POLITICAL DIMENSIONS OF

THE INTERNATIONAL DEBT CRISIS

International Political Economy Series
General Editor: Timothy M. Shaw, Professor ofPolitical Science and
Director ofinternational Development Studies, Dalhousie University,
Nova Scotia

The global political economy is in a profound crisis at the levels ofboth

production and policy. This series provides overviews and case studies
of states and sectors, classes and companies in the new international
division oflabor. These embrace political economy as both focus and
mode of analysis; they advance radical scholarship and scenarios.
The series treats polity-economy dialectics at global, regional and
national levels and examines novel contradictions and coalitions
between and within each. There is a special emphasis on national
bourgeoisies and capitalisms, on newly industrial or inftuential
countries, and on novel strategies and technologies. The concentration
throughout is on uneven patterns ofpower and production, authority
and distribution, hegemony and reaction. Attention will be paid to
redefinitions of class and security, basic needs and self-reliance and the
range of critical analysis will include gender, population, resources,
environment, militarization, food and finance. This series constitutes a
timely and distinctive response to the continuing intellectual and
existential world crisis.

PESTICIDES IN WORLD AGRICULTURE

Robert Boardman

POLiTICAL DIMENSIONS OF THE INTERNATIONAL DEBT CRISIS

Bonnie K. Campbell (editor)

NEWLY INDUSTRIALIZING COUNTRIES AND THE POLiTICAL ECONOMY

OF SOUTH-SOUTH RELATIONS
Jerker Carlsson and Timothy M. Shaw (editors)

HUMAN RIGHTS AND DEVELOPMENT

THE UNITED NATIONS IN THE WORLD POLiTICAL ECONOMY
David P. Forsythe (editor)

THE ALUMINIUM MULTINATIONALS AND THE BAUXITE CARTEL

Steven Kendall Holloway

OUT FROM UNDERDEVELOPMENT

James H. Mittelman

AFRICA IN WORLD CRISIS

John Ravenhill (editor)

LABOUR AND UNIONS IN ASIA AND AFRICA

Roger Southall (editor)
Political Dimensions of
the International Debt
Crisis
Editedby

Bonnie K. Camp bell

Professor of Political Science
Universite du Quebec aMontreal

Palgrave Macmillan
ISBN 978-1-349-10509-0 ISBN 978-1-349-10507-6 (eBook)
DOI 10.1007/978-1-349-10507-6
© Professor Bonnie Campbell 1989
Softcover reprint ofthe hardcover 1st edition 1989

All rights reserved. For information, write:

Scholarly and Reference Division,
St. Martin's Press, Inc., 175 Fifth Avenue, New York, NY 10010

First published in the United States of America in 1989

ISBN 978-0-312-03016-2

Library ofCongress Cataloging-in-Publication Data

Political dimensions ofthe international debt crisisjedited by
Bonnie K. Campbell.
p. cm.-(International political economy series)
Inc1udes index.
ISBN 978-0-312-03016-2
I. Debts, Public-Developing countries. 2. Debts, External-
Developingcountries. I. Campbell, Bonnie K., 1946-
11. Series.
HJ8899.P65 1989 88"':36657
336.3'435'091724-dcI9 CIP
Contents
Notes on the contributors VI

Acknowledgements vii

Introduction
Bonnie K. Campbell

Linkage and Vulnerability: The 'Debt Crisis' 15

in Latin America and Africa
Kari Polanyi Levitt

2 The Rationale and Effects of the IMF 51

Stabilisation Programme in Sudan
Richard Brown

3 Evaluating Structural Adjustment Policies 92

for Senegal
Gilles Durufle

4 Indebtedness and Adjustment Lending in the 129

Ivory Coast: Elements for a Structural Critique
Bonnie K. Campbell

5 The Politics ofthe Mexican Debt Crisis 163

Judith Teichman

Index 187

V
Notes on the Contributors
Richard Brown is Lecturer in Development Economics at the Institute of
Sodal Studies (The Hague). He holds masters' degrees in Economics
(University of Natal, South Africa) and Development Economics
(University of East Anglia, UK). Between 1981 and 1985 he was on
secondment to the University of Khartoum (Sudan), where he under-
took post-graduate teaching and research at the Development Studies
and Research Centre.
He has published numerous articles on Sudan's economic crisis and
the role of the IMF, and on Islamic banking in Sudan. His earlier
publications include articles on the Theory of Unequal Exchange.

Bonnie K. Campbell is Professor ofPolitical Science at the Universite du

Quebec a Montreal, where she was appointed in 1973. She has done
extensive research on the political economy of the Ivory Coast. Her
work on this subject is published in a wide variety of journals and in the
form of an essay in West African States (edited by lohn Dunn,
Cambridge University Press, 1978) and in Contradictions of Accumula-
lion in Africa. Studies in Economy and Slale, which she co-edited with
Henry Bernstein (Sage, California, 1985). She is also the author of
Liberation nationale et construction du socialisme en Afrique. Angola/
Guinee-Bissau/Mozambique (Nouvelle Optique, Montreal, 1977) and
Les enjeux de la bauxite. La Guinee face aux multinationales de
['aluminium (Presses de I'Universite de Montreal and Institut univer-
sitaire des hautes etudes internationales, Geneva, 1983).
Bonnie Campbell was Book Review Editor ofthe Canadian Journal of
African Studies and is currently a member of the Editorial board of that
Journal, as weIl as being an Overseas Editor of the Review of African
Political Economy (Sheffield, UK) and Cahiers d'hudes africaines
(Paris).

Gilles Durufle holds a master's degree in philosophy, a doctorate in

mathematics, and works at present as an economist. He was employed
for many years as a research consultant for the Societe d'etudes pour le
developpement economique et sodal (SEDES), Paris, a French semi-
public consultancy body. While with SEDES he did a great deal offield
research in Senegal, Ivory Coast and Madagascar, and produced many
reports for a wide range of institutions including the Ivorian Govern-

vi
 Notes on the Contributors vii

ment, UNDP, the French Ministry of Co-operation, the EEC and the
French Ministry of Planning. He is now working as an economic
consultant for the Bureau d'lnformations et de Previsions economiques
(BIPE), Paris.

Kari Polanyi Levitt is a political economist and Professor of Economics

at McGill University in Montreal. She teaches in the area of economic
development and has lived and worked in the English-speaking
Caribbean over aperiod of twenty-five years. Her best-known work,
Silent Surrender. The Multinational Corporation in Canada (Macmillan
Company of Canada, 1970), is an application of the historical struc-
turalist methodology to the case ofCanada. She is currently President of
the Canadian Association for the Study of International Development
and co-founder of the Karl Polanyi Institute of Political Economy at
Concordia University. She has recently been editing previously unpub-
lished work of her father.

Judith Teichman is Assistant Professor of Political Science at the

University ofToronto. She holds a Ph.D in Political Science from that
University and is the author of Policymaking in Mexico. From Boom to
Crisis (Allen & Unwin, 1988) and of numerous articles and papers on
Mexico and Argentina.

Acknowledgements
I wish to thank the Universite du Quebec ä Montreal for its support in
the final preparation of this book.
 This book is dedicated,
with love and gratitude,
to Harry Campbell and
the late Sylvia Woodsworth Campbell.
Introduction
Bonnie K. Camp bell

After reaching proportions described as 'intolerable' at the beginning of

the decade (US $634 billion in 1980), the total debt of developing
countries had almost doubled six years later (US $1100 billion in 1986).1
Over the same period, solutions were confidently put forward by
internationallending organisations which claimed that their proposals
would resolve the problems ofthe growing indebtedness and remedy the
lagging economic performance of the countries of Africa and Latin
America. The results can only be described as disappointing. What
implications do these solutions have?
The dominant thought which prevails at the World Bank and at the
IMF suggests greater integration of indebted countries of the Third
World into the world market and argues in favour of the free fiow of
market forces. In arecent report, the World Bank reiterated its position
with regard specifically to industrial strategies:
The Report finds that developing countries which followed policies
that promoted the integration of their industrial sector into the
international economy through trade have fared better than those
which insulated themselves from international competition. Success-
ful countries have typically followed policies on trade, exchange
rates, and related matters that did not bias industrial production
toward the domestic market. 2
There is ample evidence to question the wisdom of such an orientation
from a historical, a theoretical and a practical point of view. 3
This book represents the views of those who dissent from the
dominant lines of thought. 4 The set of studies assembled here originated
in a panel on the social and political impact of international lending
agencies in Africa and Latin America, which explains the choice of
geographical areas. While there was no attempt to impose any 'common
view' to guide the orientation of contributors, the studies do share what
might be called a 'political economy' approach to the debt crisis.
Furthermore, they adopt a historical perspective to the question of
indebtedness. Such a perspective, based on long time periods, suggests
that the 'crisis', as manifested in the 1970s, was the culmination ofboth
internal and external imbalances which had developed over the previous
decade and even weIl before.
2 Introduction

The specificity of the book is to attempt to open up a framework in

which the social and political dimensions of the debt crisis are placed at
the forefront of an analytical approach which never loses sight of
financial constraints and the technical rigour which their treatment
demands.
Among the theoretical conclusions ofthe book is the observation that
the erosion ofthe powers and the legitimacy of government is ultimately
the most damaging consequence of the experience of Latin America and
Africa since the mid-1970s (Levitt, p.4S). The guardianship of the IMF
and the conditionalities of the W orId Bank programme aid in the 1980s
have accelerated the dismantling of instruments of national policy. In
this respect there exists a critical but rarely made distinction between a
strang export capacity in manufactured goods and 'economic liberalisa-
tion' designed to dismantle governmental controls over the allocation
and distribution of domestic resources and incomes (ibid.)
This methodological distinction, which has wide-ranging political
implications, is but one ofthe areas identified by our collection of studies
as 'political dimensions' on which both better awareness and continuing
research are needed. Looking beyond this book, others include:

(i) the impact of interpower rivalry on the differential treatment of

indebted countries by international lending organisations.
A vailability of funds and the conditions attached to them are
closely dependent on the geopolitical sphere occupied by a
particular country at any particular time;
(ii) the interrelation between access to external loans and changing
political alliances and the balance of power within indebted
countries;
(iii) the variety of means by which state power of indebted countries is
weakened and external conditions are imposed;
(iv) the process of political and social marginalisation which may be
seen to have resulted at least in part from the introduction of
recent adjustment measures;
(iv) the related process of the hardening of state power as indebted
governments seek to apply unpopular measures as a condition for
access to foreign loans; and
(vi) conversely, the alternatives, for if the criterion for success of
adjustment policies is effective political support, then a process of
democratisation is a precondition for adjustment.
The questions raised here are vast and the methodological problems
they imply will have to be developed more systematically in the future.
 Introduction 3

Our contribution is to underline their importance through aseries of

case studies and to point to the interdependent levels of analysis which a
more global approach involves.
Two of the contributors, the authors of the Senegalese and Sudanese
studies, deal explicitly with the methodological difficulties of assessing
structural adjustment programmes. The chapters on these two countries
and that on the Ivory Coast specifically consider the technical and
economic implications ofpresent demand-oriented, short-term policies,
as weIl as the role and impact of conditionality.
Without claiming to resolve the methodological problems raised by
an evaluation of these policies, or to provide a blueprint for further
studies, the contributors adopt aglobaI, interdisciplinary and historical
approach in considering the social, economic and political implications
of adjustment programmes. The observation made about Sudan
concerning the contradiction between the reproduction of state power
and meeting external performance criteria holds true for all country
studies and reveals the complexity of the subjecL As Richard Brown
notes, quoting the Consultative Group: 'no internal adjustment, that is
consistent with the stability of the Sudanese society, is feasible to
accommodate the debt obligations' (p.72). Here we are brought to the
central questions: Wh at social groups are to be adjusted, and for what
purpose? According to what external criteria will adjustment take place,
and at what social and political cost?5
The answers to these questions may require a book for each country
studied. None the less, specific aspects of the complex social, political
and economic dimensions ofthe debt crisis have been approached by the
different contributors to this book at three different levels of analysis:

(i) at the international level by Kari Levitt;

(ii) at the geopolitical level by Richard Brown in his study of the
Sudan; and
(iii) at the national level through either the analysis of the internal
imbalances and structural constraints which reorient, condition
and limit the impact of adjustment policies in Senegal and the
Ivory Coast (the chapters by Gilles Durufte and Bonnie Campbell)
or by considering internal political factors which, in interaction
with international economic events, help to explain the origin and
gravity of the Mexican debt crisis (the chapter by ludith Teich-
man).
The political economy approach to the 'debt crisis' leads to serious
questioning of the twin concepts of crisis and debt. Levitt examines the
4 Introduction

notion of 'crisis' through an analysis of the origins and evolution of the

international economic disorder. Analysing the notion of 'debt',
Teichman demonstrates that it was not the result of a policy 'error' or
miscalculation, but a conscious strategy adopted by the Mexican
government in the 1970s.
Levitt's 'overview of the debt crisis' is guided by the hypothesis that
'underlying the Third World debt problems are power relations which
are conventionally placed beyond the purview of academic economics'
(p.25; emphasis added). She examines the mechanisms which permit the
United States to use its financial power as the principal source of
international reserve currency to impose its monetary policy on the
world and explores why and how the United States has escaped the
pressures of adjustment and secured a 'free ride': its externally financed
trade and payments deficits surpass $100 billion per annum. She shows
that the United States has used its traditional privilege as issuer of the
world's principal reserve currency to cover both its international deficits
and a growing portion of its budgetary deficits.
Levitt's chapter raises a number of key issues, notably around the
following subsections:
Africa; the neocolonial model-from crisis to chaos.
The evolution of the international economic disorder.
The privatisation of the public debt.
Rising protectionism.
The asymmetry of power and perception.

The power relations seen by the author to underlie Third World debt
problems are considered at the geopolitical level, as weIl as at the
national level. The geopolitical dimension is approached through the
often-discussed example of Korea. Here Levitt points out that
Korea -often put forward as proof of the 'success' of present lending
policies-continues to benefit from significant access to official develop-
ment assistance and from access to a relatively small percentage of its
funds on floating exchange rates. This contrasts strikingly with the
situations ofthe countries of Africa and Latin America. The explanation
for this 'cas d'exception', which Brown documents in a similar manner in
his chapter on Sudan, is that Korea has benefited from a privileged
position in the geopolitical priorities of the Uni ted States.
Levitt's formulation of the interplay of national and international
factors contributes to a growing body of literature which has set aside
the rather mechanistic and abstract formulations of 'autonomy' versus
 Introduction 5

'dependence' in favour of a far more nuanced, dynamic and circums-

cribed approach which is surely c10ser to the complexity ofthe situation.
Referring to Latin America, Levitt writes:
The explosion of international credit operating beyond the control of
national monetary authorities has penetrated the social and political
fabric of national societies, creating destabilising networks of
financial transactions and innumerable channels of capital outflow.
(p.37).
The role of international financing agencies as vectors to further
integration into the world market should not, according to one specialist
on Latin America, Celso Furtado, whom Levitt quotes, be discounted.
The IMF, which has meagre financial resources of its own,
... has been turned into an instrument through which Third World
countries are forced to deepen the internationalization of their
economies so that they cease to be controlled domestically and
become mere extensions of the international markets. (p.37-38)
Finally Levitt concludes, somewhat pessimistically, that in contrast to
the 1930s-a period wh ich gave rise, amongst other things, to the retreat
ofLatin American economies from the world market towards internally
oriented development strategies and greater self-sufficiency-no such
positive side effects are apparent in the present period of the 1980s. In
fact, reliance on the private sector for the 'engine of growth' of
production of essential goods and services in the 1980s has been a failure
(p.45). On a more theoretical level, the same author concludes that
monetarist orthodoxy has served as a tool to increase vulnerability to
entanglement in a private capital market which is destabilising and
excessively permissive of capital flight.

In his chapter on Sudan, Richard Brown's objective is to trace the

evolution ofthe IMF Stabilisation Programme with particular emphasis
on the 1978 - 85 period, with a view to advancing our understanding and
assessing the rationale and the effects of such a programme on one of
Africa's poorest countries. Brown argues that in spite of the country's
poor performance in stabilisation, the IMF appeared eager to renew its
arrangements with the Sudanese authorities. This leads hirn to ask why
the IMF would depart from its principle ofuniformity oftreatment with
other countries (for example Tanzania, or Jamaica under Manley).
The author's hypo thesis is that the main function ofthe various IMF
agreements with the Sudanese government was to provide the country's
6 Introduction

geopolitical allies, the USA in particular, with sufficient legitimacy to

obtain from their Treasuries the ever-increasing economic assistance
needed to keep pro-Western Sudanese groups in power. The author
meticulously analyses the Stabilisation Programme in order to assess to
what extent its policies and targets were implemented. He concludes that
they were not met. This part of the study serves as the prelude for
evaluating other dimensions of the Sudanese experience: the impact of
internal popular pressures and the role ofthe United States government
in maintaining the Nimeiry regime. Brown argues that it was the
widespread December 1981jJanuary 1982 riots, rather than a change of
heart by Sudanese authorities, that brought the IMF back to negotiate a
new Stand-by Arrangement. He concludes that in spite of previous
concerns about the possible political and social repercussions of an
overly austere programme, such a strategy was eventually introduced. It
was implemented in the context of growing popular pressures and the
declining capacity of the Nimeiry regime to withstand them. As Brown
writes:
There can be no doubt that it was the USAID-inspired policies of
March 1985 that sparked off the food riots, general strike and
popular uprising that put a final end to the Nimeiry regime on 6 April.
(p.86)
The controversial but soundly supported arguments in this chapter
provide a valuable basis of comparison with the experiences of other
countries, not only in Africa but in the Caribbean and Latin America as
weil.

Although Brown's study of the Sudan and Gilles Durufte's study of

Senegal share common ground concerning certain methodological
preoccupations in evaluating adjustment policies, the two countries
have had very different experiences with internationallending agencies.
Durufte's evaluation of the impact of the adjustment policies of the
IMF, the World Bank and the French Caisse Centrale de Co operation
Economique (CCCE) is undertaken in terms of a long-term historical
analysis of structural imbalances. This approach allows the author to go
beyond the presentation of the quantitative results of adjustment
policies. He casts some light on the origins of the difficulties
encountered, on some of the causes of the mediocre results obtained,
and on the discouraging nature of the prospects opened up by these
policies throughout the 1980s.
In order to identify the origins of the country's major structural
 Introduction 7

imbalances, the chapter begins with an examination of the evolution of

Senegal from 1960 to 1980. The author suggests that these imbalances
may in large part be traced to two origins:
(i) A decline in the peanut economy, which has not been replaced by
other equivalent sources of economic stimulation.
(ii) A logic of creation and distribution of revenues that is discon-
nected from the sphere of production, whose effect is to maintain
the growth of consumption relatively independent ofthe growth of
resources, which have tended to stagnate.
The logic of distribution and its relative independence from the sphere of
production constitutes, according to Durufle, a structural characteristic
ofSenegal that is linked to the play of existing social forces. These forces
have a dual origin in the social pressures for access to positions of
growing income and in the exhaustion of the peanut economy. This is
coupled with the absence of another sector capable of assuming the role
of a stimulus to economic growth.
The study then proceeds to the intervention of the various interna-
tional lending agencies and the adjustment programmes. It permits a
brief comparison ofthe approaches ofthe various agencies: the IMF, the
World Bank and the CCCE. The core ofthe presentation is the analysis
of the impact of adjustment policies in both the agricultural and
industrial sectors. Among other things, the study questions the wisdom
in the Senegalese context of policies favouring the withdrawal of the
state and more reliance on market forces.
The limitations of adjustment policies are examined in terms of the
problem of the timing of such policies; the problem of resistance to
adjustment; and the problem of the kind of adjustment sought. The
study's conclusion is rather sombre: 'Unless financial constraints are
loosened and unless the economic environment is modified so as to
favour producers, the outlook remains bleak, marked mainly by
deflation' (p.127).
The comparison of Senegal with the Ivory Co ast is striking. In
Senegal, a liberal strategy leading 'out of the crisis' is bound to fail. In
the Ivory Coast, according to certain analysts, it might succeed. But at
what cost?
The study of the fiscal crisis of the Ivorian state at the end of the 1970s
serves as the starting point for the structural critique of adjustment
policies of my own chapter. This point of entry reveals the depth of the
contradictions in the forms of accumulation and reproduction of state
8 Introduction

power which have characterised that country throughout the last thirty
years.
Contrary to what is generally asserted, the origins ofthe fiscal crisis of
the Ivorian state are not recent. While the drop in the market prices of
the country's principal export crops around 1978 proved revealing, the
origins of the crisis appear much more deeply rooted. They rest in the
development of contradictions which have their origins not only in the
experience of the past decades but in economic patterns of the period
weil before political independence. Consequently, before approaching
the question of adjustment lending, the chapter attempts to grasp just
what is to be adjusted. To do so, we attempt to characterise over time the
contradictory nature of the relations between the export agricultural
and industrial sectors, and how the state intervenes in these relations.
While the full consequences of the process may take time to become
apparent, the underlying contradictions of the Ivorian experience
manifested themselves at the end of the 1970s at the locus where the
transfer from the export agricultural sector occurs, and consequently the
locus of the struggle between conflicting interests and forces (both
internal and external): the state. In the past, the process has
involved-among other things-a specific pattern of state investment,
employment, and local capital formation, each of which has depended
on the capacity of the groups controlling the local state to increase
public revenues. In this area as weil, the contradictory nature of the
process and its limitations had become apparent by the late 1970s. Based
on long historical periods, the analysis illustrates that accumulation is a
process subject to particular rhythms and phases and that particular
types of accumulation depend on specific conditions and mechanisms,
including those provided by the state and certain forms of dass alliance.
In order to facilitate the presentation, the study is based on three
periods which may be characterised very approximately as (i) the
colonial period, (ii) the I 960s and 1970s, and (iii) the period since the late
1970s. In the most recent period, these features are examined in turn:

(a) the limits of the current phase of accumulation, and

(b) the conditions necessary for surpassing the limits of the past
pattern of accumulation. This last subsection summarises the
contributions ofthe IMF and the World Bank and examines their
present strategies in both the industrial and the agricultural
sectors, which are seen as 'short-term attempts to overcome the
present obstades to continued accumulation, without significant
change in the extraverted orientation to growth'.
 Introduction 9

It is still too early to assess the impact of adjustment measures

implemented in the Ivory Coast since the early 1980s. None the less. the
analysis of the depth of underlying internal constraints and conse-
quently the need for more long-term measures of structural reform
which are an integral part of anational, industrial and agricultural
development strategy, rather than the introduction of stabilisation
policies based on demand restraint and budgetary contractions, as is
currently happening, certainly permits serious reservations about the
viability of present programmes. The potential social and economic
consequences ofthe proposed measures are especially troubling. Also in
this final section, the chapter considers certain social and political
implications of the present phase of capital penetration. This phase
entails not only changes in the mode of accumulation and finance but
increasing changes in the organisation of production. Moreover, the
current phase of attempted restructuring involving the extension of
capitalist relations of production and new lines of social differentiation
has inevitable and crucial repercussions at the level of the state, the site
of the struggle among the complex and competing forces involved.
Similarly, there is a direct relation between present structural
adjustment policies and the dangers of increasing marginalisation of
certain sectors of the population. What is most urgent, the chapter
concludes, is the need to consider explicitly the socioeconomic and
political transformations which accompany the process of adjustment. 6

Judith Teichman's study of 'The Politics of the Mexican Debt Crisis' is

set in the international environment described by Levitt in the late 1960s:
Since international circumstances made the expansion of export
markets impossible and since business interests were able to veto
reforms aimed at alleviating the fiscal crisis of the state, such as tax
reforms, foreign borrowing became the only feasible way to maintain
the rate of economic growth. (p.181- 2)
However, Teichman's objective is not to examine the impact of foreign
borrowing, notably of the IMF agreements signed in November 1982
and July 1986. Nor is it economic factors, especially the international
ones which have been held largely responsible for the severity of
Mexico's economic crisis. While analysed in interaction with interna-
tional economic events, Teichman's emphasis is on internal political
factors. This chapter argues that the historical role ofthe Mexican state,
the pattern of capitalist development it had been pursuing, and the
relation of the state to the private sector had by the early 1970s
10 Introduction

circumscribed the manoeuvrability of the state in its choice of policy. In

fact, after 1976, and especially after 1979, the expansion of the public
foreign debt was an explicit policy of state managers, who saw their
dilemma primarily as a political one of restoring business confidence,
strengthening popular support and responding to a specific set of state
interests.
In order to substantiate this argument, the chapter summarises the
historical role of the Mexican state and the development dilemma it
faced by the late 1960s. By this period the state was confronted with
serious threats to its legitimacy from the popular classes, linked to the
exhaustion of the economic model which had been in effect since 1940.
Mexico's internal economic and political crisis coincided with an
international economic crisis, described by Levitt, which is the context in
which Teichman examines the state policies ofPresident Luis Echeverria
(1970-6).
Next, the chapter considers the period 1976 to 1982, the years of
expansionary government expenditure and heavy foreign borrowing
sustained by oil revenues, just as export crop revenues had permitted in
the Ivory Coast up untill978. But as in the Ivory Coast after the 1978
drop in coffee and cocoa prices, Mexico's pattern of expenditure was not
broken when petroleum prices fell on the international market in 1981.
What Teichman writes about Mexico is true for other cases, notably the
Ivory Coast:
Foreign debt allowed the state to continue to expand its activities,
instead of readjusting investment and expenditure goals ... Also of
critical importance was the ftight of private domestic capital. One
analysis has suggested that this was the most important internal
shock, accounting for, on average, slightly less than one-half of the
internal debt-inducing effects between 1979 and 1981. (pp.168-9)
Contrary to what most analysts label as errors of government policy,
Teichman sees the Mexican strategy during the regimes of President
Lopez Portillo (1976-82) and the subsequent one of President Miguel
de la Madrid as a political choice which reftected interests and confticts
within the state. These had been deepened, if not created, by the
petroleum strategy itself. The author examines the various aspects of
government policy through the 1970s and 1980s which stimulated
foreign borrowing and which suggest that foreign debt was very much a
central plank ofthe government's strategy. Hence, Teichman conc1udes
that 'Increasing debt was a conscious choice of state managers which
responded to the political requirements of maintaining legitimacy and of
lubricating the patronage system'(p.l82).
 Introduction 11

The politics and financing of the presidential succession in 1982 are

interesting in more than one respect. As the adjustment programme
revealed, with state revenue running out, pressures from harshly
punished social groups mounted. There is a parallel here, under similar
conditions ofausterity, with the need to redefine the modes and forms of
reproducing state power and legitimacy-to the extent that this will be
possible, given present financial constraints-in the two studies set in
West Africa discussed above.
Teichman's analysis enables us to situate the process ofthe decreasing
autonomy of the Mexican state, beginning in the early 1970s and
continuing through the 1980s, in the context of international factors
interacting with internal political constraints. She argues in favour of the
importance of the political constraints and concludes that the Mexican
state has less manoeuvrability in the face of both international forces
and internal political forces. For Teichman, this context helps to explain
the authoritarian nature ofthe policy-making process in Mex1co and the
important role of tangible rewards (that is, patronage) in holding the
system together-observations which, again, could apply in varying
degrees to any of the other country studies in this book.

CONCLUSION

The chapter on Mexico, like the preceding ones, opens up many areas of
reftection and fits in with the overall purpose of this book: to introduce
issues which seem to be systematically neglected by the current thinking
which dominates the question ofthe 'debt crisis in the Third World'. It
does not claim to provide a complete update ofthe situation, which is in
continual evolution. To mention but a few recent developments, these
include new modes of financing Mexico's debt in which certain banks
would reduce the amount of the debt in exchange for Mexican bonds
backed by US Treasury securities, 'debt securitisation' and the ftowering
of alternative payment mechanisms such as debt -equity swaps, special
bonds and debt buy-backs, measures and devices which contribute to
the realignment ofthe private banking sector, as the largest institutions
move to add to their reserves to cover foreign loans that will probably
never be repaid.
While there is no attempt to provide a methodological blueprint,
contributors to this book have found it useful to adopt a historical
approach and to consider simultaneously not only the economic but the
social and political dimensions, whether these pertain to the origins of
indebtedness or to the impact of international lending organisations.
12 Introduction

Moreover, the authors approach the question of Third World

indebtedness at three interrelated levels: the international, the
geopolitical, and the national.
. This approach raises certain methodological considerations. Beyond
the polemical but infrequently raised issues as to 'what is being resolved'
by recent proposals-the internationalliquidity question or the rarely
addressed problems of 'development' of the indebted countries-a first
and very central issue is the nature of the boundaries between the three
levels of analysis. The answer to that question is partially
methodological, but above all political. It depends on one's apriori
hypotheses concerning alternatives and is reflected by one's 'point of
entry', and consequently the questions which form the object of a
particular study. This book suggests that the evaluation of adjustment
policies is a complex problem not merely from an economic and
technical standpoint. As the case of Sudan illustrates, the political and
ideological dimensions of the evaluation process are at least as
important in understanding how funds are made available, for what
purposes, and on what terms. These considerations certainly provide
material for reflection and point to important difficulties in attempting
to enumerate the criteria of a purportedly 'successful programme'.
'Successful' for whom? To do what?
Secondly, in view of the essentially short-term nature of adjustment
programmes, there is a need for continuing reflection and research on
the medium and long-term impact of further integration into the world
market and the free play of market forces. What new pattern of
international specialisation is being moulded? How will it affect present
import-substituting industries? To what extent will there be a process of
de-industrialisation, of shut-downs, and a resulting pattern of massive
exportation of cheap labour as has occurred in the Philippines? In the
agricultural sector, will increasing specialisation lead to a more limited
and highly vulnerable range of export crops? What are the implications
of such patterns for food crops and food security of the countries
concerned?
Thirdly, and most importantly, how have adjustment policies affected
the various social groups in the nations concerned, particularly those
least able to defend themselves? What forms of marginalisation emerge
as the counterpart to the increasingly authoritarian nature of state
intervention in each of the countries studied? And what forms of
resistance have developed?
Finally, ifpresent adjustment policies leave much to be desired from a
technical standpoint and especially from a social and political point of
 Introduction 13

view, as this study has shown, what are the conditions, both political and
economic, for a halt to the erosion of the powers and the legitimacy of
indebted states, and ultimately what are the conditions for effective
internal political support for viable alternative policies?
A host of questions are raised by these chapters which one can only
hope will soon be taken up in future studies by those who share the
concerns of the contributors to this book.

NOTES

l. International Monetary Fund, Annual Report, 1987, p.30.

2. World Bank, 'Foreword' by Barber B. Conable in World Development Report
1987 (Oxford University Press, for the World Bank) p.iii.
3. John Loxley, 'Alternative Approaehes to Stabilisation in Africa', in Gerald
K. Helleiner (ed.), AJrica and the International Monetary Fund (IMF, 1986)
pp.1l7-47.
4. The rapidly growing body of literature whieh has adopted a more eritieal
stanee is now so vast that it would be impossible to summarise. It
eneompasses very different eurrents whieh may be illustrated by the following
works:

A.C. Cornia, R. Jolly and F. Stewart (eds), Adjustment with a Human Face:
Protecting the Vulnerable and Promoting Economic Growth (Oxford
University Press, 1987) (2 volumes).
Peter Körner, Gero Maass, Thomas Siebold and Rainer Tetzland, The l.M.F.
and the Debt Crisis. A Guide to the Third World's Dilemma (Zed Books,
1986).
Marko Milivojevie, The Debt Restructuring Process (pinter Press, 1985).
John Loxley, Debt and Disorder. External Financing Jor Development
(Westview Press, Boulder and London, and North-South Institute, 1986).
Cheryl Payer, The Debt Trap. The IMF and the Third World (New York:
Monthly Review Press, 1974) and The World Bank. A Critical Analysis
(New York: Monthly Review Press, 1982).
Marie-Franee L'Heriteau, Le Fonds mont!faire international et les pays du
Tiers-Monde (Paris: IEDES and Presses Universitaires de Franee, 1986).
Jill Torrie (ed.), Banking on Poverty. The Global Impact oJthe IMF and the
World Bank (Toronto: Between the Lines Press, 1983).
Kjelll. Havnevik, The IMF and the World Bank in AJrica. Conditionality,
Impact and Alternatives (Uppsala: Seandinavian Institute of Afriean
Studies, 1987).

Mention should also be made of the numerous publieations of institutions

sueh as the Institute for Food and Deve10pment Poliey, San Franciseo
14 Introduction

(USA); the Third World Foundation (UK); GATT-Fly, Toronto (Canada);

and the Institute for African Alternatives, London (UK), etc.
5. These are also the considerations central to the work of Marie-France
L'Heriteau. See 'Endettement et ajustement structure1: la nouvelle
canonniere', in Revue Tiers-Monde, vol. XXIII, no. 91, July-September 1982;
and Le Fonds monetaire international et les pays du Tiers-Monde, op.cit.
6. In this regard, the Nordic countries (Denmark, Finland, Norway and
Sweden) have made a proposal that the effects of adjustment programmes on
income distribution shall be investigated and measures taken to correct
damaging effects on the most vulnerable groups. Both institutions, the World
Bank and the IMF, have in principle agreed to these proposals. See Chapters
11 and 12 in K.J. Havnevik (ed.), op.cit.
 1 Linkage and Vulnerability:
The 'Debt Crisis' in
Latin America and Africa
Kari Polanyi Levitt

INTRODUCTION

The record of the 1980s raises serious questions concerning the strategies
of 'outward-looking development' currently favoured in academic and
governmental circles. In this chapter we review the impact ofthe crisis of
the 1980s on deve10ping countries, including the role played by the
International Monetary Fund and the World Bank with respect to the
problem of the indebted countries of Africa and Latin America.
Even a cursory review of comparative experiences revea1s striking
differences in the vulnerability of the major regions of the deve10ping
world to the present disorders of the international system. Among the
most severely affected are poor countries excessively dependent on the
export of primary commodities, and middle-income, semi-industrialised
countries burdened by debt to commercial banks. Among the least
affected are countries which, although very poor in per capita income,
have opted for domestically oriented and financed strategies of develop-
ment.
The situation in sub-Saharan Africa has been described by A.W.
Clausen, the previous President of the World Bank, as 'the worst
economic crisis any region has faced since World War Two'. Of the
thirty-nine sub-Saharan countries, only seven had had higher levels of
food output per head in 1982 than in 1970. 1 Cereal imports to the region
increased from 3.9 million tons in 1974 to 10.2 million tons in 1985-of
which 4.8 million tons was food aid. 2 This compares with 1.2 million
tons of food aid in the drought years of 1973-4.
Income per capita, which had failed to grow in the period 1973-80,
declined every year since 1981 for a total decline 0/16.5 per cent/or the
jive years 1982-6. 3 In more than halfthe African countries, manufactur-
ing output in 1980 was lower than a decade ago. There are some cases
where capacity utilisation is no more than 25 to 30 per cent.

