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Political capital, coherent policies needed for revival

By Dr Alex T Magaisa

THE IMF decided to postpone for six months the decision as to whether or not to expel Zimbabwe from its membership. I wrote last week that regardless of political differences between gro

ups in the country, the expulsion of Zimbabwe was nothing to celebrate because it would simply worsen conditions for the generality of the people.

Media reports indicate that the IMF postponed the decision because Zimbabwe had made some frantic efforts to pay part of the arrears earlier in the week before. I think that there is more to it.

In my view, the IMF and other interested parties knew that there were two possibilities: either to postpone the decision and maintain some leverage over Zimbabwe, or to expel Zimbabwe and lose that leverage. They knew that by making the last-minute payment the Zimbabwe government was in a desperate situation and needs the IMF membership.

Having established this through the threat of expulsion, there was really no incentive to expel Zimbabwe at this time and throw away an opportunity to influence change in economic policy and most probably, the political climate. Thus notwithstanding the reasons proffered, the IMF postponed the decision to maintain watch over Zimbabwe and to guide it through threats and conditions out of its present quagmire.

The key question centres on Zimbabwe government’s response to the moratorium that it has been given. However, at another level it is also important for the IMF to engage constructively with Zimbabwe so that the mistakes of the past are not repeated.

The problem within the political discourse pertaining to Zimbabwe is that in the eagerness to see the back of the ruling party, there is a tendency to turn a blind eye to some of the key factors that are also responsible for the country’s predicament.

It seems to me that in the presence of the visible shortcomings of the Zimbabwe government over the last five years, it has been so easy to forget the role of the IMF/World Bank and its impact on the economy in the 1990s.

A large portion of the thorny problems faced today germinated during the 1990s and have only flourished in recent years by the chaotic government policies and actions. Unless we tackle those fundamental weaknesses, it is unlikely that economic salvation will be delivered simply by a change of government alone.

It is important to recognise multiple, and in some cases, complex issues that arise from the relationship between the IMF/WB and Zimbabwe that require critical analysis.

It could help us to understand the origin of the debt problem and the political pressure that was met with brute force in recent years. In this context, I refer to the disastrous Economic Structural Adjustment Programme (Esap) of the 1990s and highlight the argument that besides the much-desired political transformation, it is necessary to confront the deep-rooted structural deficiencies in our economy.

It is generally believed that though conservative, the economy of Zimbabwe in the 1980s was performing relatively well. Despite the socialist rhetoric of the government, studies show that it actually maintained the economic set-up that had sustained Ian Smith’s Rhodesia in the 1970s era of sanctions.

The capitalist system prospered with the import-substitution industrial sector to combat the impact of sanctions and the economy was generally cushioned through a protectionist regime. The manufacturing, agricultural and mining sectors were allowed to flourish and the currency was protected by the exchange rate policy that was in place.

But given the changes at the regional and global levels with the end of the Cold War and the fall of apartheid in South Africa, this was considered to be unsustainable. The gospel of free market economics was in vogue and could not be ignored. Therefore, in 1991 Zimbabwe responded to the common call and launched Esap to liberalise the economy.

It was expected that liberalisation would open up the economy to market forces, promote competition and innovation, attract foreign direct investment and create jobs. But Zimbabwe was also advised that these beautiful results would come at a price and many will recall the catchphrase at the time, which advised people that it was “Time to tighten your belts”.

As we now know, the beautiful results did not materialise in the contemplated fashion. In fact, as Saunders wrote in 1996: “While suffering over the last five years proved even more intense, widespread and chronic than the state initially predicted, the pay-offs did not materialise. Five years on, most of the government’s promises remain unfulfilled, while the hardship of the ordinary Zimbabweans seems without end.”

Without end indeed, as we now know. Now, the point here is not to spite the Bretton Woods institutions or to sanitise the policies and actions of the Zimbabwe government over the last five years. It is that in this struggle, we must never forget that there are various factors and actors involved.

For a start, we should never forget that the chief architects of so-called reforms under Esap were the Bretton Woods institutions. They are significant players in the global economy but they are not saints either. Under Esap, the expected foreign direct investment did not materialise and the jobs that were lost through the retrenchments were hardly replaced, leading of course to the increasing levels of unemployment.

Zimbabwe opened its markets and products were dumped from everywhere, killing companies in the textile sector such as Cone Textiles and related industries. Of course, because it lacks coherent policies, the government did not learn from this and today Zimbabwe is also flooded with cheap Chinese imports, doing further harm to local industry.

Nonetheless, given the well-documented origins of the problems under Esap, it is somewhat astonishing to read simplistic assertions in the media, which seem to attribute the origin of all the problems to the most recent chaos since 2000.

In fact, other than large-scale food shortages arising largely from an ill-conceived land redistribution policy, most of the structural economic problems were already in existence before 2000. The recent chaos has simply exacerbated the situation by reducing international confidence in the country, but the roots of the problems go far and deeper.

It is also during the 1990s period that debt increased in the face of diminishing growth levels and reckless public spending. Some studies indicate that the growing debt was partly caused by Esap-connected borrowing which was encouraged by donors and the Bretton Woods institutions.

These institutions continued to lend when it may have been prudent to curb the borrowing. But there was also another problem and this was a key factor in the failure of Esap – failure of the government to curb excessive spending.

