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10-23 - Globalization and Development Development Part II...

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Unformatted text preview: Globalization and Development Development Part II: Debt and Structural Adjustment Shelley White African World Perspectives October 23, 2007 Questions from last class? Questions Era of Structural Adjustment Era Beginning in 1980, World Bank and IMF policies Beginning and programs converge: and World Bank area projects (late 1970s) were failing World and external pressures were mounting and IMF recovering from demise of fixed exchange IMF system - gave it a new role in development system Neoliberalism dominates (a return to classical Neoliberalism economic theory): economic Stabilize (interest rates) Privatize (industry) Liberalize (trade) New WB/IMF Approach New **More long term loans** **More “conditionalities”** Loans: WB increased its share of long term outstanding debt WB from 11% in 1980 to 25% in 2002 from By 1995, 37 sub-Saharan countries had at least one By World Bank adjustment loan and 33 had two or more loans loans IMF doubles its lending to Africa 1980-2002 Outcomes Outcomes Negative Growth: Sub-Saharan Africa’s GNP per capita (excluding S. Africa) Sub-Saharan in dollar terms fell 43% from 1980 to 2001 in By 2000 (for Sub-Saharan Africa): Official dev’t assistance & official aid (USD) = $13.2 bill Long term debt (USD) = $172.7 billion Long Total debt service (interest plus principle repayment) = 11.4% of exports of goods, services and income 11.4% By 2006, Debt = $201B, repayment/yr = $14B, aid/yr = $10B Growing Debt (on top of existing debt): Net Transfer of Wealth: Net In 6 of the 8 years from 1990-1997, developing countries In paid out more in debt service than they received in new loans – a total transfer from South to North of $77 billion loans Poor Growth Poor Net Transfer of Wealth Net Growing Global Wealth Gap Growing Ratio of aggregate wealth between the world’s richest Ratio countries (top 20%) and poorest countries (bottom 20%): countries poorest countries 1913: 11 to 1 1950: 35 to 1 1992: 72 to 1 2005: 102 to 1 Income Ratio (PPP) [See next 3 slides] • Ratio of income in one country to the world mean world • Income measured as GDP/Capita (purchasing power parity) (purchasing “Third Colonial Occupation” “For Africa, globalization has meant structural For adjustment programs that have derailed postadjustment iindependence development efforts, leading to what ndependence Nabudere calls the ‘third colonial occupation,’ distinguished by the downsizing of the postcolonial state. Aina has likewise argued that the economic restructuring process embodied in structural adjustment programs begs the question of ‘what globalization means for economic development and whether this is still a possibility for African economies.’” (Magubane, p.173) economies.’” Debt and Priorities Debt “In Tanzania, where 40 percent of people die before In the age of 35, debt payments are 6 times greater than spending on healthcare. From the whole of Africa, where one in every two children of primaryAfrica, school age is not in school, governments transfer school four times more to Northern creditors in debt payments than they spend on health and education of their citizens.” – Ellwood, 2002 of Why is debt repayment a greater priority than social Why services? Why do African governments tolerate this imbalance? Do they have a choice? imbalance? SAPs: “Shock Therapy” SAPs: Structural Adjustment Programs (SAPs) created Structural new conditionalities for WB/IMF loans: new SAPs took a “one size fits all” approach – same policies SAPs were expected to transform all economies regardless of type, condition, strengths, weaknesses… type, SAPs have been called “shock therapy” because countries SAPs were expected to change policies overnight were SAPs have been criticized for undermining democracy and SAPs state sovereignty – national government policy was being dictated by global governance dictated Countries are cut off from foreign investment and trade Countries unless they have WB/IMF seal of approval unless Why did countries accept SAPs? The Washington Consensus The Cutting social expenditures, also known as austerity, Cutting austerity Focusing economic output on direct export and resource extraction, resource Devaluation of overvalued currencies, Devaluation Trade liberalization, or lifting import and export restrictions, Trade or Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic foreign stock markets), stock ), Balancing budgets and not overspending, Balancing Removing price controls and state subsidies, price subsidies Privatization, or divestiture of all or part of state-owned Privatization or divestiture enterprises, Enhancing the rights of foreign investors vis-a-vis national laws, Improving governance