15
16 The International Debt Crisis

Although the external debt of sub-Saharan Africa is only $91 billion

(1988) compared with $418 billion for the Latin American/Caribbean
region, and much of it is owed to official agencies on terms significantly
more favourable than debt owed to private banks, the burden of this
debt on the poverty-ridden economies of sub-Saharan Africa amounts
to 75 per cent ofGDP, compared with 47 per cent for Latin America and
31 per cent for Asia. In 1986 the ratio oftotal external debt to annual
export of goods and services for sub-Saharan Africa was 301 per cent,
almost as high as that for Latin America (342 per cent) and much higher
than the corresponding figure for Asia (96 per cent).4
Debt-service ratios, measuring the burden of annual payments of
interest and amortisation in relation to export earnings for sub-Saharan
Africa, have almost tripled from 12.2 per cent in 1977 to 32.7 per cent in
1988. Because Africa's total debt is low relative to that ofLatin America,
and only some 20 per cent of it is owed to private creditors, Africa poses
relatively less of a threat to the balance sheets of the international banks.
This undoubtedly explains why Africa occupies a low profile in current
concerns about the 'debt problem'.
In the years since 1982 the major countries of Latin America have
been faced by economic problems unprecedented in the history of the
region, creating a social crisis in some respects worse than that of the
earIy 1930s. There is a growing recognition that the grossly inequitable
burden of repayment of external debt is likely to result in a social
explosion, untold suffering, escalating political instability, and the
severe regression of the process of economic growth. Owing primarily to
interest payments on an external debt of$418 billion, Latin America has
been forced to generate net resource outflows of roughly $30 billion per
annum in 1982-6. The net transfer ofresources out ofthe region during
the four years 1982 to 1986 amounted to $112 billion in the form of
excess of interest over net capital inftows. In the decade 1977 to 1986,
there was a total net inflow of external funds of $273 billion, of which
$220.8 billion was commercial bank borrowing. Over the same period,
the sum of interest paid on public debt was $294 billion.
According to the most optimistic estimates, pre-crisis income levels
cannot be recovered within the next decade. Less optimistic scenarios
suggest that Latin America runs the risk of becoming poorer in the
twenty-first century than it has been in the present one. s The develop-
ment effort of a whole decade has already been lost. Latin America's
total domestic product is now at 1977 levels. According to W orId Bank
figures, GDP per capita, which grew at an annual average 0/2.9 per cent
from 1973 to 1980, dec/ined by a total 0/12.3 per cent in the four years
 Linkage and Vulnerability 17

from 1980 to 1984 and continues to decline-consumption and invest-

ment are far below 1980 levels6 (see Table 1, p.47). Urban unemploy-
ment stands at 11 per cent for a total of 38 million unemployed.
Industrial employment in Brazil in 1983 had fallen to 1973 levels. The
level of real wages has fallen in many countries by over 20 per cent. The
crisis has spawned a growing informal sector which has absorbed some
of the mass of unemployed, albeit at abysmally low incomes.
Adverse terms of trade have had a devastating impact on the countries
of sub-Saharan Africa. The cumulative decline in terms of trade for the
first eight years of the decade (1981- 8) was 27 per cent. In spite of
increasing export volumes of 28.3 per cent (1981-8) and increasing
shipments of food aid, import volumes declined by 14.9 per cent from
1982 to 1985, and have not nearly recovered to 1980 levels.
Latin America's terms oftrade have likewise declined throughout the
1980s, by a cumulative 29.5 per cent (1981-8). Although export
volumes increased by a cumulative 12.8 per cent, import volumes
suffered a vicious contraction of 40.3 per cent in the years 1982 and 1983,
improved marginally by 5.0 per cent (1984-5) and resumed the pattern
of contraction since 1986.7
The poor economic performance of African countries and the acute
debt crisis of Latin America since 1982 are regularly compared with the
successful record of South Korea, Taiwan, Hong Kong, Singapore, and
some other countries of the Pacific Rim. This group of countries
achieved an annual average rate 0/growth in income per capita 0/5.7 per
cent per annum in 1973 - 80, and sustained positive rates of growth in the
1980s for a total increase in GDP per capita 0/16.1 per cent for 1980-5
(Table 1, p.47). This is usually attributed to their 'outward-looking',
export-oriented policies, which are contrasted with the 'inward-
100king', import-substituting policies of Latin America.
It is, however, interesting to observe that India, with a population 0/
687 million, which recorded modest positive rates of GDP per capita
growth, averaging 1.8 per cent per annum in 1973-80, escaped the
impact 0/ the world recession 0/ the 1980s, showing respectable annual
income growth in every year of the decade, for a total growth 0/GD P per
capita 0/13.2 per cent from 1980 to 1985 (Table 1). As is weIl known,
India's economic development strategy is geared primarily to the
domestic market. Exports constitute only 6 per cent of GDP and the
source of capital accumulation is heavily domestic. Thus, the ratio of
foreign to total credit for India (22 per cent) is the lowest of all countries
listed by the World Bank and compares with similar ratios for Brazil
(76.9 per cent), Chile (73 per cent), Mexico (70 per cent), Peru (83 per
18 The International Debt Crisis

cent), I vory Coast (81 per cent), zaire (92.4 per cent) and Indonesia (64.7
per cent). In spite of a relatively low level of exports, India reduced the
ratio of debt service to export earnings from 24 per cent in 1970-2 to a
very healthy 9 per cent in 1980-2. This contrasts with similar
debt-service ratios for Brazil, which increased from 24 to 62 per cent;
Chile-25 to 53 per cent; Ivory Coast-8 to 32 per cent; and Niger-4 to
32 per cent. 8
Throughout the 1960s and 1970s India controlled inftows of foreign
capital. When balance of payments pressure became severe, the
government reduced imports by licensing and direct controls and by
long-term, selective import substitution. When the first oil shock
(1973-4) threatened India's vulnerable external account, India decided
against borrowing abroad and raised the rate of domestic savings from
14 per cent of GDP in 1965 - 72 to 19 per cent in 1973 -4. By 1978, India
had become a (smalI) net lender abroad with a small trade and current
account surplus and a low debt/GDP ratio of only 15 per cent. Although
India liberalised import controls and moderately increased borrowing
from external commercial sources from 3 per cent of external debt in
1979 to 8 per cent in 1983, domestic savings were further raised and
averaged 23 per cent of GDP in the early 1980s.9 India has practised
precisely the kind of domestically oriented industrialisation
policies-geared to a higher degree of industrial and technological
self-reliance, combined with substantial increases in the production of
food for the domestic market-which are fashionably held to be
responsible for the crisis in Latin America. It is indeed curious that the
successful export-oriented strategies ofthe Pacific Rim countries, with a
total population of 162 million, are held up as examples for the rest of
the world to follow, while so little is heard ofthe economic achievements
of India, which has succeeded in bringing about an impressive increase
in the living standards of many of its 687 million citizens in the difficult
years of the 1980s.
Even more remarkable are the economic achievements of the 1040
million people of China. With an average annual growth rate of GDP
per capita in 1973-80 of3.8 per cent per annum, China appears to have
achieved a process of self-sustained accumulation. The cumulated
increase in GDP per capita for the five years 1980 to 1985 was a
remarkable 41 per cent (Table 1). The slowdown of the industrialised
count ries, which has propelled Latin America and Africa into severe
economic recession, has not affected China. China's rate of gross
domestic investment of 38 per cent (1985) is the highest in the world,
marking an increase from levels of 25 per cent since the mid-1960s.
 Linkage and Vulnerabi/ity 19

Gross domestic investment has been increasing at the rate of 16.5 per
cent per annum since 1980. 10
Like India, China has achieved remarkable success in increase of
agricultural output, which grew at 9.4 per cent per annum for 1980-5,
while industrial output grew at 11 per cent per annum. This achievement
is even more impressive when we take into account the fact that the
industrial output of China is very large, contributing 47 per cent to
GNP. This rapid rate ofindustrialisation has, however, necessitated an
increase in the volume of cereal imports from levels of 9 million tons in
the mid-1970s to 19 million in 1983, declining to 15 million in 1984 and
10 million in 1985. China's achievement compares with a somewhat
lower but still impressive growth rate of agricultural output of India of
2.7 per cent per annum (1980-5), a growth rate of industrial output of
5.4 per cent per annum (1980-5) and a relatively smaller share of
industrial to total product of 27 per cent. India, however, has managed
to eliminate reliance on cereal imports-5 million metric tons in the
mid-1970s. 11 China's export ratio is only fractionally higher than India's,
at 9 per cent of GDP. Chinese economic development strategy has been
firmly based on the growth of domestic consumption.

AFRICA: THE NEOCOLONIAL MODEL FROM CRISIS TO

CHAOS?

In the period 1965 to 1973, sub-Saharan Africa's overall performance as

measured by GDP growth (5.1 per cent p.a.) compared favourably with
that ofIndia (4.0 per cent p.a.). Agricultural production kept up with the
growth of population (2.7 per cent p.a.). India, Bangladesh, and even
China were claimed to be nations doomed to perpetual poverty.
Bangladesh became a byword for international pauperism, yet Bang-
ladesh raised its average annual growth offood production from 0.4 per
cent in 1965-73 to 3.2 per cent in 1973-83Y At the same time, its
average annual growth of industrial output increased from - 6.1 per
cent in 1965-73 to 8.1 per cent in the decade 1973 to 1983. Thiscontrasts
with a reverse trend for the poor countries of sub-Saharan Africa, where
the increase rate of food production was 3.1 per cent per annum in
1965-73 and fell to 1.2 per cent per annum in 1973-83. Industrial
output growth likewise declined from levels of 6.9 per cent per annum in
the earlier period to 0.6 per cent per annum in 1973-83. 13 Why? We do
not claim to know the answer, nor do we wish to minimise the difficulty
of comparing such different historical experiences, but the contrast
20 The International Debt Crisis

between the economic achievements of the low-income countries of

South Asia and China in the past decade, based on increased agricul-
tural and industrial production for the domestic market and financed
almost entire1y by domestic resources, contrasts strikingly with the
disasters which have struck low-income Africa. Nor can Africa's
fortunes be accounted for by a lack of foreign aid, in so far as aid levels
increased substantially from $2 billion in 1970 to approximately $6
billion in 1980, to $9.5 billion in 1986. As already mentioned, shipments
of cereal food aid increased from 1.2 billion tons in the drought years
(1973-4) to 4.8 million tons in 1984-5.
Or could it be that the aid agencies are part of the problem? In an
address on 'African Realities in the Next Decade', Ghana's High
Commissioner to Canada cited a World Bank Study which reported that
in the early 1980s some 80000 resident non-nation als were providing
technical assistance to public and para-public institutions in sub-
Saharan Africa, at an annual cost of some US $4 billion, or $10.00 per
head per annum. This averages at one technical expert in the non-private
sector alone per 5000 of population compared to one medical doctor per
25 000 population. The evidence further suggested that an even larger
number of technical assistance staff is provided by the private sector. 14
Leaving aside the simple matter of costs- because technical aid has to be
repaid, often with interest-it is questionable whether the advice being
dispensed by this veritable army of foreign experts can assist Africa to
deve10p authentically on the basis of its own values and institutions.
The World Bank reports that Kenya in the early 1980s was trying to
cope with 600 projects from 60 donors; Malawi, 188 projects from 50
donors; Lesotho, 321 projects from 61 donors; Zambia, 614 projects
from 69 donors. 'In sub-Sahara Africa,' the report states, 'the prolifera-
tion of projects may actually have undermined the development effort of
individual countries.'15
The count ries of Africa are caught in a situation of extreme
dependence on foreign exchange. Poor food performance in the 1970s
was accompanied by a fall in export volumes, accompanied by
deteriorating terms of trade. In the 1980s import volumes dec1ined by 15
per cent (1982-5) in the low-income countries of Africa, as terms of
trade continued to deteriorate. These dec1ines are of catastrophic
dimensions for countries which had already experienced several years of
decline in the purchasing power of their exports. Export values declined
at 4 per cent per annumfor the decade 1973 to 1983. 16 Most sub-Saharan
African countries have borrowed from the IMF and many have
additionally drawn Structural Adjustment Loans (SALs) from the
World Bank.
 Linkage and Vulnerability 21

The conditionalities of IMF programmes consist of a mix of

demand-restraint measures designed to reduce budget deficits and
compress consumption and imports, and devaluations and other price
adjustments intended to integrate the domestic economy more closely
into the network of world trade and capital flows. The principal
instruments of demand restraint are restrictions on the creation of
domestic credit, and reductions in real wages by the rem oval of subsidies
on food and by increases in public utility prices. The credit squeeze
generally results in lay-off of public sector workers as the government is
unable to continue to meet its payroll. Combined with a credit squeeze,
devaluation in a small open economy has a four-fold effect:

(1) because prices of imported goods rise while neither the private nor
the public sector has the liquidity to adjust money wages upward,
there is a rapid reduction in real wages, and thus in consumption
and in the demand for imports;
(2) the internal terms of trade shift from non-tradeable to tradeable
goods, thus encouraging export production and 'efficient' import
substitution. In effect, this shifts purchasing power from the urban
to the rural sector, especially to profits in the primary export
sector;
(3) devaluation shifts the external terms oftrade against the country.
By making its exports more competitive it provides the industrial
trading partner with cheaper food and raw materials; and
(4) devaluation creates an increased fiscal burden on the government
in the form ofhigher local currency costs of servicing external debt
and pushes up interest rates.

Additional conditionalities pertain to requirements for the liberalisation

of the system of exchange and trade, the assumption by the government
of payment of arrears by the private sector, and generally also
requirements for the privatisation of state-controlled enterprises. It is a
basic tenet of the IMF that direct investment by multinationals is to be
encouraged. Foreign companies, however, are not exactly beating down
the gates; average annual increase in foreign direct investment in Africa
was only $1.4 billion in the 1980s. IMF programmes are monitored by
means of quarterly quantitative performance targets of domestic credit
creation, public-sector borrowing and foreign reserves.
According to a North-South Institute study, economic performance
of low-income countries in terms of balance of payments, growth,
inflation, savings and investment in the 1970s was no better for countries
with IMF programmes than for those withoutY A 1983 IMF internal
22 The International Debt Crisis

report revealed that the Fund's record in sub-Saharan Africa was

particularly unsuccessful with growth targets reached in only five out of
twenty-three African countries, inflation targets in only thirteen out of
twenty-eight and trade targets in only eleven out of twenty-eight. 18
Moreover, there is no evidence that IMF programmes resulted in an
inflow of Bank credit to low-income countries. 19
There is a considerable element of fantasy in the economics of the
IMF programmes. This is particularly evident with respect to the belief
that devaluation can result in switching resources from domestic to
export production or in substituting domestic production for imports.
The very essence of economic underdevelopment consists precisely in
the fragmented nature of the production structure and the excessive
reliance on imported inputs. Even raising utilisation levels of existing
capacity often requires additional imported inputs.
In response to such problems, the World Bank has introduced a
programme of Structural Adjustment Loans (SALs) whereby macro-
economic targets of IMF conditionalities are supplemented by a
microeconomic reorganisation of a country's economy by teams of
World Bank experts. These programmes have been introduced in sixteen
countries (1984). Turkey has been a major recipient: SALs to that
country run at approximately $1 billion, 7 per cent of total World Bank
lending. 20 The philosophy underlying the SALs is that inappropriate
pricing policies, excessive state intervention, inefficient import-
substituting industries and other 'domestic distortions' are the principal
obstac1es to economic growth and development. The emphasis is
strongly on export promotion, privatisation, dismantling of subsidies to
public transportation and other utilities, thus forcing world prices to
playa greater role in the allocation of domestic resources.
On account of the explicit and deli berate interference in a country's
economic and administrative policies and institutions and their five-year
duration, the SALs are not very popular. Major Latin American
countries, in particular, have avoided them. Most SALs have been
introduced in sm all countries whose need for external finance is
desperate enough to leave them little choice. The countries concerned
inc1ude those of sub-Saharan Africa, Jamaica, Haiti, EI Salvador, and so
on. For the countries of sub-Saharan Africa, the IMF and the World
Bank are now the only major sources of external finance available.
Indications are that conditionality and donor leverage will be streng-
thened, with the World Bank playing an increasingly central role as
co-ordinator of aid consortia. In line with philosophies currently
prevailing in Washington, foreign private investment will receive
increasing emphasis. The basic blueprint for sub-Saharan Africa was set
 Linkage and Vulnerability 23

out in a 1981 Bank report: 'Accelerated Development in sub-Saharan

Africa-An Agenda for Action'. That report met with widespread
criticism for its unqualified support for export-oriented agricultural
policies and its failure to address the critical food-supply situation. A
revised 1983 version ofthis report conceded some ofthe objections, but
did not fundamentally change the thrust of Bank policy.21
Can these externally leveraged programmes succeed? Very unlikely.
Sub-Saharan Africa is caught in a primary commodity trap, dependent
on foreign exchange even for basic food imports. As is weIl known,
prices of (non-oil) primary commodities fell drastically during the
recession years 1980 to 1982. This affected all regions of the world. F or
sub-Saharan Africa export prices fell by 25.6 per cent in 1981-8, and
terms of trade deteriorated by 27 per cent. In spite of increasing export
volumes and increased concessional aid, the capacity to import has
deteriorated drastically. 22
Development aid predicated on furthering the integration of African
resources into the (highly disordered) world system oftrade and capital
is certain to accelerate social and political tensions. Development is an
endogenous social process, as the late Joseph Schumpeter observed a
very long time ago. It cannot, even with the best of intentions, be
externally imposed. The ultimate and central question for Africa is thus
a political one: 'Who controls the surplus available for purposes other
than the support of continued existence, and who decides how it is to be
usedT The realities of the next decade for Africa largely depend on the
answers to these questions.
With an oblique reference to 'aid fatigue', Ghana's High Commis-
sioner expressed the thought that 'the hope for Africa may yet be found
in the depths of the crisis'. The neocolonial model currently being
imposed as a condition for desperately needed external financial
assistance cannot build on Africa's indigenous values or institutions.
Indeed, these are considered constraints to be purged by the discipline of
the profitability calculus of international business. We cannot agree
more with his conclusion:
the tendency to view development in terms that dislocate individuals
and even communities from their natural, social and cultural setting,
to be utilised as mechanical devices or physical inputs for develop-
ment-itself viewed in terms of growth and growth statistics-can
only produce chaos out of the present crisis. 23
Ultimately, we reaffirm the conclusions of the pioneers of develop-
ment economics of the 1950s and 1960s, whose starting point was
precisely the insight that economic development cannot and does not
24 The International Debt Crisis

proceed by granting priority to the signals of the international market

for goods and capital-as now advocated by resurgent neoliberal
orthodoxies, which have provided the Reagan - Thatcher camp with the
shoddy gloss of academic legitimacy.24
. Although the dichotomy between a development model whose
priorities are determined by endogenous political and social pressures,
as compared with approaches which seek to impose the priorities ofthe
market for internationally traded goods and capital, bears a elose
relationship to the 'domestic-oriented' versus 'export-oriented' one, it is
by no means an exact correspondence.
The success ofthe Korean model-like that of Japan, which it elosely
resembles-is proof ofthe fact that an autocentric model of development
is consistent with a dynamic foreign trade sector and substantial foreign
borrowing. In this connection, it is important to understand that Korea
is by no means an 'open' economy or society. The Korean symbiosis
between business and the state is in fact a tightly controlled social
formation bearing little similarity to the social structures of Latin
America, whose business and professional elite is very much more
'transnationalised' in lifestyle, orientation and nationalloyalty. Foreign
direct investment, for example, is severely restricted and constitutes a
mere 4 per cent of Korea's large externalliabilities. This compares with
22 per cent in Brazil, which is perhaps the most growth-oriented state of
the major Latin American countries.
We mention Korea in this context because it is frequently cited by
neoliberal advocates of the 'free market' as a model of export-oriented
development to be generally emulated. Leaving aside the repressive
nature of its political regime-which is now showing signs of cracking
under the pressures of rapid modernisation - and the very important fact
that Korea laid the basis of its industrial strength by import-substituting
industrialisation, it should not be overlooked that Korea has benefited
from its privileged position in the geopolitical priorities of the United
States. In spite of its well-known super NIC (Newly Industrialised
Country) status, as instanced by an extraordinary growth rate in export
earnings of 23 per cent per annum throughout the 1970s, and levels of
per capita income superior to that of Brazil, Chile or Argentina, Korea
continues to benefit from significant access to official development
assistance. Thus, in 1983,40 per cent of Korea's external debt of $21.5
billion was owed to official development agencies and only 60 per cent to
private creditors. Moreover, only 42 per cent of total external debt was
on floating interest rates. None of the major Latin American debtor
countries was thus favoured. In the case of Brazil, only 12 per cent of
 Linkage and Vulnerability 25

external debt of $1 02 billion in 1983 was official; 88 per cent was owed to
private commercial creditors; and 77 per cent of total debt was on
floating interest rates. Ratios of official to privately held debt in 1983 for
other major Latin American debtors were: 10/90 for Chile; 8/92 for
Mexico; 6/94 for Argentina; and 1/99 for Venezuela. Almost all
privately held external debt, with the exception of Argentina's, was on
floating rates by 1983.

THE EVOLUTION OF THE INTERNATIONAL ECONOMIC

DISORDER

Whereas the vulnerability of the poor countries of Africa to external

shocks associated with dependent integration into the international
economy is the traditional one of unfavourable and unstable primary
commodity markets, the Latin American semi-industrialised countries
were projected into crisis principally by their entanglement within a
hypertrophie private international capital market. To understand the
nature ofthe crisis which hit Latin America in the 1980s we must briefly
review the evolution ofthe international economic disorder which dates
from the slippage ofthe capacity ofthe top metropole to manage it in a
disciplined and orderly fashion. The key date is 1971, when the United
States opted out of the Bretton Woods system and the discipline which
gold convertibility imposed on US fiscal and monetary poliey.
U nderlying the Third World debt problems are power relations which
are conventionally placed beyond the purview of academic economics.
Consider, for example, the remarkable success of the United States in
using its financial power as the principal source of international reserve
currency to keep the world subject to its monetary policy-and keep that
policy free from external constraint, including the discipline of a
collectively agreed upon exchange rate regime, such as that of Bretton
Woods. American policy towards the balance of payments has been
described as 'the will to power cloaked in academic economics'.
European analysts have complained of abasie urge to dominate the
monetary system so that external constraints may not limit the
American political economy's expansive impulses, at horne and
abroad. 25
The eminent Belgian-American monetary economist Robert Triffin
has referred to the American monetary policy as 'the World Monetary
Scandal'.26 When the US dollar came under pressure in the late 1960s,
the United States delinked its national currency from gold, thus
26 The International Debt Crisis

avoiding the need for politically painful domestic adjustment. As a

result of its abandonment of the requirements of the gold exchange
standard, the United States could, in effect, export its inflationary
domestic pressures by financing its payments deficits by its own IOUs.
Consequently, international reserves have increased almost ninefold,
from $78 billion in 1969 to $688 billion in 1984, sustaining a world
inflation which, according to Triffin, raised consumer price levels four
times as much as in all previous years and centuries. This increase of
$610 billion in international reserves consisted of increased credit
reserves of $326 billion (54 per cent) and revalued gold holdings of $284
billion (46 per cent) (88 per cent ofthe increase in credit reserves and 85
per cent of the increased value of gold reserves were invested in
industrialised countries). The developing countries benefited only from
so-called concerted reserve creation (SORs and IMF credit). Even here,
two-thirds of SOR allocations benefited industrialised countries. The
only form of credit creation benefiting non-industrialised countries were
IMF credits-increasingly carrying conditionality obligations. A
significant feature of the pattern of credit reserve asset holding is the fact
that the Uni ted States need hold only a minimal fraction of world
foreign exchange reserves (1.5 per cent of a total of$276 billion) because
it can pay for its deficits in its own money. America thus emerges as the
only net debtor as far as net credit reserves are concerned ($168 billion).
The poorest countries of the Third World, most in need of foreign
exchange for their development and even the survival of their starving
populations, contributed $94 billion to US net reserves.
The US fiscal deficits which appeared in the late 1960s in connection
with American policies of 'guns and butter' -the Vietnam War abroad
and the Great Society at home-triggered an economic boom which
unleashed inflationary forces. Commodity prices climbed from the late
1960s; the oil price rise of 1979 was but the last phase of a general
commodity boom, just as the fall of oil prices in the mid-1980s is the last
phase of the subsequent decline in commodity prices. The composite
(non-oil) commodity price index has now declined by 50 per cent since
1974 (35 per cent from 1960s pre-boom levels).27
How has the US escaped the pressures of adjustment, thus securing a
free ride of externally financed trade and payments deficits, now running
well over $100 billion per annum? How was US indebtedness able to
grow at such a fantastic rate? In 1985, the richest country in the world
became a net debtor to the rest ofthe world. By the end of 1986 the US
overall investment position was minus $264 billion. By the end of 1987 it
was expected to be minus $400 billion -making the US by far the world's
 Linkage and Vulnerability 27

largest debtor. Over the past six years the US has sucked in capital to the
tune of $500 billion by liquidating assets and borrowing abroad,
enabling Americans to consume more than they produce and to finance
its vast military expenditures. The capital inflows to the US since 1979
have been nothing short of astronomical, and accounted for the rising
value of the dollar in spite of America's gigantic trade deficits.
The United States has used its traditional privilege as the issuer ofthe
world's principal reserve currency to cover both its international deficits
and a growing fraction of its budgetary deficits, now running at $200
billion per annum. Foreign money finances close to half the US
budgetary deficit and government debt account for no less than 42 per
cent ofthe total value ($443 billion at the end of 1984) offoreign assets
held in the United States (23 per cent in equity; 12 per cent in corporate
bonds; 10 per cent in commercial paper and 13 per cent in time and
savings deposits). As remarked by many commentators, the United
States has been able to impose its political and economic agenda on the
rest ofthe world, including a portion ofthe burden ofthe financing ofits
megabillion military expenditures. If present trends continue to the end
of the decade, US net indebtedness to the rest of the world is expected to
reach $1000 billion in the early 1990s.
In the 1970s, the US trade deficit averaged $14 billion and was more
than covered by earnings of profit and interest on foreign investments
and loans averaging $18 billion per annum. By 1984 the trade deficit had
increased to $108 billion. Some of these capital inflows, which became
very large in the 1970s, were recycled to finance a 2200 per cent increase
in the volume of international lending by US domestic banks, whose
foreign loans grew from $14 billion in 1970 to $443 billion by the end of
1984.
Internationalloans by US domestic banks, however, accounted for no
more than 20 to 25 per cent of the total volurne 0/ outstanding
international bank credit 0/ $2500 billion by the end of 1984. It was the
development of the 'offshore' or Eurocurrency market which was
principally responsible for the unprecedented explosion of international
bank credit in the late 1970s and early 1980s. The Eurodollar market
increased from $100 billion in 1970 to some $2000 billion in 1984. By
1988 the volume of officially guaranteed long-term debt of developing
countries to commercial banks was estimated at $388 billion. The
addition of short-term and unguaranteed private debt could raise this
figure to $600 billion.
Eurocurrency or 'offshore' banks are not legally required to hold
(non-interest-bearing) reserves, nor are they subject to other rules and
28 The International Debt Crisis

regulations which govern domestic banks. There has been a bonanza of

devices to 'make idle money work'. Major sources of deposits for
Eurocurrency banks (operating principally, but not exclusively, in
dollars) are domestic banks, international corporations, Central Banks,
state enterprises, and other international banks. (To correct a common
misconception, we note that at the height of the era of OPEC surpluses
only 10 per cent ofEurobank deposits were recycled petrodollars.) Most
of the funds are deposited on short call (20 per cent for less than one
week), but a variety of banking innovations have enabled banks to
convert very short funds to loans with three-to-eight-year maturities.
The principal banking innovation affecting debtor countries has been
the shifting of interest rate risk from lender to borrower, by the device of
floating rates of interest tied to the LIBOR rate (London Inter Bank
Offered Rate). Loans on floating rates for major Third World borrowers
increased from 18.4 per cent of total (official) external public debt in
1974 to 51.4 per cent in 1983. This created the single most serious
problem for the debtor countries, as interest rates began to climb in
1977. The percentages of total external public debt on floating rates
increased from 47 to 82 per cent for Brazil; 44 to 77 per cent for Mexico;
14 to 34 per cent for Argentina; 10 to 72 per cent for Chile; and 25 to 80
per cent for Venezuela, from 1973-5 to 1983. By 1983, interest as a
percentage of export earnings for these countries had reached levels of
37, 37, 52, 42 and 25 per cent, respectively.
Another device for minimising the risk of sovereign lending was the
syndicated loan. Here some twenty-five to fifty large (first-tier) banks
roped in some 3000 smaller (second-tier) banks to contribute to
sovereign loans, thus diversifying their portfolios and spreading risks.
For the service of organising syndicated loans the first-tier banks
charged large fees, payable up front, and additionally collected royalties
on debt-service collections. Syndicated loans encouraged 'herd instinct'
behaviour by smaller and weaker banks, who tended to follow the lead
of the larger, and presumably more experienced, ones. Syndicated
Eurocurrency lending to developing countries grew from $3.8 billion in
1972 to $11.7 billion in 1975, to $34.1 billion in 1978 and reached a peak
of$44.9 billion in the recession year 1981. Subsequently, it declined to a
level of $22.7 billion in 1984. Some 50 per cent of all syndicated loans to
developing countries went to the major Latin American debtor count-
ries, peaking in 1981 at $25 billion in new loans.
Yet another device to minimise risk for the lender was the introduc-
tion of the cross-default clause on publicly guaranteed debt. This
 Linkage and Vulnerability 29

specifies that a loan is considered to be in default if a borrower defaults

on any other loan. This blurred the difference in risk between individual
borrowers or projects within a borrowing country, and ensured that if a
borrowing country defaulted, all bank lenders would consider
themselves affected. By means ofthis informal creditorcartel, borrowers
have a strong incentive towards rescheduling, rather than defaulting on
bank loans.
Finally, the environment of deregulation, including the abolition of
exchange controls and the creation of tax-haven offshore banking
centres, has speeded the development of an international interbank
market which is continually shifting funds in sleepless twenty-four
hour-a-day telephone/telex activity to ensure that money shall never be
idle. The interbank money markets grew from a few hundred banks in
the mid-1970s to weIl over a thousand from more than fifty countries by
the early 1980s. Total cross-border interbank claims amounted to some
$2000 billion by the end of 1984. This market is totally informal and
operates, without any regulatory authority, almost exclusively in US
dollars. 28

THE PRIVATISATION OF PUBLIC DEBT

This hypertrophie money market has transformed historie patterns of

external finance to developing countries within the short period of a
decade. 29 To summarise:

1. The relative weight of official to private sources of debt finance

reversed from 55 per cent (official): 45 per cent (private) in 1970 to
36: 64 by 1980. Consequently, the proportion of debt on non-
concessional terms increased from 60.7 per cent in 1970 to 76.4 per
cent in 1980. While the relative importance of official to private credit
has subsequently increased, this recent trend has not altered the
cumulated burden of debt to be serviced.

2. Concessional bilateral aid declined from 36 per cent of total external

debt in 1970 to 19 per cent in 1980; commercial bank lending to
developing country governments, which was virtually unknown in
1960 and accounted for only 10 per cent ofThird World debt in 1970,
had become the single largest source of public external debt finance
by 1980 (35 per cent). Multilateral official finance maintained its 12
30 The International Debt Crisis

per cent share (5 per cent concessional; 7 per cent non-concessional).

Total concessional finance declined from 39 per cent in 1970 to 24 per
cent in 1980.

3. Since the beginning of the 1980s, at the insistence of the Reagan

administration, the seventh replenishment ofthe World Bank's IDA,
which is the largest multilateral source of soft money for poor
countries, has been reduced from $12 billion to $9 billion. Levels of
annual disbursements will accordingly be reduced, and further
additional declines are expected. IDA disbursements declined from
an average of$2.24 per capita between 1978 and 1980 to an average of
$1.47 in 1984.

4. The importance of direct private investment in total external finance

of developing countries has declined dramatically from 22 per cent in
1960, and 20 per cent in 1970, to less than 9 per cent in theearly 1980s.
Portfolio investment similarly declined from 10 per cent of total
external finance in 1970 to insignificance by 1980.

5. The rapid growth of borrowing in the past ten to fifteen years has
produced a very large increase in external debt. According to IMF
data, total extern al liabilities of developing countries, including
short-term debt ($188 billion) stood at $1223 billion in 1988.
Debt-service payments increased from $9 billion in 1970 to $152
billion by 1988: $72 billion interest; $80 billion principal.

6. The average maturity 0/ total public debt shortened from twenty years
in 1970 to fourteen years in 1982 because loans from private sources
carry short maturities-averaging 8.3 years in 1983. Average grace
periods declined from 5.5 years in the 1970s to 3.9 years in 1983. The
average maturity and grace periods for new loans were the shortest
ever recorded in the his tory of developing countries.

7. Over three-quarters (76 per cent of public long-term debt is

denominated in US dollars and the share ofjioating rate debts in total
outstanding disbursed debts rose from 1.6 per cent in 1970 to 44.6 per
cent in 1985. For the fifteen countries designated as 'Heavily
Indebted', whose debt to commercial banks of$230 billion accounts
for almost two-thirds of total bank loans to Third World countries
($388 billion), 65 per cent of total public external debt was on floating
rates of interest in 1985 (compared to only 4 per cent in 1970). In the
case of Latin American debtors 90 per cent of debt is den ominated in
 Linkage and Vulnerability 31

US dollars, and as has been noted, almost the whole public external
debt is on floating rates (Mexico: 82 per cent; Brazil: 77 per cent;
Venezuela: 88 per cent; Chile: 72 per cent). As we shall see, the rise in
the value of the dollar in the early 1980s seriously increased the cost,
in terms of domestic goods, of servicing the debt.

8. Interest rates on new long-term commitments to public borrowers of

8 per cent in the mid-I970s shot up to 14 per cent in 1981. They are
now in the area of 10 per cent.

9. Total Third World debt grew rapidly from $332 billion in 1977 to
$1223 billion in 1988. Long-term guaranteed debt grew from $214
billion in 1977 to $938 billion in 1988. Debt due to official creditors
grew from $110 billion in 1977 to $486 billion in 1988, and debt due to
private creditors increased from $73 billion in 1977 to $452 billion in
1988. Asia was the largest regional recipient of official flows ($148
billion by 1988); whereas over half of private lending went to Latin
America ($282 billion by 1988).