The civil service was still overstaffed, bureaucracy remained the order of the day and inefficiencies increased. To satisfy its spending, the government continued to borrow from both the domestic and foreign markets. But another key problem also began to show prominently in the late 1990s.

The failures of Esap affected the capacity of the government to deliver key social services, create employment for the thousands of school-leavers and generally satisfy the people’s interests.

Retrenchees returned to the rural areas and the value of their packages was eroded over a short space of time. The socio-economic hardships resulted in political pressure due to people’s disenchantment.

In turn, the government began to make reckless and ill-timed concessions to interest groups such as the war-veterans who in 1997 were paid massive amounts of money that had not been budgeted.

We recall also that in 1998/99 Zimbabwe witnessed the first widespread job stay-aways and sometimes violent demonstrations across the cities. The government began to waver as far as its debt repayments were concerned and by 1999 the IMF had suspended Zimbabwe from its balance of payments support programme.

In short, a relationship that had flowered in 1991 with Zimbabwe’s adoption of the fashionable Esap began to sour to the point where last week, Zimbabwe was on the brink of expulsion. The Bretton-Woods institutions had thought that unlike other African countries, Zimbabwe would be a beautiful experiment.

The causes of failure were many and while the government shoulders the bulk of the blame, the thought that the Bretton Woods institutions share some of the responsibility is inescapable.

As we now know, economic failure led to political pressure and demand for political space by civil society and interest groups. Sadly, instead of accommodating demands of civil society, the government decided it was necessary to thwart its claims.

Civil society wanted a share in the policy-making process. But the government felt threatened and the desire for political survival dictated its conduct rather than opening up its structures for mass participation. And the repression tarnished the country’s profile, worsening the economic conditions, and this is where we are today.

What therefore, is to be done?

I have made the brief historical assessment in order to place our current problems into context.

The aim is to demonstrate that what we need is more than a simple transformation at the political level. We require a clear identification of the structural deficiencies in the economy, including at the very basic level, a key understanding of the role of the state in the economy.

It has not escaped the attention of some observers that the trade unionists now in opposition were some of the staunch opponents of Esap in the 1990s and did not have kind words for the Bretton Woods institutions at the time.

It would be interesting and useful to get a clear articulation of their position in relation to the economic policies led by these international financial institutions.

In my view, there are various credible criticisms against these bodies but despite that fact, at this stage we are too hamstrung and we cannot dismiss them as unnecessary.

In any event, the fact that Zimbabwe made frantic payments demonstrates our desperation and that we need them at this time. Loss of membership would have drastic repercussions, including negative signals to other lending institutions ands investors that we are not creditworthy. It would lead to total breakdown.

Our position as a country is such that we need their assistance, though in my view, there is need at a general level of the developing countries acting in concert, to negotiate a more viable relationship with them.

The failures of structural adjustment programmes (SAPs) in the developing world have largely been blamed on the fact that the programmes were not tailored according to prevailing conditions in the respective countries.

There are two key things that are lacking today, which Saunders also identified in 1996: Firstly, government’s lack of political capital to institute reforms and the lack of coherent and consistent policies to implement changes. The shortage of political capital is worse now given the contested election outcomes and the perceived lack of legitimacy.

This is a huge handicap to the government’s attempts to turn around the economy even though it controls parliament. It is difficult to see how in the current global environment the current government can really generate the desired political capital without engaging in some internal organic change of its own. The negative international profile and loss of confidence is directly connected to the character of the current system, regardless of their conviction in the rightness of their actions.

But even besides reclaiming political capital, there is need to address the economic policies and policy-making and implementation generally. One of the key reasons for the failure of agriculture is that in pursuing the chaotic land redistribution exercise, there was no proper agricultural policy to sustain the new system. Land was simply taken because it was “our land”, without putting in place measures to retain productivity. No wonder there are insufficient inputs, inadequate equipment, lack of capital and five years after the takeovers, once productive land is now lying fallow.

Also, there is too much contradiction at the policy level. Ever since the fall of Esap, there have been a number of economic blueprints most of which were heard of only at the time of launching. There seems to be a celebration of launching policy and not the results of those policies. To what extent does the formulation of policy involve all stakeholders?

When policies are put in motion and rescinded soon after, it brings confusion to the market and shows lack of research and consultation. On the one hand someone says no more relations with the West and we look East and on the other hand another key person is saying we need Western support.

The IMF grants Zimbabwe a moratorium and key officials applaud but others emerge with scathing attacks against the same institution. It does not portray the existence of the political will to change things and foster a more productive relationship.

As I have stated, there is substance in criticisms against the IMF, but it is necessary to know when and how to articulate it. In any event, such contradictions increase the confusion about the direction the country is taking. It is like a football team in which every time after the striker scores a goal the defenders conspire to concede two goals.

We should not maintain a superficial assessment of Zimbabwe’s economic difficulties in which we see the problems as arising exclusively during the last five years and that simple political change will resolve everything. The economic difficulties have deep-seated roots. It also involves working out a proper relationship with the Bretton Woods institutions. We need to work out the debt, some of which arose during that disastrous Esap era.

* Dr Alex T Magaisa is a specialist in corporate and financial services law and can be contacted at wamagaisa@yahoo.co.uk.

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