Soc quiz 5

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debt_relief_new1.ppt

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The IMF
&
Structural

Adjustment

Life and Debt

1944: Bretton Woods

Post WWII

- Pre-war isolationism and depression

- Post war economic instability and stagnancy

US and UK most powerful leaders meet to create

“A New Set of Rules for Global economy”

“ A golden Age of Capitalism”

Keynesian policy aimed to:

- Stimulate the economy

- Promote international trade

- Address growing worker discontent

By:

Reconstruction and development

Government regulation of markets

Welfare system for workforce

Fix $35 to 1 oz Gold

Creation of GATT, World Bank…and the IMF

Stage 1: The break down of the $-Gold system – unstable international currency values

1971 Nixon abandons the $-Gold system

Why?

Cash for Vietnam without tax increase

More $’s in circulation value of $ falls

Dollar devalued compared to other currencies
Cost of US exports falls (a good thing for US manufacturers)
Cost of foreign imports to US rises (a bad thing for US consumers exacerbating inflation)

Reckless Inflationary Action!! (Interest rates kept low to stimulate economy – lead to inflation)

Wage gains lagged behind inflation due to poor industrial performance/productivity
Currencies speculation further destabilizes economies.
Since dollars weren’t worth much and you couldn’t get much interest on it, investors converted to other currencies

Stage 2: Problems get worse with the Oil Crisis 1973-74, then again 1978-80

A cartel is formed between OPEC: The Organization of the Petroleum Exporting Countries

- regulate and restrict production of oil

- create set price of oil

Oil prices rise 3-4 times!!
Adds to inflationary pressure even while wages fall

Huge profits in cartel created as “petrodollars”

Invested in EU Banks as “Eurodollars”

Loss of confidence in the dollar leads to investors calling in on debts. US US dollars flood market = lots of $$$$$$’s in banking system…..

Stage 3: Loans, Loans, loans

“Peripheral”/”Developing” countries encouraged to borrow

Why?

- Lots of excess capital in banks translates into low interest rates (so many $$$’s to lend).

- Inflation in peripheral countries leads to devaluation of their currencies so need $$’s to buy foreign goods including expensive oil

- Legacy of mono-export commodity = peripheral world currencies are especially volatile because of their reliance on a narrow range of tradable goods, e.g. coffee, tin, etc.

- Ideological pressure from US to promote capitalism and contain communism through encouraging reliance on the western hemispheric trade system. Investments in EPZs, reliance on internationally traded products

Stage 4: Change in economic policy in the US

Late 1970’s Carter administration

tightens US policy

End inflationary and devaluation policies

Value of $ stabilized

Interest rates increased

Impact globally…

Late ’70s and early ’80s:

-Rising global interest rates

-Rising value of $ (good time to travel, bad time to sell US goods)

-Continuing devaluation of “soft” currencies due to investor-speculators

-Unequal exchange between core-periphery

Stage 5: Default

Increased interest rates in the industrial core world means that it becomes even harder for peripheral debtor nations to pay back debts.

Emergence of the Debt Crisis in peripheral countries that took out loans when interest rates were low and their currency values were modestly stable

Stage 5: Default

Mexico, 1982: perception that Mexico could not repay debts led to massive capital flight – US govt’, Federal Reserve, IMF and other bail them out.

Triggers flight of capital from other heavy Latin American borrowers such as Argentina, Brazil and Venezuela.

By 1988 15 countries are in debt. They range from Mozambique with debts of 399.7% of its GNP to Mali whose debts are 100.8% of its GNP.