These statistics reflect the escalating integration of developing

countries into a hypertrophie private capital market awash with liquidity
after the break-down of the Bretton Woods system. The bank debt of
developing count ries expanded from 1973 to 1980 at an average annual
rate of 30 per cent. Two-thirds of this expansion corresponded to the
global growth offinancial markets; the remaining third to the increased
participation of developing countries within this market as banks sought
the easier and fatter profits on sovereign lo~ns than could be expected
from private lending in the industrialised cou'1tries, where business was
plagued by productivity slowdown, declining profit rates and ever more
serious recessions. Borrowers, on their part, were cushioned by an
international inflation rate averaging 10 per cent (1973-80) which
translated into very low real rates ofinterest-occasionally even negative
rates (averaging 1.3 per cent per annum).30
By 1980 net annual flows of private bank lending to developing
countries had reached the historically unprecedented level of$49 billion,
increasing to $52 billion in 1981. Levels continued to escalate until the
Mexican crisis of August 1982, with the flow reaching $41 billion for that
year. This recycling ofliquidity by private banks was applauded by the
international development community as a successful and appropriate
response to the growing disequilibrium in the international system of
payments. It would seem that lenders, borrowers, multilateral develop-
32 The International Debt Crisis

ment agencies and experts all believed that the 'debt-Ied' growth of
semi-industrialised NICs could safely continue. Indeed, the extensive
experiments in economic 'liberalisation' and financial deregulation in
the Southern Cone ofLatin America-where, for example, in Chile bank
debt increased by 61 per cent per annum from 1977 to 1981-were
endorsed by the fraternity of neoliberal monetarist economists in
universities and governmental institutions in both North and South
America.
Following the Mexican crisis of 1982, tens of billions of short-tenn
credits were called by the banks, who now refused to extend new loans
except where obliged to undertake 'involuntary' lending to enable
debtor countries to service previous loans. The several elements of the
crisis of the 1980s-recession in the industrialised countries, falling
commodity prices, the burden of intolerably high interest rates and an
overvalued US dollar-were severely magnified by the reverse stampede
ofthe private banks, who now slashed net credit to developing countries
from $34 billion in 1983, to $17 billion in 1984, and to $13 billion in 1985.
The repercussions for Latin America were particularly severe as net
bank lending declined year by year from a level of $41 billion in 1981 to
$5 billion in 1985.
Bank credit was not, however, the only source of private capital which
dried up. Private direct investment to developing countries plummeted
from a flow of$17 billion per annum in 1981 to $7 billion in 1985. As the
capacity to import collapsed under the combined pressure of severely
reduced foreign exchange availability and monumental debt-servicing
obligations, net export credits to developing countries declined from
annual flows of $17 to $18 billion in 1980 and 1981 to a mere $1. 5 billion
in 1985. Once again, Latin America was most severely affected: direct
investment flows fell from $9 billion (1981) to $2 billion (1985) and net
export credits, which contributed $5 billion in 1981, had dwindled to
insignificance by 1985.
Ifthe situation in sub-Saharan Africa did not confonn to this pattern,
it is only because the African countries were, with few exceptions, too
poor to have attracted much private capital in the 1970s. Here also there
was a decline of total private flows and export credits from $6 billion
(1981) to $2.5 billion (1985). The principal source of external finance,
however, was and remains official development finance (ODF), running
at levels of $11 billion in 1981 and $13 billion in 1985.
In summary, total annual private capital flows and (related) export
credits to developing countries fell from $92 billion in 1981 to $33 billion
in 1985. For Latin America this contraction was even more severe: $57
 Linkage and Vu/nerability 33

billion in 1981; $8 billion in 1985. In the poor countries ofsub-Saharan

Africa private flows are, as mentioned, neg1igib1e.
Given the political and ideological c1imate in the major industrialised
countries, lt proved impossible to compensate for the drastic dec1ine in
the flow of finance to developing countries by increased officia1
development assistance. The views prevailing in the corridors of power
at the Fund and the Bank, not to mention the US administration,
continue to privilege the private sector and the 'market' vis-a-vis the
developing world. Official flows barely increased in current dollar value
from levels of$46 billion in 1980 and 1981 to $49 billion in 1985. Ifwe
abstract from bilateral flows which are strongly targeted to geopolitical
systems of influence, we note that multilateral flows from all sources
were a mere $16 billion in 1985-as compared with net outflows of
interest and profit from developing countries of $50 to $60 billion per
annum, for a cumulative total of $275 billion in the five years since the
onset ofthe crisis in 1982. Ifwe add (conservative) official estimates of
capital flight of $102 billion for the same five years, we arrive at a total
outflow of $337 billion (1982-6). For the fifteen countries of the
so-called Baker Group-which inc1udes ten Latin American count-
ries - this resulted in reverse resource flows of over $20 billion per annum
in each of the four years from 1983 to 1986, with no prospect in sight for
an end to this haemorrhage. During this same period, as already noted,
the United States became the world's largest debtor, fuelling its
economic growth and shoring up its gigantic payments deficit with
massive capital inflows. 31
Reform of the perverse monetary disorder advocated by various
liberal and social democratic Keynesians aborted in the face of the
inability of the three major blocs of the industrialised world to agree on
how to share the benefits and costs of reconstructing and managing it.
The Europeans have increasingly protected their trade and currency
community and its special relationship with certain traditional spheres
of influence, inc1uding Eastern Europe. The United States was success-
ful in generating an economic revival based on massive capital inflows,
but this is now faltering. The associated erosion of the capacity of US
industry to compete in the international goods market has strongly
reinforced domestic protectionist pressures. This is accompanied by
attempts to bully the rest of the world into opening markets to American
service exports and allowing the unimpeded entry of investment capital.
American fiscal policies have contributed to the highest ever level of
real interest rates, estimated at 5.9 per cent per annum for 1980 to 1986
as compared with long-term historical interest rates of approximately
34 The International Debt Crisis

2.5 per cent per annum (2.3 per cent per annum in 1965-73)Y These
high interest rates are internationalised through an integrated world-
wide private money market whose official reserve currency is the
American dollar. The real rate of interest is now double the real growth
rate of industrialised countries (2.3 per cent per annum in 1980-6),
reflecting the shift of capital from productive to speculative and financial
activity. In so far as part ofthe interest is capitalised at high rates, there is
a cumulative growth of debt and debt-service liabilities which acts as a
massive mechanism for the redistribution of income internationally and
nationally. It has been suggested that at present low levels of world
economic activity and low levels of real capital formation, the demand
for loans is to a large extent dicta ted by the need to pay interest on the
stock of debt. This implies that debt is acquiring a li fe of its own in a
self-sustaining mechanism of compound interest growth which will tend
to keep interest rates high as long as there are lenders willing to lend and
debtors whose wages can be squeezed. 33
The transnationalised capital market, which operates beyond the
control of national monetary authorities, has been privileged in the
support which creditors have received from the International Monetary
Fund in their desire to shift lender risk to the debtor countries. There is
precious little left of the 'rules of the game' which imposed financial
discipline on the international community be fore 1971-3, except the
leverage which the IMF exerts on developing countries by means of its
well-known conditionalities. This reaches beyond the extraction of
interest payments on debt, beyond the requirement of adjustment of the
external account, and now encompasses domestic monetary, fiscal and
commercial policy. Whereas the growth ofthe global financial sector in
excess of the growth of productive activity has created a regressive
internal redistribution ofincome within the industrialised countries, the
developing countries have been paying interest without compensating
earnings accruing to holders of financial assets. More exactly, private
citizens who accumulated substantial assets invested them in foreign
placements whose earnings have rarely been repatriated. There is good
reason to believe that capital flight, if credited against official debt to
these same banks, could wipe out a considerable portion ofThird World
bank debt.
Debtor countries are transferring real resources in the form of trade
surpluses and through the liquidation of reserves and other assets
gene rally accompanied by a further increase in external indebtedness.
This implies drastic compression of consumption, investment and
import volumes, and the diversion of output from domestic to export
 Linkage and Vulnerability 35

markets. Moreover, these export surpluses are being generated in an

environment of falling commodity prices, deteriorating terms of trade,
and ever-growing protectionist barriers. Latin America compressed
import volumes by some 40 per cent in 1982-3 and squeezed out a
cumulated trade surplus of $136 billion in the four-year period 1983 to
1986 to service external debt. The compression of Latin American
imports from 1981 to 1983 was ofthe order of68 per cent for Mexico, 57
per cent for Chile, 49 per cent for Argentina, and 30 per cent for BraziU4

RISING PROTECTIONISM

Developing countries are advised to 'export' themselves out of debt. The

rising tide of protectionism in industrialised country markets, however,
presents a major problem. Such protectionism is likely to escalate as the
United States comes under increasing press ure to elose its $150 billion
payments gap.
The World Bank has calculated that an increase in protectionism,
resulting in a deterioration of Latin America's terms of trade by 10 per
cent, would deprive the region of income equivalent to its entire external
debt. 35 Protectionist policies in Europe and North America discriminate
strongly against the exports of developing countries-principally
because there is no effective sanction of retaliation, as is the case when
protective policies are targeted at major industrial trading partners. The
principal instruments of protection are Non Tariff Barriers (NTBs)
which have more than doubled in the US between 1980 and 1983 and
increased by 38 per cent in the European Community. Contrary to
general impressions, agricultural exports from developing countries are
affected more seriously by trade barriers than manufactured exports.
Resulting food surpluses of industrialised countries are then dumped on
world markets, depressing prices and further inhibiting domestic
production in developing countries. It has been calculated that tariff and
NTBs for the protection of sugar growers alone resulted in annual
average losses of revenue of over $5 billion (1971-81) for world sugar
exporters; Third World beef exporters similarly suffered average annual
losses of export revenue of $5 billion. For Latin America, protection of
these two agricultural commodities alone cost $8 billion per annum in
lost export revenue. By comparison, the aid programmes of all
industrialised countries to all developing countries was $22.5 billion in
1980 prices and exchange rates-barely twice the losses suffered by
protection of American and European sugar and beef producers.
36 The International Debt Crisis

Europe and the Uni ted States discriminate strongly against imports
from developing countries. Thus the percentage of European Com-
munity imports from developing countries subject to NTBs was 22 to 25
per cent as compared with NTBs against imports from industrialised
countries of only 10 per cent. The percentage of US imports from
developing countries subject to NTBs was 13 to 15 per cent as compared
to NTBs against industrialised countries of only 8 per cent. Japan, which
strongly depends on developing countries as an export market, shows
the lowest level ofNTBs against developing country imports. 36 In the US
and Europe the 'Major Borrowers' are faced with the highest levels of
NTBs targeted against the restricted set of manufactures in which
developing countries have gained a foothold in industrial country
markets (textiles, garments, footwear, steel). The trend to protec-
tionism, resulting from high levels of unemployment in Europe and the
damaging effects of the overvalued US dollar on American capacity to
compete on international markets, is areminder of the hazards of
excessive dependence on trade as the principal 'engine of growth'. The
authors of the 1985 World Bank Report, who dealt specifically with this
question, appear to be weIl aware of the problem and warn that further
proliferation of NTBs 'could weIl revive, (and justify) [sie] the export
pessimism that prevailed in many developing countries in the 1930s and
1940s'.37 Moreover, the Bank recognises that export dependence is no
longer the only source of external vulnerability:
increased financial links of developing countries with world capital
markets have added important channels through which macro-
economic developments in industrial countries are transmitted to
developing countries. . . . Policies in industrial countries directly
affect the cost of debt servicing, volume of capital fiows, and the
ability of developing countries to earn foreign exchange. High real
interest rates have dramatically increased the debt service burden of
developing countries, the appreciation of the dollar has depressed
commodity prices, and so on. 38

ASYMMETRY OF POWER AND OF PERCEPTIONS

Although the Latin American debt crisis did not manifest itselfuntil the
beginning of the 1980s in the form of rising nominal and real interest
rates on debt denumerated in overvalued US dollars, sharply declining
commodity prices, and most particularly the dramatic cessation of
 Linkage and Vulnerability 37

private commercial bank lending, the underlying causes must be traced

to the vulnerability of the Latin America style of development which
gathered momentum throughout the 1970s.
Essentüilly, the thorough-going and wide-ranging opening of the
Latin American economies to the exterior in the past decade has made
them more vulnerable to the asymmetry of power in international
commodity and capital markets than they were in the 1930s. The
explosion of international credit operating beyond the control of
national monetary authorities has penetrated the social and political
fabric of national societies, creating destabilising networks of financial
transactions and innumerable channels of capital outflows. Eventually,
situations can arise where only hard currency is regarded as 'real'
money, a phenomenon referred to by Latin American economists as
'internal dollarisation'. When preference for foreign money is no longer
confined to foreign businesses but becomes generalised; when nationals
prefer to deposit their funds in foreign bank accounts, where they are
moreover protected from forcible patriation by the canons of the
sanctity of private property; when foreign banks can exercise pressure
on governments to 'socialise' the private debt of their national clients
and add them to already excessive official externalliabilities, a country is
in danger of losing all control over its social and economic destiny.
For Latin America, there is now an urgent need to regain control over
instruments of economic policy-making:
Nothing is forcing us to internationalize our economy to such a point
that we lose the power to make our own decisions; it is merely the
result of our inferiority complex in the face of the alleged greater
'rationality' of the international financial market.
Addressing himself to the problems of Brazil, the same analyst, Celso
Furtado, argues that: 'in the first place, we must break with the
guardianship ofthe International Monetary Fund (IMF), and secondly,
as a sovereign country, decide to what extent Brazil will honour its
financial commitments in the context of the international crisis.'39 The
two questions are, of course, linked because the guardianship of the
IMF was a condition set by the international private bankers to make
sure that the Brazilian government would put the interests of its
creditors before any other and that the economy would be 'adjusted' to
'produce dollars at any price'. The IMF, which has meagre financial
resources of its own,
has been turned into an instrument through which Third World
countries are forced to deepen the internationalization of their
38 The International Debt Crisis

economies so that they cease to be controlled domestically and

become mere extensions of the international markets. It is for this
reason that Brazil is being asked to dismantle part of its industrial
sector, particularly in the capital goods area, which is considered
'disproportionately large'.40
The asymmetry of power relations in the present international system
explains the very different perceptions of the crisis. As far as certain
American economists are concerned it is not a 'crisis', merely a
recession. Raul Prebisch, in his contribution to the World Bank Series
'Pioneers in Development', refers to the present situation as the 'second
great crisis of Capitalism'.41 For Professor Haberler,
the world recession of the early 1980s was caused by the fact that the
United States and other industrial countries had to step on the
monetary brakes to curb inflation. To call tbis a 'great crisis of
Capitalism' is a gross misinterpretation. Actually, there has been no
depression in the post World War Two period, if by depression we
mean a decline similar to the Great Depression ofthe 1930s or earlier
ones. 42
Both views are valid. Although there has been a slowdown of economic
growth in the industrialised world there has been no collapse ofnational
output, nor ofworld trade, as in the 1930s. Capital is internationalised
and free to seek the highest profit, no matter where, doing no matter
what-increasingly speculative, unconstrained and uncontrolled by any
regulation. The major international banks, in spite of their problems
with sovereign debtors, have never been so profitable, nor ultimately so
weIl secured against major risk of failure. American economists
specialising in Third World problems are confident that the debt
problem does not pose any threat to the 'continued commitment of
major debtors to the current rules of the game in the international
financial system'. The debt problem, according to William R. Cline, will
solve itself when the world economy resurnes its normal growth path.
The debt crisis is just a liquidity crisis. Given the world recovery now
under way, 'no radical changes are needed to manage their debt [i.e. that
of developing countries]. It would be amistake to make radical changes
at this time'.43
Viewed from Latin America, however, the current crisis really is the
worst since the 1930s. A sampie of comments:
At least Brazilians are in agreement over one thing: our country is in a
very bad condition, without precedent in the history of the republic.
(Ceiso Furtado)
 Linkage and Vulnerability 39

For aperiod offour years since 1982, the countries ofthe region have
had to face difficulties unprecedented in its recent economic history.
(Alegrett)
A major development crisis unprecedented since the early 1930s
mainly because of the breakdown of international financial markets
and an abrupt change in conditions and rules for international
lending ... the contrast with the early 30s is interesting: the external
shocks were then even more severe than those of the early 80s, but per
capita GDP absorption, and especially manufacturing output per-
formed then no worse than during the early 1980s, at least in
Argentina, Brazil, and even Columbia. So far the crisis of the 1980s
has not had the positive side benefits of the 1930s' crisis, such as
greater self-reliance in the financing of capital formation, new public
and private institutions, and a new crop of local entrepreneurs.
(Diaz-Alejandro)44

THE SOCIALISATION OF PRIVATE DEBT

The most remarkable fact about the Latin American debt crisis is that
the debts are being serviced, and serviced on terms agreed to by the
creditors. 'Many observers', comments Diaz-Alejandro, 'have
marvelled at the more or less punctual servicing of the Latin American
debts during the 1980s, a performance in sharp contrast with the 1930s.'
In the 1930s fourteen Latin American nations suspended interest
payments on external debts, partially or in full. This enabled them,
following the collapse of their export-led growth in the 1929-33
Depression, to finance the imports needed to regain economic momen-
turn by means of public works programmes and import substitution.
Eventually, in the 1940s and 1950s, the debts were severely written
down. 45 Given the enormous real cost of honouring debt-service
obligations, why have Latin American governments not used their
bargaining position to soften the debt burden, as they did in the 1930s?
Why have they been so reluctant to put their obligations to their citizens
above those to their creditors? Why do they submit to IMF-designed
programmes which demand credit contractions and devaluations even
beyond the point necessary to generate the large export surpluses
required for debt service? Why do they accept programmes which are
seriously damaging to domestic investment and economic growth, and
threaten the fragile democratic order of countries such as Argentina or
Brazil? Wherein lies the power of the Fund, whose financial resources
40 The International Debt Crisis

are modest, whose policies are widely considered to be inappropriate

'overkill', and which is, moreover, an unpopular politicalliability to
Latin American politicians?
Latin American governments, singly and in concert, have stated that
there is a limit beyond which it is impossible to service the debt without
intolerable damage to the social fabric. They have complained that the
hard-core monetarist programmes ofthe IMF exceed the Fund's terms
of reference, particularly in the matter of performance targets relating to
domestic price movements and fiscal targets in cases where countries
have, at great cost, met balance of payments and reserve position
targets. Latin America has reminded the Fund that it is part of its
original mandate to 'avoid measures destructive of national and
international prosperity'.
Between 1954 and 1980, Latin American countries had 231 Stand-by
and Extended Fund arrangements with the IMF for a total amount of
only 7.3 billion SDR! Since 1982, the IMF has assumed the role of
financial orchestrator in rescheduling payments due to the commercial
banks. The universal complaint about the IMF is that its programmes
consistently err in the direction of stricter domestic performance criteria
than are necessary to attain the balance of payments objectives of the
programme. This appears to be the result of the IMF monetary model
which directly relates fiscal to external payments deficits. 46
Latin American experience does not bear out this relationship. Thus
Brazil consistently overfulfilled its balance ofpayments targets but was
twice suspended for inability to meet monetary or fiscal targets. Mexico,
on the other hand, met the fiscal target of its 1983 IMF programme, but
overshot the balance of payment target of a programmed deficit of $4
billion by producing a surplus of$5.5 billion! This tendency to 'overkill'
by imposing excessively demand-restricting policies-and the extension
of IMF conditionalities beyond its terms of reference, which relate
strictly to the balance ofpayments-have been the principal complaints
about the Fund. Its stift' demand-constricting policies have resulted in
frequent suspensions of programmes and the absurdity of the fact that
the World Bank had to drop 172 projects in Latin America in 1984
because neither governments nor private firms were able to find the local
counterpart funds. The World Bank was unable to locate investments to
finance from existing commitments, while countries were suft'ocating
from lack of external finance. 47 The role of the Bank, however, is very
limited in Latin America, and the Fund jealously guards its macro-
economic overseer role vis-a-vis the Bank. Because the World Bank
has been vociterous in its critique of the 'inward-Iooking' ISI (Import
 Linkage and Vulnerability 41

Substituting Industrialisation) model of development-directed parti-

cularly at Latin America-it is understandable that Latin American
countries have not been eager to add Bank conditionalities to those of
the IMF, as required by the Structural Adjustment Loans (SALs).
It is now clear that the debt crisis will not go away. The fragile
turn-round of Latin American economies in 1984 has collapsed. The
value of exports declined by 6 per cent in 1985 and the merchandise trade
surplus, which had more than quadrupled between 1981 and 1984, fell in
1985. Interregional trade declined even further, and over half of Latin
American exports are now going to the Uni ted States, as compared with
one-third before the crisis, making Latin American economies more
vulnerable than ever to American protectionist trade policies. Whereas
IMF-approved policies had previously achieved export surpluses for
debt servicing, albeit at the cost ofreduced domestic investment and the
capacity for economic revival, this is no longer assured. 48
Meanwhile capital flight continues. Orthodox IMF-type policies of
devaluation and raising domestic real interest rates are counterproduc-
tive, in so far as they encourage bankruptcy, financial instability and the
collapse of domestic purchasing power-further fuelling capital flight.
Why, then, has there not been a wave ofunilateral default, on the Peru
model? Wherein lies the power of the industrialised world to force the
population ofLatin American countries to be ar the full costs ofthe orgy
of imprudent bank lending which, in the words of David Felix,
violate[s] on such a grand scale four basic principles of orthodox
banking: i.e. avoid gross mismatching of liability (deposit) and asset
(loan) maturities; have a ready resale market for most of the loan
paper; collateralize the loans with ample safety margins and limit
each borrower's loans to a small fraction ofbank capital. ... Never in
modern times [he adds] have the interconnected financial systems of
the capital exporting countries been so put at risk by imprudent
international lending. 49
Why should the populations ofLatin American countries bear the full
cost ofTriffin's 'international monetary disorder', which is the result of
the failure of the industrialised countries, and most particularly of the
United States, to regulate and contain the cascade of credit created by
their private financial institutions, which have al ready raked in untold
billions in profits? In the article from wh ich we have quoted, Felix puts
his finger in the wound by proposing a solution which points directly to
the problem. After discussing non-solutions such as 'involuntary' new
loans by al ready overexposed creditor banks, which would keep the
42 The International Debt Crisis

debtor countries on a permanent short leash to IMF dictates, he

proposes a combination ofinterest-capping with the mobilisation ofthe
large volume of private assets held abroad by citizens of the indebted
countries. Such a solution, he argues, would distribute the burden of
adjustment to the debt crisis more equitably between rich and poor, free
export earnings for imports necessary to renew economic growth and
raise the costs of new capital ftight, which would incidentally also
stabilise exchange rates. He suggests that the current value of foreign
assets ofMexican nationals is not far short ofthe $100 billion Mexican
debt.
According to World Bank estimates, Argentine capital ftight was 65
per cent of gross capital inftow during 1978-82, and Venezuela's was
137 per cent. Morgan Guarantee Trust estimated resident capital ftight
from the four major Latin American debtor countries over the period
1976 to 1984 at $125 billion: Argentina-$25 billion; Brazil-$17 billion;
Mexico- $53 billion; Venezuela- $30 billion. 50 The Wall Street Journal is
cited as putting the foreign liquid assets of the four largest Latin
American debtors at $100 billion, to which must be added the liquid
assets of other debtors, the value of real-estate investments, and some
$15 billion direct investments of Latin American firms in the United
States alone. Specifically, Felix proposes that all foreign assets in excess
of $1 0 000 be converted to local currency bonds and deposited into a US
escrow account for the sole use of paying the residual annual interest
bill.
A death blow to capitalist property rights? Felix reminds us that
Britain mobilised the foreign assets of its citizens in much the same
manner to pay debts to the United States in both World Wars.
Moreover, it is appropriate to point to an aspect ofthe Latin American
debt problem which illustrates the asymmetrie treatment of private and
public assets-and liabilities! It is not generally known that in the large
Southern Cone countries of Latin America, privately contracted debt
accounts for more than half of total outstanding public external debt. SI
The banks have demanded, writes Riordan Roett, that Latin American
governments provide guarantees that the private debt will be honoured:
'Without such a commitment, it was often difficult, if not impossible, to
obtain funds from the banks for outstanding public debt obligations. 'S2
External debt privately contracted by the private sector has ex post
become apart of public external debt. Unlike public guaranteed debt,
which is approved by the government ex ante, the situation described
here is one in which the government had no say in the original purpose of
 Linkage and Vulnerability 43

the loan-which was often simply capital ftight-but is forced to assume

the responsibility for its repayment and servicing, ex post.
Although the 'rules of the game' of orthodox banking are explicit that
private agents are on their own when transacting internationally with
each other, and the risks involved are built into the terms of such
contracts, there has been a tacit understanding that unguaranteed
private debts can count on de facto government guarantees. This was the
case in Chile and Argentina and also in Mexico and Venezuela.
Domestic firms relied heavily on debt; entrepreneurs placed litde of their
own money into their firms-while transferring their private assets
abroad. It was known ex ante that domestic firms or domestic financial
intermediaries who had lent to domestic firms, or had guaranteed their
external debts, could count on the government to step in and socialise
their liabilities. Thus the public external debt has become ever more
broadly defined, and the costs of servicing it ever more burdensome on
the population.
In 1983 the Chilean banks who had lent money to bankrupt Chilean
firms or guaranteed their external borrowings were nationalised: that is
to say, their debts were assumed by the government. Much the same had
happened in the case of the Mexican nationalisation of the banking
system, accompanied by nationalistic radical rhetoric. By 1984 most of
the private external debt ofMexico had been 'socialised' or its servicing
was being subsidised via special exchange rates even after a large
devaluation. 53 Perhaps the most extraordinary instance of the 'socialis-
ing' of foreign and domestic private liabilities occurred in Argentina,
where during the two-year period 1980 to 1981 net debt rose by more
than $23 billion. At least half of this amount was accounted for by
private-sector purchases of foreign assets. 54
Another Latin American analyst notes:
After the period of financial liberalization in Latin America, the
governments, the public enterprises and the private sector had all
over-indebted themselves. At this point the international banks
forced the state to take on the externaiobligations contracted by the
private sector. This took the form either of government guarantees of
the private debt or their de-dollarization, with the public sector
accepting the obligation of paying in dollars. 55
We return to the question posted by Diaz-Alejandro: Why have the
Latin American governments not used their bargaining position to
soften the debt burden? Why has there been no debtor cartel? 'Because',
44 The International Debt Crisis

he teIls us, 'countries do not decide to service debts-individual political

actors do':
Increasingly, the international system offers Latin America middle
and upper classes comfortable possibilities for capital and personal
exit, decreasing their incentives for expressing their voice in local
affairs, and eroding their loyalty to the state, which nevertheless is
expected by OECD countries to collect taxes to service debt. National
circuits for transferring savings into investment are undermined.
Domestic savers will prefer to bank and place financial wealth
abroad. Internationalized citizens benefit from high interest rates
while their less mobile fellow citizens complain about usury.56
Diaz-Alejandro concludes that the international situation in the
mid-1980s has
generated a crisis of legitimacy for the role of the private sector in
Latin American development ... and has eroded the legitimacy of a
mixed economic system in Latin America .... Pressures were brought
upon countries to socialize private external debts ex post and to
support private, local firms with debt abroad. External debts of all
sorts have been increasingly brought into the definition ofthe debt of
nations with the presumption that all debt, public and private, is the
responsibility of the whole country and of the current government,
whether or not the regime had anything to do with those contracts, or
whether those contracts were legal. 57
There is a commonality of interest between foreign bankers and
middle- and upper-class elites, who hold substantial foreign assets with
these same banks. Latin American governments do not want to be
reminded of the fact that they have bowed to the pressure of commercial
banks and local private interests in loading the private debts of their
privileged nationals on to the backs ofthe impoverished masses. That is
plainly a politically embarrassing matter. Nor do they wish to be
reminded of the foreign assets of their nationals-a favourite topic of
those who advocate hard-nosed pressure on debtor governments.
'Imagine the turmoil', Diaz-Alejandro comments, 'if OECD countries
threatened to publicize the names of Latin American wealth in OECD
countries. '
The asymmetry of power we earlier noted on an international scale is
sustained by the common interest between international financial
capital and the elites ofLatin America, whose assets are safely sitting in
foreign bank accounts, while their liabilities-frequently incurred
specifically for capital flight-have been socialised and the cost of
 Linkage and Vulnerability 45

servicing them borne by the mass of the population in the form of

lay-offs, reduced consumption, and reduced social services. The interna-
tionalisation of financial capital, in the context of a disordered and
grossly inequitable international monetary 'system', is a major permis-
sive factor in the so-called debt crisis. This is ultimately an issue of the
distribution and redistribution of domestic power, wealth and income in
Latin America. Those who benefited from the loans are clearly not those
who are paying the costs.
To date, as Diaz-Alejandro remarked, the crisis of the 1980s, unlike
that ofthe 1930s, has not had positive side-effects. It remains to be seen
whether the 1990s will give rise to movements of national renewal and
reconstruction. The first steps towards such a development must be the
reaffirmation of control over the principal instruments of economic and
social policy in the interests ofthe population at large, rather than those
of elites and foreign bankers.

CONCLUSION
We conclude that the erosion of the powers and the legitimacy of
government is ultimately the most damaging consequence of the
experience of Latin America and of Africa since the mid-1970s. The
guardianship of the IMF and the conditionalities of World Bank
programme aid in the 1980s have positively accelerated the dismantling
ofinstruments ofnational policy. Monetarist orthodoxy has served as a
tool to increase vulnerability to entanglement in a private capital market
which is destabilising and excessively permissive of capital fight.
Reliance on the private sector for the 'engine of growth' of production of
essential goods and services has been a failure in the 1980s.
'Outward working development' has become a buzz word for policies
which place the burden of adjustment to a disordered international
system of trade and payments on the weak and the vulnerable. In this
regard we insist on a distinction between a strong export capacity in
manufactured goods and 'economic liberalisation' designed to disman-
tle governmental controls over the allocation and distribution of
domestic resources and incomes. Success in the export of manufactures
has not come to countries which have permitted world prices to rip
through domestic source fabric, nor to those whose transnationalised
citizens have sought to maximise their private incomes by uncommitted
speculation and capital flight.
Economic development is ultimately an endogenous process. It
cannot be programmed by international technocrats, nor imposed by
multiple conditionalities, as is increasingly the practice of the World
46 The International Debt Crisis

Bank. Indeed, this is the lesson ofthe successes ofChina and India-and
also of Korea. The ultimate resource of any country lies in its people, its
land and the coherence of its culture. This is a lesson which the world
may yet have to releam if the govemments of the so-called developed
countries continue to ignore the possibility of a major economic and
financial breakdown of a precariously interdependent world.
 Table 1 Population and GNP per capita. 1980. and Growth Rates. 1965-84
1980 1980
GNP 1980 GNP Average annual growth o[GNP l!.er cal!.ita Ll!.er cent2
(billions population per capita (a) (b)
Country Group 0/ dollars) (millions) (dollars) 1965-73 1973-80 1981 1982 1983 1984 1985
Developing Countries 2064 3124 660 4.1 3.2 1.0 -0.7 0.0 3.3 2.4
Low-income Countries 550 2102 260 3.0 2.7 3.0 3.2 6.1 7.4 6.1
Asia 497 1900 260 3.3 3.0 3.5 3.7 6.9 8.3 6.6
China 287 978 290 5.0 3.8 3.5 6.1 8.8 12.8 9.6
India 162 687 240 1.6 1.8 3.5 0.5 5.1 2.2 1.9
Africa 53 202 260 1.2 0.1 -1.3 -2.4 -2.7 -2.8 -0.4
Middle-income Oil Importers 963 580 1660 4.6 3.1 -0.8 -2.0 -1.6 1.8 1.0
East Asia and Pacific 212 162 1310 5.7 5.7 3.9 1.8 4.7 4.7 1.0
Middle East & North Africa 25 31 820 3.5 4.2 -1.9 4.4 0.3 -0.9 1.6
Sub-Saharan Africa 26 33 780 2.0 0.5 3.8 -5.0 -5.5 -4.5 -0.6
Southern Europe 213 91 2340 5.4 2.9 0.2 0.0 -0.9 0.9 1.1
Latin America & Caribbean 411 234 1760 4.5 2.9 -4.2 -4.9 -4.5 1.2 2.1
Middle-income Oil Exporters 551 441 1250 4.6 3.4 1.5 -2.8 -4.4 0.7 0.0
High-income Oil Exporters 226 17 13 290 4.1 5.9 0.7 -7.6 -15.7 -3.0 -8.5
Industrial Market Economics 7540 716 10 530 3.7 2.1 1.1-1.3 1.6 3.9 2.4
(a) Estimated
(b) Projected
SoURCE Reproduced from World Bank, World Development Report 1986 Table A.2 (Oxford University Press for the World Bank) p. 154.

-.I
"""
48 The International Debt Crisis

NOTES

1. J.L.S. Abbey, 'African Realities in the Next Decade', address to the Centre
for Developing Area Studies, 27 March 1986, mimeo. Discussion Paper No.
41.
2. World Bank, World Development Report 1987 (New York: Oxford Univer-
sity Press for the World Bank, 1987) Table 6, pp. 212-13. (Subsequently
referred to as WDR 1987.)
3. Ibid., 'Statistical Appendix', Table A.2, p. 171.
4. IMF World Eeonomie Outlook, Washington: April 1987, Tables A48 and
A50, pp. 182-4 and 186-7. (Subsequently referred to as IMF WEO.)
5. Ambassador Sebastian Alegrett, 'SELA and Latin Ameriea's Eeonomie
Relations', paper delivered at the Conferenee on the Crisis in Latin Ameriea,
University of Ottawa, April 1986, mimeo. (SELA-Sistema Eeonomieo
Latinoamerieano, L[!tin Ameriean Eeonomic System.)
6. Gross investment had fallen in Chile from a level of 100 in 1980 to 42 in 1983,
to 63 in Mexieo and Argentina, to 85 in Brazil, and to 78 in Peru. Per eapita
consumption also declined in all these countries. See Inter Ameriean
Development Bank Report, 1985.
7. IMF WEO, Tables A24, A25 and A28, pp. 143, 145 and 147.
8. World Bank, World Development Report 1985 (New York: Oxford Univer-
sity Press for the World Bank, 1985), p. 44. (Subsequently referred to as
WDR 1985.)
9. Ibid., p. 52.
10. WDR 1987, pp. 208-10.
11. Ibid., Tables 2, 3 and 6, pp. 204, 206 and 212.
12. WDR 1985, p. 176.
13. Ibid.
14. Abbey, op.eit., p. 9.
15. WDR 1985, p. 107.
16. Ibid., Table 9, p. 190.
17. John Loxley, The IMF and the Poorest Countries (Ottawa: North-South
Institute, 1984.)
18. IMF Study prepared by J.B. Zulu and S.M. Nsouli, quoted in IMF Survey,
22 August 1983 and in Toronto Globe and Mai!, 25 August 1983-all of
whieh are quoted by John Loxley in 'IMF and World Bank Conditionality
and Sub-Saharan Afriea', paper prepared for 1984 Afriean Studies Assoeia-
tion Annual Meeting, Los Angeles, Oetober 1984. Published in World
Reeession and the Food Crisis in Afriea, ed. Peter Lawrenee, (London: James
Currey and Review of Afriean Politieal Eeonomy, 1986) p. 96.
19. John Loxley, ibid.
20. WDR 1985, p. 66.
21. John Loxley, 'The World Bank and the Model of Aeeumulation', in J.
Barker (ed.), The Polities of Agrieulture in Tropieal Afriea (Beverly Hills:
Sage, 1984). See also Review of Afriean Politieal Eeonomy, February 1984.
22. IMF WEO, Tables A26 and A28, pp. 145 and 147.
23. Abbey, op.eit., p. 14.
24. See for example, Deepak Lai in Finanee and Development (lMF and World
Bank), vol. 22, No. 2, June 1985. For a more extended treatment see his The
 Linkage and Vulnerability 49

Poverty oJ Development Economics (London: Institute of Economic Affairs,

1983).
25. See D. Calleo and S. Strange, 'Money and World Politics', in S. Strange
(ed.), Paths to International Economy (London: 1984), pp. 91-125; also D.
Calleo, The Imperious Economy (Boston: Harvard, 1982).
26. Robert Triffin, 'Correcting the World Monetary Scandal', Challenge,
JanuaryjFebruary 1986.
27. WDR 1985, p. 39. See Figure 3.6: 'Indexes of real commodity prices
1965-1984'.
28. Ibid., p. 91.
29. The following summary (nos 1-8) is based on figures contained in WDR
1985. Additional figures (no. 9) are drawn from IMF WEO, Tables A46 and
A47, pp. 180-1.
30. WDR 1987, Table 2.5, p. 26.
31. All figures drawn from R.F. Carey (OECD), 'Official Financing and
Growth-Oriented Structural Adjustment', paper prepared for Symposium
on Growth-Oriented Adjustment Programs of the World Bank and
International Monetary Fund, Washington, DC, 25-27 February 1987
(mirneo).
32. WDR 1987, Table 2.5, p. 26.
33. Dragoslav Avramovic, 'Interest Rates, Debts and International Policy', in
K. Haq and C. Massad (eds), Adjustment with Growth, A Search Jor an
Equitable Solution (Islamabad: North South Roundtable [in collaboration
with UN Economic Commis si on for Latin America and UNDP Develop-
ment Study Programme], 1984).
34. Inter American Development Bank Report, 1984.
35. WDR 1985.
36. Ibid., p. 40. See Table 3.3: 'Share ofimports subject to non-tariffbarriers in
industrial country markets, 1983'.
37. Ibid., p. 40.
38. Ibid., p. 41.
39. Celso Furtado, 'No to Recession and Unemployment', Third World Forum
1984.
40. Ibid.
41. Raul Prebisch, 'Five Stages in My Thinking on Development', in Gerald M.
Meier and Dudley Seers, Pioneers in Development (Publication ofthe World
Bank) (Oxford University Press, 1983) pp. 173 -96.
42. G. Haberler, 'Liberal and Illiberal Development Policy', prepared for the
World Bank 'Pioneers in Development' Series, 7 March 1985 (mirneo).
43. William R. Cline, The Issue is Liquidity, Not Insolvency', Challenge,
JulyjAugust 1984.
44. Celso Furtado, 'No to Recession and Unemployment'; Ambassador
Sebastian Alegrett, 'SELA and Latin America's Economic Relations', p. 6;
and Carlos F. Diaz-Alejandro, 'Latin American Debt: Don't Think We are
in Kansas Anymore', The Brookings Papers on Economic Activity, Fall 1984,
pp. 335-89.
45. David Felix, 'Latin America's Debt', Challenge, NovemberjDecember 1985,
pp. 44-51.
46. E.L. Bacha, The Future Role of the IMF in Latin America: Issues and
Proposals' and M. Silva Bastos Marques, 'IMF: the Recent Brazilian
so The International Debt Crisis

Experience', in Reports Prepared for the XI Regular Meeting of the Latin

American Council of SELA, Caracas, December 1985 (mirneo).
47. E.L. Bacha and Richard E. Feinberg, 'The World Bank and Structural
Adjustment in Latin America', in Reports Prepared for the XI Regular
Meeting ofthe Latin American Council of SELA, Caracas, December 1985
(mirneo).
48. Alegrett, op.cit.
49. Felix, op.cit.
50. B. Belassa and J. Williamson, Capital Flight and Policy Responses,
(Washington: Institute for International Economics, No. 23, November
1987) p. 7.
51. R. Roett, 'Latin America's Response to the Debt Crisis', Third World
Quarterly, April 1985, p. 237.
52. Ibid.
53. Diaz-Alejandro, op.cit., p. 378.
54. See R. Frenkel and J.M. Farelli, 'Argentina and the Fund over the Last
Decade', in Reports Prepared for the XI Regular Meeting of the Latin
American Council of SELA, Caracas, December 1985.
55. A. Foxley, 'The Foreign Debt Problem: A View from Latin America',
International Journal of Political Economy, vol. 17, no. 3 (Spring 1987)
p.102.
56. Diaz-Alejandro, op.cit., p. 380.
57. Ibid., p. 379.
2 The Rationale and Effects
ofthe IMF Stabilisation
Programme in Sudan
Richard Brown

1 INTRODUCTION

For more than a decade Sudan's economy has been enduring a severe
and continuing balance of payments crisis. By the beginning of 1988 the
country's total foreign debt stood at over US $10 billion (representing
about 133 per cent of GNP), which included outstanding arrears to its
creditors of over US $4.6 billion, including US $800 billion accumulated
arrears on payments ('repurchases') due to the IMF itself. During most
ofthis decade (until April 1985) the government ofSudan, then under
the military regime of President Nimeiry, enjoyed a more or less
uninterrupted succession of agreements with the IMF which formed the
basis of an international donor community-supported Economic
Recovery Programme. In April 1985 the Nimeiry regime was toppled by
a popular uprising which paved the way for the coming to power, a year
later, of the democratically elected coalition government of Sadig al
Mahdi. l The main purpose ofthis chapter is to trace the evolution ofthe
IMF's relations with Sudan, over the decade 1978 to the beginning of
1988, with a view to advancing our understanding, and assessing the
rationale and effects of an IMF-supported stabilisation programme in
one of sub-Saharan Africa's poorest, least-developed countries.
Although the paper touches on the key policy aspects of the
programme, it does not offer an analysis and interpretation of their
internal consistency or rationality in the Sudanese setting. 2 Notwith-
standing the very real effects that the adoption of certain policies have
had for the welfare of particular individuals, groups, classes or regions in
the Sudanese society, to confine one's analysis to such issues would lead
one to ignore what is perhaps the most relevant effect of the Stabilisation
Programme. For, as this chapter sets out to demonstrate, the primary
feature of it was the provision of a legitimising rationale for the
country's main donors and creditors. Until the last months of the

51
52 The International Debt Crisis

Nimeiry era, at least, the 'international community' (mainly OECD and

Arab Gulf countries) appeared willing and able to provide whatever
foreign assistance and debt rescheduling were necessary to cover the
country's ever-increasing balance of payments deficit, almost
independently of the nature of the polieies being pursued.
The IMF - and in particular the various agreements it entered into
with the government of Sudan during this period - played a crucial role
in facilitating the 'management' of Sudan's foreign exchange crisis by
the United States-Ied international donor community. This example of
IMF flexibility was motivated by the US view of its strategie,
geopolitical interests in rescuing an increasingly unpopular Nimeiry
regime.
As there has been no formal agreement between the government of
Sudan and the IMF during the post-Nimeiry era, this chapter concent-
rates mainly on the 1978 to April 1985 period. By way of providing some
background information on the country's economy and the current
crisis, Section 2 briefly summarises some of the main economic
developments and trends during the 1970s. Section 3 is concerned
mainly with a number of methodological issues and problems pertaining
to evaluation and assessment of IMF stabilisation programmes, and
questions the validity of a number of premisses underlying existing
critiques ofthe Sudanese experience. Section 4, in which the content and
execution of the 1978-85 programme's main policy measures are
examined, contains the main arguments ofthe chapter. Section 5 traces
developments during the post-Nimeiry era, and in the final section a
number of concluding remarks are made.

