APPENDIX 6
Memorandum from Dr Joseph Hanlon
DEBT RELIEF INCREASES POVERTY
Conditions attached to debt relief can cancel much of the
benefit; in the worst cases, debt relief can actually increase
poverty in poor countries.
There has been an outcry about the conditions imposed on
Asia by the International Monetary Fund. The World Bank's chief
economist, Joseph Stiglitz, warns that IMF policies could "push
these countries into severe recession."[41]
The US magazine Business Week[42]
says that "The IMF demands that Asia cut growth and consumption.
But that will . . . hurt consumers, make for lower wages, and
penalise the poor more than the rich."
Yet these are exactly the conditions that have been imposed
on African countries for more than a decade, and which form the
basis for debt relief under the HIPC (Highly Indebted Poor Country)
initiative.
Britain has joined the other industrialised countries in
accepting without question that IMF and World Bank policies are
correct for poor countries. Thus Britain pushes for more generous
debt relief, but only within the present framework which hurts
the poorest—exactly those we want to help.
THE UN ALTERNATIVE
The IMF and World Bank have always argued that there is no
alternative. But the United Nations specialist agencies are increasingly
speaking out against IMF/World Bank structural adjustment and
stabilisation policies to which debt relief is tied.
The UN Development Programme's Human Development Report
for both 1996 and 1997, UNCTAD's Trade and Development Report
1997, and the report Jobs For Africa just issued by
the International Labour Organisation all criticise programmes
imposed by the Bank and Fund.
Jobs For Africa[43]
says that "structural adjustment is purchased at the price
of economic contraction, high unemployment, and massive poverty.
This essentially is what has happened in large parts of sub-Saharan
Africa." What is needed, says the report, is job creating
"adjustment through investment", whereas the IMF and
World Bank cut investment and pursue "structural adjustment
through contraction—and the human distress associated with
that path is neither of short duration nor small in magnitude."
The Human Development Report 1997[44]
calls for a "pro-poor structural adjustment" which is
"adjustment through . . . growth rather than adjustment through
contraction."
UNCTAD Secretary-General Rubens Recupero[45]
warns that "evidence is mounting that slow growth and rising
inequalities are becoming more permanent features". Recupero
says "that the increased concentration of national income
in the hands of the few has not been accompanied by higher investment
and faster growth." In contrast to what the IMF preaches,
helping the rich to get richer does not promote rapid growth and
the trickling down of income gains to the poor.
Yet Britain continues to make debt relief conditional on
"adjustment through contraction", which UN agencies
say causes "human distress", "massive poverty",
and "slow growth and rising inequalities". The impact
of imposed conditions wipe out many—perhaps most—of
the gains of debt relief.
MOZAMBIQUE AS
AN EXAMPLE
Mozambique is the poorest country in the world, and the World
Bank's own data shows it has become poorer since imposed stabilisation
through contraction began in 1990.[46]
A 12-year long war of destabilisation by apartheid South
Africa ended in 1992. One million Mozambicans died and damage
exceeded £15 billion.[47]
In rural areas, most schools, health posts, roads and shops were
destroyed or closed. Three million refugees have returned to their
land, but in many rural areas there has been no post-war economic
boom. Six years after the end of the war, many roads and most
rural shops remain closed.
The reason is that the IMF will not let Mozambique follow
the policy of rapid reconstruction that Britain so successfully
carried out in the late 1940s. Instead, the IMF says that in Mozambique
the first priority is not to rebuild, but to control inflation
and "stabilise" the economy, making the poorest country
in the world poorer still. The IMF says rebuilding in Mozambique
is inflationary and must be restricted.
Thousands of rural shopkeepers want to rebuild their shops
and begin trade, but IMF credit limits mean they cannot borrow
the money to reopen; that, in turn, means millions of returned
refugees cannot sell their crops and cannot buy basics like salt,
cooking oil, and cloth. The IMF has even forced Mozambique to
turn down European aid and World Bank loans intended for reconstruction.
There is growth, but it is only in the capital, Maputo, Prime
Minister Pascoal Mocumbi warned the donor community last year
that "social inequalities and regional asymmetry could endanger
the climate of peace, calm and social harmony that is the basic
prerequisite for balanced and self-sustaining socio-economic development."
In a press conference on 28 November 1997, he said that "sometimes
we have to accept things from the World Bank that are not in our
interest, because there's no other way out".
Campaigners for debt relief for Mozambique often say that
the money saved could be spent on education. But the IMF will
not allow that. Last year, the Ministry of Education announced
that universal primary education would be deferred to 2010. This
is because of IMF spending caps imposed as part of HIPC.
By accepting conditionality, Britain is helping to impoverish
rural Mozambicans, and is helping to keep Mozambican children
out of school. That is exactly the reverse of an enlightened British
policy intended to reduce debt.
Britain is helping to impose post-war policies on Mozambique
that are exactly the reverse of its own successful policies in
the late 1940s.
ALTERNATIVE CONDITIONS
It is often argued that aid and debt relief cannot be unconditional.
But there are other kinds of conditions. Instead of making British
aid and debt relief conditional on Mozambique and other poor countries
having an IMF programme of stabilisation through contraction,
why not make aid conditional on progress toward reducing poverty.
Six measurable goals were adopted by the 34th High Level Meeting
of the OECD Development Assistance Committee, 6-7 May 1996, and
these could be used to set alternative performance targets. They
relate to:
— reducing the proportion of people living
in extreme poverty;
— progress toward universal primary education;
— more girls in primary and secondary education;
— reducing maternal and under 5 mortality;
— increasing access to reproductive health services;
and
— reducing loss of environmental resources.
Defining such goals could link civil society, government
and the donor community—in total contrast to present policies
of adjustment through contraction which are imposed over the opposition
of civil society and elected parliaments.
At a time when IMF policies for Asia are increasingly considered
counterproductive, recessionary, and harmful to the poor, it is
time to look again at the effect of identical policies on Africa.
Britain can take a lead by delinking debt relief from "adjustment
through contraction" and instead use debt relief to promote
democracy and policies that help the poor.
Dr Joseph Hanlon
27 January 1998
Dr Joseph Hanlon is a visiting research fellow in the Open
University Development Policy and Practice Research Group. He
is the author or editor of 12 books on southern Africa, most recently
Peace without Profit: How the IMF blocks rebuilding in Mozambique
(James Currey, Oxford, 1996). He was the co-ordinator of the Commonwealth
Expert Study into Sanctions Against South Africa (1987-89) and
the South African Commission on Development Finance (1994).
41 Quoted in Bob Davis and David Wessell, "World
Bank, IMF at Odds Over Asian Austerity," Wall Street Journal,
8 January 1998. Back
42
"Asia: The Road to Real Capitalism," Business Week,
29 December 1997. Back
43
Jobs for Africa, International Labour Organisation, Geneva,
1997, pp. 29-30. Back
44
Human Development Report 1997, UN Development Programme,
New York, 1997, pp. 77-78. Back
45
Trade and Development Report 1997, UN Conference on Trade
and Development, Geneva, 1997, pp. v-vi. Back
46
GNP per capita fell from $90 in 1990 to $80 1995 according
to the World Bank's World Development Indicators 1997 CD-rom.
Back
47
Joseph Hanlon, Peace without profit: How the IMF blocks rebuilding
Mozambique, James Currey, Oxford, 1996, p. 15; based on UNICEF
data. Back
| 
