By Hodhan Jibril
International Relations & Arabic Student
In the early 1980s, the International Monetary Fund (IMF) and the World Bank introduced their Structural Adjustment Programs (SAPs). The programs responded to the international debt crisis in the 1970’s; developing countries could not return loans from North American and Western European banks, which had increased their lending with money from rising oil prices. SAPs enabled developing countries to receive conditional loans from the IMF and World Bank to service their debts, in return for allowing the IMF to have input on policy reforms. The programs were intended to increase the economic growth of recipient countries by decreasing inflation, restoring currency convertibility, and renewing debt servicing. In an investigation of Somalia’s agricultural industry and the Rwandan Genocide, it is clear that SAPs have often deterred development, rather than promote it.
In 1981, the International Monetary Fund (IMF) and the World Bank began implementing structural adjustment programs (SAPs) in Somalia. For Somalia, SAPs led to decreased government spending on social services, such as education, health, law and security. In order to soften the impact of SAPs on recipient states, multilateral lending organizations often paired the economic programs with food aid programs (food-for-adjustment). The 1980s food aid programs in Somalia, however, destabilized Somalia’s agriculture industry and as a result, contributed to the severe famines in the country.
Additionally, in 1980s, the impact of SAP conditions on Rwanda’s coffee industry created incentives for farmers to join the army and the Interhamwe militia, later the perpetrators of the 1994 Rwandan genocide. Further, the economic de-stabilization incited by the SAPs in Rwanda fueled social tensions, which precipitated the outbreak of genocide. In both Somalia and Rwanda, the IMF and the World Bank have employed macro-economic theory, without considering the social impacts of a sudden implementation of economic liberalization policies.
To begin, SAPs in Somalia created a pattern of dependency on external food aid that continues today. Somalia’s dependency on food aid is unusual considering that, until the early 1970s, the predominantly pastoral economy was independent in its production of food grain. From 1974 to 1975, Somalia underwent a period of stagnant levels of domestic food performance, which was supplemented by food imports. The Ogaden war intensified the effects of a drought in Somalia; 1.3 million refugees settled in the country by 1979, further straining the country’s resources. Critically, the domestic market began to recover after 1980, however,
“The donors kept up their aid at the level called for by the crisis situation in 1980; the government no doubt welcomed this even though the need for aid was continually receding. Thus, the country went into ‘aid dependency’ just at a time when its basic production situation was improving.”
The food aid was sold at prices drastically below market price, and thereby greatly disadvantaging Somalia’s domestic food producers. Further, the imports had a notable impact on the consumer habits of Somalia. Specifically, imported grains, such as rice and wheat, replaced their Somali counterparts, sorphum and maize. The revenue from the food aid was returned to the Somali government, in the form of counterpart funds. In the early 1980s, 10% of the government’s budget, in terms of total revenues and grants, was comprised of counterpart funds.
In this way, Somalia’s government became dependent on food aid as a source for its budget. Importantly, the country’s dependence could have been avoided with a greater understanding of domestic food production. Specifically, the continuation of aid after 1980 at the levels needed in the 1970s, the period of stagnant food production, created Somalia’s dependency on food aid. In large part, the economic liberalization program helped to destabilize the domestic mechanisms of food production in Somalia.
Importantly, the SAP loans are still a barrier for the Somali government today. Specifically, Somalia’s arrears on its approximately $328 million debt from the 1980s exclude it from receiving debt relief for the country’s current famine. Specifically, Somalia is ineligible for the World Bank’s International Development Association and the IMF’s Debt Relief Under the Heavily Indebted Poor Countries (HIPC) plan. In the 1980s, SAPs led to food dependency in Somalia, and currently, the loans lock Somalia out of accessing money needed to combat the famine, which is impacting over half of the population.