2 BACKGROUND TO SUDAN'S CURRENT ECONOMIC

CRISIS

2.1 The diversification drive

The backbone ofthe Sudanese economy is its agricultural sector, which

accounts for approximately 40 per cent of GDP and virtually all exports.
Within agriculture the production of cotton on large, government-
owned irrigation schemes has traditionally been Sudan's main export,
accounting for over 40 per cent oftotal merchandise exports (see Table
2.1). Oil seeds, gum arabic, livestock and, more recently, sorghum (dura)
have made up most of the balance. Sudan's industrial sector remained
underdeveloped, contributing only between 12 and 15 per cent to GDP
throughout the 1970s.
 Table 2.1 Sudan: Selected Agricultural Statistics, 1970-1 to 1978-9
1970-1 1971-2 1972-3 1973-4 1974-5 1975-6 1976-7 1977-8 1978-9
Total Agricultural Output 846 833 750 890 893 859 955 1043 982
(in LSm at 1978 prices)
Total Agricultural Export 330 289 321 253 201 299 268 232 241
(in LSm at 1978 prices)
Percentage Cotton Exports (49) (45) (34) (30) (46) (40) (42) (46)

Volume of Output (x 1000 tons) and Yields *(in brackets)

Cotton 248 247 202 238 222 110 161 194 141
(4.2) (3.9) (3.3) (3.9) (3.7) (2.3) (3.2) (3.5) (2.7)
Groundnuts 339 387 568 553 928 796 738 1027 813
(371) (256) (346) (316) (518) (343) (398) (386) (350)
Gum Arabiet 42 35 29 30 53 43 32 35 28
Millet 439 441 355 268 402 370 472 487 550
(253) (210) (139) (102) (156) (137) (170) (165) (179)
Sorghum (Dura) I 535 1 591 1300 1691 1681 1991 1800 2017 2386
(314) (349) (318) (311) (301) (316) (286) (303) (331)
*All yields are in kilogramsjfeddan except for cotton, which is in kantarjfeddan.
t Yields for Gum Arabic are not available.
SOURCE World Bank (1982).

VI
w
54 The International Debt Crisis

In the early to mid-1970s the Sudanese government embarked upon a

highly ambitious development programme, the main objectives ofwhich
were to diversify the country's export base, promote a number of
import-substituting industries and alleviate the country's severe infra-
structural deficiencies, particularly in the transportation and energy
subsectors. Through the setting up of many new, large-scale agricultural
and agro-industrial projects, it was envisaged that by the mid-1980s
Sudan would become the 'breadbasket' of the Arab Gulf states. The
prospects for obtaining sufficient external resources to implement this
project appeared to be good at the time. In the wake of the 1973 -4 oil
price hike, Sudan's neighbouring Arab Gulf states were eager both to
find outlets for their surplus petrodollars and to lessen their dependence
on the West, the US in particular, for food imports. Between 1973 and
1977, over US $3 billion in foreign loans was committed for investment
in the projects of this scheme. The government's development expen-
diture rose from LS (Sudanese pounds) 17 million in 1970-1 (2 per cent
of GDP) to LS186 million in 1977-8 (6 per cent of GDP)3 (see Table
2.2).
This Arab petrodollar-financed windfall enabled Sudan to cover a
growing current account deficit on its balance of payments which rose
from 2 per cent ofGDP in 1970-1 to 8 per cent in 1977-8, permitting a
relatively high rate of investment and economic growth in comparison
with previous years. Between 1973-4 and 1976-7, real GDP growth
averaged about 10 per cent per annum.
By 1978, however, the economy of Sudan was in crisis. The
'breadbasket' plan had to be halted before it had effectively got under
way. Almost aB available investable surpluses and foreign exchange
resources had been channeBed into the new, highly capital-intensive
projects, whereas the country's traditional surplus- and export revenue-
generating schemes had been effectively starved of the domestic and
foreign resources required to maintain their output capacities. The
gestation periods ofthe new projects that had been initiated proved to be
much longer than anticipated, and as local resources became scarce and
additional funds for projects that had experienced cost overruns could
not be found, an increasing backlog of unfinished and non-operational
projects so on built up. The combined effect was a net overall decline of
productive capacity, particularly in the export sector. This was
manifested in a decline of Sudan's exports from 16 per cent of GDP in
1970-1 to 8 per cent in 1977 -8 (see Table 2.3). When, in the late 1970s,
debt-servicing obligations on the loans contracted under the 'bread-
basket' programme began falling due and the terms of trade deteriorated
Table 2.2 Sudan: Fiscal and Monetary Data, 1970-1 to 1986-7 (at current prices in LSm; percentages 0/ GDP in brackets)
1970-1 1973-4 1976-7 1977-8 1978-91979-801980-1 1981-2 1982-3 1983-4 1984-5 1985-6 1986-7
GDP 761 1246 2340 2883 3254 3972 4980 6721 9344 11471 14920 21 357 29 141
Current 164 205 384 459 505 587 734 895 1272 1474 1486 2010 2742
Revenue (22) (16) (16) (16) (16) (15) (15) (13) (14) (13) (10) (9) (9)
Current 140 178 332 423 647 724 1050 1348 1563 1986 3333 4293 4878
Expenditure (18) (14) (14) (15) (20) (18) (21) (20) (17) (17) (22) (20) (17)
Develop. 17 42 155 186 165 221 291 315 414 463 517 439 1202
Expenditure (2) (3) (7) (6) (5) (6) (6) (5) (4) (4) (3) (2) (4)
Overall 7 -15 -103 -150 -307 -358 -607 -768 -705 -975 -2364 -2722 -3338
Balance 1 ( -1) (-4) (-5) (-9) (-9) (-12) (-11) (-8) (-8) (-16) (-13) (-11)
Financing:
- Central Bank 14 12 96 173 150 143 289 33 44 216 674 813 1 525
-External -5 19 40 28 146 238 367 767 663 829 1691 1908 1813
Money supply 127 246 530 669 877 1048 1445 1900 2897 3262 5181 6842 9151
(M2)
SOURCE World Bank (1982, 1983, 1985, 1987).

VI
VI
 VI
0'1

Table 2.3 Sudan Trade Data, /970-/ to /985-6 (at current prices in LSm; percentages ofGDP in brackets)
/970-/ /973-4 /976-7 /977-8 /978-9 1979-80 /980-/ /98/-2 /982-3 /983-4 /984-5 /985-6
Exports 123 167 247 242 329 476 471 593 1010 1495 1606 1912
(16) (13) (11) (8) (10) (12) (9) (9) (11) (13) (11) (9)
Imports 135 215 395 473 621 938 1 134 1792 2219 2603 2799 3645
(18) (17) (17) (16) (19) (24) (23) (27) (24) (23) (19) (17)
Trade Balance -12 -48 -148 -231 -292 -462 -663 -1199 -1 209 -1 lOS -I 193 -I 733
(-2) (-4) (-6) (-8) (-9) (-12) (-13) (-18) (-13) (-10) (-8) (-8)
Current ale -16 -49 -106 -172 -212 -381 -606 -1148 -1082 -1224 -1289 -2294
Balance (-2) (-4) (-5) (-6) (-7) (-10) (-12) (-17) (-12) (-11) (-9) (-11)
Tenns of Trade l7l 145 160 164 151 139 130 100 112 128 106 n.a.
(1981-2 = 100)
SoURCES World Bank (1982, 1983, 1985, 1987).
 The IMF Stabilisation Programme in Sudan 57

sharply in the wake of the second oil price hike, there were neither
foreign exchange resources nor the domestic capacity to meet the
payments. In mid-1978 the Sudanese government and the IMF
negotiated the first of aseries of agreements that make up the
Stabilisation Programme with which we are concerned in this chapter.
The extent to which the decline of Sudan's exports and stagnation of
its export sector during the 1970s can be attributed to the failure ofthe
government's diversification efforts is not as clear-cut as the IMF and
Bank appear to think. 4 Umbadda and Shaaeldin (1985) argue in their
analysis that the crisis of the 1970s was the inevitable culmination of
both internal and external imbalances that developed in the 1960s.
Stagnation and a scarcity of resources for development expenditures
were already evident in the early 1970s. From this perspective, the
massive injection of 'breadbasket' funds perhaps offered temporary
relief from the impending crisis and external shock of the 1973-4 oil
price hike.
It would also be misleading to infer that the government's concen-
tration of available development resources on the new schemes neces-
sarily caused the neglect and decline of the existing projects and
schemes. First, the bulk of the external resource ftows at that tim~ were
earmarked specifically for the new projects and would not necessarily
have been available to finance the existing schemes. Secondly, it is
doubtful whether government funds available for development expen-
diture would have been anything like as great as they were had it not
been for the existence ofthe breadbasket plan and the financial resource
ftows attributable to it.

2.2 Tbe decline of cotton production

With respect to exogenous factors, there is little evidence that either the
terms oftrade or international demand for Sudan's main export, cotton,
can adequately account for the decline of exports during the 1970s. As
can be seen from Table 2.3, Sudan's terms of trade ftuctuated around a
constant level throughout most of the decade, yielding no discernible
trend either upward or downward. It was only at the end of the 1970s
that Sudan's terms of trade began to deteriorate significantly. On the
demand side, Sudanese long-staple was not affected by the downward
trend in world demand during this period, mainly because this coincided
with Egypt's decision to reduce its cotton exports by half. Yet between
1970-1 and 1977-8 Sudan's exports, as a percentage ofGDP, fell from
16 to 8 per cent. This coincided with a decline in physical volume of
cotton production from 248 to 194 thousand metric tons (see Table 2.1).
58 The International Debt Crisis

On the production side, it is evident that yields in the cotton subsectors

declined during the same period: from 4.2 to 2.7 kantars/feddan between
1970-1 and 1977-8.5
Apart from this apparent neglect of the existing schemes in the
government's mid-1970s development budgets, the decline of cotton
production can also be attributed to the relatively unfavourable pattern
of incentives that emerged for cotton producers during the late 1960s
and early 1970s. As noted previously, most of Sudan's exports - and
especially cotton - are produced on government-owned irrigation
schemes. The first of these, developed before independence by the
British, was the Gezira - a scheme which historically was conceived for
the production of a single export crop: cotton. Such schemes, or
agricultural parastatals, are essentially partnership arrangements
between: the farmers or 'tenants', who are responsible for the provision
of labour on their individually operated tenancies; the government,
which owns the land and provides the irrigation; and a management
board which provides other inputs and services. Each scheme has a
complex cost-allocation and profit-sharing arrangement among the
three partners, which has gradually evolved over time. Originally, in the
Gezira, tenants received about 50 per cent of the net income of the sale of
cotton, the other half going to the other two partners.
So 10ng as cotton remained the scheme's sole cash crop there was little
disincentive for the tenant to concentrate resources and labour on the
main or sole source of cash income. Only when two additional cash
crops - wheat and groundnuts - were introduced to the scheme in the
1960s did this change. Although the Gezira Board controlled the
allocation of land by being empowered to decree the cropping patterns
and acreage distribution each season, for each tenancy, it lost its control
over the distribution of the proceeds from land utilised for non-cotton
cash crops. The tenant was not required to share these under the
joint-account arrangement, as was the case with cotton. Thus there
emerged a double bias against cotton husbandry. First, all the irrigation,
input and service costs borne by the government or Board were
recovered from the proceeds of cotton sales; secondly, ofwhat remained
as 'net income' the tenant now received only 40 per cent. As the tenant
controlled the allocation of his own - mainly labour - resources among
the crops produced on each tenancy, it was not surprising that the
husbandry of the more profitable, non-cotton crops was favoured.
There can be little doubt that this, combined with the less favourable
marketing and pricing arrangements for cotton, contributed to the
secular decline of cotton yields and overall output during the 1970s. As
this was not sufficiently compensated by a commensurate increase in
 The IMF Stabilisation Programme in Sudan 59

yields and output of other cash crops (see Table 2.1), the net result was a
virtual stagnation of total agricultural output and an overall decline of
Sudan's agricultural exports. At 1978 prices, agricultural exports fell
from LS330 million in 1970-1 to LS241 million in 1978-9.

2.3 Fiscal performance

Although it is no doubt correct that 'unchecked tendencies towards both

external and internal imbalances started unfolding [from] independence'
(Umbadda and Shaaeldin, 1985, p. 107), it was not until the 1970s that
the government's fiscal imbalance developed. In the early 1970s the
government's current account budget yielded a surplus. By 1977-8 this
had been transformed into a deficit equal to about 5 per cent ofGDP (see
Table 2.2). As already discussed, it was not until the early 1970s that the
government's development expenditures showed a sharp upturn conse-
quent upon the launching of the breadbasket plan. Although the
government's current expenditures were more or less covered by its
revenues, the increase in additional development expenditures failed to
bring forth a complementary increase of revenues, given both the failure
of the new projects to genera te much output, and the declining
performance of the existing schemes. Thus, while combined current and
development expenditure remained at a level around 20 per cent of GDP
throughout the decade, government revenues fell from 22 per cent of
GDP in 1970-1 to 16 per cent by 1977-8.
In the critical years ofthe breadbasket plan, the budgetary deficit was
financed mainly from external sources, which peaked in 1974-5 when
external financing amounted to LS103 million as opposed to LS23
million of central bank financing. As the external resource flows tapered
off, the government was forced to resort increasingly to central bank
lending to finance its growing current account deficit, to such an extent
that central bank financing had risen to LS 173 million by 1977 -8, with
external financing now amounting to only LS28 million. The money
supply (M2) consequently increased from LS 127 million in 1970 -1 to
LS669 million in 1977 - 8, representing an average annual growth rate of
alm ost 30 per cent.
Until 1972-3 Sudan's inflation had been negligible, but with the
combination of stagnating domestic production, balance of payments
problems, scarcities and an unchecked reliance on deficit financing,
Sudan had attained an officially estimated average annual rate of
inflation for the decade of about 20 per cent.
It was in the context of this situation that in mid-1978 the Sudanese
60 The International Debt Crisis

government was forced to turn to the IMF for assistance, and to

negotiate a 'first credit' agreement that was to become the first stage of a
seven-year stabilisation programme.

3 ON METHODOLOGY OF ASSESSMENT

If there is one aspect of IMF stabilisation programmes that both

proponents and critics seem to agree on, it is, to quote Khan and Knight
(1982), that: 'The overall criterion for evaluating a stabilisation
programme is much less straightforward than it may at first appear'
(p. 721). The problem ofmethodology of evaluation arises in a number
of respects and at various levels. While some are concerned with the
problems of defining and measuring degrees of 'success', others are
concerned about the more fundamental question of defining the scope of
the 'effects' to be assessed and the problem of discerning the effects ofthe
programme (however defined) from those that would in any case have
occurred.
While contributions to the assessment of Sudan's current Stabilis-
ation Programme differ widely with respect to the methodology of
evaluation employed, there is almost unanimous agreement that the
programme has failed. However 'correct' or otherwise their conclusions
might be in this respect, none of these studies is able, or even attempts, to
explain why it is that in spite of 'failure' the programme was not
abandoned earlier.
The purpose of this section is twofold: first, a number of preliminary
comments on some ofthe basic premisses and methodological problems
underlying these contributions are briefly summarised; secondly, an
attempt is made to identify an important aspect ofSudan's Stabilisation
Programme, the inclusion of which should advance our understanding
of both the reasons for its continuation and the more fundamental
implications of its existence in the context of Sudan under Nimeiry.
Despite the contentiousness of the policy measures prescribed by the
IMF Stabilisation Programme and the apparent widespread scepticism
among both 'political opponents and academicians . . . about the
effectiveness of IMF's recipes' (Umbadda and Shaaeldin, 1983, p. 1),
relatively little in the way of concrete economic analysis has been written
on the programme. Exceptions to this are: Nashashibi's (1980) work on
the relative competitiveness of Sudan's major agricultural crops with a
view to determining the appropriate exchange rate adjustment to
 The IMF Stabilisation Programme in Sudan 61

complement supply-side measures to promote exports; the critique of

this by Nureldin Hussein and Thirlwall (1984) to the effect that
devaluation has failed to enhance the profitability of Sudan's exports;
and the work of Hashim Awad (1982), Krueger (1982), Umbadda and
Shaaeldin (1985) and Abdel Gadir Ali (1985), which in one way or
another attempt to question and/or assess the impacts or outcome of
these policies on macroeconomic variables. Nureldin Hussein (1988) has
argued that the IMF diagnosis does not attempt to distinguish the
underlying causes of payment deficits from their effects. Oue to its
adverse effects on the terms of trade, and the low price and income
elasticities of demand for imports, he argues that devaluation cannot
contribute to an improvement in the balance of payments situation.
None ofthese studies, however, constitutes an attempt to undertake a
comprehensive assessment of the Stabilisation Programme in its
entirety. Instead, these analyses tend to focus on the nature and impact
of one - or perhaps a few - of the programme's prescriptions, the
devaluation issue in particular. To some extent this reflects the common
frustration for outside observers of IMF stabilisation programmes, as
noted by others: that the IMF tends to conduct its business in a highly
confidential manner, rendering analysis of its role rather difficult. The
IMF's handling of the Sudanese ca se is no exception in this sense.
However, there has also been a tendency on the part ofmost ob servers to
begin with a set of assumptions or premisses about the nature of the
IMF model or programme which, although no doubt applicable
elsewhere, did not correspond to the reality of the Sudanese case.
Among the existing studies ofSudan's Stabilisation Programme, at least
one of the following three premisses underlies the main arguments
presented: (a) that there was exclusive reliance on demand-management
policy prescriptions to restore internal and external equilibria; (b) that
the policy measures prescribed were necessarily intended to be quick-
acting (the 'stock treatment' approach) and were concerned only with
macroeconomic adjustments irrespective of their micro-level social
effects; and (c) that the government authorities have accepted and
implemented the prescribed policies under fear of enforcement of
conditionality clauses and thus suspension of the stand-by loan
arrangements.
Umbadda and Shaaeldin (1985), for example, assert that 'the IMF,
despite its own diagnoses ofthe problem as supply constrained, focussed
on short-term and prices signals solutions' (p. 128). Another commen-
tator, Mohsen Mustafa (Sudanow, 1982), goes even further in his
assertion that:
62 The International Debt Crisis

a stabilisation and economic recovery programme is proposed,

containing not a single specific measure for enhancing production,
particularly of those material goods that are of critical importance,
both for domestic and export use. (p. 7)

On the speed of adjustment anticipated, there appears to be a general

belief that an IMF stabilisation programme is intended to bring about
immediate recovery within the time-span of the particular Extended
Fund Facility or Stand-by Arrangement in force at the time. This is
reftected in Van Arkadie's (1983) study ofTanzania, in which he argues
that 'the time horizon for structural adjustment ofthe kind now required
in the current African crisis is likely to be considerably longer' (p. 135).
That recovery has not been immediately forthcoming in the Sudan is
often cited as evidence ofits failure: for example Hashim Awad (1982),
Umbadda and Shaaeldin (1985), Abdel Gadir Ali (1985); and Anne
Krueger (1982), although not of the opinion that it had failed,
nevertheless seemed concerned that 'in its first two years, performance
was noticeably worse, not better' (p. 16).
On the actual implementation of the programme's policies and the
Fund's enforcement of its conditionality clauses there has been a
tendency simply to assurne that these have been affected in accordance
with the usual 'rules ofthe game'. None ofthe authors we have cited has
made any assessment of the 'performance' of the Sudanese authorities
with respect to the implementation of the agreed policy measures and
their compliance with the conditionality clauses. Similarly, there has
been no attempt to assess the 'performance' of the Fund itself with
respect to either the stringency of its policy conditions or the enforce-
ment of its conditionality clauses in Sudan's case. Instead it appears to
have been taken for granted that the Fund has adhered to the principle
of 'uniformity of treatment'.6 An exception in this respect is Fanos
(1987), who emphasises that the government's failure to adhere
consistently to IMF policies further exacerbated Sudan's economic
crisis. 7
The foregoing account of Sudan's 1978 to 1985 Stabilisation Prog-
ramme suggests that none of the three premisses reviewed above,
although no doubt applicable in other instances, is valid in the Sudanese
context.
Another methodological problem likely to inftuence the outcome of
any assessment of an IMF stabilisation programme concerns the
difficult question of ascertaining which policies and effects are attri-
butable to the programme and which are not. In the first instance there
 The IMF Stabilisation Programme in Sudan 63

is the problem, common to any ex-post assessment of the outcome of a

given set of policies, that it is impossible to ascertain the nature and
effects of the particular economic policies that are attributable to the
stabilisation programme, as distinct from those that would in any case
have been there without it. It is on the basis of this problem that Khan
and Knight (1982) deny the usefulness of 'export policy outcome'
approaches in comparison with their 'characteristic model' approach.
In the second instance there is the problem, consistently overlooked
by most studies of stabilisation programmes, concerning outcomes and
effects of the programme that are not attributable to any of the policy
measures contained in it. We are concerned here with what Killick refers
to as the 'catalytic effect' of the conclusion of a Stand-by Arrangement in
unleashing external resource ftows that might otherwise not have been
forthcoming. 8 In this respect, he cites a Fund review in which it is
concluded that:
In several cases the programs were expected to result in a restoration
of confidence in the management of the economy both at horne and
abroad, so that other balance of payments assistance would con-
tribute to a more gradual adjustment effort, thus rendering it less
severe. (l984a, p. 230)
What this does not explicitly acknowledge, however, is that additional
foreign resource ftows resulting from the so-called catalytic effect are
also likely to inftuence the behaviour and outcome of the programme's
policies, thus making it impossible to discern the effects of the policies
from those ofthe foreign resource ftows unleashed by the programme's
catalytic effect. On the other hand, an assessment of a stabilisation
programme in such a case, which attempts to assess the effects of the
policies only (by modelling, for example) would be neither useful nor
meaningful for the analyst concerned with the overall effects of an IMF
stabilisation programme in practice. For example, ofwhat value would
it be to the policy-maker to know what effects a trade liberalisation
poIicy would have had on import structures or trade balance, ceteris
paribus, when it is known that the stabilisation programme that brings
the trade liberaIisation measures also brings with it an extraordinary
increase in foreign resource inftows, thereby permitting an otherwise
unattainable level of imports and trade gap?
None of the commentaries on Sudan's Stabilisation Programme
appears to acknowledge the importance of this catalytic effect. This is
somewhat surprising in view ofthe rather obvious role the IMF's 'seal of
approval' has played in facilitating the inftow of additional foreign
64 The International Debt Crisis

assistance in the form of debt relief, commodity aid, direct balance of

payments support, and so on, from Sudan's multi- and bilateral donors.
While it is highly doubtful that external assistance of such a magnitude
would have been forthcoming without an IMF stabilisation programme
and 'seal of approval', it is equally doubtful whether the Nimeiry regime
would have been able to survive for as long as it did, and thereby sustain
a stabilisation programme for so long, in the absence of such extern al
assistance.
That the IMF provides not only a source offoreign finance but also its
'seal of approval' to a country suffering critical balance of payments
problems is neither a new nor an uncommon phenomenon. In this
respect one might argue that Sudan's case is not unusual. However, as
this chapter attempts to illustrate, during the seven years of this
stabilisation programme Sudan's balance ofpayments situation steadily
deteriorated as capacity even to begin servicing its mounting external
debt became less attainable than ever before and prospects for economic
recovery, even over the longer term, were even more bleak by mid-1985
than they were in 1978. Throughout this period the IMF readily entered
into aseries of agreements with the Sudanese authorities on what was to
become an almost annual basis. These agreements became the precon-
ditions for the Consultative Group and Paris Club meetings at which the
commitments for new aid, and the rescheduling of the existing loans to
tide Sudan's economy over the next year, were negotiated. 9 In effect the
IMF had come to play the role of mediator between the government of
Sudan and the international donor community in the management of its
recurring balance of payments and debt crisis. In this context the
existence of the Stand-by Arrangements became more important than
their actual substance, and it is therefore also from the perspective ofthe
Fund's performance with respect to its adherence to the uniformity of
treatment principle that the Stabilisation Programme in Sudan should
be assessed.

4 THE RISE AND FALL OF THE 1978 TO 1985 STABILISATION

PROGRAMME

4.1 The record of Sudan's agreements with the IMF

When the IMF stepped in to bail the Sudanese government out of its
1978 balance of payments crisis, the country's account deficit stood at
approximately LSI72 million, which was less than 7 per cent of GDP.
 The IMF Stabilisation Programme in Sudan 65

Outstanding public foreign debt was estimated to be about $2000

million, the due servicing of which represented less than 20 per cent of
export earnings (see Table 2.4). In June of that year a First Credit
tranche of21 million SDR was granted by the IMF, the Sudanese pound
was devalued by 14 per cent and the government undertook to introduce
tighter monetary and fiscal policies, as weil as arevision of production
relations and pricing policies in the Gezira, to stimulate production of
Sudan's main export crop, cotton. Because this was a 'Iower' credit
tranche, the agreement with the IMF did not entail the sorts of detailed
policy objectives, targets, performance criteria and conditions included
in the Extended Fund Facility and Stand-by Arrangements that
succeeded it. For all intents and purposes, however, this mid-1978 First
Credit tranche represents the first stage of Sudan's third stabilisation
programme since independence.
In the following year, 1979, the IMF approved an application by the
Sudanese authorities for a three-year Extended Fund Facility (EFF)
amounting to 200 million SDR. Within a year of its approval, the
authorities of Sudan were back asking for an increase of the initial
amount to 427 million SDR, in view of a further deterioration of the
current account deficit and growing arrears on its payments to bilateral
and commercial creditors. In the meantime Sudan's estimated foreign
debt had risen to over $4000 million and in November 1979 the
authorities were successful in obtaining debt rescheduling, under the
aegis ofthe Paris Club, of al/ outstanding service in arrears and of a large
proportion of all debt-service payments falling due to Paris Club
members over the following two years. Since Sudan had complied with
the conditions of the EFF agreement over its first year, the request for
the 427 million SDR facility was granted in November 1980. Within less
than a year, however, the government had failed to meet its obligations
under the agreement and the EFF credit allocation of 176 million SDR
for the financial year 1981- 2 was cancelled.
In spite of this, by early 1982, following widespread civil unrest in the
wake of a further devaluation and the lifting of subsidies on certain basic
goods, the IMF entered into negotiations with the Sudanese authorities
for a Stand-by Arrangement for the financial year 1982-3 amounting to
198 million SDR. 1O
Simuitaneously, Sudan's Paris Club creditors agreed to further
rescheduling of its debts - not only was Sudan unable to meet the service
payments on the unrescheduled debts falling due to 1982-3, but it had
also defaulted on the 1979-81 debt that had been rescheduled at the first
Paris Club round at the end of 1979. In spite of the successful
 0'1
0'1
Table 2.4 Macroeconomic Balances and Indicators for Sudan, 1970- 1 to 1985-6
% ofGDP 1970-1 1973-4 1976-7 1977-8 1978-91979-801980-1 1981-2 1982-3 1983-4 1984-5 1985-6
Consumption 90 86 89 94 93 97 98 93 94 94 94 96
(public) (21) (15) (12) (12) (13) (16) (18) (16) (14) (14) (16) (14)
(private) (69) (71) (77) (82) (81) (81) (80) (77) (80) (80) (78) (83)
Investment 12 18 17 14 l3 15 15 25 19 16 14 12
Imports 18 17 17 16 14 24 23 27 24 23 19 17
Exports 16 l3 II 8 8 12 IO 9 II l3 II 9
External Savings 2 4 5 6 5 IO 12 17 12 11 9 11
Domestic Savings 10 15 11 6 7 3 2 7 6 6 6 4

Other Indicators
GDP (in LSm at 5239 5 191 6871 6764 6062 6116 6248 6721 6942 6681 5716 6248
1981-2 prices)
GDP Growth Rate 10% 15% -2% -10% 1% 2% 8% 3% -4% -14% 9%
GNP per capita 151 229 402 483 526 371 416 386 381 344 347 346
(in US$)
Foreign Debt (US$m)* 602 2000 7000 7311 8000 9000
Debt-Service Ratiot 14% 29% 95% 102% 137% 162% 244%
*As esti~ated at the time.
t Measur d as debt-service payments due as a percentage of merchandise exports.
SOURCES WorId Bank (1982, 1983, 1985, 1987); Bank of Sudan, Annual Reports, 1978-86; IMFfWorld Bank estimates.
 The IMF Stabilisation Programme in Sudan 67

conclusions of this Stand-by and the rescheduling of much of its debt,

before the year was out Sudan's balance of payments was again in crisis.
Again it failed to meet its due service payments on the debt it had
rescheduled at the March 1982 Paris Club round, and the IMF declared
the Stand-by Arrangement in-operative after on1y 70 million SDR ofthe
agreed 190 million SDR had been purchased. By the end of 1982 the
official estimate ofSudan's external debt had been revised to over $7000
million, which represents an increase of over 350 per cent since the IMF
Stabilisation Programme had started in 1978. Debt service due was then
estimated at 95 per cent of export earnings (see Table 2.4).
By January 1983 the IMF had entered into another Stand-by
Arrangement with Sudan, this time amounting to 170 million SDR.
Almost simultaneously, Sudan's multi- and bilateral donors and
creditors met in Paris under the aegis of the Consultative Group to
explore ways and means of financing the country's unfilled foreign
exchange gap for 1983, estimated at just under $1000 million. This was
followed almost immediately by the third round of Paris Club negotia-
tions at which members agreed to reschedule almost all of Sudan's due
debt (including the arrears on rounds land 11 rescheduled debt) on
unprecedented terms. This amounted to debt relief on 90 per cent of
debt-service payments due in 1983-4, thus reducing actual debt service
to only 13 per cent of exports. Debt service due before relief amounted to
137 per cent of exports! These debts were to be repaid over aperiod of
twenty years, with a grace period of ten years. It was also agreed that
from then onwards the Consultative Group would meet on a regular,
annual basis and that a Joint Monitoring Committee would be set up in
Khartoum - representing Sudanese Ministry of Finance and Planning
officials, the IMF, World Bank and other multi- and bilateral donors-
to monitor the progress of the authorities and report back on policy
undertakings agreed to at the previous Consultative Group meetings.
Following this procedure, the Consultative Group met again in
December 1983, by which time Sudan's outstanding debt had risen to an
officially estimated $8000 million and due service payments were at a
level of over $1000 million for 1984, representing more than 150 per cent
of anticipated export earnings. By the time of this meeting the IMF had
already announced its intention of entering into another Stand-by
Arrangement of 90 million SDR for 1984-5, and the Paris Club had
agreed to meet two months later to reschedule Sudan's arrears and
service payments falling due in 1984-5. Without any further relief,
debt-service payments due would amount to 162 per cent of exports.
Until the summer of 1984, this 'bailing-out' procedure worked rat her
smoothly. In practice, what was happening was that as Sudan's balance
68 The International Debt Crisis

of payrnents problems approached crisis proportions and it began

defaulting on its foreign debt-service payments, the government would
appeal to its donors for more aid in the form of debt relief, balance of
payments support, commodity aid, and so on. The donors would then
informally agree among themselves to provide the necessary support,
but would stipulate that the authorities should first come to an
agreement with the IMF on the corrective economic policy measures
that would be implemented in the course of the following year.
Negotiations for a new Stand-by Arrangement with the IMF would then
begin. An agreement 'in principle' with the IMF would be reached,
subject to the condition that the projected unfinanced gap in the balance
of payments in the forthcoming year would be filled by increased
balance of payments support over and above those already committed.
With the formal approval of the Stand-by Arrangement, Sudan's aid
donors would then meet and agree collectively on the details of the
rescheduling of its existing and anticipated arrears on bilateral foreign
debt at the Club of Paris, and their individual contributions to the
increased aid monies required for the coming year at the Consultative
Group meeting. With these commitments made, the IMF's Stand-by
Arrangement would come into operation and Sudan would immediately
receive the first purchase (drawing), usually amounting to 25 to 40 per
cent of the total loan. It has been pointed out that most of Sudan's
annually negotiated Stand-by Arrangements became inoperative mid-
way. In immediate financial terms this had very little effect, as the total
amount ofthe Stand-by loan was extremely small in relation to the total
foreign exchange gap. Normally, however, the suspension of a Stand-by
Arrangement would make it very difficult for the country in question to
enter into any further such agreements with the IMF, without which the
Paris Club and Consultative Group would not meet. In the case of
Sudan, however, this scenario does not seem to have operated as one
might have expected. Suspension of an existing Stand-by Arrangement
did not seem to deter the IMF from soon after re-entering negotiations
with the Sudan's authorities on another agreement for the following
year. With a new round ofnegotiations successfully concluded yet more
arrears on foreign debt-service payments would be rescheduled, new
increases in balance of payments support and other aid monies would be
committed, and so on.
In other words, the IMF appeared willing to enter into aseries of
agreements with the government of Sudan for purely functional reasons.
Neither the IMF staff nor the Sudanese authorities could have believed
that the policy conditions ofthe agreements would be adhered to.1t is in
 The IMF Stabilisation Programme in Sudan 69

this sense that the existence of the IMF agreement became more
significant than its substance, and took on a functional form - to
facilitate the US-led donors' rescue operation. Until early 1984 all
parties concemed appeared willing and able to 'play ball'. However, in
the summer of 1984 - which also coincided with the period of martial
law, the attempt by Nimeiry to declare Sudan an Islamic state, the
introduction of a number of Islamic economic reforms, and a heighten-
ing ofthe confiict in the south - Sudan appeared to enter a new phase in
its relations with the IMF, the US and the international community at
large. ll Before examining this final phase of IMF-Sudan relations
during the Nimeiry era, it would be useful to make abrief aceount of
some main poliey aspeets of the programme and the reeord of the
government's implementation of these.

