BLEEDING THE REFUGEES
(the IMF and Mozambique)
by Joseph Hanlon
When Mozambique's President Joaquim Chissano visited remote
Chifunde in May, district administrator Jose Jasse read out a
message from the local people. Two-thirds of them are recently
returned refugees, and their most urgent need is reopening rural
roads and bridges "so that surplus crops can be moved and
traders attracted." A group of children also asked the President
to build some schools for them to attend.
The war ended four years ago. Many of the refugees in Chifunde
and elsewhere have been back for two years. But the International
Monetary Fund (IMF) says that Mozambique and international donors
must delay rebuilding the roads and schools destroyed in the war
because such projects are "inflationary."
Mozambique is the poorest country in the world, according to UNICEF.
Yet the IMF suggests it must become poorer still before it can
repair the damage. The 1.7 million people who returned from neighboring
coun tries, and the 3.2 million moving back to rural areas, must
wait until inflation is below 15 percent.
In Europe and Asia after the Second World War, the logical strategy
was to first rebuild the least-damaged infrastructure- roads,
railways, factories, mines-in order to stimulate the economy.
Inflation was an issue, since all countries print money to finance
wars. But the highly successful strat egy of the 1940s was to
increase production as quickly as possible, increasing the supply
of goods while at the same time allowing high inflation to mop
up the surplus.money. With a reasonable supply of goods, it became
possible to control inflation by balancing supply and demand.
Fifty years later, the monetarist thinking which dominates the
IMF denies that such a policy was followed in the 1940s and labels
it unsuitable now. For the war-torn countries of Africa, from
Mozambique to Liberia, the prescription is the same: Demand must
be reduced rather than supply of goods and ser vices increased,
and inflation must be brought down before rebuilding can occur.
This makes no sense to the returning refugees, who want to go
back to work and rebuild their shattered livelihoods. Even the
most conservative industrialized countries, the US and Britain,
have backed away from the most orthodox monetarism. But the IMF
hasn't lost its faith, and it continues to impose the most rigid
doctrine on Africa.
Jeffrey Sachs-director of the Harvard Institute for International
Development and dean-apparent of right-wing economists, recently
wrote in the conservative British magazine the Economist that
the IMF is "looking at spreadsheet calculations rather than
reality." He was particularly critical of IMF demands for
Mozambique. Earlier this year, Sachs wrote that "reconstruction
and rapid growth in Mozambique should take precedence over a rapid
The IMF disagrees, and forced its sister agency, the World Bank,
to cut back on rebuilding roads and health facilities in Mozambique.
COLD WAR BATTLEFIELD
Mozambique was both a Cold War and an apartheid battlefield. When
Ronald Reagan took office in 1981, his administration backed apartheid
South Africa as an anti-Communist bastion against majority-ruled
Marxist governments in Mozambique, Zimbabwe, and Angola. South
Africa was licensed to attack its neighbors. In Mozambique, South
African military intelligence organized, trained, and supplied
an opposition guerrilla movement, Renamo. In 1988, Roy Stacey,
then US Deputy Assistant Secretary of State and part of a group
trying to end US backing for these African "con tras,"
said Renamo was carrying out "one of the most brutal holocausts
against ordinary human being since World War II."
With the end of the Cold War, a settlement was reached in 1992,
and the formerly Marxist Frelimo party won a multi-party election
against Renamo in 1994. But in a country of 17 million people,
one million had died during the war, and five million were forced
to flee their homes in rural areas. Damage exceeded $20 billion.
More than half of all primary schools, health posts, and shops
were destroyed by Renamo or forced to close. Half of the rural
road network was closed by mines, destroyed bridges, and hundreds
of trenches dug across roads.
As refugees flooded back to rural areas in 1993 and 1994, aid
agencies provided basic seeds and tools. Good rains ensured plentifill
crops. But as returned refugees in Cllifunde told President Chissano,
there are no basic facilities for a return to normal life.
Four years after the war's end, most of the 3000 closed rural
shops remain closed, and many rural roads haven't been reopened.
THE IMF RULES
The Cold War and aid condi tionality gave the Bretton Woods institutions
increasing power in Mozambique during the late 1980s. At first,
the World Bank policy of structural adjustment dominated, but
since 1990 the IMF policy of stabilization has ruled. Even while
the war still raged, the IMF demanded harsh cuts in government
spending and restrictions on credit.
The late 1980s showed some growth despite the war. Exports, GDP
per capita, and industrial production all rose, while inflation
fell. Once the IMF took control, this was reversed-GDP per capita,
exports, and industrial production all fell after 1991. IMF stabilization
is supposed to control inflation, but it rose from 20 per cent
in early 1991 to over 70 per cent in late 1994, and has remained
over 50 percent ever since. The end of the war didn't usher in
a boom, but further decline. One might expect that if policies
increased rather than decreased inflation, the Fund might decide
they were inappropriate. But that assumes the IMF is rational,
when it actually views its policies as a kind of faith. Just as
a priest tells church goers to pray harder, so IMF officials explain
that policies don't work because they aren't harsh enough. Result:
since 1990 the IMF has imposed stricter polices every year.
Cuts in government spending meant that, by 1994, civil service
salaries were a third of what they were in 1990; the UN estimates
that two-thirds of Mozambican civil servants are below the poverty
line. Nurses, who provide much of the health care in Mozambique,
now earn below $40 per month.
By 1995, the total credit provided by banks fell to one-third
of the 1990 level. This meant a virtual end to rural credit. The
main reason that most rural shops remain closed is that shopkeepers,
who want to return, can't borrow the money to repair and restock.
Those few rural traders who are in busness can't borrow the working
capital to buy the massive peasant grain surplus from the excellent
1995-96 season. The lack of rural roads makes many areas inaccessible;
when the rains start in November, thousands of tons of unsold
corn will rot. For many returned refugees, this has dashed the
dream of earning enough money to replace cooking pots, the family
table, and belongings lost when they fled. There will be no new
clothes, and the single donated hoe will have to serve as the
family's only farm implement for another year.
Cuts in credit and government spending led to a worsening economy
and rising infIation, yet the IMF demanded more. In 1996, it suggested
donors spend $173 million less on rebuilding, and that the government's
contribution be cut in half. The cuts focused on rebuilding rural
roads, schools, and health posts. And since the IMF will allow
Mozambique to expand school enrollment only slowly over the next
decade, few returning refugee children will ever attend again.
The doctors of two centuries ago believed in bleeding already
weak patients-a treatment that killed more people than it cured.
Now the IMF believes in bleeding poor countries. The world's poorest
country must become poorer still before it can be cured. But bleeding
is more likely to kill the patient.
Returning refugees, who have nothing, bear the heaviest burden.
It's their schools, shops, roads, and livelihoods that the IMF
declines to rebuild. So far, President Chissano has avoided the
main issue: The IMF apparently believes that the Mozambican economy
will recover faster without roads or schools. Refugees have no
place in most calculations, and most are far from the decision
makers in the cities. But their voices are heing heard. In a strong
statement this May, the Frelimo Central Committee warned that
"macro-economic policies lose all legitimacy when they inevitably
lead to the absolute degradation of the lives of citizens, reducing
them to absolute misery." Unfortunately, the all-powerful
IMF seems intent on keeping the faith.
from Toward Freedom magazine October 1996
209 College Street
Burlington, VT 05401
Years Is Enough
World Bank, Structural Adjustment