A Critical Appraisal of the World Bank Policies in Developing Countries -
Presentations - People's Health Assembly - December 2000
A Critical Appraisal of the World Bank Policies in Developing Countries
Charles Mutasa
Poverty Reduction Forum, Institute of Development Studies, Zimbabwe
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Introduction
The 1980s have been known as the decade of adjustments marked by the dissolution of the Keynesian consensus and the emergence of neo-liberal consensus. The implementation of the structural adjustment programs (SAPs) has since become a hotly debated issue because of the adverse impact on people’s living standards. When the program started the main proponents who are the Bretton Woods institutions - the International Monetary Fund (IMF) and the World Bank (WB) hoped that most developing countries experiencing problems related to economic growth, incomes and employment would have them resolved. The World Bank provides about half of its financial support in the form of SAPs and the other half as project investments, whereas for IMF all its support is in form of SAPs.
It is clear that the intended final objectives of economic policy adjustments in developing countries were macro-economic stability, increased efficiency and enhanced economic growth. The policy instruments of the adjustment programs were; devaluation of exchange rate, restructuring of government expenditures and related fiscal restraint, monetary discipline, rationalization of interest rates as well as reforming the state and state-run institutions. It is commonly understood that the structural adjustments were necessitated by unsustainable balance of payments and high budget deficits experienced by developing countries.
Despite voluminous literature on SAPs, it became clear by the end of the 20th century that the intended objectives of these programs had mixed results. Both internal and external factors played a part in generating the current situation, but it is extremely hard to sift out and assess the special effects of structural adjustment from those of other processes/pressures. However, it is fact that the economic policy reforms by the Bretton Woods institutions overlooked the likely impact of exogenous factors such as drought, the global recession, HIV/AIDS and civil strife in the region, on one hand and the economic legacy characterized by a combination of frictional and structural vulnerability and skewed resources, on the other. A drought for instance can disrupt both policy and all economic and social life. In addition, political rhetoric resulted not only in less commitment to the program, but also adversely affected resource utilization, performance of certain sectors of the economy and the people’s living conditions. This paper is an attempt to give an overall appraisal of the adjustment policies in developing countries with particular reference to Sub-Saharan Africa. It is not an exhaustive review of SAPS but major highlights.
DID SAPS ACHIEVE ANYTHING AT ALL?
If there is anything that SAPs managed to do- It is to question and possibly eliminate the excessive and inefficient state control of many aspects of local, national and international markets. SAPs opened the door to greater willingness by alL stakeholders to discuss Third World countries’ development requirements. They have made it clear that forceful and undemocratic governments can no longer be overlooked or tolerated. SAPs required a certain code of decency and ethics of leadership from Third World governments.
Secondly, It is worth-mentioning that a combination of aid flows, devaluation and removal of restrictions on private trade relieved constraints on the import of much needed inputs and goods and provided incentives for a stabilization of export earnings in a period of sharp declining terms of trade.
SAPs successfully liberalized the economy but failed to control budget deficits. Foreign exchange system was largely dismantled, foreign investment regulations were liberalized, price controls on a variety of commodities (including food) were eliminated and the public monopoly on agriculture marketing was removed. However, the major goals of reducing the fiscal deficits and protecting the poor through social safety nets remained unfulfilled. Whatever the underlying weaknesses in the design or implementation of SAPs, it was the impact of the programs at household and public sector level that had a strong influence on social outcomes The accompanying social safety nets (which were an after-thought)were over-stretched, under-funded and reached only a small percentage of the poor.
It is of obvious expectation that International Financial Institutions (IFIs) classification of ‘good’ and ‘bad’ adjusters is listed in a way tilted towards showing the most favourable possible results from adjustment and that of non-adjusters are often countries ravaged by civil war, which have no recognizable economic policies at all.
THE GLOOMY PICTURE OF SAPS
Despite efforts to implement far reaching economic reforms and maintain macroeconomic stability Third World countries remain associated with material deprivation and abject poverty. Africa’s share in total foreign direct investment inflows to developing countries has dropped from 11% in second half of the 1990s and to a meagre 1,2% of world foreign direct investment (FDI) inflows in 1997.