4.2 The maiD objeetives and poliey measures of the StabilisatioD

Programme

4.2.1 The objectives 0/ the Economic Recovery Programme (ERP)

Closely associated with the inception of the IMF Stabilisation Pro-
gramme were two other significant and related developments: first, the
initiation of a World Bank-sponsored Agricultural Rehabilitation
Programme; and secondly the effective serapping of the govemment's
one-year-old, six-year development plan and its replacement by a rolling
Three-Year Public Investment Programme (TYPIP), drawn up and
revised each year or two under the close guidance and assistance of a
resident UNDP/IBRD team of expatriate advisers.
These three collectively constitute the Economic Recovery Pro-
gramme (ERP). In very general terms, the ERP's objectives can be
summarised as the attainment of balance of payments equilibrium and
internal priee stability combined with an expansion of traditional
agricultural exports, import-substituting industries and a higher overall
rate of investment and eeonomic growth.
The strategy was to combine a policy ofliberalisation ofthe exchange
regime and restrictive monetary and fiscal policies with a supply-side
poliey of promoting the development of Sudan's traditional export
sector - irrigated agriculture, and cotton in particular - through a
reform of produetion relations and price incentives. The former was to
be pursued via the IMF's Stabilisation Programme and the latter
through a combination of rehabilitative and infrastruetural invest-
ments, reform of produetion relations in the Gezira Cotton Seheme,
devaluation and pre-season-announced farm-gate prices. That the ERP
70 The International Debt Crisis

was not simply concemed with the restoration offinancial equilibria in

the short term and at the expense of all else was repeatedly emphasised in
the main policy documents ofthe IMF, Bank and others from an early
stage in the ERP's seven-year history. In an early World Bank
document, for example, the opening analysis contains a statement that:

The balance of payments, however, is but a mirror of Sudan's

problems. It reflects a number of fundamental structural constraints
and deficiencies ... [and] ... It is essential that Sudan 'grows' out ofits
present difficulties and it is therefore necessary that, in devising a
stabilisation program, the development program is duly protected. A
stabilisation program that is restricted to short-term financial
measures is clearly not enough .... In the absence of such reinforcing
measures, a restoration offinancial equilibrium can only happen at a
much lower level of income and investment. (World Bank, 1980, p. 2)

In this regard the Ministry of Finance and Planning's UNDP/IBRD

assisted rolling TYPIPs played an important role in satisfying Sudan's
donors that, on paper at least, there was a commitment to allocate the
limited investable funds available in a manner consistent with the main
objectives ofthe ERP. The first TYPIP, covering the period 1978-9 to
1980-1, restricted all planned public-sector investment to three main
project types or categories:

(a) the rehabilitation of existing agricultural schemes;

(b) the completion of ongoing projects; and
(c) new projects that alleviated infrastructural bottlenecksY

The three TYPIPs that followed thereafter adhered rigidly to the same
criteria and appeared along with the main IMF and Bank documents at
the various Consultative Group meetings in Paris, both as a statement of
the authorities' investment strategy for the following years, and as a
condition for the necessary commitments on the part of Sudan's multi-
and bilateral donors to disburse the funds needed to finance the
investment programme. Closely associated with this stated commitment
to financial stabilisation with investment and growth was an explicit and
early emphasis on the part ofthe IMF, Bank, and Consultative Group
members that Sudan's process of adjustment and economic recovery
would require a long period of time. For example, at its April 1980
meeting the Consultative Group referred to aperiod of at least ten years'
concerted effort on the part of the authorities and donor community
 The IMF Stabilisation Programme in Sudan 71

before economic recovery would be forthcoming. This was reiterated

later that year at its next meeting, when the Bank representative argued
that:
Undertaking the necessary structural adjustments while servicing
debt equal to nearly ten times current export earnings, with imports
running at nearly three times exports, with a current account deficit
weH over 10 per cent of GDP, with a population growth rate of over 3
per cent per annum and while supporting over half a million refugees
from neighbouring countries, will be a major chaHenge requiring
exceptional efforts by the Government, by the Sudanese people, and
by the international community .... We recognized ... [earlier that
year] ... that at least a decade ofserious domestic efforts supported by
extraordinary external assistance, will be required for a successful
economic recovery. (Consultative Group, December 1983)
This obvious concern that Sudan's adjustment process should not be too
rapid or deflationary and that it should be allowed ample time and
external assistance by the donor community does not necessarily stern
from any misgiving on the part of the IMF as to the efficacy of the
quick-acting, shock-tactic approach in general. Evidence suggests that
this 'concern' had more to do with its fear of the likely internal political
instability that the blind pursuit of restrictive fiscal and monetary
policies would, in the absence of other measures, no doubt unleash. In
this respect I would argue that it was the widespread December 1981 -
January 1982 food riots rather than the Sudanese authorities' change of
heart that brought the IMF back to negotiate a new Stand-by
Arrangement, having only shortly before suspended the Extended Fund
Facility midway. The IMF's rationalisation ofthis decision was couched
in terms of 'an interim arrangement' to guide financial policy during a
period of transition. This concern with the possible political and social
repercussions of a too-austere programme were repeatedly expressed at
the Consultative Group meetings. At its January 1983 meeting - the first
since the 1981-2 riots - in the Chairman's opening address, the
delegates were duly warned that:
The prospect has increased meanwhile that yesterday's economic
troubles may become tomorrow's political and social disarray. The
Sudan thus faces - as we meet - not only an economic crisis but also a
crisis of society. (Consultative Group, January 1983, p. 49)
Reiterating this warning at this meeting and at its next, in December
1983, the IMF spokesman emphasised that:
72 The International Debt Crisis

no internal adjustment, that is consistent with the stability of the

Sudanese society, is feasible to accommodate the debt obligations.
(Consultative Group, January 1983, p. 66)

the Sudanese authorities would encounter considerable internal

difficulties if they attempted to implement further domestic demand
restraint. (Consultative Group, December 1983, p. 8)
In other words, they seemed to be suggesting that if the Consultative
Group members did not agree to provide the necessary balance of
payments support, project aid and debt reliefto cover Sudan's growing
foreign exchange gap, the government would be forced to take further
austerity measures, the effect ofwhich would be increased social tension
and political instability and, perhaps, the downfall of the existing
regime.
If this conclusion is correct, it would seem that the major effect of the
IMF's Stabilisation Programme (as the main pillar of the ERP) was to
facilitate the flow of external financial resources and thereby enable the
government to avoid the need to implement the socially and politically
unpopular austerity measures that would otherwise have been necessary
to restore balance of payments equilibrium.

4.2.2 The policies and targets of the Stabilisation Programme and their
implementation
Not unlike other Stabilisation Programmes, the primary foci of the
prescribed policies in the Sudanese case were: (a) devaluation, liberalisa-
tion and unification of the exchange regime; (b) bank credit restrictions,
interest rate increases and curtailment of the money supply growth; and
(c) reduction of the central government's budgetary deficit through
expenditure cuts and tax increases.
In keeping with the IMF view of the world, the rationale underlying
these is that balance of payments disequilibrium can be restored only
through a combination of external exchange liberalisation (and
depreciation) measures to return the exchange rate to its market-
clearing level, and internal financial policies to stabilise the external
equilibrium. To avoid the need for further depreciation ofthe currency
ad infinitum, inflation and excess demand for imports should be
controlled by curtailing the growth of the money supply. Hence the
credit restrictions and reduction of the government's budgetary deficit
can be seen, from the standpoint of this approach, as the necessary
internal corollary ofthe policies designed to restore external equilibrium
 The IMF Stabilisation Programme in Sudan 73

and stability. In other words, domestic price stabilisation and the

anti-inflationary monetary and fiscal policies, so often identified in
themselves as the main objectives ofIMF stabilisation programmes, are
important from the IMF's standpoint only in so far as they are expected
to prevent further disequilibrium and instability ofthe country's balance
of payments. From the IMF's standpoint it is also essential that the
member country agrees to (and actually does) implement the entire
package of policies. Failure to do so would normally lead the IMF to
suspend the agreement and withhold the outstanding purehases due
under the arrangement.
It is the primary concern ofthis subsection to 'assess' the performance
of the Sudanese authorities in their implementation of some of the main
policies and targets contained in the Stabilisation Programme's
agreements. The coverage and assessment ofthe policy package does not
pretend to be comprehensive with respect to either the range of policy
targets set or the time periods covered during the seven years' duration
of the programme in view of the incompleteness of the information
available due to the secrecy with which governments and the IMF
conduct their business. The main purpose is to gain some insight into the
behaviour.ofthe IMF in its dealings with the Sudanese authorities from
selective cases for which da ta are available.
Before the Stabilisation Programme began in mid-1978, the official
exchange rate (OER) of the Sudanese pound against the US dollar was
fixed at US $1 = LS0.35. It had been set at that level since 1955. For
about five years, however, an effective multiple exchange rate regime
had been in operation through a system of foreign exchange taxes and
subsidies on selected imports and exports respectively. Furthermore, a
foreign exchange licensing system enabled the government to allocate
scarce hard currency, ostensibly in accordance with its development
priorities. In practice, the only commodity traded at the OER was
Sudan's main export, cotton. The effective average rate on all other
trade was US $1 = LS0.40. In every IMF agreement concluded since
1978, the liberalisation 01 trade and the unification 01 the exchange rate on
a Iree loreign exchange market leatured as one 01 the main policy
objectives. How far were the authorities successful in the pursuit of the
policy goal?
With the conclusion ofthe first IMF agreement in 1978, the OER was
adjusted downwards by 14 per cent to US $1 = LS0.40. The foreign
exchange taxes and subsidies were not lifted; this preserved the existing
multiple exchange rate regime, the average effective exchange rate
becoming US $1 = LSO.50. It was not until a year later that the
74 The International Debt Crisis

authorities finally agreed to apply the LSO.50 rate to cotton as well.

Within three months ofthat decision, however, the OER was adjusted to
LSO.50 and the authorities announced the introduction of a Parallel
Exchange Rate (PER) of LSO.80. In practice, this meant that a few
exports (including cotton) and essential imports (including oil) were
traded at the OER, while the rest were traded at the PER. As a gesture in
the direction of liberalising the exchange market, commercial banks
were licensed to open foreign exchange accounts for certain traders,
expatriates and Sudanese nationals working abroad. However,
importers were still required to draw hard currency from their own
accounts. The authorities gradually shifted more goods to the PER until
by June 1981 the only commodity traded at the OER was cotton. In
November 1981, after the IMF had declared the EFF inoperative, the
OER and PER were unified at LSO.90. In the meantime, however, a
fiourishing unofficial market in foreign exchange had developed, which
the authorities had legalised some months previously by issuing licences
to certain dealers to open exchange houses. At the same time as the OER
and PER were unified, the authorities announced that only public-sector
trade (which includes cotton) could be conducted at the new rate. All
private-sector foreign exchange had to be purchased through the
exchange houses at a rate (then) of about LS 1.00 or just over 10 per cent
above the OER. Thus, four years after the 1978 IMF agreement, a
multiple exchange rate regime was still in operation.
In November 1982 it appeared that some progress towards a unified,
free exchange regime had been made. The authorities agreed to a 44 per
cent devaluation of the currency to a level elose to that prevailing in the
free market - LSl.30. Simultaneously, commercial banks were licensed
to deal in the free market. This system, however, was very short-lived.
Within a matter ofweeks the commercial banks' rate depreciated, along
with the licensed exchange house rate, to LS1.80. The authorities
stepped in and effectively fixed the commercial banks' exchange rate at
LS 1.78 - LS 1.80 and revoked the licences of the exchange house dealers.
However, the unofficial market fiourished and the commercial banks
lost most oftheir business, as the free rate had risen to new heights. The
size of the gap between this and the official 'free market' rate of the
commercial banks became a major preoccupation of the IMF in its
1983-4 Stand-by Arrangement, wh ich committed the authorities to
reissue licences to exchange house dealers. Initially, no more than four
or five dealers bothered to reapply. For the rest, mainly larger dealers, it
was 'business as usual' on the unofficial, parallel market, where the rate
had risen to about LS2.35 - LS2.40 by June 1984.
The exchange regime had thus become even more complicated and
 The IMF Stabi/isation Programme in Sudan 75

discriminatory than it had been in 1978. The public sector traded at

LS1.30 (including, of course, cotton exports); the private sector could
import only with a licence and had to buy its foreign exchange on the
unofficial market at LS2.35 - LS2.40. Private-sector exporters had to seIl
75 per cent oftheir foreign exchange earnings at the OER; the remaining
25 per cent could be deposited with a commercial bank at LS 1.78, giving
them an effective rate of about LS1.43.
Between June and October 1984 the number of licensed dealers
gradually picked up, but just as it seemed as if the 'free market' had been
restored and the exchange rate was stabilising around LS2.50, the
government stepped in again with a number of changes. The OER was
left at LS1.30, but the commercial bank rate was adjusted to LS2.l0.
Simultaneously, the free market was temporarily suspended, only to
reopen at the end of October 1984 with the free market rate fixed by
government order at LS2.35. Before the closure, it had risen to over
LS2.80. Dealers were once again forced into the unofficial or parallel
market to buy and seIl foreign exchange at its going rate. The free
market became official again in December, and by February 1985 the
exchange rate had risen to over LS4.00. At this juncture the government
stepped in again; it devalued the official rate to LS2.50 and the
controlled commercial bank rate to LS3.30. Licences of all other foreign
exchange dealers were again revoked.
The main macroeconomic targets of the IMF programmes between
1978-9 and 1981-2 were to raise the rate ofeconomic growth to about 4
per cent per annum and reduce the inflation rate to 10 per cent, through
a combination of measures designed to reduce considerably the
government's budgetary deficit, domestic bank borrowing and growth
of the money supply. Between 1977-8 and 1980-1, in actual fact,
Sudan's GDP declined by about 8 per cent in real terms. The central
government's budgetary deficit increased to almost 13 per cent of GDP,
and the money supply grew at an average annual rate of over 30 per cent
in comparison with a target rate of 16 per cent set for 1980-1. The
central government's domestic bank borrowing also increased at about
the same rate-38 per cent per annum -in spite ofthe fact that by 1980-1
this financed only 55 per cent of its budgetary deficit as opposed to 90 per
cent in 1977-8. Effectively, there had been a movement away from
domestic borrowing to foreign financing of the government's budget
deficit associated with the IMF Extended Fund Facility loan and
increased foreign lending that this unleashed. Thus by 1980-1 inflation
had increased to an average rate of about 35 per cent per annum. One of
the main factors contributing to the government's failure to meet the
budgetary targets was its so-called 'job reclassification scheme'. Having
76 The International Debt Crisis

agreed to curtail expenditure by a freeze on public-sector salary and

wage scales, the authorities then introduced a job reclassification
scheme, the effect ofwhich was a large increase in the public-sector wage
bill. Thus, between 1977-8 and 1980-1 its recurrent expenditure
increased by 150 per cent, while revenue increased by about 60 per cent.
It was at this juncture that the IMF's EFF was suspended midstream.
However, as already outlined in the previous section, soon afterwards
the Stabilisation Programme was resumed with the signing of the
1982-3 and 1983-4 Stand-by Arrangements. Again, the main focus
was on reducing the government's budgetary deficit and curtailing the
growth of credit and the money supply. As part of the agreement, the
government undertook to introduce policy measures to improve tax
collection, and a Special Committee on Direct Taxes was established to
prepare a comprehensive report on direct (income and profit) taxes. It
was planned to increase central government revenues, and with further
public expenditure cuts the government's budgetary deficit - which had
risen to II per cent ofGDP by 1980-1- was to be reduced to 6 per cent
ofGDP by 1982-3 and eliminated altogether by the end of 1984-5. The
expansion of the money supply was to be contained to a growth rate of
28 per cent in 1982-3 to 18 per cent in 1983-4 and to not more than 12
per cent by 1984-5. GDP was expected to grow by 3.5 per cent in
1982-3 and by 5 per cent in 1983-4 and 1984-5 in real terms.
These targets were not met. For example, between 1980-1 and
1983-4 central government revenue fell to only 13 per cent ofGDP, weIl
below the target. Between 1981-2 and 1983 -4 the money supply grew
by about 72 per cent and the rate of inflation increased even further in
1982 to over 40 per cent (officially estimated). The central government's
overall deficit was reduced to ab out 8 per cent ofGDP by 1982-3 and 9
per cent in 1983-4. Although there was an estimated LS30 million
shortfall in government revenue, the estimated shortfall in expenditure
was much greater (LS122 million). However, about half of it was
accounted for by a shortfall of development expenditure, mainly
attributable to bottlenecks in project implementation. Rather than
increasing by 3.5 per cent, however, real GDP actually declined in real
terms between 1981-2 and 1983-4.

4.3 Tbe breakdown of the Programme: 1984 to April 1985

If one then looks back over the seven-year period from 1977-8 to
1983-4 (see Tables 2.2-2.4), the following points stand out:
 The IMF Stabilisation Programme in Sudan 77

(a) in relation to the balance of payments: (i) the current account

deficit increased from 6 per cent ofGDP in 1977-8 to 11 per cent
in 1983-4; (ii) officially estimated total foreign debt increased
from US $2bn (1978) to US $8bn (1984); (iii) thedebt-service ratio
rose from 19 per cent (1978) to over 150 per cent (1984);13 (iv) the
Sudanese pound depreciated to 27 per cent ofits pre-1978 value;14
(v) the multiple exchange rate system remained intact, with the
gaps between the various rates having widened.
(b) in the domestic economy, between 1977 -8 and 1983-4: (i) GDP
declined in real terms, and GDP per capita fell from US $483 to
US $344; (ii) gross national savings became negative, falling from
ab out 2 per cent of GNP to - 0.3 per cent in 1982-3; (iii) the
growth of the money supply increased to almost 60 per cent in
1983-4 in comparison with less than 30 per cent before 1978; (iv)
the government's budgetary recurrent deficit rose from 5 to 9 per
cent ofGDP; and (v) the annual rate ofinflation rose from 20 per
cent to over 40 per cent in 1982-3 (officially estimated; it is widely
believed that the actual rate was much higher).

In the previous section we noted that by early 1984 negotiations were

already under way with the IMF for a new 1984-5 Stand-by Arrange-
ment that was to become effective from 31 May. By February, however,
Sudan had run into arrears on payments due to the IMF, totalling US
$18 million. In terms ofits own rules the IMF is not allowed to enter into
any formal negotiations with a member state that is in arrears to it.
Almost immediate1y, however, the US government stepped in and
diverted US $18 million ofUSAID monies already committed for Sudan
to pay those arrears. Negotiations with the IMF resumed and on 30
April the new Stand-by Arrangement was agreed upon, 'in principle',
provided the unfinanced gap on Sudan's balance ofpayments was fi11ed
by 31 May. With this agreement in place the Paris Club met immediately
to reschedule the arrears on debt-service payments that had already
accumulated since the previous rescheduling in February 1983, plus
almost all other debt-service payments falling due in 1984. After
allowing for the Paris Club debt relief and existing aid commitments for
the same period, there was still an unfinanced gap in Sudan's balance of
payments amounting to US $60 million that had to be fi11ed.
By 31 May, however, the additional funds needed had not been found.
Normally this would have rendered the Stand-by Arrangement
inoperative, but the IMF agreed to an extension of the deadline to
7 June. Again efforts to raise the necessary aid increases among the
78 The International Debt Crisis

international donor community failed, and again, under much pressure

from the US, the IMF consented to a further extension ofthe deadline to
14 June. During this week the US $60 million aid commitment was
found but, unfortunate1y, from the Sudan government's point ofview it
was already too late. Although the projected unfinanced gap could be
fi11ed, Sudan had in the meantime run into arrears again on its payments
due to the IMF. Until these could be paid, the Stand-by Arrangement
could not become operative. The US Congress, having 1earnt of the
February US $18 million 'misuse' of USAID monies, blocked an
attempt for this to be paid on Sudan's behalf by the US government.
Saudi Arabia also refused to pay the US $25 million necessary to square
Sudan's account with the IMF. Finally, having failed to raise the funds
through the official international donor community, the US government
arranged the payment indirectly by conc1uding on 25 June the negotia-
tion of a commercial bridging loan on Sudan's behalf, which was paid
directly to the IMF. On receipt of this payment, the IMF then released
the first, 20 million SDR purchase on the 1984-5 Stand-by Arrange-
ment to the government of Sudan, which was then immediate1y used to
repay the commercial bridging loan. Through this masterpiece of
financial juggling the US government had managed, in spite of the
apparent unwillingess of other bilateral donors to co-operate, to bail out
the Nimeiry regime yet again and - temporarily - fore stall a direct
confrontation with the IMF and the rest of the international donor
community.
However, this period of grace was short-lived. Before the Paris Club
or Consultative Group members could meet to organise collectively yet
another bailing-out operation for 1985, as had been planned for later in
1984, the Sudan yet again fell into arrears on its due payments to the
IMF. The IMF immediately dec1ared the newly activated Stand-by
Arrangement inoperative. Even if the Paris Club and Consultative
Group members had met, there was very little they could have
orchestrated to avoid the debt-servicing problems that followed. For by
this time, almost all debt-service paymentsfalling due were with respect to
multilateralloans which, constitutionally, were not reschedulable. As each
month passed, Sudan's arrears on payments due to the IMF, World
Bank, the Arab Fund for Social and Economic Development (AFSED),
the African Development Fund (ADF), and others compounded
rapidly. This led to the suspension of all aid disbursements due by these
organisations for the financing of a number of critical deve10pment
projects, inc1uding the all-important Gezira rehabilitation scheme. As
these were jointly financed with a number of bilateral lenders and
 The IMF Stabilisation Programme in Sudan 79

donors, a number ofWest European governments and the US were also

forced to freeze part oftheir already committed aid allocation for 1984.
By the end of the year Sudan's accumulated arrears to the IMF alone
amounted to about US $82 million; to AFSED it owed over US $30
million:
a simple bai I-out to keep the economy ticking over was no longer on
the cards by December - even if the ~ssential prerequisite of a
functional IMF standby could be achieved. 'None of the donors can
afford to bail Sudan out; the amounts are simply too large', a U.S.
State Department source said. 'It is going to require a joint effort by
all donors and that's only going to occur under the umbrella of some
kind of IMF/WorId Bank programme.' (AED, 1984, p. 30)
In the context of discussion on what form such a bai I-out would take, a
rift developed between the IMF on the one hand and the W orId Bank,
US government, and other donors on the other. The precise details of
this rift were never made clear, but what seems to have happem:d is that
during discussions on the scenario of a possible bailing-out operation
for Sudan, the IMF refused to enter into yet another functional
agreement with the government and was openly criticised by the USAID
mission in Khartoum and other donors, ostensibly for failing to
recognise the underIying structural nature of Sudan's economic crisis
and the need for a policy package that took into account the
'Ionger-term, structural adjustments' necessary for economic recovery.
USAID then contracted a group of Princeton University (USA)
academics to advise on an 'alternative economic strategy' for Sudan.
By late January 1985 there was increasing speculation that the IMF
was about to declare Sudan ineligible for further borrowing. Food and
fuel shortages, as weIl as the open-market exchange rate, reached
unprecedented levels. By the end of January Sudan's arrears to the IMF
had reached US $110 million. In earIy February the newly appointed
Minister of Finance and Governor of the Bank of Sudan visited the US
in what was seen as a last, desperate effort to reach a new agreement with
the IMF to reactivate the 1984-5 Stand-by Arrangement. In spite ofthis
effort, which also involved a token payment ofUS $10 million by Sudan
to the IMF, on 8 February the Stand-by Arrangment was formally
suspended by the IMF Executive Board. In its place, however, the
Sudanese authorities negotiated a special deal - directly with the US
administration: the 'USAIDfPrinceton Package' presumably the out-
come of USAID's attempt to find an alternative to the IMF's policy
package which could be sold direct1y to the Reagan administration and
80 The International Debt Crisis

US Congress as a last-bid effort to bail out the Sudanese government.

What this policy package actually consisted ofwas never made clear,
for its full contents were never announced. Even some of its individual
components were not announced by the Sudanese authorities - such as
the fuel price increase which was simply implemented in March 1985
without any prior warning. From the information available, this
package included:

(a) a virtual unification of the exchange rate on a 'managed float'

basis through the commercial banks;
(b) an increase in fuel prices ranging between 60 and 66 per cent;
(c) an increase in flourJbread prices of about 75 per cent;
(d) the establishment of a special 'oil facility' (funded mainly by
donors) in order to permit the purchase of the country's oil
imports at the much lower 'spot-market' prices;
(e) the revision of the recently introduced Islamic taxes, and other
commercial laws such as the Civil Transactions Act; and
(f) cuts in central government expenditure.

At the same time as the introduction ofthese economic policy changes a

number of other political measures were introduced, most importantly
the sacking of a large number of government officials associated with the
Muslim fundamentalists. The US administration, along with other
donor governments, agreed collectively on the need for the economic
policy changes to be implemented by I April 1985, as a precondition for
the release of previously frozen aid monies and the resumption of
negotiations on a programme of economic support for the future. It is
therefore not coincidental that when Presidents Nimeiry and Reagan
met in Washington on I April 1985 the US government announced the
release of US $67 million previously frozen balance of payments
support. 15 This came too late. Having apparently regained the
confidence and support ofhis chief external benefactor, Nimeiry had, in
the meantime, effectively lost the last of his rapidly declining internal
support. He was prevented from returning to Khartoum from his
meeting with Reagan in Washington. The food and fuel price rises that
were part of the USAID policy package had brought the people of
Sudan on to the streets in a wave of bitter food riots and strikes which
forced a group ofhigh-ranking military officers, led by General Swar Ed
Dahab, to seize power on 6 April 1985, with an undertaking to return
Sudan to democratic rule within one year. 16
 The IMF Stabilisation Programme in Sudan 81

There can be no doubt that the United States government's insistence

on Nimeiry's full implementation of USAID's IMF-type policy
package, as a precondition for the release of their frozen balance of
payments support, contributed to the regime's final collapse. As to
whether this was the intention, one can only speculate. What remained
to be seen, however, was how the international donor community was
going to respond to the new regime and what role, if any, the IMF would
be expected to play, particularly in the light of the accumulation of
Sudan's arrears on payments due to it, which totalled US $150 million at
the time ofNimeiry's downfall and which constitutionally could not be
rescheduled.

5 IMF-SUDAN RELATIONS IN THE POST-NIMEIRY ERA

In the first two-and-a-half years that have elapsed since the popular
overthrow of the Nimeiry regime, Sudan has had to exist without an
official IMF agreement. In February 1986 the country was declared
ineligible for further IMF borrowing on account of the new interim
government's inability to settle the arrears to the Fund which it inherited
from the Nimeiry regime. This formally prevented the Fund from
entering into official negotiations on a Stand-by Arrangement. Without
such an agreement the Paris Club could not meet to reschedule its debt
obligations to official sources, which accounted for 85 per cent of its
total debt. By January 1988 this had risen to more than US $10 billion,
while arrears to the IMF itselfwere in the order ofUS $800 million. The
already severely depressed economic situation, following the combina-
tion of external shocks and domestic mismanagement of the Nimeiry
era, was further exacerbated by three successive years of drought and
famine, added to an escalation of the civil war with the Sudan People's
Liberation Movement (SPLM) in the non-Muslim south ofthe country.
Thus in both 1984-5 and 1985-6 GDP declined in real terms, and
export earnings fell to 9 per cent of GDP (see Table 2.4). Between
1983-4 and 1985-6 the value ofmerchandise exports fell from US $722
million to US $497 million, due to a combination of deteriorating prices
and volumes (see Tables 2.3, 2.5). Imports were cut by almost 20 per cent
in the same two-year period. As a result debt service due increased from
137 per cent to 244 per cent of merchandise export earnings between
1983-4 and 1985-6! (see Table 2.5).
82 The International Debt Crisis

Table 2.5 Sudan: Selected Debt Service Data, Service Data, 1983-4 to 1986-7
(in US $m)
1983-4 1984-5 1985-6 1986-7
1. Merchandise Exports 722 595 497 492
2. Merchandise Imports 1370 1 114 I 055 911
3. Debt Service Due 990 963 1213 913
i. Debt Service Paid 93 198 148 287
ii. Debt Relief Granted 949 257 270 110
iii. Increased Arrears -52 508 795 516
4. Debt-Service Ratio 137% 162% 244% 186%
(ex-an te = 3/1)
5. Debt-Service Ratio 13% 33% 30% 58%
(ex-post = 3i/l)
SOUReE World Bank (1987a), based on IMF Staff estimates.

In the light of such adesperate economic situation, and in the absence

of an IMF-backed rescue operation of the type that was characteristic of
the Nimeiry era, how has Sudan's balance of payments crisis been
managed in the early post-Nimeiry years?
It would be incorrect to assume that the absence of any formal
agreement with the IMF during this period has meant either that the
international donor community cut back significantly on its dis-
bursements of official development assistance (ODA loans and grants)
or that the IMF discontinued its role as media tor in the management of
Sudan's chronic balance of payments crisis.
First, concerning the disbursements of official aid ftows, gross values
remained at a relatively constant level from 1983-4 onwards (see Table
2.6). It should be noted, however, that there was a significant change in
respect of net official transfers after 1983-4. Table 2.6 shows that net
transfers of ODA to Sudan after debt relief amounted to US $420
million in 1983 -4. From 1984-5 these became negative; there were net
transfers ofODAfrom Sudan to the international donor community,
which increased from US $255 million in 1984-5 to US $364 million in
1986-7. In spite ofthe 20 per cent cut in import volumes over the same
period, the government had been unable to reduce its current account
deficit. It was therefore left with no option other than to default on most
ofits debt-service payments due. In so doing the government was able to
keep its actual 'ex-post' debt-service ratio down to 'manageable' levels-
30 per cent and 58 per cent of exports in 1985-6 and 1986-7 respectively
(see Table 2.5). Consequently, between mid-1985 and early 1988
 The IMF Stabilisation Programme in Sudan 83

Table 2.6 Sudan: Selected Data on Financial Flows, 1983-4 to 1986-7

(in US Sm)
1983-4 1984-5 1985-6 1986-7
I. ODA Disbursed 461 451 589 439
less: Amortisation Due -542 -485 -654 -391
Interest Due -448 -478 -559 -522
plus: Debt Relief 949 257 270 110
2. Net Transfers (official) 420 -255 -354 -364
plus: increased arrears - 52 508 795 516
3. Net Transfers (actual) 368 253 441 152
SOURCE As for Table 2.5.

Sudan's arrears accumulated to a level of US $4.6 billion, US $800

million ofwhich were due to the IMF itself. It was in this manner that the
government of Sudan 'managed' its balance of payments crisis in the
absence of an IMF agreement. The donors continued to provide the
ODA grants and loans, including the all-important balance of payments
support in the form of cash and commodities such as fuel. All that had
changed was that what was previously 'gran ted' by the donors in the
form of official debt relief was now being 'taken' by Sudan in the form of
debt default!
Second, concerning the role of the IMF, it had become clear by
mid-1987 that it was still intending to play an active part in mediating
between the donor community and the government of Sudan. In July
1987 a 'Program of Action' wasjointly prepared and agreed upon by the
government and the IMF. For all intents and purposes, it took the same
form as any Stand-by Arrangement, spelling out in some detail the usual
mix of economic policy measures to be pursued by the government over
the next year.
Thus, at the beginning ofOctober 1987, the government announced a
number ofthe new policy measures contained in the Program of Action,
including a unification ofthe official exchange rate at a level representing
a 44 per cent devaluation against the previous official rate; the
introduction of a Compensatory Rate system within the Islamic banking
system in terms ofwhich their effective lending rates were to be pegged at
three percentage points above the annualised quarterly rate of inflation;
the announcement, after consultation with the Fund and World Bank,
of increased pre-season procurement prices for all agricultural com-
modities - not only for cotton and wheat, as was the practice in the past;
and substantial increases in the consumer prices of fuel (25 per cent),
sugar (66 per cent), cement (33 per cent) and other basic commodities
84 The International Debt Crisis

previously subject to indirect subsidisation (via the multiple exchange

rate system) or direct subsidisation through the central government's
budget and pricing policies.
There were, however, two main differences between this and the
functional agreements reached during the Nimeiry era. First, the
arrangement did not come with any direct balance of payments
assistance. Second, it was made clear that the policies agreed upon
would have to be implemented as a precondition for the convening of a
Consultative Group meeting to raise the additional aid that the
government would need to manage its economy in the coming years. The
agreement was that if the government adhered to the policies and drew
up an acceptable four-year investment programme, the Consultative
Group would meet in April 1988 to settle the aid necessary to finance
Sudan's immediate needs, including settlement ofthe arrears due to the
IMF. These having been settled, the IMF could then presumably
negotiate a Stand-by Arrangement, or Structural Adjustment Facility,
which would then permit a Paris Club rescheduling of the enormous
arrears on other official debts, as weIl as debt service due in the medium
term.

6 CONCLUDING REMARKS

From the examination ofthe IMF's handling ofthe Sudanese case under
Nimeiry it would be difficult to assert that particularly tough conditions
were attached to the numerous agreements reached over the seven-year
period in question. Indeed, it was not until the regime introduced a
number of radical institutional and economic policy changes under its
Islamicisation programme in 1983 and 1984 - which were, in a number
ofrespects, diametrically opposed to the whole spirit ofthe Stabilisation
Programme - that the IMF became less ready to conclude another
agreement with the government. 17 In a sense, Sudan had become
something of an embarrassment to the Fund. t8 It became clear that it
was no longer willing to enter into yet another functional agreement
simply in order to justify the extraordinary levels of economic assistance
that were necessary to maintain the Nimeiry regime in power. The main
concern of his allies and the rationale of the IMF role until this point
could best be explained in terms ofthe country's precarious geopolitical
situation in the North African-Arab Gulfregion. Nimeiry's coming to
power in the late 1960s, his successful conclusion of the Addis Ababa
agreement which ended the long civil war in the south, his ousting ofthe
 The IMF Stabilisation Programme in Sudan 85

powerful Communist Party from government in the early 1970s - not to

mention his support for the 1978 Camp David accord - established
Nimeiry very clearly as an ally worth supporting, both militarily and
economically, from the West's point of view. Thus by the early 1980s
Sudan had become the second largest recipient of US economic
assistance on the continent, after Egypt. By 1983 Sudan was receiving
US $35 per capita in aid, compared to US $19 for the whole of
sub-Saharan Africa. Sudan's proximity to the Gulf, its position as
neighbour to Libya and Ethiopia, and its control over the tlow of the
Nile waters northwards to Egypt all contributed to its geopolitical
importance from the West's point of view. It was essentially in the
West's perception of Sudan's vulnerability that Nimeiry's strength
vis-a-vis his allies lay.19
It later became apparent, however, that he was no longer capable of
balancing the domestic forces coming to bear upon his regime while
simultaneously meeting external expectations. First, the resumption of
the civil war in the south in 1984led to a cessation of all oil prospecting
and drilling operations by Chevron and Total in the southern region, as
weIl as the suspension of the laying of the pipeline to Port Sudan.
Completion of this project was expected in 1986 with an initial capacity
of 50 000 barrels per day, and a potential medium-term capacity ofup to
200000 barrels per day. The anticipated foreign exchange revenues of
this pr,oject had been built into the IMF and World Bank medium-term
projections. As it was most improbable that work on the project could
be resumed until the confiict was resolved, the medium-term balance of
payments and other economic projections all had to be revised.
Furthermore, guerrilla wars can be costly affairs in terms ofboth human
lives and the economy. A number ofinfrastructural projects, including
the Jonglei Canal, had been affected and communications systems
disrupted, and the direct cost of the war itself in foreign exchange was
estimated at some US $1 million per day.
Secondly, Nimeiry's brand ofIslamicisation ofSudan brought with it
a number of important institutional changes that had a direct bearing on
the Stabilisation Programme. The more important of these were (i) the
prohibition ofinterest on all domestic borrowing and lending activities;
(ii) the Civil Transactions Act which, among other things, effectively
abolished limited liability in business ventures; and (iii) the substitution
of 'Zakat' for all income and profit taxes, as weIl as some indirect taxes.
By the summer of 1984 US concern over Nimeiry's behaviour had
become apparent, as retlected by a Newsweek article at the time which
suggested that:
86 The International Debt Crisis

American officials are jittery over what they consider the increasingly
irrational behaviour of Sudan's President Jaafar Nimeiry, a longtime
ally ofthe West and one ofthe few Arab leaders to support Egypt's
peace treaty with Israel. ... Washington fears that the conflicts caused
by Nimeiry's newfound zeal for Islamic justice ... might weaken
Sudanese resistance to any trouble making by Libyan leader Muam-
mar Kaddafi. (Newsweek, 1984, p. 27)
The subsequent freezing of a large part of USAID's 1984 aid dis-
bursements to Sudan, as weil as the unwillingness ofthe USA and others
to finance Sudan's arrears to the IMF, followed soon after. From then
on the IMF began to adopt a much tougher stance in negotiations on the
reactivation ofthe 1984-5 Stand-by. What remained unclear, however,
is why, when USAID stepped in in place ofthe IMF to negotiate a new
economic policy package, it insisted on such harsh preconditions. There
can be no doubt that it was the USAID-inspired policies ofMarch 1985
that sparked off the food riots, general strike and popular uprising that
put a final end to the Nimeiry regime on 6 April. One can only speculate
on the motives of the international donor community in imposing such
politically unpopular austerity measures on the regime at this moment.
Perhaps it was feit that Nimeiry had become a threat to the stability of
Sudan.
On the effects of the 1978-85 Stabilisation Programme, two points
seem clear. First, it could be argued that the availability ofthe additional
external finance associated with the functional IMF agreements not only
allowed Nimeiry to engage in what seemed to be an astute political
juggling act for longer than would otherwise have been possible, but also
this effectively allowed the regime to postpone the necessary structural
reforms and policy measures that were required to revitalise production
and economic growth. As Fanos (1987) has shown, the inconsistent and
erratic manner in which the IMF and other ERP policies were
implemented only exacerbated the economic crisis. The World Bank too
has now also acknowledged that: 'Since 1978, the Government tried to
adjust the economy with partial adjustment measures applied in an
unsustained fashion' (1987, p.2). Secondly - and related to the first
point - Sudan was left at the end of the Nimeiry era not only in
substantial debt to the IMF and donor community, but above alliess
resilient to external shocks, as the 1984-5 drought and famine have
illustrated. Ironically, the country was also left more vulnerable to the
influence ofits anti-Western neighbours, Libya in particular, than it was
in 1978. It was not too surprising that Kaddafi was very quick to
re-establish diplomatic and economic ties with the new regime.
 The IMF Stabilisation Programme in Sudan 87

The continued economic support that the new regime has enjoyed, in
spite oflarge-scale default on its due debt-service payments, has enabled
the government to manage its chronic balance ofpayments crisis, albeit
at a substantially lower level of imports and investment. This has also
happened in spite of its accumulating arrears to the Fund and, hence, the
absence of a formal agreement with it. This is therefore a clear indication
that the US-led donor community is willing to provide the same
economic (and military) support to the new regime of Sadig al Mahdi,
for the same - mainly geopolitical- reasons as before. What appears to
be different, however, is the extent to which the IMF and World Bank
have been prepared to continue their respective roles in support of the
West's politically inspired rescue operations on the same basis as before.
In arecent document, the Bank warns the new government that:

While the foreign donor community has shown its support for the
democratization process in maintaining its aid flows over the last 18
months, it cannot be presumed that these flows will continue in the
absence of sound economic policies. (World Bank, 1987, vol. I, p. 16)

It is too soon as yet to judge whether the new government will be able to
adhere to all the IMF's preconditions and continue to balance the
domestic political pressures coming to bear upon it. There were food
riots throughout the country immediately after the October price rises,
despite astate of emergency. It is also too soon to judge the extent to
which the IMF and Bank will continue to insist on the government's
adherence to the letter ofthe agreements reached, and to the direction of
the four-year programme to be announced in April 1988. This will
depend largely on the extent to which Sudan's donors are willing and
able to bring pressure to bear on the Fund's executive, as was the
practice during much of the Nimeiry era. In this new situation there is
also another dimension that will surely play an important role in the
IMF's handling of Sudan in the years ahead: the fact that the
government of Sudan is substantially in arrears to the Fund. The Fund
cannot afford to reschedule or simply write off the US $800 million
arrears in view of the so-called 'moral hazard' effect that this would
imply. Much as the Fund might wish to wash its hands ofthe Sudanese
problems, even in the absence of pressure from the US government it
cannot, for the time being, disengage itself without first finding a
formula that is acceptable to it, andpolitically viable from the Sudanese
government's point of view. It is in this respect that the government of
Sudan is, ironically, in a potentially stronger bargaining position in
comparison with many other sub-Saharan African countries whose debt
88 The International Debt Crisis

crises are perhaps less severe. It is therefore not inconceivable that in the
years ahead the IMF and W orld Bank will be more willing to respond
positively to a plausible and alternative strategy for economic recovery
emanating from the governments of countries such as Sudan, in whose
debt crises they have become inextricably entangled.

