Has Zimbabwe had a change of heart about IMF policies or is it just desperate?

Jun 19, 2011

Like many other countries in trouble, Zimbabwe had its turn with an economic 'structural adjustment' programme (ESAP) imposed by the International Monetary Fund in exchange for loans. Unlike most others, Zimbabwe did not go through with it, abandoning it when the social and politic costs got so high the government could not contain the resulting discontent. Yet there are recent signs of a thawing of relations between the IMF and the Zimbabwe government.

From its beginning in 1991 ESAP came with the high cost to the Mugabe government of dismantling many of the social programmes for which it had received international accolades and popular support at home since independence in 1980. Previously free health and education services introduced fees just when the economy's decline began to really bite. Consumer prices rose, market liberalization led to a flood of imports, squeezing already struggling local industries.

The suffering was supposed to be temporary pain for the benefits of the 'adjustment.' Those promised benefits included greater government efficiency, increased economic productivity and exports, more jobs. While the  adjustment-caused hardships seemed to the population to stretch on endlessly, the benefits never came. The interest on debt to the IMF grew, on top of debt incurred over the previous social spending which helped cause the problem that made the government resort to the IMF in the first place. The social spending that had proved so popular in the 1980s was simply not sustainable when the veneer of the prosperity of the first decade of independence begun to fade; economic productivity and borrowings simply couldn't keep up with the popular expenditure and so the national chequebook increasingly went into the red.  

The Mugabe government bitterly broke off its adherence to ESAP in 2001, in the process committing an economic sin which weak African countries are not allowed to do. Who did this Mugabe think he was to kick out the IMF when he was indebted to them? What if other poor countries under the same political pressures over their implementation of IMF structural adjustment followed Zimbabwe's rude example? There could be global chaos to the financial system.

Mugabe had to be taught a lesson for  his impudence. And so began his ostracisation and demonisation from the West that had previously praised him as a model, 'responsible' African leader who admirably invested in many social sectors while not rocking the boat of Western economic orthodoxy.  Between continuing to please the Westerners to whom he owed money and the citizens who were turning against him, he chose the latter. Mugabe went even more radical by then beginning the expropriation of white-owned farms. In the West he became a certified demon, although at home this kind of populism bought him time and sidetracked attention from the mistakes of his government that forced him to go to the IMF for a bailout in the first place.

As the economy continued on a steep downward spiral the IMF and World bank packed their bags and went home, upset over the suspension of ESAP as well as the suspension of loan repayments. For several years one did not hear much about the IMF and World Bank in Zimbabwe except in the context of their being accused of being part of the alleged global conspiracy against Mugabe.   

But recently the IMF and the World Bank are back in town. An IMF delegation recently paid the country a visit, and a new World Bank representative or the country who will also cover Zambia and will be based there made a courtesy call on representatives of various economic sectors.

In the news are all of a sudden various reports of advice the IMF is offering the current coalition government, which needs vast amounts of money to rehabilitate neglected infrastructure and kick start an economy that has stabilised since its lows of 2007/2008 and is growing from its low base, but far from what is necessary to make up for the lost years.

The IMF has, for instance, advised the government to reduce its bloated wage bill. But civil servants are putting increasing pressure on the government to increase their salaries from the uniform US$350 that it has been for most of them since the introduction of the 'dollarization' that killed off the hyperinflation of the old Zimdollar. Civil servants are an important voting block and means of exercising patronage, so a politician crosses them at his own peril. And elections are coming up soon.

Mugabe has called for revenue beginning to come in from the mining of diamonds to be used to increase civil service salaries, while Tendai Biti the minister of finance from the other main political party of the coalition government insists the first priority is to begin servicing the country's overdue external debt of $7 billion. It is the kind of conundrum for which the IMF and its whole economic ethos is attacked by many: how do you justify debt-service to keep (or regain) the good books of international financiers  when hospitals and schools are struggling to stay open, and a significant proportion of your citizens are hungry; when your industries are on their knees for lack of capital?

To the IMF the 'responsible' finance minister speaks the kind of language that makes them very happy by pushing for debt servicing before anything else; while for them 'irresponsible' Mugabe is up to his old populist tricks of spending money without regard to economic fundamentals; to where the money will come from and how it will be paid off.

It is very strange that Zimbabwe's re-engagement with the Bretton Woods twins is taking place under these confused conditions. The IMF and World bank obviously hope to begin to recover overdue loans, while the Zimbabwe government, or at least parts of it, is hoping to get new credit from any source.

But none of the structural factors that caused ESAP to fail to achieve its promised results and for Mugabe's government to break ties with the IMF have really changed. The economy is in even worse shape than it was when Mugabe broke off with the IMF, while the social needs are even higher than they were then. The IMF's prescriptions have not changed, so if re-engagement means hoping for more funds from them, debt service must take precedence over almost all else. Particularly in Zimbabwe's present weak and depressed economic state, no political party of any ideological persuasion can afford to embark on another ESAP-like experiment and hope to win the next election after. 

It is therefore puzzling that re-engagement is taking place without any national discussion of the implications and the terms of the renewed relationship with the IMF. But then this is a classic symptom of the condition in which most countries are when they go to seek help from the IMF: when they are so desperate that they feel they have no other options.

There is nothing that has come from the IMF or the Zimbabwean government to suggest that the unhappy lessons of their past relationship have been learnt, and that the new relationship is going to be any happier or any more fruitful for the people of Zimbabwe. It is a pity that re-engagement is taking place without a robust debate within Zimbabwe about what lessons it learnt from ESAP, what its goals are in the new relationship, and what the plans are to make those goals more achievable than was the case in the 1990s.

The Zimbabwe Review


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