BLEEDING THE REFUGEES

(the IMF and Mozambique)

by Joseph Hanlon

When Mozambique's President Joaquim Chissano visited remote Chifunde in May, district administrator Jose Jasse read out a message from the local people. Two-thirds of them are recently returned refugees, and their most urgent need is reopening rural roads and bridges "so that surplus crops can be moved and traders attracted." A group of children also asked the President to build some schools for them to attend.

The war ended four years ago. Many of the refugees in Chifunde and elsewhere have been back for two years. But the International Monetary Fund (IMF) says that Mozambique and international donors must delay rebuilding the roads and schools destroyed in the war because such projects are "inflationary."

Mozambique is the poorest country in the world, according to UNICEF. Yet the IMF suggests it must become poorer still before it can repair the damage. The 1.7 million people who returned from neighboring coun tries, and the 3.2 million moving back to rural areas, must wait until inflation is below 15 percent.

In Europe and Asia after the Second World War, the logical strategy was to first rebuild the least-damaged infrastructure- roads, railways, factories, mines-in order to stimulate the economy. Inflation was an issue, since all countries print money to finance wars. But the highly successful strat egy of the 1940s was to increase production as quickly as possible, increasing the supply of goods while at the same time allowing high inflation to mop up the surplus.money. With a reasonable supply of goods, it became possible to control inflation by balancing supply and demand.

Fifty years later, the monetarist thinking which dominates the IMF denies that such a policy was followed in the 1940s and labels it unsuitable now. For the war-torn countries of Africa, from Mozambique to Liberia, the prescription is the same: Demand must be reduced rather than supply of goods and ser vices increased, and inflation must be brought down before rebuilding can occur. This makes no sense to the returning refugees, who want to go back to work and rebuild their shattered livelihoods. Even the most conservative industrialized countries, the US and Britain, have backed away from the most orthodox monetarism. But the IMF hasn't lost its faith, and it continues to impose the most rigid doctrine on Africa.

Jeffrey Sachs-director of the Harvard Institute for International Development and dean-apparent of right-wing economists, recently wrote in the conservative British magazine the Economist that the IMF is "looking at spreadsheet calculations rather than reality." He was particularly critical of IMF demands for Mozambique. Earlier this year, Sachs wrote that "reconstruction and rapid growth in Mozambique should take precedence over a rapid disinflation."

The IMF disagrees, and forced its sister agency, the World Bank, to cut back on rebuilding roads and health facilities in Mozambique.

COLD WAR BATTLEFIELD

Mozambique was both a Cold War and an apartheid battlefield. When Ronald Reagan took office in 1981, his administration backed apartheid South Africa as an anti-Communist bastion against majority-ruled Marxist governments in Mozambique, Zimbabwe, and Angola. South Africa was licensed to attack its neighbors. In Mozambique, South African military intelligence organized, trained, and supplied an opposition guerrilla movement, Renamo. In 1988, Roy Stacey, then US Deputy Assistant Secretary of State and part of a group trying to end US backing for these African "con tras," said Renamo was carrying out "one of the most brutal holocausts against ordinary human being since World War II."

With the end of the Cold War, a settlement was reached in 1992, and the formerly Marxist Frelimo party won a multi-party election against Renamo in 1994. But in a country of 17 million people, one million had died during the war, and five million were forced to flee their homes in rural areas. Damage exceeded $20 billion. More than half of all primary schools, health posts, and shops were destroyed by Renamo or forced to close. Half of the rural road network was closed by mines, destroyed bridges, and hundreds of trenches dug across roads.

As refugees flooded back to rural areas in 1993 and 1994, aid agencies provided basic seeds and tools. Good rains ensured plentifill crops. But as returned refugees in Cllifunde told President Chissano, there are no basic facilities for a return to normal life.

Four years after the war's end, most of the 3000 closed rural shops remain closed, and many rural roads haven't been reopened.

THE IMF RULES

The Cold War and aid condi tionality gave the Bretton Woods institutions increasing power in Mozambique during the late 1980s. At first, the World Bank policy of structural adjustment dominated, but since 1990 the IMF policy of stabilization has ruled. Even while the war still raged, the IMF demanded harsh cuts in government spending and restrictions on credit.

The late 1980s showed some growth despite the war. Exports, GDP per capita, and industrial production all rose, while inflation fell. Once the IMF took control, this was reversed-GDP per capita, exports, and industrial production all fell after 1991. IMF stabilization is supposed to control inflation, but it rose from 20 per cent in early 1991 to over 70 per cent in late 1994, and has remained over 50 percent ever since. The end of the war didn't usher in a boom, but further decline. One might expect that if policies increased rather than decreased inflation, the Fund might decide they were inappropriate. But that assumes the IMF is rational, when it actually views its policies as a kind of faith. Just as a priest tells church goers to pray harder, so IMF officials explain that policies don't work because they aren't harsh enough. Result: since 1990 the IMF has imposed stricter polices every year.

Cuts in government spending meant that, by 1994, civil service salaries were a third of what they were in 1990; the UN estimates that two-thirds of Mozambican civil servants are below the poverty line. Nurses, who provide much of the health care in Mozambique, now earn below $40 per month.

By 1995, the total credit provided by banks fell to one-third of the 1990 level. This meant a virtual end to rural credit. The main reason that most rural shops remain closed is that shopkeepers, who want to return, can't borrow the money to repair and restock.

Those few rural traders who are in busness can't borrow the working capital to buy the massive peasant grain surplus from the excellent 1995-96 season. The lack of rural roads makes many areas inaccessible; when the rains start in November, thousands of tons of unsold corn will rot. For many returned refugees, this has dashed the dream of earning enough money to replace cooking pots, the family table, and belongings lost when they fled. There will be no new clothes, and the single donated hoe will have to serve as the family's only farm implement for another year.

Cuts in credit and government spending led to a worsening economy and rising infIation, yet the IMF demanded more. In 1996, it suggested donors spend $173 million less on rebuilding, and that the government's contribution be cut in half. The cuts focused on rebuilding rural roads, schools, and health posts. And since the IMF will allow Mozambique to expand school enrollment only slowly over the next decade, few returning refugee children will ever attend again.

BLEEDING MOZAMBIQUE

The doctors of two centuries ago believed in bleeding already weak patients-a treatment that killed more people than it cured. Now the IMF believes in bleeding poor countries. The world's poorest country must become poorer still before it can be cured. But bleeding is more likely to kill the patient.

Returning refugees, who have nothing, bear the heaviest burden. It's their schools, shops, roads, and livelihoods that the IMF declines to rebuild. So far, President Chissano has avoided the main issue: The IMF apparently believes that the Mozambican economy will recover faster without roads or schools. Refugees have no place in most calculations, and most are far from the decision makers in the cities. But their voices are heing heard. In a strong statement this May, the Frelimo Central Committee warned that "macro-economic policies lose all legitimacy when they inevitably lead to the absolute degradation of the lives of citizens, reducing them to absolute misery." Unfortunately, the all-powerful IMF seems intent on keeping the faith.

from Toward Freedom magazine October 1996

Toward Freedom
209 College Street
Burlington, VT 05401
fex 802-658-3738

50 Years Is Enough

IMF, World Bank, Structural Adjustment