Callaghy - Between Scylla and Charybdis

06 August 2006
11:58

Barrage of shocks to African economies:
· 1973 & 79 shocks
· Drought
· Recession in the north brining massive exports demand decline
· OECD protectionism
· Debt inflation
· Tapering off of aid
Leading to:
· Negative growth
· Falling incomes
· Balance of payments and debt service problems
· 1980-84 serious decline in GDP across Africa

Debt
· 1974 Sub-Saharan Africa owes $14.8bn; 1984 $91bn at conservative estimate
· 63% public medium-long term, roughly even bank, bilateral and multilateral.
· Rest short- and medium-term private, IMF, and arrears.
· This not actually very much: less than Mexico!
· Hardly any private-bank, which is bulk of Latin American
· Africa mostly guaranteed by countries like US Export-Import Bank
· In other words Africa is Paris Club (countries run) not London Club (bank run).
· Lots of IMF and World Bank debt -
· Top debtors 1984: p384
        ? Nigeria $19bn
        ? Ivory Coast $7.4bn
        ? Sudan $7.2bn
Growth of debt 1974-84 fastest in world, and on ever less concessional terms

Debt basically incredibly badly managed and invested - govts didn't even know who they owed and how much
· Common solution - foreign advisors like Lehman Bros - hardly ideal
· Reliance on IMF and WB control/"guidance" and on rescheduling increases in countries with large and small debt levels
· Debt service payments increase much faster than total debt
· Up to 150% exports owed in debt service payments in some countries in mid-80's; mostly improves a little by 1990 but still 30-40% common, and some still getting worse. P387
· Actual payments usually 1/4-1/2 this, so arrears grow massively.
· Arrears can make rescheduling and new private debt impossible.
· Nevertheless rescheduling chronic - African debt around 70% of rescheduled debt; Paris Club has bent rules BUT with commercial rates and case by case so planning etc hard. Multiyear agreements not forthcoming.
· However, a few haven't needed rescheduling (Botswana, Rwanda), and a couple (Gabon) have rescheduled once and then met payments.

IMF adjustment
· Begins with IMF and spreads to almost all forms of assistance inc private
· WB & IMF claim consensus that radical reform needed with african leaders
· But many theorists see from start as neocolonial
· Is IMF forcing SA, or are countries who know they need SA turning to the IMF for help?
· Lack what needed to adjust:
        ? Economic capacity
        ? Political will
        ? Administrative capacity

% of service payments owed to IMF increases - >50% in some countries. This can't be rescheduled so arrears grow, countries borrowing privately to pay IMF then borrowing from IMF to pay banks!

Standard IMF conditionality package:
1. Budget and money supply reduction --> lower inflation
2. Subsidy reduction, especially for consumer goods
3. Changes in exchange rate policy - devaluations*
4. Nominal interest rate rises
5. Liberalising import controls *
6. Export expansion of primary products*
7. Reduction of state role in economy*
8. Increase market incentives esp in agriculture.*

*=Are most contentious.

· By 1987 consensus is doesn't work as well in Africa as elsewhere. Largely this is down to countries not fully fulfilling agreements owing to either admin breakdown or non-wish to risk social disturbance.

· Some in IMF start to argue against long-term growth-leading role in Africa and say focus on original short-term role. But don't win the argument, obv.

· Links to adjustment and political instability overrated; actually very little instability in 80's. Initial riots etc typically faced down.
        ? BUT problems for working people acknowledged.
        ? IMF can act as precipitating factor in already bad situations, ie Sudan.
        ? Fear of instability more of a risk, as leads to weakened adjustment.
· Regimes seen as legitimate have much better record of getting adjustment implemented.
· Magendo economies offer respite to hardships of adjustment and reduce strife.

World Bank (structural) adjustment
· Is WB response to perceived failures of IMF approach, but is intended to be additional to not alternative. Focusses on kickstarting imports as under IMF crisis imports stagnate.
· Conditionality-heavy Structural Adjustment Loans and less-conditioned but sector- or commodity-specific
· Problems met with increased monitoring. Eg calls for public employment reduction have been ignored but In pursuit of compliance budgets cut in worst possible places, eg public services.
· Result is more "resident representatives"
· Still pushing primary exports-led approach - to African skepticism
· It's pointed out that if everyone successfully made transition to primary productivity they'd all be fucked!