Stage 5: Default

Brazil’s International Debt

Unequal exchange – as core finds new ways to add value

Terms of Trade that favor core nations

Legacies of Import Substitution

Debt Trap

Debt Burden

Total loans made to oppressive regimes (low and middle-income countries) = $500 billion

Loans to South Africa’s apartheid regime (being repaid by current government) = $22 billion

Africa’s debt stock in 1970 = $11 billion

Africa’s debt stock in 2008 = $215 billion*

SSA receives $10 billion in aid

but loses $14 billion in debt payments per year

Emerging Role of The IMF

Private banks will no longer lend money

Enter: The IMF and WB with new short term loans

IMF: Neo-liberal institution - Belief in free-markets, export-led growth, minimal government regulation…

So, loans come with conditionalities known as Structural Adjustment Policies (SAP’s)

= Macro-economic packages which developing countries like Jamaica must comply with before they can receive resources and loans and include

IMF argued that through these policies countries will progress towards western model of efficiency, modernity and development through Privatization, Liberalization and Economic stabilization

“Government is not the solution to our problems.

Government is the problem.”

Ronald Reagan,

Inaugural Address, 1981

Structural Adjustment Programs
“Washington Consensus” (IMF, World Bank)

Austerity measures to reschedule debt (but IMF conditional)

Reduce government expenditures (education, health)

Improve terms for foreign investment (reduced taxes)

Privatize the economy – ‘Free market’

Continue paying debt (often greater than health budgets)

Updated

Structural Adjustment Programs
“Washington Consensus” (IMF, World Bank)

1. Decrease government spending:

Lay off workers (mostly health and education)
Cut government programs (education, health, agriculture)
End subsidies for poor (food, transport, housing, water)

2. Improve terms for foreign investment to increase exports:

Reduce taxation, currency controls on investors
Devalue currency
Reduce or freeze wages – reduce worker power

Structural Adjustment Programs
“Washington Consensus” (IMF, World Bank)

3. Privatize economy = “Free Market Rules”

Market regulation of prices (huge increases)
“Willingness to Pay” ethic for social services
Growth of private health care

Reschedule debt over longer period (indefinite)

Effects of SAPs

Enormously increased food, transport prices
Huge levels of unemployment
Non-living wage for those who remain working ($20-40 per month)
User fees for health, education, and other services
Reduction in education, health care quality
Social unrest – demonstrations, riots

SAPs reduced education budgets… and affected education

MDG2 – Achieve Universal Primary Education

An additional 47 million African children of primary school age will need to be enrolled between 2007 and 2010 to reach MDG…

Source: The DATA Report 2007 - http://www.thedatareport.org/

Updated -

SAPs and Reduction in Health Budgets

Health budgets half of 1980’s levels
Benin = 9% to 4%
Mali = 8% to 4%
Mozambique = 11% to 3%
Increasing donor dependence
Support of NGOs for health care

SAPs Weakened National Health Systems in Africa

Ministry of Health (MOH) budgets were slashed, causing:

Inadequate workforce (numbers, salaries, morale)
Poorly maintained and equipped health facilities
Inadequate transport, communication
Weak procurement and distribution of medicines and supplies

Overall decreased quality of services

Crisis in Health Care Providers

Inadequate professional training
Inadequate positions
“Brain drain” of doctors and nurses
External – to USA, Europe, Japan, other richer countries
Internal – to better paying jobs in-country (part- or full-time)

Distribution of Health Workers in Selected Countries

Source: World Health Organization Statistical Information System (WHOSIS)

Need your data table

Dealing with Consequences of Debt

Adjustment with a Human Face
Bamako Initiative
1990’s Reform
Heavily Indebted Poor Country Initiative (HIPC) in 1996
Multilateral Debt Relief Initiative (MDRI) in 2005

“Adjustment with a Human Face” (UNICEF)

Policies to protect the well-being of the most vulnerable during structural readjustment, but IN THE SHORT TERM (poverty alleviation program)
Child survival programs
UNICEF study in 1995:
6 of 10 countries - negative nutrition changes and/or IMR
Increased numbers of people under poverty line
all preceded by decreases in GDP/capita

Bamako Initiative – 1987
(UNICEF and WHO)

Formal statement adopted by African Ministers of Health in Bamako, Mali

‘Health of women and children - Funding and management of essential drugs at the community level’

Mandate:

Drug charges to recover expenditures
1st year proceeds for seed capital, 2nd and successive years as replenishment
CHCs - community health committees

Bamako Initiative – 1987
(UNICEF and WHO)

Implications:

UNICEF aligned with World Bank
Charging fees, transferring costs to community
Health care responsive to DEMAND, not NEED
Depoliticized health

Impact of SAPs - Immunization Coverage

SAPs

Not sure how to update….