NOTES

1. A Transitionary Military Council (TMC) held power for twelve months

while the country prepared itselffor a general election. For an account ofthe
downfall of the Nimeiry regime, see R. Greenfield (1985).
2. On these aspects ofthe IMF programme, see Abde1 Gadir Ali (ed.) (1985)
and Nureldin Husein (1988).
3. The official exchange rate stood at $1 = LSO.35 from independence until
August 1978.
4. See, for example, World Bank (1980) on this.
5. I kantar = 141.5 kg and I feddan = 0.42 hectare.
6. See Killick (l984a), Chapter 6.
7. See also Brown (1986).
8. See Killick (1984a), Chapter 7, on the 'catalytic effect'.
9. The Consultative Group is chaired by the World Bank and its membership
includes the OECD countries, most Arab Gulf states, Romania, Yugo-
slavia, Switzerland and thirteen multilateral financial and aid institutions.
10. The official justification for agreeing to this despite the failure on the part of
the Sudanese authorities to complete the necessary preparations for the IMF
mission's review, including the public-sector investment plan, was that this
stand-by should be seen as 'an interim arrangement to guide financial policy
during aperiod of transition' (Consultative Group, 1983, p. 65).
11. For a useful account of these developments, see Gurdon (1984).
12. In effect, this amounted to a scrapping ofthe Six-Year Plan which envisaged
high levels of investment in new, diversifying agricultural projects.
13. This was before the debt relief granted at the May 1984 Paris Club
Consultations.
14. At the official rate of exchange.
15. For a more detailed account of this, see Brown (1988).
16. See Greenfield (1985).
17. For a discussion of Islamic Banking in Sudan, see Brown and Shaaeldin
(1988).
18. It is interestingto note, however, thatthe IMF declared the 1984-5 stand-by
inoperative on the technical grounds of Sudan's arrears to it, not because of
poor performance in policy areas.
19. That the rapidly weakening Nimeiry regime should continue to receive
support from the West for geopolitical reasons and regardless of all else was
put rather forcefully on the visit to Khartoum ofthe Honorary Secretary of
the anti-Communist 'Horn of Africa and Aden Council', Lois Fitzgibbon; in
his press conference he is reported as saying:
 The IMF Stabilisation Programme in Sudan 89

A pull-out by France from Chad enabling Libya to occupy the whole

country leading, in turn, to much greater threat to Sudan in concert with
Ethiopia starting in the South with the possibility to advancing [sie]
northward to Khartoum. . . . land] What is needed is a unified,
consolidated, far-seeing and all-embracing Western policy . . . to
demonstrate to the USSR that the free world is not only aware, but alert
and prepared forcefully to act [sie] in the event of any further Kremlin
expansionism. Peace in the Horn can only come when the Soviets quit
Ethiopia and thus, for a start Sudan and Somalia need far more political
and military support regardless of any private and internal matters whieh
eould distraet and detraet the overall purpose [sie] [original emphasis]
(SUNA, 1984, p. 5).

REFERENCES

Official Government Publications and Other Sources

Bank of Sudan (1978-86) Annual Report (Khartoum: Bank of Sudan).

- (1978-86) Eeonomie and Financial Statisties Review (Khartoum: Bank of
Sudan, Statistics Department).
Bank of Sudan/Ministry of Finance and Economic Planning (1983) External
Foreign Curreney Obligations (Khartoum: Bank of Sudan/Ministry of
Finance and Economic Planning [July] ['Peat Marwick and Mitchell
Report')).
Consultative Group (1983) 'Proceedings ofConsultative Group for the Sudan'
(unpublished [January, December)).
Joint Monitoring Committee (1983) Consolidated Report to the Consultative
Group Meeting, Deeember 1983, on Implementation ofthe Eeonomie Recovery
Programme in the Sudan (Khartoum: Joint Monitoring Committee
[November)).
Ministry of Finance and Economic Planning (1982a) Bulletin of Development
Statisties 1980-1981 (Khartoum: Ministry of Finance and Economic
Planning [July)).
- (1982b) Financial Planning and Development Budgeting in the Sudan (Khar-
toum: Ministry of Finance and Economic Planning [August)).
- (l982c) Prospeets, Programmes and Policies for Eeonomie Development,
1982/3-1984/5 (Khartoum: Ministry of Finance and Economic Planning
[August)).
- (1983a) Joint Venture Investment in the Sudan (Khartoum: Ministry of
Finance and Economic Planning [January)).
- (1983b) Prospeets, Programmes and Policies for Eeonomie Development II
1983/4-1985/6 (Khartoum: Ministry of Finance and Economic Planning).
- (1983c) Sudan Foreign Trade Analysis 1970-1981 (Khartoum: Ministry of
Finance and Economic Planning [October)).
Ministry ofNational Planning (1980) Seeond Three Year Investment Programme
1980/1-1982/3 (Khartoum: Ministry of National Planning [September]).
90 The International Debt Crisis

Otber

Abdel Gadir Ali, A. (1985) 'The Devaluation Debate: A Documentary'

pp. 25-68 in Abdel Gadir Ali (ed.) (1985).
- (ed.) (1985) The Sudan Economy in Disarray (Khartoum: Ali Abdel Gadir
Publishers).
Africa Economic Digest (AED) (1984) 21 December 1984, p. 30.
Awad Hashim, M. (1982). 'Wrong Recipes, Bad Results', Sudanow (Khartoum:
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Barnett, T. and Abdelkarim, A. (eds) (1988) Sudan: State, Capital and
Transformation (London: Croom Helm).
Brown, R. (1986) 'International Responses to Sudan's Economic Crisis: 1978 to
the April 1985 Coup d'Etat' , Development and Change, vol. 17, no.3:
487-511.
- (1988) 'A Background Note on the Final Round of Economic Austerity
Measures Imposed by the Nimeiry Regime: June 1984-March 1985', in
Barnett and Abdelkarim (eds) (1988).
Brown, R. and Elfatih Shaaeldin (1988) 'Towards an Understanding ofIslamic
Banking in Sudan', in Barnett and Abdelkarim (eds) (1988).
Economist Intelligence U nit, The (1983 - 7) Quarterly Economic Review ofSudan
(London: The Economist).
Fanos, S. (1987) 'Sudan and the IMF, 1978-1983', paperdelivered at the IFAA
Conference on the Impact of IMF and W orld Bank Policies on the People of
Africa (September) (London: Institute for African Alternatives).
Greenfield, R. (1985) 'Two Months That Shook Sudan', Horn of Africa, vol. 8,
no. 1: 5-20.
Gurdon, C. (1984) Sudan at the Cross Roads (London: Menas Press).
IMF (1977) The Monetary Approach to the Balance of Payments (Washington,
DC: IMF).
Jansen, K. (1983) 'Monetarism, Economic Crisis and the Third World: An
Introduction', pp. 1-42 in Jansen (ed.) (1983).
Jansen, K. (ed.) (1983) Monetarism, Economic Crisis and the Third World
(London: Frank Cass).
Khan, M.S. and Knight, M.D. (1982) 'Some Theoretical and Empirical Issues
Relating to Economic Stabilisation in Developing Countries', World
Development, vol. 10, no. 9: 709-30.
Khalid, Mansour (1985) Nimeiry and the Revolution of Dismay (London:
Routledge & Kegan Paul).
Killick, T. (ed.) (1984a) The Quest for Economic Stabilisation (London:
Heinemann).
- (1984b) The IMF and Stabilisation (London: Heinemann).
Krueger, Anne (1982) 'Macroeconomic Analysis for Sudan' (unpublished
manuscript, March).
Mustafa, Dr Abdel Mohsen (1982) 'Current Affairs', Sudanow, vol. 7, no.4
(April) (Khartoum: Ministry of Culture and Information).
Nashashibi, K. (1980) 'A Supply Framework for Exchange Reform in
Developing Countries: The Experience of Sudan', IMF StajJ Papers, 27
(March): 24-79.
 The IMF Stabilisation Programme in Sudan 91

Newsweek (1984) 'Strange Days in Sudan' (25 June): 7.

Nureldin Hussein, M. (1985) 'IMF Economics in the Sudan: A Preliminary
Evaluation', pp. 69-101 in A. Abdel Gadir Ali (ed.) (1985).
- (1988) 'The IMF and Sudanese Economic Policy', in Barnett and Abdel-
karim (eds) (1988).
Nureldin Hussein, M. and A.P. Thirlwall (1984) 'The IMF Supply-Side
Approach to Devaluation: An Assessment with Reference to the Sudan',
Oxford Bulletin of Economics and Statistics, vol. 46, no. 2: 145-67.
Payer, Cheryl (1974) The Debt Trap: The International Monetary Fund and the
Third World (New York: Monthly Review Press).
Planning and Management Consultancy (1981) Sudan Guide (Khartoum:
Planning and Management Consultancy).
Polak, J. (1983) 'Monetarist Policies on a World Scale', pp. 175-88 in Jansen
(ed.) (1983).
SUNA (Sudan News Agency) (1984) 'Fitzgibbon Speaks to the Press', Daily
Bulletin, no. 4895 (17 June) (Khartoum: SUNA).
Sudanow (1984a) 'Debts Rescheduled', Sudanow, vol. 9, nO.6 (June): 16-17
(Khartoum: Ministry of Culture and Information).
- (1984b) 'Benefits for All', Sudanow, vol. 9, no. 6 (June): 18-19 (Khartoum:
Ministry of Culture and Information).
Umbadda, S. and E. Shaaeldin (1985) 'IMF Stabilisation Policies: The
Experience ofSudan 1978-82', pp. 102-38 in Abdel Gadir Ali (ed.) (1985).
Van Arkadie, B. (1983) 'The IMF Prescription for Structural Adjustment in
Tanzania', pp. 127-48 in Jansen (ed.) (1983).
World Bank (1980) The Main Difficulties, Policy Issues, Government Action,
Reform and Balance of Payments in the Sudan (Washington, DC: World
Bank).
- (1982) Sudan: Investing for Economic Stabilisation and Structural Change
(Washington, DC: World Bank).
- (1983) Sudan: Pricing Policies and Structural Balance, vols 1,11, III (Washing-
ton, DC: World Bank).
- (1985) Sudan: Prospectsfor Rehabilitation ofthe Sudanese Economy, vols I,
11, III (Washington, DC: World Bank).
- (1987) Sudan: Problems of Economic Adjustment, vols 1,11, III (Washington,
DC: World Bank).
- (1987a) Sudan's Adjustment Program. A World Bank Memorandum
prepared for the Meeting of the Heads of Delegation of the Consultative
Group for Sudan, Paris (December).
3 Evaluating Structural
Adjustment Policies for
Senegal*
Gilles Durufie

METHODOLOGICAL PROBLEMS

The evaluation of the effects of adjustment policies poses insurmount-

able methodological problems, in that it is almost impossible to define
and give numerical value to an adequate basis of reference. Four such
bases may be proposed:

- the period preceding implementation of the adjustment policies;

- the performances attained by other 'comparable' countries that
have not implemented such policies;
- what would have happened if the policies had not been imple-
mented; and
- what would have happened if alternative adjustment policies had
been implemented.

The mere formulation ofthese reference bases reveals the unsatisfactory

nature of the first two solutions and the impossibility of correctly
quantifying the latter two. The IMF has commissioned a study,
corresponding to the second type of reference basis, which compares the
macroeconomic performance (balance of payments, inflation, savings,
investment) of a group of countries which had a Stand-by Agreement
with the IMF and the performance of non-oil-exporting developing
countries as a whole. This study, known as the Donovan Study,l
concludes that the performance of those countries that had signed an
accord with the IMF was significantly better.
A counter-study by John Loxley2 has shown that these positive results
are due to certain biases in the choice of countries used in the Donovan
Study, the sampie having been weighted in favour of countries that
export manufactured goods and countries that are net exporters of oil.
The same methodology applied to a comparison between the perform-

92
 Structural Adjustment Policies in Senegal 93

ance of less developed countries (LDCs) that have had recourse to the
IMF and the performance of the LDCs as a whole reveals slightly
inferior performance for those countries resorting to the IMF.
Although it is diflicult, with such methods, to draw conclusions about
the soundness of adjustment policies recommended by the IMF, it mus!
be noted that the Loxley Study leaves far less room for optimism than
does the Donovan Study, which was accepted by the director of the
IMF. 3 Moreover, as Loxley emphasises, whether they resorted to the
IMF or not, the macroeconomic performance of the LDCs is extremely
disturbing.
Already insuflicient and unreliable for use in a statistical study, such
methods of comparison lose all relevance when it is a question of
evaluating the effects of adjustment policies in a single country, taken in
isolation. The absence of a quantifiable reference base then becomes an
insurmountable difliculty, making it impossible to draw conclusions
based on the simple presentation of numerical results. The macro-
economic performance of Senegal since 1980, the date at which
adjustment policies were first recommended and then partially applied,
are altogether mediocre and even alarming, but it is always possible to
object that they would have been worse ifthese policies had never been
applied and that under the present circumstances, no other policy is
possible.
In order to overcome these objections and judge such statements, I
have chosen to rely on a long-term analysis of structural imbalances.
This allows us to cast some light on the internal, external, economic and
sociopolitical constraints with which Senegal must cope. The policies
recommended by the IMF, the World Bank and the CCCE,4 and the
manner in which they have been implemented, are examined in relation
to these'constraints. This comparison allows us to go beyond an analysis
of the gross results of adjustment policies in order to cast light on the
origin of the difliculties encountered and thus to underline some of the
causes both of the mediocre results obtained and of the discouraging
nature of the prospects opened up by these policies.

I THE ECONOMIC EVOLUTION OF SENEGAL FROM 1960 TO

1980 AND THE ORIGIN OF STRUCTURAL IMBALANCES

By oversimplifying somewhat, one may aflirm that colonisation struc-

tured the Senegalese economy as a cash-crop economy based on
peanuts: most of the land not used for subsistence was devoted to
94 The International Debt Crisis

peanuts, while rice was imported cheaply from Indochina to feed the
towns - a policy which, furthermore, permitted the maintenance oflow
wage levels. The majority of modem non-agricultural activities were to
be found in administration, the commercialisation and transformation
of peanuts, trade, and the local manufacture of consumer goods aimed
at recycling peanut revenues.
This situation had scarcely changed by the 1960s. Analysis of the
statistical and macroeconomic data available reveals four main periods
in the evolution of the Senegalese economy:

(i) 1960-7: Economic growth 100 by agriculture

Led by the peanut economy, and in a more general fashion by its

agriculture, the country's overall economy experienced a relatively
regular growth rate of about 3 per cent per year, or a rate close to that of
demographic growth. This agricultural growth was due to both a
sustained increase in surfaces plan ted and a sustained increase in yields.
Peanut production grew at a rate of 4 per cent per annum between 1945
and 1966, which, considering the evolution ofworld prices, represents a
real growth rate of about 3 per cent per annum.
Tbe recycling of peanut revenues constituted tbe principal engine of
growth for other sectors of the economy, which grew globally at the
same rhythm. The economy as a whole was marked by its distincdy
seasonal nature; the rhythm of peanut trade affected the collection and
transformation ofpeanuts as much as it did the production, importing
and distribution of consumer goods, the demand for which was
stimulated by the distribution of peanut revenues.
If independence did not change the primordial role of peanuts as the
engine of growth for the Senegalese economy, it nevertheless caused the
appearance of two new trends in the early 1960s:

- a rapid disinvestment on the part of the modem private sector,

which, faced with the dismemberment of French West Africa
(Afrique Occidentale Fran~aise, AOF), withdrew cosily into a
protected national market; and
- a more rapid increase in consumption than in GDP, which reftects
the heavy demand for incomes that appeared following
independence, on the one hand, and the govemment's difficulty in
containing these demands, on the other.

Disinvestment nevertheless allowed the country to contain the resource

deficit at less than 3 per cent of GDP.
 Structural Adjustment Policies in Senegal 95

(ii) 1967 - 74: A break in the trend of agriculture and the peanut economy

The end of the 1960s represented a twofold break in the Senegalese

economic trend, the two aspects of which were interrelated:

(a) the growth in cultivated surfaces stagnated and agricultural

production deteriorated;
(b) with the end of French price supports for peanuts the selling price
fell by about 25 per cent and Senegalese peanut exports became
subject to world prices, whose long-term trend was towards a
decline in real value.

The causes of the decline in agriculture were multiple. It is essential to

mention:

(a) the saturation and degradation of the soil (crop expansion and the
disappearance offallow) due to demographic pressure, to climatic
changes (Senegal had ni ne years of drought between 1967 and
1985), and to the absence of an adequate response on the part of
researchers and development agencies to this weakening of the
production systems;
(b) the decline in real prices to the producers and in net peasant
revenues per hectare because of the termination of peanut price
supports, but also because ofthe pricing system whose evolution
was unfavourable to the peasants (see Table 3.1). This deterior-
ation in revenues resulted in a decline in the level of equipment
and in the consumption of fertilisers, ~ 'ld hence declining yields
and soil degradation;
(c) the fall in revenues also accelerated migrations, discouraged the
development of new land and, in a more general fashion, oriented
peasant systems towards the search for casual earnings outside
agriculture. The fall in prices in 1967-8 was followed by a decline
in cultivated surfaces, while a price rise in 1974-5 resulted in a
renewed increase. The economic factors cannot, however, be
interpreted independently of climatic, ecological and other fac-
tors. All these factors together act as constraints on the peasant
productive systems, in the face of their objective of assuring food
security and procuring a minimum of monetary gain.

From the end ofthe 1960s the peanut economy was not replaced by
any other engine of growth on the same scale so that this down turn was
96 The International Debt Crisis

Tab1e 3.1 Evolution 0/ Producer Price 0/ Peanuts

Producer Price in
Year Net Producer Price Price Index constant 1971 CFAF
1960 20.8 68.2 30.5
1961 22.0 71.6 30.7
1962 22.0 76.1 28.9
1963 21.5 79.7 27.0
1964 21.5 82.7 26.0
1965 21.5 85.9 25.0
1966 21.5 87.8 24.5
1967 21.5 90.0 23.9
1968 18.0 90.0 20.0
1969 18.0 93.6 19.2
1970 18.5 96.3 19.2
1971 19.5 100.0 19.5
1972 23.7 105.8 22.4
1973 23.0 118.2 19.5
1974 29.8 137.8 21.6
1975 41.0 181.5 22.6
1976 41.5 183.4 22.6
1977 41.5 204.1 20.3
1978 41.5 211.2 19.7
1979 41.5 231.6 17.9
1980 41.5 251.4 18.1
1981 46.0 266.2 17.3
1982 60.0 312.3 19.2
1983 60.0 348.7 17.2
1984 50.0 386.0 13.0
1985 60.0 435.3 13.8
1986 90.0 462.1 19.5
1987 90.0 485.2* 18.5
*Estimate.
SOURCE Calculated on the basis of the figures of the Govemment of Senegal, Direction
de la Statistique, Dakar.

transmitted to the entire economy, which stagnated or experienced only

extremely slight growth (an average of 1 per cent per annum from 1968
to 1974).
From 1968 to 1974 the Senegalese economy 'adjusted' itself to this
deterioration of the environment. Household consumption stagnated,
reflecting both a rapid fall in peasant cash income and a noticeable drop
in average per capita urban income.
This deterioration had serious social consequences: a very profound
malaise among indebted and insolvent peasants which was at the root of
numerous forms of protest; serious student unrest; and the dysfunction
 Structural Adjustment Policies in Senegal 97

of numerous institutions, particularly state enterprises tempted to

develop their own strategies in opposition to overall restabilisation
objectives.

(iü) 1974-7: A favourable economic dimate

The years 1974 to 1977 marked the return of a favourable economic

climate for Senegal, although the long-term trend that had appeared at
the end of the 1960s was not changed.
The favourable element originated in the growth of export earnings:
under the effect of a big increase in the prices and demand for
phosphates, and in the prices and yields of peanuts, the purchasing
power of exports - that is to say, the value of exports deflated by the
implicit price index of imports - more than doubled between 1973 and
1976.
This economic turnround was seized as an opportunity to raise
incomes that had been too long depressed: the SMIG,5 prices paid to
peanut producers, and public-service salaries. Increased consumption,
in conjunction with the growth of agriculture and the extractive
industries, led to a distinct recovery in the growth ofGDP (4.8 per cent
per annum). However, net consumption grew even more rapidly, going
from 85 to 96 per cent ofGDP. During this period, growth was largely
consumption-led.
The consequence of the resulting drop in savings was that an
increasing proportion of investments was dependent on external
financing (50 per cent in 1977). This recourse to external financing was
made possible by the willingness of Western banks to recycle petro-
dollars and to promote the exports of their horne countries after the
slowdown of growth in the industrialised countries in 1974. From 1974
to 1979 more than 40 per cent of Senegal's drawings were made on
private banks; in 1982 the proportion fell to 3 per cent. This situation of
easy loans, frequently tied to the export of foreign technology and
expertise, partially explains the non-productive orientation of invest-
ment during this period, so often emphasised afterwards. It also explains
the strong advances made by the BTP secto~ during those years, and
may have contributed to certain forms of parallel enrichment during this
period of euphoria after ten years of austerity.
It is important to stress that at this time of relative prosperity, even
more than in 1960-8, the logic of enrichment and income distribution
prevailed over the logic of accumulation. Although the public
authorities tried to take over from the defaulting private sector,
98 The International Debt Crisis

investments remained at a modest level - their part in GDP, which

increased slightly between 1968 and 1974, actually decreased; and
investments were oriented mainly towards non-productive sectors, so
that this brief favourable period was hardly used at all to change the
structure of the Senegalese economy, which was excessively dependent
on a stagnating or declining cash-crop base.

(iv) 1978-80: Reversal and open crisis

The years 1978 to 1980 constituted a complete reversal for Senegal's

economic environment: peanut production resumed its erratic course;
1978 was a bad year (519 000 metric tons produced), 1979 a good year
(l 061 000 metric tons), 1980 a bad year (676 000 metric tons). Export
prices, which were good in 1978, fell by 25 per cent between 1978 and
1980, while exports of neither phosphates nor fishery products registered
strong advances. From 1977 to 1978 the drop in export earnings was 33
per cent; after a slight recovery in current francs in 1979 (+ 12 per cent)
they fell again in 1980, while in addition the takeoff ofworld inflation
and the second oil shock swelled import prices.
The fall in agricultural production in 1978 entailed a drop in GDP of
6.2 per cent by volume. After an improvement in 1979, the latter
regained in 1980 a level close to that of 1977 (+ 1.5 per cent). At the same
time net consumption rose by 12 per cent and went from 91 to 99 per cent
of GDP; that is to say: faced with the bad economic situation, the logic
of increased revenues and consumption was strongest, provo king a very
large current operating deficit.
The latter - which had already deepened during the favourable
period, going from 6.3 to 8.8 per cent ofGDP in 1977 -went to 13.7 per
cent ofGDP in 1978, then to 13.1 per cent in 1979 and 15.8 per cent in
1980. Even more than net household consumption, which went from 72
to 77 per cent ofGDP in 1975 and 1980, net administrative consumption
grew from 15 to 21 per cent of GDP during the same period (or an
increase of 40 per cent in its part of the GDP).
After the rises of 1974-6, the evolution of the price scale was again
unfavourable to peasants; prices stagnated, so that with the poor
harvests of 1978, 1980 and then 1981 and 1982, real peasant income
declined considerably, falling below that ofthe bad years 1971 and 1973.
On the other hand, real average per capita urban income, which had
experienced a decline from 1968 to 1975, grew again from 1975 to 1980
(+ 16.3 per cent in five years). Those five years thus appear as aperiod of
 Structural Adjustment Policies in Senegal 99

growth in urban incomes, to the detriment of rural incomes and at the

price of growing indebtedness. Nevertheless, growth remained modest.

(v) Conclusion on the origin of structural imbalances

From this brief historical survey, it is apparent that the structural

imbalances in Senegal have two main origins.

(a) a decline in the peanut economy that was not replaced by the
emergence of other engines of growth;
(b) a logic of creation and distribution of revenues that was
disconnected from the sphere of production, the effect of which
was to maintain consumption growth relatively independent of
the evolution of resources, which stagnated.

The importance ofthe logic of distribution and its relative independence

with respect to the sphere of production constitutes a structural
characteristic of Senegal that is linked to the play of existing social
forces. The structural imbalances and corresponding deficits have their
origins as much in the exhaustion of the peasant economy and in the
absence of the emergence of other dynamic forces of equivalent strength
as in the social pressures to create and increase modern revenues.
In turn, the disconnection of the sphere of distribution in relation to
the sphere of production contributes to the absence of dynamic
productive elements in the modern sectors (private, para-public and
administrative), whether the latter are expressed in terms of manage-
ment, efficiency, entrepreneurial spirit, or accumulation. Urban incomes
are in fact reinvested more readily in non-productive sectors, particular-
ly in real estate, or abroad, rather than in agriculture or local enterprises.
External financing is obviously indispensable, if such a situation is to
last. Senegal has become accustomed to it. Several elements have
contributed to this; among them may be cited:

(a) the policy of recycling petrodollars and encouraging indebtedness

that was practised by the industrialised countries after the first oil
shock;
(b) the franc zone, which offers guarantees to foreign capital;
(c) the interest taken in Senegal by foreign lending agencies such as
those of France.
100 The International Debt Crisis

11 THE INTERVENTION OF INTERNATIONAL LENOING

AGENCIES ANO THE AOJUSTMENT PROGRAMMES

(i) The IMF

Faced with the serious deterioration of public and external finances,

Senegalese authorities adopted, in November 1979, a 'medium-term
plan for economic and financial recovery' and called upon the IMF, with
which they concluded, in August 1980, an Extended Facility Agreement
for aperiod of three years. When Senegal was unable to meet the
performance criteria set by the Fund, the agreement was cancelled
shortly after its inception and replaced by aseries of annual Stand-by
Agreements. Those of 1981-2 and 1982-3 were suspended,just as the
Extended Facility Agreement had been. After lengthy negotiations, a
new accord was signed in January 1985. In November 1986 a new
Stand-by Agreement was signed for a total of34 million SOR and a loan
under the new IMF Structural Adjustment Facility scheme for a total of
40 million SOR spread over a three-year period was also approved.
Senegal was thus among the first group of countries to benefit from such
concessional balance of payments assistance. As a counterpart to this
facility, Senegal was required to adopt a comprehensive three-year
policy framework that incorporated explicitly the structural policy
elements ofthe reform programme formulated in collaboration with the
World Bank. The country's outstanding debt to the IMF and to the
World Bank is given in Table 3.2 below.
The principal objective of the Fund when it fixed the conditions for
the agreements was the short-term reduction of imbalances in the
balance ofpayments position and the state's need for external financing.

Table 3.2 Senega/'s Outstanding Debt to the IMF and to the World Bank
IMF World Bank & /DA
(Use o/IMF (debt outstanding &
US $ millions credits) disbursed)
1980 97.9 156.4
1981 147.8 222.9
1982 184.0 244.2
1983 196.6 269.0
1984 200.8 289.6
1985 241.1 321.7
1986 246.6 441.9
SOURCE Warld Debt Tab/es. World Bank.
 Structural Adjustment Policies in Senegal 101

For the IMF the external deficit, on first analysis, came from a surplus
of final demand (public and private consumption plus investment) in
relation to GDP. This surplus worsened after 1978 because net
consumption did not adjust itself to the break in the growth trend of
GDP, following the drought and the deterioration of the terms of
exchange. The part of net consumption in GDP thus grew to a point
where it resulted in a negative rate of national savings.
This growth of the part of net consumption in GDP was made
possible by a relatively expansionist wage policy, sustained growth in the
size and salaries of the civil service and public enterprises, and the
limitation ofprice increases for basic goods, which were often subsidised
- all measures whose effect was to deepen the public finance deficit. This
was reinforced by the poor management ofthe para-public sector and by
the deficit of the agricultural marketing agencies.
The budgetary deficit resulted in an increase both in the external debt
and in the state's indebtedness to internal economic agents (the banking
system and payments arrears). To this budgetary policy was added an
expansionist credit policy partially due to state demands for credit,
either directly or indirectly through the refinancing of arrears. As far as
the Fund was concerned, the restoration of the capacity for positive
national savings that would permit Senegal to finance a greater part of
its investments from internal resources, service its debt and re-establish
its solvency in the eyes offoreign lending agencies could be achieved by a
reduction in demand (and particularly in net consumption), re-
establishment of public finances (reduction of the deficits, gradual
disappearance of payments arrears) and a more rigorous monetary
policy.
These aspects are intimately linked: reduction of the public deficit
implies areduction of expenditures and an increase in earnings, the
effect ofwhich would be to restrain net demand; reduction of arrears and
of the state's need für financing would allow the reduction of both
internal credit and recourse to external financing.
The principal concrete measures recommended to reduce the deficits
were:

- raising the price of basic goods (sugar, rice, flour, cooking oil,
petroleum products, and public tariffs);
- raising the rates of duties and indirect taxes, decreasing the
producer price of peanuts and raising the price of fertilisers;
- improving the operations of the agricultural marketing agencies
and reducing their costs;
102 The International Debt Crisis

- reducing administrative costs (freezing wages and reducing

operating and equipment costs);
- limiting the growth of civil service personneI;
- reducing state arrears, limiting the growth ofthe money supply and
credit.

In fact, these measures were applied unevenly: those involving price

rises, increased taxes, reduced agricultural revenues and the curtailment
of operating and equipment credits were effectively applied. On the
other hand, limitations on the growth of the civil service, lightening the
costs and burdens of the peanut marketing agency and the Caisse de
perequation (CPSP) were applied very imperfectly and only after long
delays.
It must be added that certain restrictive measures of public expen-
diture or measures to increase public revenues which might have been
envisaged apriori were not, for the most part, recommended by the IMF
except in a relatively evasive way and without producing any effect.
Foremost among these was the regular taxation of non-salary incomes
(commercial and real-estate incomes especially), which are currently
seriously under-evaluated by the Treasury and for which recuperation is
insignificant.

(ii) The World Bank

The World Bank's analysis ofthe crisis which Senegal entered after 1978
was much more complete than that of the IMF and encompassed the
latter. The Bank's analysis had begun in preparation for the signing of
the first Structural Adjustment Loan in 1980 and was pursued in the
economic memorandum of 1984, as weil as in the studies justifying the
second and third Structural Adjustment Loans in 1986 and 1987. Like
the IMF, the World Bank began with the observation that the
imbalances were due to a surplus of net internal demand over the gross
domestic product; but, whereas the IMF limited its analysis to the means
which allowed demand to continue growing while the GOP stagnated
(wage policy, pricing and credit policies, public expenditures and
various subsidies), the World Bank also concentrated on the causes of
the very weak growth of GOP.
F or the Bank, there were three main ca uses:

(a) a weak potential for growth, notably in agriculture and other

primary resources;
 Structural Adjustment Policies in Senegal 103

(b) pricing policies, and unsuitable and ineffective incentives, which

engendered serious price distortions; among the latter may be
cited the SMI G and excessively rigid salary scales, fixing producer
prices, public tariff policies, and subsidising consumer goods;
(c) a swollen and inefficient public sector.

According to this analysis, the inefficiency of the public sector and the
unsuitable policies resulted in:

- poor allocation of resourc~s and, in particular, a bias against

agriculture and non-traditional exports;
- overprotection of domestic production in numerous sectors,
rendering it non-competitive for export;
- the weak and declining effectiveness of investment;
- a growing public deficit;
- insufficient public and private saving.

Based on this analysis, the remedies recommended were as folIows:

Short-term reduction 0/ macroeconomic imbalances:

Restriction of demand and reduction of public deficits; on this point, the
World Bank adopted the IMF programme.

Growth support:
Develop productive investment - and, more particularly, poles of
growth - through a better system of incentives.
Improve the management of the para-public sector through audits
and the drawing up of medium-term contractual agreements between
firms and the state.
Reassign certain activities to the private sector.
In the agricultural domain:
- entrust certain activities, in particular the stocking of seeds, to
peasant co-operatives, rather than to extension agencies;
- reform and develop research;
- develop agricultural credit;
- reform the extension agencies and draw up contractual agreements
with them.

Reduction 0/ price distortions:

For agricultural prices: conduct studies of the system of prices, aid,
subsidies and taxes, with a view to improving it.
104 The International Debt Crisis

For the exchange rate: install a system of export subsidies.

For consumer prices: end subsidies and price controls.
For salaries: deregulate salary-fixing and soften hiring and licensing
conditions.

Development of savings:
Public savings: contain consumption, manage the Caisse d'amortisse-
ment better, decrease external borrowing, which was being substituted
for internal savings.
Private savings: raise interest rates, develop the tax-collection system.

Just like the IMF's Extended Fund Agreement, the WorId Bank's
Structural Adjustment Loan was suspended after the first instalment,
then cancelled in June 1983. Apart from the non-realisation of
macroeconomic objectives, the WorId Bank judged that the
achievements in reorganising the agricultural marketing agencies were
unacceptable. The most sensitive points were the cost and the import-
ance of the number employed by SAED and SONAR,7 the contractual
agreements with the development agencies in general, the CPSp 8 deficits
(the peanut marketing agency in particular), the insufficient increase in
the price of rice to stabilise the CPSP's rice marketing agency and
stimulate production of local cereals, and resistance to the transfer of
peanut seed stocks to the producers.
Having recognised that the objectives of the 1980 Structural Adjust-
ment Loan were probably too ambitious, the WorId Bank elaborated a
new adjustment programme which it presented in November 1984, in
order to prepare a meeting of the lending agencies consulting group, for
which the Bank provided the chairman. In conformity with the
recommendations of the 1984 report Toward Sustained Development in
Sub-Saharan Africa, the Bank thus endeavoured to organise, under its
aegis, a concerted agreement of the lending agencies.
The 1984 memorandum restated and detailed the analyses and
recommendations of the 1980 Structural Adjustment Loan. Moreover,
it placed the recommended measures within the framework of a
'controlled adjustment scenario' wh ich attempted to sketch the outlines
ofwhat might be a way out ofthe crisis, through the implementation of
adjustment policies.

(iii) The Caisse Centrale de Cooperation Economique (CCCE)

The analysis of the crisis presented in the first documents by the CCCE
was close to that of the WorId Bank; in addition to adverse circum-
 Structural Adjustment Policies in Senegal 105

stances (poor harvests, oil shock, deteriorating terms of exchange) the

origin of the crisis was to be found in expansionist management of
demand, in the absence of a pricing policy that would act as areal
incentive for agricultural producers, and in the development of a costly
but ineffective para-administration.
However, the CCCE did not propose a remedy of its own, but fell
back on the provisions of the medium-term plan for economic and
financial recovery that was elaborated by the Senegalese government
after consultation with the WorId Bank and the IMF. The CCCE and
the French Treasury sided with the other foreign lending agencies in
according emergency aid and in financing this plan, whose beneficial
effects were not expected to be feit for some time.
Subsequently, the following features of the CCCE interventions
became apparent:
They were situated within the general framework defined by the IMF
interventions and they supported the measures contained in the
Stand-by Arrangements. They indicated some comprehension of the
difficulties that the application of certain measures could present for the
Senegalese authorities, and they were sensitive to the need for accom-
panying measures to lighten the burden.
Like the WorId Bank, the CCCE insisted more than the IMF on
measures that were apt to maintain growth: development of productive
investments, reform of the agricultural marketing agencies to make
them more efficient, and more favourable incentives for the producer.
At the time of its first non-project interventions, the CCCE tried to
give most of its assistance in the form of investment budget financing.
However, as of 1983 it had to admit that the majority of its Structural
Adjustment Loans (or non-project loans), defined in association with
the Minister for External Relations and French Treasury, had the
character of budgetary assistance or financing of the state's financial
operations. This fact immediately gave rise to the problem of a
macroeconomic type of conditionality. The accepted solution was to
keep sectoral allocation of credits at a maximum level (that is, for one
particular state enterprise or another) and to tie them to sectoral
conditionality aimed particularIy at the reform ofthose state agencies to
which the credits were given. These reforms were included in the overall
programmes elaborated on the initiative of the IMF and the WorId
Bank.
Thus, with respect to the economic orientation that they try to
promote, the CCCE interventions differ little from those ofthe IMF or,
especially, the WorId Bank. However, the French portion is distin-
106 The International Debt Crisis

guished by its emergency interventions: budgetary aid, Treasury aid,

and emergency aid in concurrence with the fulfilment of IMF criteria.
This emergency aid has a political character: French government
support for the Senegalese government to help it out of a tight spot. At a
strictly economic level, however, this probably does not constitute the
most suitable response to the problem in terms of giving the Senegalese
government a respite in order to undertake the structural reforms that
are also deemed to be necessary.