and fighting corruption. governance corruption The Case of Tanzania The 1961-1967: 1961-1967: Independence (1961) and immediate focus on developing Independence capital-intensive industry economy with foreign investment capital-intensive WB assistance in 1963 for education Income inequality increased, rural development was ignored, Income local expertise remained inadequate, and finance emphasized capital projects rather than using resources of labor and land capital President Julius Nyerere’s new vision: 1967 Arusha Declaration Anti-capitalist, anti-dependence (discouraged foreign loans and Anti-capitalist, aid), Pro-African Socialism aid), Focused on agricultural development and domestic economy, Focused delivery of social services, education delivery Trade: encourage South-South trade, import only products Trade: Tanzania can’t develop Tanzania Mixed results: better social cohesion, but economic difficulty… 1967-1980: The Case of Tanzania, Cont. The 1981-1995: 1981-1986: Tanzania self-imposed austerity measures as 1981-1986: Nyerere battled IMF (thru1985) Nyerere 1986: Tanzania accepted IMF assistance; President Ali Hassan 1986: Mwinyi embraced liberalization Mwinyi Tanzania’s Change magazine (1994): Tanzania’s “the harsh economic environment.. .emanating from the shock therapy of the the economic reforms.. .has had a visible impact…The quality of life of the majority of Tanzanians has declined in the wake of eroded incomes, in real terms, and the general escalation of costs of the most basic necessities of life. The 'Welfare State' built over the last thirty years has witnessed a virtual demise with the people, particularly the urban workers, being called upon to share costs of education and health at a time when their incomes are inadequate even for meeting food needs.'‘ [At the same time, the quality of life for the minority Asian community has improved 'tremendously', thus exacerbating] “a strong perception that the wealth divide is intensifying on racial lines.” – Kaiser, p.232 racial Tanzania under IMF Tanzania Focus on: Reducing budget deficit, liberalizing trade Focus regime, removing price controls, easing restrictions on the marketing of food crops, restructuring financial sector Major restructuring of state-owned enterprises: divested 335 out of some 425 parastatal entities – for example, management of the electric sector was contracted to a private company in 2003 private Annual economic growth about 4%, but economy greatly Annual dependent on donor aid dependent Tanzania has an external debt of $7.5 billion. The Tanzania servicing of this debt absorbs about 40% of total government expenditures government Debt Relief Debt 1980s saw growing international pressure to relieve the 1980s debt of developing countries – building on Southern movements movements In the early 1990s, the Jubilee 2000 movement started with In a goal to cancel international debt by the year 2000 goal IMF/WB started the “Heavily Indebted Poor Countries IMF/WB (HIPC) Initiative” in 1996 - limited debt relief (HIPC) Tanzania received limited debt cancellation – allowed Tanzania increased education spending and eliminated school fees for elementary education: In Tanzania, “almost overnight, an estimated 1.6 million kids returned to school. By 2003, 3.1 million children were back in school. The net enrollment ratio has risen from 58.8 percent in 2000 to 88.5 percent in 2003.” – Jubilee USA 2000 Expanded Debt Relief Expanded In 2005, G8 nations announced Multilateral Debt In Relief Initiative (MDRI), which guarantees 100% debt relief to nations reaching particular indicators under HIPC under By July 2006, 19 nations have qualified for 100% By debt cancellation under the MDRI--fifteen of which are in Africa including Benin, Burkina Faso, Cameroon, Ethiopia, Ghana, Madagascar, Mali, Mauritania, Mozambique, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia Who’s dictating these policies? Who’s WB and IMF have shareholder structures – the countries WB that give the most money have the greatest say in policy that US share in both WB and IMF has always exceeded 15%, US which maintains veto power over major decisions requiring 85% majority vote 85% Staffing of WB & IMF – mostly Western trained economists What do you think??? Should development and aid have strings attached? Should Are Western economists best equipped to determine Are Africa’s national policies? Who should be involved? Africa’s Can Western nations be compelled to give loans and aid Can that don’ t have benefits at home? How can the system be made more fair? “…our privileges are located on the same “…our map as their suffering, and may – in ways map we might prefer not to imagine – be linked to their suffering, as the wealth of some may imply the destitution of others…” may -Susan Sontag ...
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