Africa’s development is strait-jacketed by a $300billion debt burden since 1992. It has been argued that the more you adjust the more debts you incur as a nation. Today, in Sub-Saharan Africa , every man, woman and child owes $357 despite the fact that millions live in abject poverty earning around $100 a day, or 27 cents a day. (Business in Africa magazine December 1999-January 2000). It is a fact of life that some African countries now spend as much as four times on servicing debt as they do on education and health care and up to 40% of their national budgets. It is reliably estimated that every dollar given in official development aid, three US dollars go back to the rich countries in debt service payments.
A number of weaknesses have already been noted in current SAPs provisions as they affect human development and poverty alleviation, including weak benefits of trade liberalisation, intellectual property rights and other trade measures for poor and small scale producers, poor design of subsidies to serve public interests, poor inclusion of support measures for enhancing trade capacities of small scale producers, non inclusion of food security, public health and livelihood needs and marginalisation of developing countries in international trade.
With SAPs , social sector services allocation of resources continue to be skewed and favour has been accorded to the provision of secondary and university education while health services were biased toward secondary and tertiary health care.
Permanent employment has being substituted by casual, insecure forms of employment, with a loss in health, pension and other benefits, and unemployment has exacerbated urban poverty. The impact of SAPS and increased levels of long illness and death, primarily due to the AIDS epidemic have made life unbearable to most households. Households who lack housing tenure, education and skills are reported to be particularly vulnerable to these shocks, as have been households headed by single parents, the elderly, by children, disabled persons, polygamous households and immigrant households. One man had this to say, “ We are caught between the rock and the hard place, the challenge is how to move forward. ”
Support from formal sources is reported to be weak or absent. Rural-urban support networks have however been weakened by high public transport costs, inflation and price instabilities of rural produce and basic household goods. Informal support networks have also been undermined by economic hardship across all households due to inflation and AIDS. Local community mechanisms, such as burial societies and savings clubs have been hampered by lack of funds, even though they are regarded as the most effective forms of support
THE MAJOR DEMERITS
Most assessments of SAPs, especially those in Sub-Saharan Africa have been pessimistic about their outcomes;
“ The adjustment policies did not succeed –except in a minority of cases- in restoring economic growth. Among the adjusting countries of Sub-Saharan Africa, three quarters had declining per capita incomes, over half had declining investment and accelerating inflation…”
(Stewart, 1991)
Given the secrecy and confidentiality with which structural adjustment programs have been negotiated and formulated between the Bretton Woods institutions on the one hand and Third World governments on the other, it is not surprising that both parties continue to be lambasted by sceptics outside the government. The adjustment programs were adopted under duress by Third World governments who were desperate to obtain financial support from Western governments, donor agencies and international financial institutions. Notably, too, SAPs were implemented in the face of considerable local opposition. The truth of the matter is that SAPs have generally lacked legitimacy, commitment and support in both government and the populace.
Contrary to the claims made by its authors and advocates SAPs have not abated the Third World economic crisis. As one study asserted every reasonable analysis of the process returns the same verdict that they did not succeed in laying the foundations for sustainable development. On the contrary, they worsened the crisis on a number of scores. Structural adjustments in Africa for instance have not affected the economic composition of GDP, including the balance between consumption, savings and investment. Economic growth except in a few countries and for limited periods of time, has been sluggish.
More seriously, even when per capita incomes have risen, thay have generally been inadequate to make a dent in the deep-seated grinding poverty. Different sectors have retained their pre-adjustment shares in most regards, with the exception that informal activities have grown in employment terms. Most fundamentally, export values have hardly shifted. Africa’ exports as a share of world wide trade have declined from 4% to 2%. The continent is experiencing import compression, weak productivity and low output. Factories operate at less than 30% instilled capacity. (Business in Africa magazine December 1999-January 2000). Trade prospects continue to be hampered by the non-implementation of the special and different provisions that favour developing countries and the increasing protectionist measures that are being imposed against their export products.