III THE IMPACT OF ADJUSTMENT POLICIES

By the late 1980s, the results - mediocre, to say the least - obtained by
structural adjustment programmes in Senegal since 1979 may be
discerned from a reading of the economic indicators: public and external
financing requirements have been barely stabilised in current francs, at
very high levels; the external debt represents more than two years'
exports; the public debt represents more than three years of fiscal
receipts; and both continue to increase rapidly. Production is stagnating
or regressing, as is employment, while unsatisfied job-seekers are
increasing at all levels of qualification. The concentration ofincomes has
grown, to the detriment ofmore equality in distribution and, sometimes,
of economie efficieney as weil, at the risk of pauperising and marginali-
sing certain large sections of the population, both rural and urban. It is
certainly possible to make a case for the positive measures for
improvement and the financial recovery of some state enterprises, or for
the economies made by some marketing agency or other. Tbe stabili-
sation of financing requirements in eurrent francs is in itself a turnabout
in trends. But this in no way alters the fact that the end of this
deftationary process is nowhere in sight. For years now, successive
reports from the principal lending ageneies have emphasised the need
for profound structural modifications, adding that the adjustment
process will be long and will necessitate a greater inftux of aid. Little has
changed, however, except that the debts have grown, the recession has
worsened, the reports are more alarmist, the pressure exerted by the
lending agencies has been reinforeed, and their interventions in the
Senegalese economy have beeome more refined. The net payments from
the IMF have become negative as of 1985-6 and the problem of
refinancing the Structural Adjustment Loans will soon arise.
Beyond this observation, two main problems merit consideration:
 Structural Adjustment Policies in Senegal 107

(a) the problem of deflation following austerity measures that retard

the return to equilibrium and assurne a cumulative character;
(b) the problem of distributing the adjustment burden.

Parallel to these macroeconomic problems, arising mainly from the

application of the IMF's performance criteria, is the question of the
sectoral impact of adjustment policies and, more particularly, of the
sectoral programmes recommended by the World Bank. Few results are
yet observable at this level. Nevertheless, several questions concerning
the economic efficiency of these programmes in the particular case of
Senegal can already be raised, in view of the measures recommended and
the results expected.

(i) The problem of deßation

Tbe latter may be simplified in the following manner:

(a) the study ofthe period from 1960 to the late 1980s has shown that
since the end of the 1960s the long-term trend of the Senegalese
economy has been towards a very weak growth rate, in the order
of 1 to 2 per cent:
(b) the study of the more recent period, since 1979, has shown that
under the joint effects of drought, an unfavourable international
environment, and austerity measures, GOP has stagnated or
regressed since 1979;
(c) since 1980, the surplus ofinternal demand over GOP is more than
15 per cent of GOP, after reaching a maximum of 21 per cent in
1981;
(d) debt servicing, before refinancing, rose to represent more than 8
per cent of GOP and was expected to rise further;
(e) over a long period subsidies grew slowly, reaching 6 per cent of
GOP.

If, therefore, adjustment means essentially an adjustment of internal

demand so as to bring net external financing requirements apart from
subsidies to a level ofless than 5 per cent ofGOP, with a stagnant GOP,
as is now the case, that assurnes a decline in internal demand of more
than 12 percentofGOP(15 + 8 - 6 - 5). Thisdecline-which,from the
point of view of adjustment through demand, will have to be relatively
quick and brutal in order to check the growth of the external debt - will
108 The International Debt Crisis

reinforce the trend towards stagnation and dec1ine of GDP, accentu-

ating the deflationary spiral while the population continues to grow by
more than 3 per cent per year.
This schematic presentation illustrates anew, if it were necessary, that
a process of adjustment in response to structural problems cannot
succeed without structural change and significant growth in supply.
To be more precise, since 1980 the various adjustment programmes,
combined with the ill effects of the drought, have compressed demand
without succeeding in changing the structure of supply. The result has
been a cumulative deflationary process which has engendered a decline
in the level of activity and, as a consequence, a decline in fiscal returns
that has partially cancelled the beneficial effect that expenditure-
compressing austerity measures had on the deficits.
At the same time the debt burden has grown, so that despite the
austerity measures the new financing requirements have been barely
stabilised in current francs. The debt therefore continues to grow at a
sustained rhythm and, with it, the debt service for years to come.
Adjustment through demand, as promoted by the IMF, can therefore
lead only to a deflation that is even more violent and pronounced than
that which Senegal is currently experiencing.

(ii) Tbe problem of distributing the burden of adjustment

Evaluation of those measures effectively applied, on the one hand, and

those which were rejected or simply not applied, on the other, gives us
some indication of the distribution of the burden of adjustment
measures for the period 1982-4, for which more specific information
was available:

Adjustments achieved at the expense of rural income in 1983 and 1984

(fertiliser prices increased from 25 to 50 CFAF, deductions increased by
10 CFAF) represent for a good year (800 000 metric tons ofpeanuts) a
levy of 10.5 billion on a total agricultural cash income in the order of 60
billion.

Various increases in consumer prices introduced in August 1983

permitted additional earnings of 16.6 billion for the CPSP (cooking oil,
3.6; rice, 9; sugar, 4).

Also regularly applied from 1980 to 1984 were increases in the prices
of petroleum products, the rates of taxation, and the curtailment of
 Structural Adjustment Policies in Senegal 109

administrative operating and investment credits. However, the

unforeseen charges of the CPSP, as indicated by the 1984 audits,
apparently amounted to billions.
The 1982-3 programme forecast a limit of 1.4 per cent in the increase
in the public service. The increase was in fact 5 per cent, representing an
additional cost of more than 3 billion.
At the end offiscal year 1982-3 the gap between projected real-estate
taxes and those actually collected amounted to 7 billion, of which 4.1
billion came from previous years.
In addition, the projected tax on real-estate income amounted to 800
million, while that collected totalled only 3.6 million. In view ofthe fact
that the tax was set at 20 per cent of net ren tal incomes, the projection
should have corresponded to a taxable revenue of 4 billion. In fact, it is
likely that net revenues from income properties in Dakar amount to
several tens of billions of CFA francs and that consequently, the
real-estate income tax base is seriously underestimated and the amount
forgone by the state may be estimated at several billion.
Seventy-five per cent of the projected taxes on individuals (non-
corporate taxes) comes from taxes on salaries deducted at source; the
remaining one-quarter is divided among industrial and commercial
earnings (5.5 per cent), non-commercial earnings (1 per cent), taxes on
real-estate income (2.5 per cent) and general income tax (16 per cent).
Only taxes deducted at source are in fact recuperated 100 per cent. In
other ca ses the rate of recuperation can be slight, as has been seen in the
ca se of revenues from real estate.
It thus appears that salary earners pay the greater part of individual
income taxes, while those receiving non-salary incomes from the
modern sector - from real estate, trade, or the liberal professions - are
very lightly taxed because of an underestimation of the tax base on the
one hand, and a low rate of recuperation on the other.
Thus in fact the adjustment policy employed has a more direct effect
on those whose income is derived from agriculture, on urban consumers
and, more particularly, on consumers of basic goods, while salaried
employees of the modern sector (civil servants, employees of state
enterprises) and the licit or illicit middlemen of the agricultural
marketing agencies resist taxation; and those receiving non-salary
income (land, real estate, trade ... ) are spared. From a technical
viewpoint, one could argue that increased prices, tax rates and cuts in
operating and equipment budgets are measures that are more easily
applicable and give faster yields, while other measures (improvements in
the efficiency of fiscal administration or the collection of duties, or
110 The International Debt Crisis

reform of the tax system) take longer and are more difficult to
implement.
More importantly, the choice of measures to be implemented is partly
explained by the logic of income growth for the modern urban sector
and the rural development middlemen, discussed earlier. The adjust-
ment policy has not altered the system of income distribution that has
been established gradually since independence. In certain respects the
policy tightens the existing system by accentuating some of its negative
aspects, as much from the standpoint of distributive justice as from that
of economic efficiency.
With regard to distributive justice, the bias against the rural
community that began to develop in the late 1960s has been con-
siderably reinforced since 1980. Under the joint effects of land satura-
tion, poor climatic conditions and the fall of real purchasing prices, real
agricultural cash income fell in 1981 and 1984 to its lowest level since
independence. Even in a year of good rainfalllike 1983 (1982- 3 season)
the real global cash income from agriculture was inferior to what it had
been in the early 196Os. In the towns, the bias also works to the detriment
of low-income groups.
With regard to economic efficiency, the economic measures taken in
the agricultural sector will most probably have a negative effect on
production and commercialisation (a drop in fertiliser consumption, a
decline in areas sown, an increase in parallel commercialisation). Also,
restricted demand has a grea~er effect on low-income groups, who
consume fewer imports than higher-income groups, who are spared.
Moreover, demand from these lower-income groups probably has a
stronger impact on the informal sector, on which the subsistence of a
growing portion of the urban population depends.
Finally, study ofthe period from 1960 to the late 1980s has shown that
among the foremost structural problems ofSenegal are the weak growth
rate and the non-productive orientation of the economy: non-
productive investments, high costs, significant capital flight, low prod-
uctivity, and income distribution disconnected from the sphere of
production. The adjustment policies do not really attack these prob-
lems; on the contrary, some of their distribution effects risk reinforcing
this non-productive orientation of the economy. Thus the measures
taken increase the burden on agricultural producers, while despite
numerous recommendations they are not very successful in attacking
the many sorts of levies imposed by the middlemen. Similarly, in the
modern sector the incomes least affected by adjustment measures are not
those which correspond to the most productive activities. On the
 Structural'Adjustment Policies in Senegal III
contrary, as far as the national economy is concerned, some ofthem are
a source of capital ftight and increased production costs.

IV THE OUTLOOK OF ADJUSTMENT POLICIES

A Tbe agricultural sector

The promoters of structural adjustment policies expect the latter to

allow agriculture to resume regular growth based on the development of
market-gardening activities as well as - and especially - on a slight
increase in peanut production and a more sustained increase in cereal
production.
For cereals and peanuts, such growth could come from expansion of
the cultivated areas, from increased yields, or from a combination of the
two. A study of the period from 1967 to 1985 shows that the size of areas
cultivated tends, like yields, to decrease and that for the entire period the
economic environment for agricultural production has deteriorated.
The question is therefore: Can one expect the adjustment policy to be
capable of reversing these trends?
For the World Bank, the long-term future of Senegalese agriculture
lies in irrigated crops. These, however, can be developed only gradually
because of the high investment costs and the management difficulties
engendered by prohibitive large-scale capital costs. In the short and
medium term, growth therefore depends on rain-fed crops. The World
Bank emphasises that the possibilities for surface expansion in eastern
Senegal and the Casamance are limited. Growth must therefore come
mainly from better use of existing soils: a halt in soil deterioration,
improved yields and intensified farming.
To achieve this, the Bank's programme recommends two main types
of action:

(a) more efficient research;

(b) fundamental reform of rural development agencies, and a better
system of incentives.

In view of this reform, the principal measures recommended are as

folIows:

- return of certain activities to village co-operatives, especially the

stocking of seeds;
112 The International Debt Crisis

- a greater role for the private sector, particularly the provision of

inputs, transport, and commercialisation;
- restriction of development and intervention agencies; in particular,
suppression of the SONAR, reduction of SODEVApersonnel,
reform of the CPSP, the signing of medium-term contractual
agreements between firms and the state;
- application of free market prices (inputs, prices paid to producers,
equipment), to obtain the balancing of accounts of the marketing
agency;
- increase in the prices ofimported cereals, to favour the production
of local cereals.

The development of irrigated crops in the Senegal River valley poses

numerous problems that are still far from resolution: the considerable
cost of investments, which poses serious financial problems; problems of
technical and socioeconomic control; uncontrolled recurrent costs; and
very high production costs, so that a rapid development of production
would engender unsupportable subsidy needs for public finances. U nder
these conditions, it therefore seems illusory to envisage national
self-sufficiency in rice through development ofthe Senegal River valley,
as some passages in the New Agricultural Policy seem to do. 9
The need to restructure rural development corporations and to
reform the system of incentives (or the price system which dictates
revenue sharing in the various marketing agencies), in order to make
agriculture more efficient and productive, is admitted by all observers.
This question is nevertheless rendered difficult in the present context by
the omnipresence of budgetary constraints on the one hand, and the
strong resistance certain interested parties may present to various
attempts at reform on the other.
The principal questions raised are as folIows:

(a) Are the proposed reforms capable of overcoming resistance and

introducing real changes?
(b) Will they allow agriculture to resurne regular and significant
growth?

After abrief remark about research, we shall study the impact of the
reform of rural development corporations and the incentives system on
the organisation and growth of peanut and cereal production.
The weaknesses in the research ofthe last twenty years are underlined
by all observers. It has not been capable of satisfactorily producing new
 Structural Adjustment Policies in Senegal 113

varieties adapted to the change in climatic conditions (less frequent and

more irregular rainfall). It remains confined to research stations and
does not integrate the socioeconomic constraints on peasant productive
systems. The results are particularly sparse with regard to cereals and
vegetables. Results obtained in other count ries suggest that in spite of
the low rain fall, cereal yields ought to be susceptible to a noticeable
increase by means of new, better-adapted research efforts. The results,
however, cannot be attained immediately.

(i) The effects 0/ adjustment measures on the peanut marketing agency

In terms of monetary flow, the peanut marketing agency can be broken
down into four main types of agents: the peasants; the middlemen who
assure staffing, input supply, commercialisation and transformation; the
foreigners who buy peanut oil; and the state, which either profits from
the operation or has to subsidise it. The economic policy measures with
regard to peanuts may be analysed as a way of arbitrating the
distribution of revenues generated by the agency among the principal
internal agents, under the constraint of export prices. In recommending
the restructuring of the rural development corporations and the system
ofincentives (prices, subsidies ... ), the adjustment programme proposes
new forms of arbitration that are expected to reabsorb deficits on the
one hand, and create an economic environment that is more favourable
to the producer on the other.
If we examine these new forms of arbitration, it seems that the two
objectives - suppression of subsidies and support for production - are
not readily compatible. The difficulties may be summarised and
simplified as folIows: forecast export prices are low; the suppression of
deficits and maintenance of the equiIibrium of the agency as a whole
imply strict economies sustained over a long period, which will have to
be made either at the expense of the middlemen or at the expense of
peasant incomes. Since independence, the arbitration process has often
worked to the advantage of the middlemen and at the expense of the
peasants and the state. Any serious reduction in the in comes of the
middlemen, whose influence is far from negligible, will encounter very
strong resistance. The beneficial effects to be expected from the new,
preponderant role that the programme intends to confide to the private
sector are therefore only relative.
The context of these constraints (declining world prices, the need to
balance the state's accounts, the influence of the middlemen) does not
permit us to envisage either an improvement in peasant incomes or
reinvestment to improve conditions ofproduction. Under these circum-
114 The International Debt Crisis

stances it seems illusory to hope for regular growth in production. Each

of these points is developed below.
Export prices depend on world prices and on the way in which export
sales are negotiated and put into effect. World prices for peanut oil are
mainly constrained by the evolution of the price of soya oil. Expressed in
constant dollars, both have been deteriorating over a long period. A
rapid deterioration in the 1950s was followed by aperiod of relative
stability in the 19608, followed by a strong recovery in the mid-1970s.
Since 1978 prices have again fallen, despite momentary rises in 1980-1
and 1983-4. Overall, we should expect a downward trend in the prices
of peanuts listed in francs. The dominant position of Lesieur in the
peanut oil market continues, as always, to play against Senegal, and will
continue to do so in so far as Lesieur's strategy seems to be to make
short-term profits on peanut oil (and not pass the fall in world prices on
to the consumer) in order to finance the development of sunflower oil.
The costs of the marketing agency's middlemen, which include
staffing, extension work, the supply of inputs and equipment, seed
stocking and distribution, transport, commercialisation, pressing and
agricultural credit, have increased inordinately since the 1960s, even
causing the bankruptcy - then the suppression - ofONCAD (the Office
National de Cooperation et d'Assistance au Developpement), which
was soon replaced by SONAR. Various analysts underline the excessive
costs and the relative inefficiency ofSODEVA,IO as weIl as the high level
offoreseen and 'unforeseen' costs ofthe commercialisation scale and the
CPSP. In order to reduce the costs of these activities, the adjustment
programme proposes to cede a large proportion of them to new village
organisations managed by peasants (seed stocks) or to the private sector
(transport and the commercialisation ofinputs, production and equip-
ment), gambling on the greater efficiency of market forces.
Implementation ofthese measures would profoundly modify the way
in which revenue sharing in the peanut marketing agency has hitherto
been arbitrated. We may expect that, as in the past, they will encounter
strong resistance, or that some ofthem will be diverted from their goal in
order to conform to the existing situation. The same thing could happen
with the new role assigned to the private sector. Ifthere is no doubt that
in order to make the various stages ofthe agency more efficient and less
costly it is necessary to strengthen the position of the peasants and
introduce 'less state and more market', it is equally important to note
that the private sector referred to includes, notably, privileged rural
residents who are currently among the principal beneficiaries of the
agency. Moreover, the extreme rapidity with which 4000 new village
 Structural Adjustment Policies in Senegal 115

sections have recently been able to establish themselves suggests that the
staff of these new sections differs little from that of the former
co-operatives which were controlled by these same groups.
Under these conditions, it is not certain that state disengagement and
recourse to village organisations and market forces will result, for the
majority of the peasants, in positive incentives for production and
intensification. In this respect, the case of the peanut marketing agency
in Mali should be borne in mind: in the early 1980s, Mali had an official
agency for the commercialisation of peanuts at an official price of 90
Malian francs. At the same time, there was a parallel market whose
prices were, on the whole, higher: around 120 Malian francs. In 1982, the
official agency was suppressed. The private sector's purchasing price was
fixed at 60 Malian francs. The producers were therefore the losers on all
counts.
As has already been noted, the incomes of the Senegalese producers
were in 1985 at their lowest level in twenty-five years, and conditions of
production have deteriorated sharply. Faced with a serious deteriora-
tion in their position, the peasants have two weapons at their disposal:
parallel commercialisation, and withdrawal from production. Both
weapons were used in the late 1960s, when cultivated surfaces declined
until the price rise of 1973-4. They were used again in 1979-80 and in
1980-1, when monetary erosion had severely cut the real buying power
ofthe price paid to the producer. With the rise in price from 46F to 60F
in 1981-2, surfaces planted increased and parallel commercialisation
declined sharply. It reappeared with the fall in price from 60F to 50F in
1983-4, whereas surfaces cultivated declined by 17 per cent in 1983-4
and then again by 11 per cent for the 1984-5 season. These defensive
peasant strategies reached their highest point during the 1984-5
campaign when the quantities sold through official channels fell to next
to nothing at the beginning of the campaign. This forced the government
to increase the producer price by 50 per cent in the middle ofthat year's
campaign. One can conclude from this experience that areturn of
cultivated surfaces to their former levels and a halt in parallel
commercialisation would presuppose a substantial and durable rise in
the price paid to the producer. The increase in 1985 was an important
step in this direction but did not succeed in completely counteracting the
decrease in the area cultivated.
In addition, the proposed reforms provide for the generalised
application of free market prices and stipulate that fertilisers and
equipment should be the responsibility ofthe producers. To this end, the
latter ought to benefit from agricultural credit services. Given the
116 The International Debt Crisis

declines of the last few years, recovery of production and the expected
improvement in yields (necessary to increase production) imply in-
creased consumption of inputs and large-scale renewal of equipment.
This can be done only at the price of a new and substantial increase in the
price paid to the producer, allowing the latter to have recourse to credit
in order to acquire inputs and honour his debts.
In this respect, the evolution that has taken place since independence
is instructive. In the 1960s the system of agricultural credit functioned in
a relatively satisfactory manner, permitting a rapid increase in the
supply of equipment. Serious difficulties arose after 1968, when the
regular decline in the price paid to producers, in constant francs, and the
periodic return of bad harvests left a growing number of producers
insolvent. The problem of peasant debts persisted throughout the 1970s,
resulting in a fall in equipment purchases, then a fall in consumption of
inputs. Peasant debts were cancelled on several occasions, which
contributed to the bankruptcy ofthe agricultural bank and ofONCAD.
In constant francs, the current levels of producer prices, after the 1985
increase, are lower by more than 25 per cent than they were between
1960 and 1967, when the system was able to function properly.
Moreover, at that time fertilisers were partially subsidised. Therefore, in
order to regain the favourable conditions that prevailed in the 1960s and
within the framework of free market prices for inputs, to make
intensified peanut cultivation possible - a necessary condition for
increased production without expansion of the cultivated surfaces - it
would be necessary to introduce a new and substantial increase in prices,
in the order of 100 per cent. Such an increase is not compatible with the
currently held assumption of international lending agencies: an
immediate reduction of subsidies. On the contrary, it is probable that in
order to come to terms with the persistent deterioration ofworld prices,
the government will be tempted, once again, to let slide the level of real
producer prices.
Finally, intensification also im pli es a greater effort of research and
development and extension work, a concentrated struggle against soil
degradation and regular improvement of selected seed stocks, all
measures which seem to have been set aside in the provisions for rapid
disengagement of the rural development corporations. In this context -
where, despite stated objectives, economy measures take precedence
over measures for incentives and support for production - it is unlikely
that producers will alter their current behaviour; this situation is very
likely to lead to a decline in peanut production.
 Structural Adjustment Policies in Senegal 117

(ii) Increased cereal production

The forecasts for cereals are even more optimistic than for peanut
production, since they are based on a growth rate of 4 per cent per year
once local cereals are substituted for rice. In order to be realistic, this
forecast implies the removal of two obstacles:

(a) soil saturation and low yields;

(b) the problem of prices relative to the consumption of imported rice
and local cereals.

The effect of soil saturation, already discussed, may be summarised by

the fact that ifmore land is sown to millet, it would be at the expense of
peanuts. The fall in prices to the peanut producer seems to have initiated
this substitution in 1984-5. Substitution is nevertheless limited and is
not sufficient to start a trend towards a regular increase in surfaces
planted in favour of cereals. It is incompatible with a regular and
sustained increase in the production of both cereals and peanuts.
Improved yields imply the diffusion of better seeds and improved
technical development, which might result from a reorientation of
research and extension work but seem scarcely compatible with the
current disengagement of rural development corporations.
With respect to prices it would be possible, with a slight increase in the
wholesale price of imported rice, to retard the spread of rice consump-
tion in the inland towns and in the countryside to the benefit of millet,
and perhaps especiallY of corno On the other hand, the substitution of
local cereals for rice in Dakar would imply a very large increase in the
price of rice (up to 180 or 200 CF AF per kilo), which would entail the
impoverishment of low-income groups, unless there were a noticeable
change in the distribution of incomes.
Finally, in the present state of stagnation in the production system,
greater incentives for the commercialisation of cereals aimed at the
towns would run the risk of aggravating the cereal deficit in some of the
less-favoured zones through a deterioration in the position of the most
vulnerable peasants, who currently make up their deficits through
intra-village or intra-zone trade. It would therefore be imperative that
the pricing incentives be accompanied by measures allowing for
improvements in yields and increased production, including especially
that of the most vulnerable peasants. Price incentives alone would not be
enough to stimulate a regular increase in the national production of
cereals.
118 The International Debt Crisis

The principal constraint in agriculture is the trend towards either

stagnation or decline in both the surfaces cultivated and the yields. Until
April 1985 adjustment measures have meant, for the peasants, an
unprecedented decline in real incomes and the degradation of their
environment, which has encouraged withdrawal from production and
recourse to parallel commercialisation. The increase in prices which
followed only partially redressed the situation. In the proposed new
programme, restrictive measures take precedence over Incentive and
support measures. As far as the international price evolution and the
relations of internal forces are concerned, it is unlikely that the strict
application of free market prices and exclusive recourse to free market
forces will create for the majority of the peasants a more favourable
system of incentives than that which is currently in force. The conditions
necessary for areturn to regular agricultural growth do not seem to be
present.

B The industrial sedor

The adjustment measures recommended by the World Bank in the

industrial domain are aimed at rationalising the system of incentives and
eliminating the element of uncertainty or discretion which discourages
investment: reducing production costs and eliminating the bias against
industries producing intermediary goods, so as to stimulate exports and
fayour efficient import substitution. Attainment ofthese objectives is in
fact necessary to create the conditions for regular growth in the
secondary sector. Nevertheless, three points merit attention:

(a) the measures recommended concern only conditions of supply,

without having any simultaneous inftuence on demand;
(b) cost-reduction policies are concentrated mainly on reduction of
wage costs;
(c) this programme involves a serious risk of de-industrialisation.

All the proposed measures concern production costs and conditions of

supply, while the principal short-term constraint on Senegalese indust-
ries oriented towards the domestic market is that of finding outlets. In
1984 in particular, demand was so depressed that the scarcity of credit
did not act as a constraint. Since the level of demand is affected by all
measures concerning either the global level of incomes or their
distribution, it is necessary to take into account the impact of
adjustment measures on the evolution of incomes. The preliminary
 Structural Adjustment Policies in Senegal 119

analyses of this point show that in accentuating the concentration of

incomes, measures taken or projected will most probably be
unfavourable to demand for domestic production and will, in the short
term, aggravate the deftationary effect of the decline of consumption in
GDP.
The lowering of production costs in a large proportion of the
import-substitution industrial sectors is necessary in order to end a
situation in which those industries are vegetating behind excessive
protective measures, incapable of exporting, except to certain restricted
and protected markets of the CEAO (Communaute Economique de
r Afrique de rOuest [West African Economic Community]) and rivalled
on the domestic market by illegal imports engendered by their own
excessively high prices. The production costs most often alluded to are
wage costs which it would be convenient to adjust by means of a
softening of hiring and firing procedures and liberalisation of wage-
fixing methods. The fact that in Senegal salaried employment is often
seen as an assured income or arent, and that the creation of employment
and the method of fixing remuneration proceed more from a logic of
income distribution than from a logic of production linking wages and
productivity, is an important cause of the excessive costs of industry and
ofthe modem sector in general. However, it is important to see that this
fact is part of a general model of income formation and distribution and
that it affects not only wages but all incomes generated by the business
sector: cadres, management, general expenses, profits, administration
and, sometimes, suppliers.
Several phenomena have been superadded to engender this situation.
The income levels and material advantages of expatriates, their lifestyles
and consumption habits, which national staff try to reproduce to their
advantage, generate in certain sectors (banks in particular) gaps
between the salaries of national staff and employees of the same
enterprise ranging from I to 25. Since independence, the access of new
graduates to modem employment has taken place in a context in which
authorities, though responsible in large part for their access, have very
little control over job creation and income distribution in the sectors
that are directly productive. Administrations, public and para-public
corporations and private businesses were used in this manner.
Such overburdening of businesses would not have been possible if,
before independence, industries had not developed in the form of
monopolies or oligopolies - heavily protected, often on an ad hoc basis-
which allowed the parent companies to make substantial profits in the
form of benefits or by way of supply contracts. The original system of
120 The International Debt Crisis

'preserves' which was maintained allowed businesses to be taxed more as

sources of income than as productive units whose performance and
competitiveness were expected to be continuously increased. The cost of
the modern sector as a whole - public and para-public services and the
private sector - are thus swollen by the costs of expatriate manpower, by
externallevies and by this demand for revenues, the objective ofwhich is
to allow the greatest number of graduates and staff to approximate the
model of 'modern' consumption bequeathed by colonisation and
maintained by the expatriates.
To lower the costs of the modern sector is thus to change the whole
pattern of distribution. Insisting only on the softening of hiring and
firing policies and on the liberalisaton of wage-setting procedures - in
short, allowing compression of low and medium wages and reducing
their number, without attacking the manner in which incomes in general
are formed - would most probably increase concentration, with the
unhappy economic consequences outlined earlier.
The preceding paragraphs underline the perverse effects ofthe system
of protection that has existed since the colonial period and reveal the ties
that exist between the system of incentives and the ways in which
incomes are distributed. By addressing the system of incentives, the
adjustment programme tackles the central issue. It is important,
however, to separate cause from effect. By substantially lowering the
level of protection at a time when the market is depressed and businesses
are suffering from serious under-utilisation of their production
capacities, in a poor financial situation, and at the head of a poorly
performing productive system, there is a great risk of provo king areal
dismantling of the import-substitution sectors. It would not be the first
instance in which the sudden passage from a situation of overprotection
to an adjustment to world prices has resulted in a phenomenon of
deindustrialisation. This point is taken up in the concluding section.

V THE LIMITS OF ADJUSTMENT POLICIES

In terms of our analysis, the difficulties encountered by the adjustment

programmes may be regrouped under three headings:

(i) the problem of the timing of adjustment;

(ii) the problem of resistance to adjustment;
(iii) the problem of the kind of adjustment sought.
 Structural Adjustment Policies in Senegal 121

(i) The problem of the timing of adjustment

An adjustment programme which has as its sole objective a reduction in

public and external deficits and re-establishment of the country's
solvency by compressing demand encounters the negative effects of
deflation caused by this compression: the cumulative nature of deflation,
the fall in fiscal receipts, and the dramatic decline in incomes for certain
sections of the population. In Senegal, the burden of debt is such that
re-establishing the country's solvency by simply compressing demand
would entail an unsupportable level of deflation.
Thus the lending agencies agree on the need for growth recovery
based on a structural modification of supply, aimed at making the latter
more efficient and competitive. In this respect, the IMF and World Bank
programmes are complementary. However, structural changes need
time to prove fruitful, and there is an incompatibility between short-
term austerity measures that are too strong and the medium-term
resumption of more balanced growth, since on the one hand such
measures set in motion a deflationary process before supply can be
restructured, while on the other they provoke disastrous cuts in
investment programmes and in incentive measures, at a time when the
latter ought to accompany and stimulate the restructuring.
Despite the objectives outlined in the lending agencies' reports (those
of the World Bank and the CCCE in particular), which advocate the
restructuring of supply and growth recovery, it is actually the extent of
the compression of demand which takes precedence in the adjustment
programmes; the objectives of 'solvency' and re-establishment of the
balance of payments take precedence over that of growth. Given the
internal constraints and the external conditions imposed on Senegal,
these two types of objectives prove incompatible. The World Bank
report is a paradoxical illustration of this fact, since in order to balance
its projections it is constrained to accept hypotheses that do not
withstand analysis. In so doing it illuminates the difficulties that have to
be surmounted.
The removal of this incompatibility would imply that the financial
constraints with which Senegal is currently burdened should be much
more widely loosened, so as to allow the country really to undertake
investment programmes, structural reforms and incentive measures that
would make possible both agricultural growth and greater efficiency in
the other sectors. A first step in this direction would doubtless be the
long-term rescheduling of the debt at very low interest rates. In the
current state of their operating rules, international financing organisa-
122 The International Debt Crisis

tions are not adapted for such transfers of resources: the IMF lends for
relatively short terms and disposes oflimited resources per country. The
IMF and the WorId Bank groups cannot reschedule their debts. On the
whole, adjustment loans (WorId Bank, IMF, CCCE) are made at such
interest rates and with such deferrals that they can postpone the problem
only for a few years.
The relaxing of constraints on external financing could only be a
necessary condition, however, because a simple inftux of capital without
large-scale structural change would only give artificial support to
growth through consumption and swell the deficits. It is precisely this
situation that prevailed after 1975, up to and induding the first years of
the adjustment programmes. Ouring these years, in fact, measures
aimed at promoting structural reforms encountered strong resistance
which, on the whole, could not be overcome.

(ö) Resistance to adjustment

The second type of difficulty encountered by the adjustment program-

mes is due to resistance to the implementation of structural reforms. The
principal forms of resistance that we have identified are:

-resistance to the reduction ofintermediary costs, both regular and

irregular, ofthe agricultural marketing agencies and ofthe peanut
agency in particular;
-resistance to the regular taxation of non-salary income;
-resistance to measures aimed at containing the growth of employ-
ment in the public service;
-resistance to the reduction of illegal imports.

All other things being equal, these diverse types of resistance have
resulted in:

- the maintenance of a high level of net consumption and deficits;

-rendering inoperative those measures aimed at creating a more
favourable environment for agricultural production and positive
incentives favouring producers;
-an increase in the inegalitarian consequences of austerity measures;
-a proportional increase in the degree ofthe import content offinal
consumption;
-reinforcement ofthe logic ofrevenue formation independent ofthe
criteria of productivity and economic efficiency, and thus reinforce-
ment of the economy's inefficiency.
 Structural Adjustment Policies in Senegal 123

The adjustment programmes focus on the global level of demand and on

the conditions of supply (price system, incentive measures), but none of
them tackles the problem of the formation and distribution of income.
They are therefore silent concerning some of the economic effects of
these measures due to variations in the functions of consumption
according to income levels (import content, impact on the informal
sector) and above all, they neglect the fact that a more productive and
more efficient reorientation of the economy is undoubtedly incompati-
ble with current models of consumption and revenue formation.
Without announcing it explicitly, the adjustment programmes
intervene in the distribution of incomes when, for example, they
recommend salary freezes or increases in the price ofheavily consumed
products. In so far as the effects on distribution have important
economic consequences, some of which may be contrary to the
sought-after objectives of economic efficiency, there is every reason,
from an adjustment viewpoint, to take them into explicit consideration.

(iii) The kind of adjustment sougbt

The adjustment programmes promoted by international organisations

(the World Bank, the IMF) are based on the following assumptions:

-each country must adjust to its situation within the framework of

international trade, so as to assure a balanced position of the
external accounts;
-the best way for a country to adjust is to liberalise its trade system,
open itselfup to foreign capital, allow the internal pricing system to
adjust to the system of international prices and allow the free play of
market forces. In conformity with the theory of comparative
advantage, it is postulated that this is the most efficient way for the
country to place itself in the international system of exchange and
allow the highest level of growth.

The foregoing analysis leads us to reconsider these two assumptions on

the basis of the following points:

-the possibility of Senegal's adjusting to new international cons-

traints, and
- the effect of market forces.

Senegal must face very severe structural constraints, for the following
reasons:
124 The International Debt Crisis

-it has inherited an economy structured as an extroverted, over-

protected and inefficient cash economy;
- the level of manpower formation and skills is low;
-its education system is inadequate;
-its demographie growth is high;
-its climatic conditions are deteriorating, reducing its agricultural
potential;
- the evolution of the terms of exchange remain unfavourable to the
country.

Considering these constraints, and to the extent that the adjustment

process involves the necessity of:

-adapting to the downward trend in the market for its main export
crop and to currency fluctuations and fluctuations in interest rates;
- honouring its debts;
- balancing its external account;
-remaining open to the outside, attracting foreign capital and
manpower; with the attendant consequences at the level of con-
sumption models and the structure of income distribution, while its
own manpower is not permitted to migrate to the industrial
countries,

it is obvious that Senegal cannot avoid the impoverishment and

polarisation ofincomes that are likely to result from this process, except
through massive and prolonged financial transfers. It must be admitted
that-at least in the current international environment-development is
impossible without the maintenance, over quite a long period, of a
structural deficit in the balance of payments.
The adjustment programmes implemented since 1980 have kept the
country afloat, but do not fumish the resources necessary (though not
sufficient) for the restructuring of the productive sectors and growth
recovery. This solution postpones the problems from year to year, while
the general situation progressively deteriorates.
The need for profound structural changes in the Senegalese economy
cannot be doubted; this need stems even more from poor performances
in agriculture and most other sectors than from imbalances. In the face
of this situation, remedies are sought in market forces:

-more room for the private sector;

-liberalisation of prices and suppression of subsidies, to obtain a
better system of incentives;
 Structural Adjustment Policies in Senegal 125

-reduction of protection, to obtain a better insertion into the

international market.

