Thursday, April 19, 2012

(UK ZAMBIANS 2007) Zambia’s IMF break: Lessons for Latin America

COMMENT - This is what happens to governments who do not follow the supply side economics dictated to them by the IMF/World Bank. In the words of President Kenneth Kaunda:

While as our intentions were genuine and straight forward, and the results of what we planned to do and, indeed began to do, were showing some truly wonderful results, we were affected by the negative reaction from IMF, World Bank, and some donor governments.

Economic sanctions were imposed on our government. Assistance was withheld. We were isolated. Africa and debtor governments did not come to us in support. However, at that time, we registered a record- high economic growth. But the various measures against us weakened the economy. Eventually, we had little choice but to go back onto an IMF and World Bank programme.


Zambia’s IMF break: Lessons for Latin America
By Dr Kenneth D. Kaunda
Posted by Editor on May 21, 2007

That day, on May 1, 1987, as we broke off from the IMF Structural Adjustment Programme, I continued to announce the pillars of our home-grown New Economic Recovery Programme. Our programme holds lessons for the direction our brothers and sisters in Latin America have recently taken.

That day, besides other measures we discussed in this column in the past two weeks, measures like limits to debt service rations, I talked about the crucial task of restructuring and improving the economy.

“It is important,” I said, “that we fully comprehend what, in this development strategy, we mean by a restructuring of the economy and what we aim to achieve by it.”

“We aim to improve the productivity of our economy by increasing the capacity utilisation of the selected sectors and industries within those sectors. In the short term, our priority will be sectors and industries which produce essential or basic needs goods for which there are as yet no domestic substitutes and those that produce exportables.”

We decided that, for this restructuring exercise to succeed, it was going to be necessary that imports were “restricted to the barest minimum, except for strictly essential items, services, raw materials as well as machinery required for increasing capacity utilisation in agriculture and the selected industries.”

Together with restructuring the economy was the equally important task of diversification. In our context, diversification entailed “development of new bases for export as well as revenue and employment generation.”

A vigorous export drive was launched and centred on the promotion of non-traditional exports and export of manufactured goods as against the export of raw materials.

To support diversification, we set up an Import and Export Bank. This was to remove the extra burden imposed on exporters of non-traditional commodities as they struggled on their own to find export markets and then worry about receipts of the foreign exchange they earned from their initiatives.

The Bank was created to ensure that those producing for the export market would concentrate on increasing the production of exportable goods. Using various institutions and facilities, small-scale producers would be supported to increase production. We truly aimed to mount a massive export drive that would also involve small-scale rural producers.

For income support, we noted that the rate of unemployment had reached alarming promotions. We had to take measures to arrest that serious situation. Our first priority was to mobilise as large a section of our human power as possible to participate actively in the production of goods and services.

“In other words,” I noted, “we wish to see a reversal of the trend of the recent past in which the number of people in formal employment has sharply declined. What we now want to see is a steady and consistent growth of the active labour force. In order to bring this about the Party and its government have worked out the following measurers…”

“The Government shall inject resources into the expansion of public works schemes for temporary employment generation for the un-employed. Projects such as irrigation schemes and temporary income support programmes for the urban and rural unemployed will be initiated. Work will be offered to beneficiaries related to their own living conditions and aimed at increasing the purchasing power of the masses.”

“The masses will be mobilised to work on pavements, sanitation, painting Government houses, rehabilitation of water supply lines, clinics, schools, repairing roads and even planting trees. Most of these projects will be sited in the rural areas.”

Government was to increase public expenditure on capital projects, particularly investment projects that were low-cost, and with short-maturities. Foremost, in a society of “humanism,” where the human being was placed at the centre of activities, we cared much for the situation of workers and their families.

“Workers in all sectors of the economy have endured great hardships over the past two years and tempers have often become frayed. We need to find a common will among unions, employers and government to determine a fair basis on which wages can be negotiated. The Prices and Incomes Commission should play its intended role in this regard.”

We felt we needed to act for fairness for both the worker and enterprises they work with:

“The Government shall establish a realistic wages policy with a minimum living wage. After inflation has been contained, the Prices and Incomes Commission shall come up with a minimum wage on the basis of which annual person in gainful employment are paid enough to satisfy their basic needs and those of their immediate dependants.”

In our plans, the channel of government funds to projects in rural areas and small towns was to be decentralised. “I am, therefore, instructing the National Commission for Development Planning and the Ministry of Decentralization to draw up estimates of funds which can be absorbed by economically productive ventures in each province.”

