnerabilities, but I'll return to that another time.)

Many of the problems being reported in this week's newspapers stem from policies that were adopted nearly thirty years ago. These policies were honed and twisted to suit those who stood to gain most from them, the rich and powerful in Kenya and in other countries. The whole process couldn't have been carried out without much help from an array of international financial, political and other institutions. And while the policies may often be referred to as 'economic', or even 'ideological', they are more correctly political. They cannot be justified on economic grounds because they destroy economies. They cannot be justified on ideological grounds because they are applied inconsistently, where and when it suits.

These policies have long been backed up, and continue to be backed up by their advocates. This is so, regardless of any evidence that they are responsible for hunger, disease, suffering and death. And that's because they suit a particular political standpoint. They could be called 'pragmatic', but I prefer the term 'expedient'.


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