Beginning in 1992 some 50 countries began implementing International Monetary Fund (IMF) structural adjustment programs (SAP). These programs were designed to help third world countries become more developed and to diversify their economies. When a country can no longer continue borrowing money, adjustment is deemed appropriate and often necessary. Usually the IMF promotes diversification of the nation’s economy. This creates a wider base of influence in the global market, hopefully pulling said nation out of debt. The IMF SAPs are designed to help this adjustment take place, but to who’s benefit?
Consequently these programs have become extremely controversial. Do these SAPs leave their host countries better off? Zambia is one such country. Its results show that the SAPs are ineffective because they do not address specifics, communicate efficiently with themselves, or improve the state’s own well-being. Throughout the 70s and late 80s Zambia’s main cash export was copper. In 1975 copper prices plummeted on the global market drastically reducing Zambia’s main source of monetary income. Zambia was trapped between a rock and a hard place.
The high price of international oil increased the costs of manufactured goods that Zambians had to import from first-world countries. In those countries the inflation caused by the increase in energy prices discouraged purchases and slowed manufacture. Consequently, raw materials were in less demand. To solve this problem Zambia obtained low conditionality loans from the IMF. IT was clear that Zambia needed to restructure its economy to reduce its dependence on copper earnings. It was then proposed that Zambia should turn to non-manufactured agricultural products.
What was the real motive behind such a proposal? Where the IMF representatives defending the first world’s levels of development or did they truly see a comparative advantage in Zambian agriculture? With the economy going downhill the Zambian government had little choice than to except the terms of the “low conditionality” loans. These loans and the subsequent SAP ended up taking power away from the national government. One cannot analyze the Zambian SAP without looking at the currency auctions which devastated the agricultural base. No sector of Zambian economy was left untouched by the auction.
In this system those companies or individuals (i. e. Farmers, etc) who wished to export would bid on foreign currency (mainly U. S. dollars). This was great for those who had money to spare; they were able to devalue their kwacha and to win the bids. This however was extremely damaging to the rural farmers. The ironic factor was those industries defined as critical domestic sectors were exempt from the auction. In other words these sectors were able to get foreign currency at a flat rate. This again was great in theory but not so beneficial on paper.
It was extremely hard to be classified as a critically important sector and one of the most important sectors, agriculture, was not even included. In May 1984, the World Bank created Zambia’s Agricultural Rehabilitation Program. Several nations along with the World Bank pledged foreign aid assistance in return for substantive reforms in Zambia’s agriculture. This was obviously the first failing of the SAP for Zambia. Its cookie cutter format did not take into account the local economic conditions. The second downside of the SAP was miscommunication.
Sector experts were often excluded from participating in the decision-making process. If the IMF wants their SAPs to succeed in the future this issue must be dealt with. Those who are experts in a sector should make the policy for that sector. According to the IMF the role of the Zambian government was to cut spending and get out of the IMF’s way. However this can be defined as the third failing of the IMF SAPs. A government is the best connected and most familiar with its own nation. It would have been in the best interest of the IMF, if they wanted to help Zambia, to work with the government to develop.
This is where the IMF did not live up to its role as a benefactor. For example, the SAP’s policies regarding inputs and access to credit hurt female farmers. As in many African nations, Zambian women perform much of the agricultural production. The way that land rights, inheritance, and child and labor responsibilities were structured created a disadvantage of the Zambian women to the men. In this case the Zambian government was not living up to its role. They should have stepped in and told the IMF about these conditions. It was these localized differences that made the SAP damaging.
On the other hand the Zambian government did not live up to the requirements in Zambia’s Agricultural Rehabilitation Program. There were 7 preconditions that the benefactors wanted to be met. At the August 1984 meeting Zambia’s representatives carried no plans or timetables for instituting the preconditions. So the third downfall of the SAP was both sides not living up to their roles. In today’s geopolitical environment the only way a third-world country can develop and diversify is if the first-world community wants them to. The case of Hong Kong is just an example.
First-world countries such as the United States wanted Hong Kong to succeed because it was in their interest. The converse is also true, if those powers to be don’t wish the 3rd world nation to succeed then it won’t. Such was the case in Zambia. The IMF rode in on a white horse hoping to save the day. However, their program was flawed in two key areas. The SAP did not address specifics in the nation (Zambia) and they didn’t communicate effectively within their own organization. In the future a cookie cutter approach to policy cannot work and should not be attempted.
Before any SAP goes into action the specifics of the nation’s politics, gender issues, local economic condition, and population breakdowns must be taken into consideration. Communication must be an important part of the process. The IMF must work with the nation’s government and other international organizations. Any advice must be shared and those experts in an area must help make the policy. If these changes occur then the SAPs will become a more effective policy which can help 3rd world nations develop. Ultimately however the power is with the 1st world countries, if they want a nation to improve it will happen if not well then.