1990’s “Reform"

Continued debt repayment

Continued price/wage problems

Sporadic growth with increasing disparity

Intense pressure on IMF, World Bank

HIPC Initiative
(Heavily Indebted Poor Countries)

Set up in 1996 to reduce debt burden of poor countries
Reformed in 1999, after pressure from campaigners
Lengthy process (10+ years)
Only 41 countries eligible in 2008 (33 in Africa)
Does not include all debts (IMF, WB, not private or bilateral)
Designed to reduce debt to “sustainable” levels
Conditionality (SAPs) continued

How the HIPC Initiative Works

To be considered for HIPC Initiative assistance, a country must:

Be IDA-only and PRGF-eligible;

Face an unsustainable debt burden, beyond traditionally available debt-relief mechanisms;

Establish a (6 year) track record of reform and sound policies through IMF- and IDA-supported programs (‘completion point’)

Have developed a Poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process

Source: IMF Factsheets - http://www.imf.org/external/np/exr/facts/hipc.htm

I added this new slide – necessary?

Status of HIPC Eligible African Countries

Source: The DATA Report 2007 - http://www.thedatareport.org/

NEW

MDRI & Gleneagles Summit –
Debt Burden in 2005

Total external debt of low-income countries= $523 billion
Total debt service being paid every day by low-income countries = $100 million
Africa’s total external debt = $300 billion
For every $1 received in grant aid, low income countries paid: $2.30 in debt service
Many African countries spend more on debt than either health or education
(e.g., Cameroon, Ethiopia, Gambia, Guinea, Madagascar, Malawi, Mauritania, Senegal, Uganda and Zambia all spent more on debt than health in 2002

Need to update

Multilateral Debt Reduction Initiative (MDRI)

Launched by the G8 at Gleneagles in 2005
Expand the pre-existing HIPC initiative to eliminate multilateral debt for qualified countries
Promised 100% cancellation of the World Bank and IMF debt for 23 poor countries that reached ‘completion point’
Agreed to write off as much as $57.5 billion in debt to some of the world's poorest countries
No change to SAPs, only WB, IMF debt

Results of HIPC and MDRI (2008)

Countries which have received debt cancellation through HIPC = 33 out of 41 eligible countries*
Total debt cancellation between 1996 - 2007 = $23.8 billion*
Debt cancellation granted in one day to Iraq in Novmeber 2004 by the ‘Paris Club’ = $31 billion**
Number of qualified teachers which Zambia was unable to employ because of a public sector wage freeze imposed by the IMF in 2004 as a condition of receiving HIPC debt relief = 9,000**

Sources: * HIPC and MDRI - Status of Implementation Report 2008 and

**http://www.networkideas.org/news/aug2006/Debt_Relief.pdf

Updated

$15 Billion

US Banks

European Banks

African Governments

Annual Debt Payments Since Mid-1980s

Update?

Debt Cancellation Works

In Benin, 54% of the money saved through debt relief has been spent on health, including on rural primary health care and HIV programs.
In Tanzania, debt relief enabled the government to abolish primary school fees, leading to a 66% increase in attendance.
After Mozambique was granted debt relief, it was able to offer all children free immunization. Nurses salaries doubled.
In Uganda, debt relief led to abolishing school fees (1997) and 2.2 million people gaining access to water

Source: The Data Report 2007 - http://www.thedatareport.org/

Millennium Development Goals
United Nations 2000

Eradicate extreme poverty and hunger

Achieve universal primary education

Promote gender equality and empower women

Reduce child mortality

Improve maternal health

Combat HIV/AIDS, malaria, other diseases

Ensure environmental sustainability

Develop a global partnership

Poor achievement in sub-Saharan Africa

MGD 1 - Poverty reduction
Some progress, but not in Africa

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