In addition to their effects on Somalia, SAPs also indirectly set the socio-economic conditions for the 1994 Rwandan Genocide. In the 1970s, about 70% of Rwandan rural households grew coffee beans. In the 1980s, the IMF and the World Bank encouraged coffee exporting states, including Uganda, Kenya, Ethiopia, and Vietnam, to expand their production. As a result, the coffee market was extremely saturated and the price collapsed. In Rwanda, the oversupply of coffee meant that the state coffee stabilization fund, Fonds d’égalisation, went in to great debt; further, the price collapse in 1989 caused the government’s budget to be cut by 70%, leading to a reduction in spending on social services. The over-saturation of coffee also meant that Rwandan exports declined by close to 50%. Simultaneously, the SAP conditions also meant the devaluation of the Rwandan franc by 50%, which was intended to increase exports by increasing the purchasing power of international buyers.
Instead, the devaluation created massive inflation in the Rwandan economy, increased their external debt, and increased the cost of imports. As a result of SAP conditions, thousands of Rwandan farmers lost their livelihoods. The unemployed farmers became the principle source of recruits for the the Interahamwe militia and army, key actors in the 1994 Rwandan Genocide; in essence, “the [Habyarimana] regime’s hardliners channeled the massive social discontent resulting from the devastating economic conditions into implementing their plan for genocide.” Indirectly, the 1980s SAPs created the economic and social conditions that accompanied the beginning of the genocide in Rwanda.
Typically, the SAPs provide conditional loans that do not stimulate the recipient state’s economy, and in some cases, removes money from the economy. Then, the IMF proceeds to charge interest for the loans; when a state is unable to return the loan, the IMF reschedules the loan as long as the state allows the IMF to prescribe its future economic policies. The state is still required to return the loan to the IMF, including interest charged on the delayed payment. In effect, “The poor countries will have to run faster and faster just to stay in the same place.” In sum, as a result of their SAPs, the IMF and World Bank have promoted patterns of poverty and dependency in many African states.
It is, however, important to note that although Somalia and Rwanda are notable examples, they were not the only recipients of SAPs. In the 1980-1990s, SAPs were implemented in countries, including Nigeria, Egypt, and Uganda, with limited success and extensive consequences. In Nigeria, SAPs “destroyed the Nigerian economy and impoverished the people”. In Egypt, unemployment rose after the implementation of SAPs, and class difference increased; it is posited that “this growing inequality, is, arguably what led to the 2011 Revolution.” Additionally, in Uganda, SAPs led to the dismissal of 170,000 people, in an effort to reduce the government wage bill. A 2002 report by the Structural Adjustment Participatory Review International Network (SAPRIN), found that SAPs have succeeded in,
“expanding poverty, inequality and insecurity around the world. [They have] torn at the heart of economies and social fabric…increased tension among different social strata, fueling extremist movements and delegitimizing democratic political systems. Their effects, particularly on the poor are so profound and pervasive that no amount of targeted social investments can begin to address the social crises that they have endangered.”
It is important to note that, although this article focuses on the effect of SAPs on African states, the SAPs also had devastating consequences to other regions. In the late 1990s, following 15 years of SAPs, Latin America underwent “its worst period of social and economic deprivation in half a century.” Approximately one half of Latin America, about 230 million people, were poor by 1997. The number of poor had increased by 60 million over the course of 10 years.
Despite the widespread failure of SAPs in promoting development and poverty reduction, the programs continue to exist under a different name. In 1999, SAPs were replaced with Poverty Reduction Strategy Papers (PRSPs). Instead of the World Bank and IMF setting conditions for loans, PRSPs allow governments to create their own conditions in the form of 3 year national development plans. The IMF and World Bank can then decide if a country’s PRSP warrants the forgiving of debts or the addition of new loans. The participation of national governments is intended to mitigate a main feature of SAPs: a relationship in which international financial institutions (IFIs) dictate policy for recipient states.
Nevertheless, “limited change [compared to SAP conditions] in the policies contained in the national development plans reveals… that international economic realities offer few choices but to embrace market-oriented reforms.” In spite of the ramifications in Somalia and Rwanda and the implications for countless other states, the IMF and World Bank continue to promote economic market liberalization as the one-size-fits-all solution to underdevelopment and poverty.
Photo credits World Bank/Flickr