Ravenhill - Adjustment with growth: A fragile consensus

06 August 2006
14:51

· 1981 Berg report - WB Accelerated development - Introduces two key elements of Adjustment with Growth" -
        ? Recognise policy matters and that internal factors have contributed to crisis
        ? Recognise agriculture matters and that performance must improve.
· This change from OAU Lagos plan that focuses on external factors and industry.
· African states aren't won over, but are forced to accept conditionality etc as crisis worsens
· BUT academia moves seriously in direction of state matters and less about dependency theory
· AND WB does tone down Berg's neoclassical emphasis:
        ? Prices reduced to one element of policy solution
        ? More attention to external factors, eg terms of trade
        ? Questions over importance of commodity exports
        ? More recognition of the few success stories in general.

From both sides comes consensus on "adjustment with growth:"
1. Realistic prices and exchange rates
2. Adjustment requires massive income increases
3. Significant debt rescheduling and probably some cancellation needed
4. States must shrink, esp in parastatal sector
5. Aid move away from new projects towards upkeep of existing infrastructure, recurrent costs; more donor co-ordination is needed
6. Widespread but not universal agreement on need to curb birth rate

But how much African countries are really on board is heavily in doubt.

Some argue causes of crisis are irrelevant, but understanding of causes is needed to agree fair balance of burden of remedy.
· Evidence suggests that tho African policy failure clear, failure of international community to provide level of support after 1979 shock that was provided after 1974 shock makes import strangulation inevitable and effective adjustment impossible.
· Post-79 downturn almost universal despite huge variations in policy
· Interaction complex. Project starts viable, then price changes make expensive and useless.
Agriculture
· Most regrettable aspect of Berg report is dismissal of food self-sufficiency - this by 1988 clearly crucial in context of import strangulation.
· Bank also admits importance of letting prices rise less than thought - had anyway, and black markets provide 70% anyway
· Emphasising small agriculture has political problems owing to urban bias - only countries with agri focus have agribusiness in govt and they are beneficiary. Organise small farmers but how?
· Actual production capacity nearly at limit; research focussed on export crops not crucial subsistence ones like maize.
· Women responsible for 70% farming; improve access to credit etc
Industry
· Agreement that progress impaired by over-protection of import-substitution areas
· Technology - misguided purchases led by western ECA's
· Privatisation calls argue for creation of entrepreneurial class but no way to be sure this will occur
· Are public industries really less efficient?
· No guarantee there'd be competition
Exports
· Primary commodities prices decline through 1980s
· But no-one really thinks East Asia-style industrial exports will happen to large scale
· Primary processing could be increased but EEC protectionism likely to prevent
· [Wither susidies?]
Debt
· Debt massive problem, service payments huge, all to WB and IMF etc
· WB pleads with Paris Club to reduce interest to below market rates but not done
Conditionality
· Is the real value of aid not the money at all, but the power for force good policies?
· Conditions work at guiding countries along paths they already wish to follow (eg India)
· Imposed ones are rarely carried out in full and aggressive imposition can weaken reform efforts at home
· Even pro-adjustment critics recognise inflexibility and risk of stabilisation through economic decline.
· CHECK [NEED TO UNDERSTAND IDEA BEHIND CURRENCY DEVALUATION]
· Even Berg criticises number and complexity of monitoring targets of World Bank
· Some say WB not IMF should be main force in Africa as devoted to development, not just balance of payments - but criticism above, how measure?
· Key criticisms of conditionality:
        ? Overestimate commodity prices
        ? Excessive faith in pricing policies to increase agri production
        ? Generally overestimating price elasticity of agri
        ? Dogmatism over privatisation
        ? Continue to support policies once shown to fail
        ? Underestimate time reform takes to generate results
        ? Neglect of the poor and of social services.
· No correlation has been proven between growth and tax, interest rates, or inflation (!)
· "Stick-focussed" conditionality will mean govts wait till last minute to come to IMF/WB
· Govt scepticism of benefits as important as political risk in causing non-adherence.
· Africa already too fragile for "sharp shock."
· Institutions beginning to recognise conditions need to consider what politically achievable.
Response of MDCs
· UN Special Session on Africa marks diplomatic peak of Reaganomic approach
· Calls for external debt and aid reform ignored, need for SA emphasised
· US aid less than needed throughout 80's and much in military or food aid
· And removed for political disobedience - Zimbabwe 86.
· And Reagan regularly refuses to contribute to multilateral approaches, preferring bilateral
        ? (sound familiar?)
· [MY GOD - NOBODY is talking about AIDS in 1988!]
· EEC has Lome Conventions - pref access for Africa and aid - that makes it best BUT heavily against further improvements
· And - old-fashioned infrastructure focus mostly with European contractors.

Conclusion: Adj with Growth on fragile foundations - will fail without care and support from West.