Traditional criticism of SAPs
Traditional criticism of SAPs mainly centre on three points. First, SAPs made poor people still poorer and has speeded the massive deterioration of social services, although the World Bank still insists that people are better off since incomes increase from freeing markets. Historically, opposition to IMF and the World Bank by citizen’s groups have centred primarily on the poverty, social and environmental impacts of adjustment programs and large infrastructure projects such as hydroelectric dams, roads and irrigation projects.
Secondly, it is an open secret that SAPs were introduced without sensitivity to local circumstances and the neo-liberal paradigm is too simplistic and misleading in important aspects. For instance, it fails to recognize the significant though limited role for the state with all its faults. The demonisation of the post-colonial state was part of the IMF and World Bank premises of the adjustment programs. One argument advanced by the Bretton Woods institutions for failure of SAPs in Latin America unlike in the Asian countries is that Latin America countries misallocated and wasted loans they obtained-using them for current consumption, and when they invested, it was in inappropriate “ white elephant” projects which would not yield returns except in the long term, if at all. IMF and World Bank have always been ‘scape-goating’ the state to mask their culpability in Third World misfortune.
Thirdly, the Bank lacks a social assessment (SA) policy, although one, is reportedly, being developed. Critics of the IMF and World Bank have pointed to the gulf between their rhetoric and the reality of their operations that too often, dishonours the social and environmental dimensions of development. It is further argued that self-promotion by the institutions highlights their role in purveying benefits and cushioning the blows of Globalization. Where adjustment has brought about growth, the proportion of the poor people has probably fallen. But there are many situations where adjustment has not brought about growth. Even where growth has occurred those who were most poor have not benefited from it.
“The majority of loans do not address poverty directly, the likely economic impact of proposed operations on the poor, or ways to mitigate negative effects of reform.”
Civil society expect that the IMF and World Bank as public institutions to serve the public good of advancing (or at least not undermining) goals that can improve the quality of life: access to basic services in health and education, poverty reduction, equity, labour standards, consumer protection, environmental protection and democratization. By so doing they ought to set an example for the private sector. On the contrary, poverty has been addressed by the International Financial Institutions (IFIs) only in response to external pressure for them to do so. Associated with poverty increase are the negative effects of SAPs themselves.
Impact on Health and the Social Sector.
-The consequences
The consequences of these programs are not difficult to fathom. Firstly, countries implementing SAPs have become accustomed to operating under an ‘external policy command’ which discourages national dialogue on societal reform. SAPs destroyed the ‘social contract’ so necessary for policies to work. They were forced on to the throats of the marginalized and materially deprived citizens. This eroded the capacity of the Third World countries to develop their own programs for development.
Conditionality-based SAPs implied external determination of economic policy coupled with external financing of recurrent expenditure often in the form of rehabilitation. This is unsustainable for both partners to the aid relationship, donor and receipient. Oloko Onyango (1993) study of Uganda reveals that national budgets are drawn by technocrats in the Ministry of Planning and have to be endorsed by donors before parliament examines them. Even then parliament merely rubber stamps. In fact, SAPs can be viewed as based on a criticism of the nationalist state development project.
Secondly, government expenditure has decreased as financial cuts have not been counter-balanced by timely capacity building. In sub saharan Africa, economies have experienced little structural transformation, one manifestation of which is limited export diversification. Most countries of the region remain highly dependant on primary production and export. In the World Bank classification of economies by major export categories, not a single African country belongs to the “ export of manufactures” league; on the other hand 26 are listed as “exporters of non-fuel primary products.” World prices for the region have been erratic showing a discernible downward trend while import prices have soared. Most African countries are heavily dependent on imported fuel, machinery and equipment.
Government reduction in public expenditure resulted in the reduction of public health, social service and education sectors. Under-funding of the health sector has led to a deterioration of services in public health institutions characterized by drug shortages, overworked and demotivated staff. Utilization, access and quality of public health facilities is compromised as escalating drug costs and other cost recovery measures have resulted in poor clinic/hospital attendance. The introduction of user fees and payments for basic education and primary health care has engendered the epic of human suffering and reinforced inequalities by severely restricting poor people’s access to essential services.