The projects were to be practical: “these should be projects of short duration, which can show a return on investment within one or two years. This will demonstrate the viability of our new economic strategy. It will also raise the morale of those economically depressed regions and begin to plot a course for their future development.”

Effective management was essential for success of our home-grown economic programme:

“The success of these measures will depend upon each of us individually as well as collectively but greater responsibility lies on those of us who have a direct role to play as employers, employees, businessmen, public officers and leaders.”

One limitation was that the public service had lost many able officials because of uncompetitive conditions of service.

“Fellow countrymen, Comrades, Brothers and Sisters,” I began to conclude, “this, then, is the new package of economic measures I have decided to announce to you today and it is my earnest hope that the nation will rise to the challenges that face it and chart its own path towards economic recovery and sustained growth.

I was aware that our position made some people and creditors uncomfortable. So, I considered them: “Finally, may I now address myself to all supporters – nations or organisations. Friends, we chose the way of IMF of our own free will. Again of our own free we have decided to try another way.”

“We did not, I believe, offend anyone when we employed IMF methods. I believe we shall offend no one now when we choose this other way. I do not wish anyone of our supporters – donor country or donor organization – to think this is a parting of ways. I ask them, may I appeal to them, to see this as a charting out of another way that we think offers us better chances of a recovery, all things being equal.”

“I, therefore, hope and pray that no one will see in this perfectly normal attempt to break the vicious circle into which we have been thrown by forces completely out of our control, a spirit to confront anyone. With background it must be clear to all friends that we are going to continue to knock at their doors for support for this programme in the same way as we have done during the past ten years or so… May God bless and guide the Republic. Thank you.”

To you, my reader, I want to say that those events were twenty years ago this month. We had decided, as a nation, to use our own methods and rebuild our economy outside the World Bank and IMF programmes.

While as our intentions were genuine and straight forward, and the results of what we planned to do and, indeed began to do, were showing some truly wonderful results, we were affected by the negative reaction from IMF, World Bank, and some donor governments.

Economic sanctions were imposed on our government. Assistance was withheld. We were isolated. Africa and debtor governments did not come to us in support. However, at that time. we registered a record- high economic growth. But the various measures against us weakened the economy. Eventually, we had little choice but to go back onto an IMF and World Bank programme.

There was no doubt, in my mind, and indeed there is still no doubt in my mind today, that our home grown programme, if supported by the two organisations and some members from the donor community, would have set us on a terrific economic recovery programme.

I feel that had our protest action been supported or done by a good number of African governments suffering economically in the same way as Zambia was doing – and we know there were many like us – the situation, in terms of some members of the IMF, World Bank, and donor community could have been different. Up to this point in time, twenty years later, no one can convince me that the reaction of those donors as they reacted against our new programme had no ulterior motive.

I believe that they felt that our programme was going to set a “bad example” to others suffering as we were doing. This home-grown programme I have outlined was redemption for the poor. But those who did not want to see Third World countries develop from their own resources, without interference from investors,” did not support our programme. The reaction of World Bank, IMF, and some creditors frightened many other people away from our path.

What does this hold for Latin America led by Venezuela, led by Hugo Chavez, Bolivia with Evo Morales, Lula and Brazil, and their colleagues in Argentina, Ecuador, Paraguay, who are also following in nationalistic and patriotic ways, ways which some of us admire very much?

{xtypo_quote_left}
While I send a message warning our Latin America colleagues about the possibility of angry reactions by investors, one has to say that leaders in Latin America are truly representing their people’s interests very well. To begin with, a good number of them are taking measures to control their resources.{/xtypo_quote_left}

Apart from that, giving us hope was the recent announcement by minister of finance of Venezuela to the effect that Latin American countries such as Venezuela, Ecuador, Brazil, Bolivia, and Paraguay, were to sign a document leading to the creation of a financial institution in June 2007. It may be easier to overcome poverty because they are aware of many things about the continent. They will want to re-organise economic relationships involving developed and developing nations.

With this movement by Latin American countries, because of steps they have taken, things may be different from the treatment they may get from those who pounced on us when we took our action in May 1987. I believe this is a beginning of true independence in Latin America. It is also an example for Africa. This is not only political independence but they are beginning to firmly take control of their resources firmly.

But they also must learn from Zambia’s experience and prepare themselves so that they are not put in some position that will make them retract from the noble path towards economic and social justice.
We hope and pray that other parts of the world will learn from what our colleagues are doing in terms of looking after their natural resources for the good of the millions of their poverty-stricken people.

We hope the lessons of May 1, 1987, twenty years ago this month, will be available for others in this world, and right at this time. We hope that the courageous and truthful action will help us to act in a more effective way towards economic justice.





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