In Zimbabwe, increasing pressure for client payments and cost inflation of medical services have meant that costs of health services to consumers have increased markedly in the 1990s. Consumers have become the primary source of health financing as out of pocket spending has overtaken the ministry of health as the major source of health financing (MoHCW 1997). These costs have risen due to increased costs of imported equipment and drugs, increased gross operating profits (doctors salaries) in the private sector, costs of transport to get to health care and opportunity costs of lost time waiting for care. The average price of Medical Care rose more than six-fold from 1990 to 1995, while other prices rose on average four-fold (Davies 1997).
Economic reforms and performance in the 1990s have also made it more difficult to address other health sector constraints. Specific scarcities in health personnel, particularly high skill personnel, have become more pronounced. Liberalisation and the growth of the private sector generated pressures for greater leeway for private practice in the sector, including by public employees, a practice that has proved difficult to regulate. The health sector appears to have been particularly prejudiced under liberalisation by the fact that it imports inputs (drugs, equipment), while producing for and paid in the domestic market. The sector thus loses, rather than gaining from the currency devaluation under structural adjustment (ESAP).
Generally on a regional level, changes due to SAPs over the last two decades in the financing and of health have resulted in shifts in access to and quality of care. Poor resources, inadequate staffing, inadequate pay have had a negative impact on both working conditions and quality of care, leading also to tension between staff and patients. Communities have complained of negative attitudes in health workers towards clients. Patients indicate that they fear exercising their patient rights, while health workers are worried that patients will make demands that they will not be able to fulfil given their current resource constraints.
SAPs in most countries have also affected preventive inputs, as toilet construction and water supply programmes slumped due to declining access to cement and reduced outreach of environmental health workers. The increasing costs of mosquito spraying, seriously exacerbated by currency decline are reported to have posed difficulties in making spraying sustainable. On the positive side this had led to new approaches involving community participation in prevention and management of malaria, including in larviciding, use of bed nets and other protection measures
Thirdly, aid dependency has increased for both governments and non-governmental organizations, for development and recurrent expenditure, and for imports. Most countries that implemented SAPs have seen investments in the social sectors relying still more on donor funding, government contributions are often as low as 10-20 percent of total capital expenditure. Domestically, generated resources for health and education are mainly spent on recurrent expenditures with wages receiving the larger share. SAPs have left donors and governments alike struggling to identify ways and means to increase the coverage of social sector services, improve efficiency and enhance quality.
World Bank , Globalisation & Social Development
In the era of globalization the IMF and World Bank have special functions to play-they police and facilitate globalisation as well as assist governments to cushion the blows of globalisation. One chief economist was quoted saying “it is important to send the “ambulances” (social programs) after the “tanks” (SAPs) have rolled through a country.” Unfortunately, at times the cushioning makes things worse, failing to address the inadequacy of social service delivery and the links between poverty and macro-economic policies, such a s trade and exchange policy. They police globalisation through SAPs in that if a government strays from the path of globalisation the ‘seal of approval’ is withdrawn. Then other creditors and donors withold aid and gradually the government’s sources of credit may dry up.
The Bretton Woods institutions are criticised for having claimed not to be development institutions who in an instant make-over become development institutions by renaming their “Enhanced Structural Adjustment Facility (ESAF) to Poverty Reduction and Growth Facility(PRGF). The PRGF is supposed to be country driven emphasising broad participation of civil society, rapid economic growth and poverty reduction. Although this is most welcome the initiative suffers the limitation that civil society participation is subject to the discretion of governments. The Bretton Woods institution still prefer the traditional stabilisation model and while Poverty Reduction Strategy Papers will be prepared in a participatory manner., the PRGF itself is not.
The document “ A better World for all” was presented by the UN Secretary—General , Kofi Annan to the UN Special General Assembly on Social Development better known as Copenhagen +5 is a document in which the Bretton Woods institutions in partnership with others guarante the world of their commitment to poverty reduction by 2105. The report measures progress in seven areas, world poverty, gender gaps in school enrolment, primary school enrolment, infant mortality and maternal mortality, access to health services and sustainable development.
Although, the ideals of the report are cutting in by half the number of people living on US$1 a day, decreasing rates of infant mortality by two thirds and maternal mortality by three fourths by 2015, providing access to all that need health service by 2015, and ensuring all children are enrolled in primary school by 2015, it offers no alternative to the kind of economic Globalization that has exacerbated the situation. What is worrisome is that it is wrong for the IMF & World Bank to advocate for poverty reduction since they are known perpetrators of problems of poverty and inequality through their harsh conditions imposed on loans to developing countries. More disturbing is the fact that they have not been held accountable for their own mistakes that have generated abject poverty in Third World countries.
Recommendations
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The Bretton Wood institutions need environmental and social policies with “teeth”- that can help predict and address the jmpacts of their operations on vulnerable people and ecosystems.
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There is need for comprehensive reform aimed at broad-based development; and there is a need for continued aid and an active role by the donor community. Developing countries require international support in the form of aid, partly out of solidarity, partly to offset the negative effects of global market forces and the trade and financial policies of industrial countries.Reform programs must take into account the need to protect and extend poor people’s access to resources and services such as land, credit and health care.
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Social sector reforms must base themselves on the involvement of local communities during the design and implementation of primary service delivery in order for primary health care and basic education programs to respond adequately to poor people’s needs. Resources must be allocated and capacity must be enhanced in central and local government institutions providing health and education, to increase efficiency and quality in social service delivery. Central government user charges should be accepted only when they are community-based and institutional mechanisms are in place to ensure the effective control by beneficiaries
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It is important that anti-poverty policies treat people as active participants and seek to empower them.
CONCLUSION
In conclusion let me quote the words of Kofi Annan, the United Nations
Secretary General when he officially opened the 2000 UN Special General Assembly on Social Development:
“A health and prosperous society is not just about attainment of numerical benchmarks, but it also requires investment in people-their health, their education and their security. It takes care of all and allows all of its members to participate in decision making”
There is need to involve all stake holders in the design, implementation and evaluation of policies. Clearly, given that ‘trickle down’ policies inherent in SAPs have failed to deliver, we ought to give a human-centred strategy a chance.
REFERENCES
Adedeji, Adebayo (1990) ‘Foreword’ in B. Onimode (ed), Alternative Development Strategies for Africa, Vol One, London; Institute for African Alternatives.
Cornia et al (1994) From Adjustment to Development in Africa. Conflict, Controversy, Convergence, Consensus, St Martins Press, New York.
Davies R (1997) Dept of Economics, University of Zimbabwe with input from R Loewenson, TARSC Macro-economic trends in the health sector, Paper for the Community Working Group on Health, Zimbabwe 1997
Huber Rob (2000) The Geneva Special and Beyond (p16) in Social development Review, ICSW, London
Loewenson et al (1991) “ Challenges to equity in Health and health Care: A Zimbabwean Case Study” Social Sciences in Medicine 32 (10) : 1079-1088.
MoHCW (1997) National Health Strategy for Zimbabwe, 1997-2007, Ministry of Health and Child Welfare, May 1997
MoHCW (1999) National Health Strategy for Zimbabwe, 1997-2007, Working for Quality and Equity in Health, Ministry of Health and Child Welfare
Obasanjo. O (1999) The Global Era in .Business in Africa Magazine Decewmber 1999/January 2000, London.
Oloka-Onyango, Joe (1993) ‘ Judicial Power and Constitutionalism in Uganda’ Kampala: Centre fpr Basic Research Working Paper No. 30, 1993
News & Notices for IMF and Woprld Bank Watchers, Vol 2, Number 2, Spring 2000, Washington D.C.
Poul Engberg-Pedersen et al (ed) 1996 Limits of adjustment in Africa, Heinemann, UK.
Stewart F (1991) “ The Many of adjustment, World Development Vol 19, No.12
World Bank (1989) Sub-Saharan Africa: From Crisis to Sustainable Growth, The World Bank, Washington D.C.
World Bank (2000) Can Africa Claim the 21st Century? The World Bank, Washington D.C.
World Bank (19980 The impact of World bank Support to the HNP sector in Zimbabwe, OED Evaluations, Washington D.C.
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