The above study suggests a need for nuancing and amending recommen-
dations in favour of private, 'market forces' and opening up to the world
market. The latter in particular sterns from a general strategy recom-
mended by the World Bank and the IMF in many other countries-with
varied results; for this, at the outset, Senegal possesses very few of the
elements for success.
It is true that the para-public sector is the most costly and inefficient,
that the effect of state interventions in the matter of prices, regulation
and subsidies has frequently been to introduce biases against agricul-
tural producers and export-oriented industries, and that by their
arbitrariness they introduce a degree of uncertainty that discourages
private initiative. Faced with this situation, it is no doubt reasonable to
want a certain disengagement on the part of the state and a clear
definition and strict observation ofthe mIes of state intervention. On the
other hand, concrete study of the conditions of production and
commercialisation shows that disengagement of the state, recourse to
the private sector, liberalisation of prices and price incentives do not in
themselves constitute a panacea. Two points deserve to be underlined in
this respect: the weak elasticity of production in relation to prices, and
the weak position of the peasants within the market economy.
As in many other developing countries, the Senegalese economy is
characterised by a very weak elasticity of production apparatus. It
follows that a serious modification of the price system, if it is not
accompanied by other measures allowing production to adapt itself, can
entail results that are very different from-indeed, completely opposed
to-those initiaUy aimed at. This could happen with a sharp increase in
the price of local cereals which, without support measures to increase
yields, could result in the sale of peasant surpluses without a correspon-
ding increase in production, and in a serious decline in the degree of
peasant self-sufficiency.
Likewise, in the present circumstances, price incentives alone would
not result in increased peanut yields or greater intensification. It does
not currently seem possible that the process of accumulation and the
technical improvements necessary for intensification can develop with-
out significant state participation, as yet to be defined (extension work,
help in supplying equipment support ... ).
The weak position of the rural society within the market economy
sterns from multiple causes, among which may be cited the low levels of
training and organisation. In certain cases of market liberalisation the
126 The International Debt Crisis

peasants' weak position is expressed in unfavourable prices in the

purchase of inputs and consumer goods as well as in the sale of their
products, and in usurious borrowing rates. Faced with these practices,
the peasants often defend themselves by falling back on self-sufficiency,
which is the opposite effect from that sought through price incentives.
There are examples, like that of the peanut marketing agency in Mali
(early 1980s), where the total disengagement of the state from the
commercialisation circuits resulted in a fall in producer prices and a
decline in production. Orientation towards 'more market' should
therefore undoubtedly be accompanied by state regulation of the market
and support for the peasants.
The redefinition of the role of state corporations, particularly in
agriculture, is obviously a difficult but necessary exercise. Until now, it
has encountered such resistance that it has often failed. Faced with this
resistance, the quasi-total disengagement of the state in order to make
room for market forces is certainly simpler and allows a further
reduction in public expenditures. But it seems illusory to think that such
a disengagement alone will result in a resumption of production and
soothe away the political obstacles that oppose the creation of an
environment that would be more favourable to peasants and to
agricultural production.
The World Bank has also adopted for Senegal the thesis of export-Ied
development. This strategy is based on the premiss that import-
substitution industries are limited by the small size of the domestic
market; that, moreover, they are most often overprotected and
inefficient; and that, finally, they penalise export-oriented industries
through the high price levels which they induce in the domestic market.
It is therefore appropriate to dismantle protection of the industrial
sector in order to obtain a more competitive export industry.
According to this analysis, to arrive at the desired results it will be
necessary to lower domestic production costs so as to bring them into
line with those of the most competitive countries. The greatest
production cost is that ofmanpower. It will therefore, according to this
analysis, be necessary to lower the SMIG and soften hiring and licensing
conditions. These measures ought to permit the country to attract
foreign capital and solve the problem of markets by means of a
new-found competitiveness at the world level.
This strategy is inspired by the South Korean and Brazilian 'miracles'.
It was subsequently applied, on the recommendations of the World
Bank and the IMF, to the Philippines, Chile and Peru. It is now being
recommended for Morocco, Ivory Co ast, and most of the countries
 Structural Adjustment Policies in Senegal 127

where the W orld Bank and the IMF intervene at the level of economic
policy.
It must first be emphasised that the resuIts of these policies have
varied according to the countries concerned. In some countries, like the
Philippines, Chile and Peru, the policies were accompanied by the
phenomenon of deindustrialisation, whose consequences for the
national economy were not always beneficial. In these countries, as in
others, serious social problems sometimes arose.
The resuIts obtained in terms of growth have depended to a large
extent on the comparative advantages ofthe countries, their capacity for
the appropriation of new technologies, and their ability to retain a
certain margin of political initiative in the face of the weight of foreign
investment. Results have also depended on the evolution of world
demand at a time when new export industries have come into
production. Except for fish and phosphates, Senegal's comparative
advantages are few; in particular, the country certainly possesses neither
the qualified manpower nor an organisational capacity sufficient to
control and rapidly acquire the know-how and technology employed in
these industries.
Under these conditions, the prospects offered to Senegal by a strategy
of open borders and export-oriented industrialisation seem to shrink in
the face of the social costs represented by the closing down of a portion
of its existing industries and a serious decline in real wages.
Unless financial constraints are loosened and unless the economic
environment is modified to favour producers, the outlook remains
bleak, marked mainly by deflation. Rather than imposing, from the
outside, austerity measures and economic onhodoxy that respond to the
wishes of financiers but for which internal eCllnomic agents do not really
accept responsibility, Senegal's most pressing need appears to be to
favour, however modestly, the emergence of an economically viable
development programme. The task is far from easy.

NOTES
* For a most detailed analysis see Gilles Durufle, L'ajustement structurel en
Ajrique (Senegal, Cote d'Ivoire, Madagascar) (Paris: Karthala, 1988).
pp. 19-85.
I. Donald J. Donovan, Macroeconomic Performance and Adjustment under
Fund Supported Programs: The Experience of the Seventies, IMF Staff
Papers, vol. 29, no. 2 (June 1982).
2. John Loxley, The IMF and the Poorest Countries (Ottawa: North-South
Institute, 1984).
128 The International Debt Crisis

3. Jacques de Larosiere, The Role of the International Monetary Fund in

Today's World Economy (Washington, DC: IMF, 1982) pp. 5 and 6, quoted
by J. Loxley op.cit., p. 3.
4. CCCE-Caisse Centrale de Cooperation Economique.
5. SMIG: Salaire Minimum Industriel Garanti (Guaranteed Minimum Indus-
trial Wage).
6. BTP: Biitiment Travaux Publies Public Works Building.
7. SAED: Societe d'Amenagement et d'Exploitation du Delta. SONAR: Societe
Nationale d'Approvisionnement du Monde Rural.
8. CPSP: Caisse de Perequation et de Soutien des Prix.
9. New Agricultural Policy: an agricultural policy programme promulgated by
the Senegalese government in 1984. This programme adopts a large portion
of the recommendations of the foreign lending agencies, occasionally
accepting them in their entirety.
10. SODEVAis the Societe de Developpement Agricole or agricultural extension
parastatal responsible for peanut production. Numerous studies have
analysed the functioning of the peanut marketing agency and emphasised
the role that various middlemen, particularly the religious brotherhoods,
can play in it (cf. Evaluation de lafiliere arachide [MRE, 1982]; N. Casswell:
'Autopsie de I'ONCAD; la politique arachidiere au Senegal 1966-1980',
Politique Africaine, no. 14); J. Waterbury: Agricultural Policy Making and
Stagnation in Senegal. What is there to Explain? (Princeton University,
1984). See in particular Section III: 'The Marabouts'.
4 Indebtedness and
Adjustment Lending in the
Ivory Coast: Elements for
a Structural Critique
Bonnie K. Campbell

Only a short time has elapsed since the Ivory Coast govemment
requested IMF support. The first Extended Credit Arrangement
covering the three-year period 1981 to 1983 was approved in February
1981. This agreement was followed by three Stand-by Arrangements
over the four-year period 1984 to 1987 for a total balance of payments
assistance of over 733 million SDR. Studies evaluating the resulting
stabilisation policies are still scarce and for the present must be
considered as suggestive rather than conclusive. Taken as such,
however, and pending publication of further studies, it is none the less
important to consider the findings of at least one evaluation of the
socioeconomic impact of the Ivorian IMF Stabilisation Programme.
The empirical analysis of a 1985 study based on linear regressions
designed to determine qualitatively the contribution ofthe IMF policies
on the Ivory Coast GDP and balance of payments position suggested:
the impact of the IMF policies on economic activity, as reflected in
the GDP indicator, is not significantly different from zero.
Furthermore, the IMF policies have not had any significant effect on
the current account deficit. 1
The study concluded:
In fact, it appears that the current account deficit is mostly traceable
to increasing debt services and unrequited transfers. Unless interest
rates go down substantially, it seems that the govemment should look
into unilateral transfers. Unfortunately, the Ivory Coast faces a
major constraint here since the Franc Zone allows free transfers
among member countries. 2
However preliminary one may wish to consider these findings, they raise
considerations of critical importance which reinforce the conclusions of

129
130 The International Debt Crisis

a certain body of analysis which has argued that African economies

subjected to IMF programmes have a low capacity to adjust because
their problems are structural,3
In view of the overriding current IMF emphasis on adjustment
policies in favour of demand restraint and short-term responses and the
primacy ofIMF policies over those of other lending organisations, such
strategies place limitations on all other strategies which might emphasise
more long-term measures of structural reform. Moreover, while the
World Bank officially endorses the latter policies-notably through its
structural adjustment programmes-as will be seen below, the evidence
suggests that W orld Bank programmes are in fact quite compatible with
the more monetarist orientations of IMF strategies.
Finally, in view of the official emphasis placed by current programmes
on 'structural' adjustment, there appears to be good reason to examine
in some detail a specific example of the structural constraints present in
one country, the Ivory Coast.
The study ofthe fiscal crisis ofthe Ivorian state which occurred at the
end of the 1970s may serve as the starting point for a structural critique
of adjustment policies, because such a study reveals the depth of the
contradictions in the forms of accumulation and reproduction of state
power which have characterised this country for over thirty years.
The Ivory Coast's political stability during the first two decades after
independence (1960), for which it is cited as a model, reflected the
capacity of the dominant ruling groups to reproduce and enlarge their
own social and political basis. Their ability to do so has been based
above all on the access they have maintained to the revenue drawn from
export agricultural production. The revenue from this sector ensured the
reinforcement and enlargement of the politically dominant groups
which began as a planter class. With time, the mechanisms and sources
of appropriation of these groups became more varied and their social
basis more diversified. Substantial amounts of revenue were transferred
as weil from the export agricultural sector via state institutions to
subsidise the activities of the nascent foreign-dominated industrial
sector, which emerged within the framework and as the extension ofthe
colonial trading network.
If, during the first decade and a half of independence, there appeared
to be complementarity between the activities of the export agriculture
and industrial sectors, the increasing subordination of the export sector
to the needs ofthe industrial sector by the late 1970s, and the new lines of
social differentiation which emerged as part of this process, revealed the
limits of this pattern of accumulation.
 Adjustment Lending in the Ivory Coast 131

Contrary to what is generally asserted, the origins of the fiscal crisis of

the Ivorian state are not recent. If the drop in the market prices of the
country's principal export crops around 1978 proved revealing, the
origins of the crisis appear much more deeply rooted. They rest in the
development of contradictions inherent not only in the experience ofthe
last thirty years, but in economic patterns which have their roots in the
period well before political independence. Consequently, before
approaching the question of .adjustment lending it appears useful to
attempt to characterise the contradictory nature ofthe relations between
the export agriculture and industrial sectors, and the way in which the
state intervened in these contradictory relations.
In what follows, with intent, we refer to the 'industrial' sector rather
than the so-called 'modem' sector. However, as is weIl known and as will
be shown-though very briefty-for historical reasons the industrial
sector is comprehensible only as the extension of the commercial trading
sector. Furthermore, as opposed to agricultural activities, a more
complete analysis would necessarily include the growing service sector.
While important, the latter is neither potentially nor in fact a dynamic
productive sector in the economy; rather, its growing importance can be
traced in large part to the specific pattern of local (Ivorian)
accumulation. Finally, reference to the industrial sector as opposed to
the agricultural sector should not be taken to suggest the growing
importance of the industrial sector's contribution to Gross Domestic
Product. On the contrary, especially as of 1972, the relative importance
ofthis sector appears to have been stable or even to have decreased over
the period of 1980-all ofwhich points to the specific characteristics of
the Ivorian experience to be discussed below.
To summarise schematically what is in fact a far more complex
process:

1. The expansion of the Ivorian industrial sector has been based on

the ever-increasing transfers from the export agriculture sector.
2. These transfers, obtained through price and subsidisation policies,
have entailed the stagnation and even the decrease in real terms of
producer prices, which in the long term impedes continuing
expansion of agricultural output and productivity and limits the
development of the internal market.
3. While the full consequences of this process may take time to
become apparent, the underlying contradictions of the Ivorian
experience manifested themselves by the end of the 1970s at the
locus where the transfer from the export to the industrial sector
132 The International Debt Crisis

occurs, and consequently where the struggle between confticting

interests and forces, both internal and external, takes place: the
state.
4. Moreover, the past process has involved, among other things, a
specific pattern of state investment, employment and local capital
formation, each of which was dependent on the capacity of the
groups controlling the local state to increase public revenues, and
so forth. In this area as weIl, the contradictory nature of the
process and its limitations had become apparent by the late 1970s.

The material presented here is based on a longer study which examined

the relations between the circuits of realisation, distribution and
investment in the export agriculture and industrial sectors, and the ways
in which the state intervened in these relations. 4 This study analysed the
manifestations of the limits of past patterns of accumulation by
examining various areas of government spending. The latter reftected
how the dominant groups which controlled the state could in the past
use state revenue from export crops to reproduce and enlarge their own
dass basis. The analysis finally examined evidence which suggested that
by the late 1970s and early 1980s this strategy was no longer feasible.
The study referred to here may be considered one facet of much
broader questions concerning the historical evolution of the various
patterns of accumulation which have characterised the Ivory Coast,
which would require an analysis of the conditions of production,
exchange and distribution in the agricultural and industrial sectors. The
latter much more global study would give a central place to the process
of realignment of dass forces to which the following presentation can
only allude, while none the less emphasising that theoretical advance is
contingent on further empirical work.
To facilitate the presentation, the following study will be based on
three periods-not for reasons of their importance in time, for they are
moments in the same historical process, but because these general
periods typify different phases in the patterns of accumulation which
have characterised the Ivory Coast and which may be identified in very
approximate terms as folIows:

I The colonial period (late nineteenth century to 1960). Colonialism

and export agriculture.
11 Export agriculture and import-substitution industry: the 1960s
and 1970s.
III The limitations of the present phase and the fiscal crisis of the
state: the current period from the late 1970s.
 Adjustment Lending in the Ivory eoast 133

Limitations of space will force us to put greatest emphasis on the most

recent periods. It should be emphasised, however, that one is most likely
to miss the significance of the present period if it is not set in a historical
perspective, and if one neglects the crucial impact of the colonial period
on the 1970s and 1980s.

I THE COLONIAL PERIOD (LATE NINETEENTH CENTURY

TO 1960)

The colonial period was characterised by the application of extensive

techniques to cash-crop production-forced labour in the context of
land abundance and direct coercion on the part of the co Ion ial
administration. This period may be thought of in terms of a 'surplus
drain' model of accumulation. The obstacles to the prolongation ofthis
form ofprimitive accumulation were to be temporarily overcome by the
emergence of a local dominant group capable of directly organising
social relations internally, while remaining closely integrated into the
colonial trading network.

11 EXPORT AGRICULTURE AND IMPORT-SUBSTITUTION

INDUSTRY: THE 1960s AND 1970s

While the former period was prolonged as far as the use of extensive
techniques in the export agricultural sector and very far-reaching
foreign control over the commercial and nascent industrial sectors were
concerned, through state intervention, changes occurred at the begin-
ning of the 1970s in the level of accumulation and finance, notably in
import-substitution activities, without, however, being accompanied by
changes in the organisation of production. In the absence of a local
bourgeoisie d'affaires or local entrepreneurial class, whose emergence
had been systematicaIly suppressed by the dominant planter group, this
state involvement opened areas for a process of local capital formation
under the umbreIla of the state, and consequently the gradual broaden-
ing of avenues of appropriation and of the basis of the dominant planter
class itself.
In order to present in more detail the forms of accumulation which
characterised this period we have analysed elsewhere the conditions of
realisation, distribution and investment in the export agriculture and
industrial sectors, as weIl as the way the state intervened in these
relations through the use of such institutions as the Caisse de Stabilisa-
134 The International Debt Crisis

tion et de Soutien des Prix des Produits Agricoles. This analysis permits
documenting and to some extent quantifying such elements as:

(a) the degree of protection and subsidisation of the foreign-

dominated industrial sector, as well as its lack of competitiveness;
(b) the place occupied by foreign interests in the economy;
(c) the counterpart oftheir presence-that is, the constant increase in
the ftow of foreign private transfers abroad from almost 29 billion
CFAF in 1969 to reach 131.5 billion by 1980;5

and the corollary process:

(d) the increasing subordination ofthe export agriculture sector and

the growing pressures on agricultural producers.

We shall summarise this important period very briefty by referring to

three factors:

1. the evolution of producer prices for the principal export crops;

2. the conditions of production in the import-substitution industry,
as illustrated by the case of textiles;
3. the evolution of the Ivorian debt.

1. The evolution of producer prices for the principal export crops

Ifthe logic ofproduction ofthe early industrial activities finds its origins
in the extension of the commercial sector , it was in the growing transfers
from the agricultural export sector necessary to pay for the continuation
of this pattern of industrial activity that the tensions in the Ivorian
economic pattern of growth became most manifest. Ouring the 1960s
there occurred a deterioration of the terms of exchange for producers of
the chief export crops. This restricted the possibility of extending
agricultural production and increasing productivity. Various studies
confirm the deterioration ofthe terms of exchange for Ivorian producers
of coffee and cocoa, as weIl as the drive by the state through the Caisse
continuaIly to increase its revenues from this critical sector. On this
latter point, if one examines, for example, the returns to producers as a
proportion of world prices for the chief export products, coffee and
cocoa, one is presented with a clear picture of the increasing weight of
state levies. Ouring the period 1960 to 1965 it has been calculated that
this ratio was 0.61 for coffee, and 0.67 for cocoa. By 1971 to 1975 the
 Adjustment Lending in the Ivory Coast 135

ratio had fallen to an average of 0.52 for both products. 6 Even after a
slight recovery from thevery low ratios in 1978 and 1979 of0.33 and 0.39
respectively, tbe ratio in 1980 of 0.42 was substantially lower than
between 1971 and 1975.
Part of the explanation for the deterioration is the continuing
contribution of export crops to state revenues through the operations of
the Caisse, even after the fall in world prices after 1978. In 1961-62 the
total revenue drawn from coffee and cocoa producers was 400 million
CFAF. In 1974-75 this had increased to 59.4 billion CFAF. 7 The
evolution of the contribution of coffee and cocoa to the Caisse from
1975 to 1979 is traced in the last line of Table 4.1.
Bearing in mind that the effective producer price in 1979 was 150
CFAF per kilo gram for cherry coffee, t the difference between producer
prices and world export prices for coffee and cocoa, as illustrated in
Table 4.2, is even more revealing.
Decreasing returns to export crop producers has critical importance
not only for state revenues and for the extension ofthe internal market,
but for the expansion ofthe industrial sector itself. The obstacles to the
extension ofthe Ivorian pattern ofindustrialisation may be identified at

Table 4.1 The Financial Contribution 0/ Coffee and Cocoa Crops to the
CSSPPA,1975-9
1975 1976 1977 1978 1979
Producer Price CFAF/kg 151.1 153.8 183.2 250.0 250.9
ofCoffee
Producer Price CFAF/kg 175.0 178.0 228.6 250.1 281.28
ofCocoa
Quantity of Coffee tons 268.192 319.683 263.798 196.360 265.047
Produced
Quantity of Cocoa tons 239.418 257.444 243.083 341.466 299.282
Produced
Value of Coffee MCFAF* 40.528 49.158 48.336 49.090 66.506
Crop
Value of Cocoa MCFAF 41.898 45.826 55.578 85.367 84.182
Crop
Value of Coffee MCFAF 82.426 94.984 103.914 134.457 150.688
+Cocoa
Contribution to MCFAF 18.052 108.042 245.563 185.458 143.300
the CSSPPA
• MCFAF: Millions of CFA Francs in current prices.
SOURCE Ivory Coast, National Accounts (Comptabilite nationale).
136 The International Debt Crisis

Table 4.2 Composition 0/ Average Export Prices 0/ Coffee and Cocoa

(1979)
In CFAF per kg
Coffee Cocoa
(green)
Producer price 249.3 275.2
Droits uniques de sortie (DUS)
(Export Duties) 55.8 50.6
Other Non-Defined 'Margins' 42.7 39.5
Contribution to CSSPPA 295.0 323.3
Export Price (FOß) 642.8 688.6
Fixed Costs 19.4 18.6
Variable Costs 17.9 25.4
Adjustments 17.1 -7.9
Average Export Price (CIF) 697.2 724.7
SoURCE Caisse de Stabilisation et de Soutien des Prix des Produits Agricoles (Stabiliza-
tion Fund).

t It should be noted that since 1978, when industrial shelling of coffee became
obligatory, coffee was purchased from the peasant producer as cherry coffee at
150 CFAF per kg and not as green coffee at a price of between 250 and 350
CFAF per kg as the above figures might suggest. In view of the yield in industrial
shelling, 1 kg of cherry coffee = 0.54 kg of green coffee, the mode of calculation
and payment to producers has led to a further loss to the producers of
approximately 20 CF AF per kg of green coffee. Price increases for both coffee
and cocoa to the producer were made for the campaign of 1979 - 80 and 1983 - 4.
See Table 4.3.

various levels. The terms of exchange of export agricultural crops, and

their effect on real incomes in the countryside, establish an immediate
level of contradiction in the process of commodity circulation. One
important aspect of this constraint is to be found in the conditions of
production of import-substitution industries.

2. The conditions of production in the import-substitution industry: the

case of textiles

Local Ivorian industrial actlVlt1es in the 1960s and 1970s are best
understood as essentiaUy mercantile ventures, established to avoid tariff
levies and to facilitate the sale of inputs, spare parts, imported
equipment, and so on. Their profitability was largely dependent on the
fact that they exchanged intermediary products with other subsidiaries
of the group to which they belonged.
 Adjustment Lending in the Ivory Coast 137

Table 4.3 Producer Prices of Coffee and Cocoa

Coffee (kg ofgreen coffee) CFAF/kg Cocoa (kg ofbeans) CFAF/kg
Real World World Real
Yearly Producer Market Market Producer
Campaign Price* Price Ratio Price Price* Ratio
1960-1961 90 91/76
1961-1962 75 66 121 183
1962-1963 75 66 114 183
1963-1964 82/92 174 72 126 175
1964-1965 92 144.12 157 72 112 156
1965-1966 77 163.95 213 57 80 140
1966-1967 95 171.51 181 75 125 167
1967-1968 93 165.96 178 74 160 216
1968-1969 93.5 162.79 174 73.9 201.5 273
1969-1970 97 208.82 215 81.8 226.8 277
1970-1971 106.7 230.19 216 86.7 177 204
1971-1972 105.7 220.35 208 85.7 140.2 164
1972-1973 110.0 222.52 202 90.0 175.2 195
1973-1974 121.8 275.55 226 111.8 303.6 272
1974-1975 151.2 266.31 176 176.4 370.2 210
1975-1976 151.2 416.75 276 176.6 362.7 205
1976-1977 181.6 1012.50 558 181.8 543.4 299
1977 -1978 251.6 763.11 303 251.7 780.0 310
1978-1979 251.6 679.46 270 251.6 724.0 288
1979-1980 301.8 762.44 253 301.7 585.5 194
1980-1981 303.0 536.10 177 300 445.7 149
1981-1982 303.0 595.70 197 300 513.0 171
1982-1983 303.0 745.00 246 300 585.0 195
1983-1984 350.0 820.00 234 350 680.0 194
1984-1985 350.0 885.00 253 350 734.0 210
* Inc1uding Return to the GVC (Groupement Villageois Cooperatif)
Sou RCES Ivory Coast
Statistiques agricoles 1960-1980
Budgets Economiques 1981-1983 (Comptes provisoires)
1984 - 1985 - 1986 (Projections)

The economic survival of such firms has been possible, as one study of
the Ivorian textile industry pointed out, because of sub si dies (very
favourable purehase price of locally produced cotton, duty-free
imported products, low taxation on local value added, and so forth) and
proteetion (very high customs duties on competing imports, and
subsidisation of exports sold at a lower price than on the internal
market).8
By way of illustration, in 1973-4 the local textile industry benefited
from a 75 CFAF rebate per kilo gram on locallint cotton through the
state marketing operations. For 1978-9 this rebate represented an
138 The International Debt Crisis

annual subsidy to the local foreign-dominated textile industry of 1.3

billion CFAF9 or over US $5 million. Secondly, since local textile firms
benefited from the concessions of enterprises granted priority status
under the Code of Investment, they were permitted to import all
intermediary products duty free. In 1979 nine firms in the cotton and
synthetic textile and clothing branches, still benefiting from priority
status, were exempted duties worth over two billion CF AF or approx-
imately US $8 million.
Industrial activities in the Ivory Coast in the 1970s continued to
follow market strategies of short-term profitability, involving massive
transfers of funds abroad whether in the form of repatriated profits or
payment for costly imports (inputs, licences, foreign expertise, and so
on). The dominant place retained by commercial capital in the activities
established in the 1960s and its relative autonomy vis-a-vis industrial
capital, together with the highly protected framework created by state
industrial and commercial policies, explain the perpetuation of similar
conditions of production throughout the 1970s and the adoption of the
logic of accumulation which they entailed, even by the most recently
established firms. Moreover, the multiplication of import-substitution
processing plants belonging to the same parent company, in the
neighbouring countries of the region, explains the creation of excess
capacity on a regional basis. Under these conditions it becomes
apparent why the high-priced goods resulting from such productive
activities have provoked problems of realisation and, consequently,
difficulties in ensuring operation at full capacity .
The example of the textile industry illustrates the conditions which
have resulted in the perpetuation of a highly protected industrial
structure which is non-competitive internationally. Research under-
taken in 1972 revealed that average operating costs in the Ivorian textile
sector were 80 per cent higher than those of similar activities established
in internationally competitive conditions. \0 This corresponds to the
figure established by a World Bank mission at the same time to be the
average rate of effective protection for the Ivorian industrial sector in
general.
The same degree of protection and types of extremely advantageous
concessions continued to be accorded to foreign investors throughout
the 1970s. New studies carried out at the end of this period on the
synthetic fabric sector revealed a striking continuity and suggest that
Ivorian production in this sector was twice as costly as the equivalent
competing imports which are debarred entry in order to protect the local
industry. Systematic adoption by the state, under the pressure of foreign
 Adjustment Lending in the Ivory Coast 139

industrialists, of higher and higher tariff duties, of a hypothetic 'valeur

mercuriale' or tax base on which duties would be calculated, and finally
of a decree prohibiting imports without the granting of a licence-which
in the case oftextiles was passed in 1976 and which in practice meant an
embargo on imports-are only some of the measures used to exclude
competing products.
The consequences of such a structure are extremely far-reaching. The
cost of local goods places restrictions on their realisation on the local
market, as it does on the possibility of exporting them, and leads to
severe capacity under-utilisation. Prices are set by a uniform system
[prix homologes] to ensure that the least favoured enterprises would not
be disadvantaged vis-a-vis those firms benefiting from concessions under
the Code. The result is to sanction the operating costs of the least
competitive firms and to generate super-profits to those which have the
most privileges. ll
In view of the embargo on competing imports, the local market for
textiles, particularly with regard to synthetics, polyester and knitted
wear, by the end of the 1970s was increasingly supplied by goods
imported fraudulently. The quantity of synthetic fabrics imported
illegally by this period was estimated to be the equivalent oflocal output,
that is approximately 4 million metres. As for cotton and wax prints,
although the productive capacity of the Ivorian industry by 1980 was
estimated at between 80 and 100 million metres, the local market
absorbed only around 50 million metres of high-priced products. The
balance of local consumption, with the exception of wax prints which
could be imported legally, was supplied by illegally imported fabrics. 12
This pattern, which may be generalised to a greater or lesser degree to
other sectors of industrial activities (notably shoes, cars and motorbike
assembly plants, plastics, processed coffee, and so on), means that the
local population pays very high prices for essential manufactured goods,
restricting the development of the local market, and that the state loses
revenue wh ich would accrue from duties on competing imports.
In view of the present policies of internationallending organisations
and notably of the IMF, emphasising demand restraint, the non-
competitive character of existing import-substitution activities takes on
a particularly central short-term importance. For measures of demand
compression in aperiod of controlled 'austerity' are intended to be
immediately operative and will inevitably have a deflationary and
cumulative impact if they are not accompanied by other measures
involving, for example, the restructuring of the industrial sector. The
latter, however, entails a much longer time perspective as weIl as
140 The International Debt Crisis

considerable resources. As will be seen below, rather than being made

available funds are being drastically reduced through important
budgetary cuts and consumer demand is being reduced by measures
such as important increases in the price of public utilities.
Under the present conditions, therefore, one may only speculate
concerning the actual objectives and consequences, whether intended or
otherwise, of internationallenders with regard to the almost inevitable
shutting down of many non-competitive former import-substitution
activities. As will be suggested below, in the absence of a more clearly
defined and financially supported national industrial strategy which
aims at maintaining and reinforcing a local industry which produces for
the local market and articulating or linking such activities to export-
oriented operations, which is where emphasis has been massively placed
to date, a number of questions remain unanswered. Amongst these, one
may query to what extent the Ivory Coast is not being reascribed and
reconfined, in certain sectors, to the role of a primary agriculture export
producer and to what extent in other sectors the short-term failures of
former industrial interests, which are bound to happen, are not a
precondition for the repurchasing and hence displacing of these
bankrupt enterprises by new private foreign partners.
Before developing these questions in the last section of this chapter,
one may note that an indication of the past importance of foreign
interests-and notably French interests-in the economy during the
1960s and 1970s is suggested by the fact that in 1978 53 per cent of
capital in commercial enterprises was controlled by French investors,
and 30 per cent of the industrial sector was in the hands of French
nationals. French nationals controlled 45 per cent of business turnover
of the modern sector of the economy, and French interests were
responsible for 81 per cent of profits. 13
Massive transfers of funds externally were to be the counterpart to
attracting foreign capital to the secondary and tertiary sectors. Until the
end ofthe 1970s the growing importance ofsuch transfers (noted above)
was masked by the receipts from coffee, cocoa and wood exports. The
conjunctural drops in world prices after 1978 was to reveal the structural
contradictions of the short-term growth strategies of the past.
In the 1970s state expenditures necessary to reproduce the costly
pattern of growth continued to increase, but the sectors which had
traditionally supplied state revenues were less and less able to meet its
increasing exactions.
As the situation worsened, rather than mobilise local savings and
attempt to stall the massive transfers of funds abroad (salaries, profits,
services, and so on) and to put an end to prestigious investment projects,
 Table 4.4 Composition 0/ External Public Debt (Disbursed and Undisbursed) (in billions CFAF current prices)
end 70 end 74 end 75 end 76 end 77 end 78 end 79 end 80 end 81
Suppliers' Credits 14.4 14.5 20.9 20.8 104.5 75.7 90.9 89.1 102.2
Publicly Issued Bonds 9.0 10.6 10.4 10.6 11.4 12.3 20.6 22.8 31.8
Private Banks 16.6 48.7 55.2 98.4 219.7 329.3 362.8 488.5 694.0
International Organisations 7.5 31.5 60.3 65.9 91.0 100.4 121.2 151.1 384.0
Governments 44.8 38.7 43.5 91.6 144.0 91.0 109.6 111.3 195.6
TOTAL 92.4 143.7 190.3 287.3 570.6 608.7 705.0 862.9 1407.6
% Private Banks 18.0 33.8 29.0 34.0 38.6 54.1 51.4 56.6 49.3
SOURCE Ivory Coast, Caisse Autonome d'Amortissement (CAA).

.J>.
--
142 The International Debt Crisis

the Ivory Coast multiplied its foreign borrowing. The evolution of the
Ivorian debt according to official Ivorian figures between 1970 and 1981
is given in Table 4.4 and debt-service ratio until 1979 in Table 4.5.
According to the World Bank, the Ivorian long-term debt increased
from 268 million dollars in 1970 to $7.1 billion in 1985, with total
external debt reaching $8.446 billion in 1985. 14 The figures provided by
the World Bank for the country's total external debt and debt service
ratio are presented in Tables 4.6 and 4.7.

Table 4.5 Evolution of External Public Debt and Debt-Service Ratio (in billions
of CFA current francs)
Year 1975 1976 1977 1978 1979
Source CAA CAA CAA CAA CAA
Public Debt Service: Direct 16.8 23.7 35.7 52.4 80.9
Government-backed Debt Service 13.4 25.6 36.7 42.3 43.6
Total Debt Service 30.2 49.3 72.4 95.0 124.5
Value of Exported Goods and Services 306.4 465.0 656.1 651.0 673.1
Debt Service/Exports (%) 9.9 10.6 11.0 14.6 18.5
Gross Domestic Product 834.5 1114.0 1539.3 1783.0 1944.7
Debt Service/GDP (%) 3.6 4.4 4.7 5.3 6.4
SOURCE Ivory Co ast, Caisse Autonome d·Amortissement (CAA).

As suggested in Table 4.7 and in anticipation ofthe final section ofthis

chapter, the drop in the ratio as of 1984 does not reflect a decrease in
total external constraints but rather the result of debt-payment re-
scheduling which took place at that time. As the figures in Tables 4.4 to
4.7 reveal, by the end of the 1970s and increasingly in the 1980s the
contradictions of the past patterns of growth had become evident.
During the 1960s and 1970s the country's stability had reflected the
capacity of its ruling groups not only to reproduce but also to enlarge the
social basis of state power. The process had inc1uded specific patterns of
investment, employment and local capital formation, each ofwhich was
dependent on the capacity ofthe state to increase its revenues. Although
it will not be possible to discuss these various state policies in detail here,
in this area as well the contradictory nature of the process and its
limitations had become apparent by the late 1970s.
 Table 4.6 Total External Debt 0/ the Ivory Coast (US$ millions)
1970 1975 1980 1981 1982 1983 1984 1985
Total External Debt (EDT) 5922.3 6667.4 7910.1 7557.0 7526.5 8446.3
Long-Tenn Debt 268.4 1 007.8 4863.3 5130.9 6324.7 6106.8 6305.3 7099.6
Public and Publicly Guaranteed 257.4 942.8 4334.3 4372.9 4941.7 4792.8 4955.3 5699.6
Private Non-guaranteed 11.0 65.0 529.0 758.0 I 383.0 I 314.0 1 350.0 1400.0
Use of IMF Credit 0.0 13.1 0.0 371.5 479.4 617.2 591.2 621.7
Short-Tenn Debt 1 059.0 I 165.0 1 106.0 833.0 630.0 725.0
SOURCE World Bank, Wor/d Debt Tab/es, 1986-7 Edition, p. 74.

.-
~
w
144 The International Debt Crisis

Tab1e 4.7 Debt Service Ratio 0/ the lvory eoast (Total Debt Service as a
Percentage 0/ Exports 0/ Goods and Services)
1970 1975 1980 1981 1982 1983 1984 1985
Total Oebt Service (TOS) as a 7.0 8.7 24.0 31.5 34.0 3l.2 19.7 17.4
Percentage of Exports of Goods
and Services (XGS)
SOURCE World Bank, World Debt Tables, 1986-7 Edition, p. 77.

III THE LIMITATIONS OF THE PRESENT PHASE AND THE

FISCAL CRISIS OF THE STATE: THE CURRENT PERIOD
FROM THE LATE 1970s

(a) The manifestation of the limits of the current phase of accumulation

As has been noted, the particular pattern of surplus drain from the
Ivorian economy has been perpetuated, if in a modified form, through
the creation of foreign-dominated and highly protected activities. This
has depended as weIl on a specific pattern of surplus distribution within
the economy.
To give but a single example: the consequences of the pervasive and
monopolistic place occupied historically by colonial and foreign
interests are numerous, and particularly important with regard to the
pattern of local capital formation. As far as access to public funds to
permit the extension or intensification of agricultural production is
concerned, the conditions for obtaining credit depend not only on the
way in which funds are used, but also on who the larger planters or
potential investors are.
If in the past the dominant group which controlled the state could use
an extensive mode of accumulation from agriculture to reproduce and
enlarge its own class basis, by the end of the 1970s the evidence suggests
that the prolongation of this strategy was no longer an alternative. In
view ofthe central economic role ofthe post-colonial state as employer
and investor, the limits of the former pattern of accumulation have
implications for the dominant group's capacity to restructure the
alliances on which its power has depended. The importance of these
limits is conveyed by the fact that in 1980 the state employed over
100000 people of the total 470000 in the modern sector, as weIl as
creating conditions for investment by supplying credit, putting up
capital, guaranteeing markets, and so forth. Since independence the
expansion of state employment and its wage fund, as weIl as the pattern
 Adjustment Lending in the Ivory eoast 145

of distribution and 10cal capital formation dependent on state funds,

have been essential components in the shaping ofthe alliances on which
political stability has been based.
In 1981 a study produced by the Ivorian Ministry of the Plan and
Industry 15 projected that the percentage of people able to find employ-
ment as compared to the active population of working age would
decrease as follows: 51.6 per cent (1975), 46.3 per cent (1980), 41.5 per
cent (1985), 39.1 per cent (1990). By the time the proposed 1981-5
Five-Year Plan appeared, it was recognised that only 20 per cent of
urban active population of working age would be able to find
employment in the so-called modern sector; that 15 per cent would find
work in the 'traditional' or 'informal' sector and that the 'unused'
human potential in urban areas would increase from 223 000 people in
1980 to 671 000 in 1990. 16
In addition, there is a growing gap between the number ofjob-seekers
who have more than primary education, and the availability of
appropriate jobs. To prevent an increasing rate of unemployment
among those who have more years of education, the preparatory study
for the Five-Year Plan (1981- 5) recommended that the rate of entry to
post-secondary specialised training be reduced from 42 per cent (the
average between 1974 and 1977) to 32 per cent in 1985 and to 15 per cent
in 1990. 17
A final and politically critical dimension ofthe question ofunemploy-
ment is the projected decreasing capacity ofthe 'modern' sector to offer
employment to more highly skilled Ivorians.
As noted, the expansion of state expenditure in the 1960s and 1970s
became more and more dependent on foreign borrowing, while
simultaneously intensifying fiscal pressures on tradition al sources of
revenue. The decrease in world export prices of coffee and cocoa after
1978 revealed rather dramatically the structural contradictions of the
previous pattern of expansion whose remedies lay beyond conjunctural
factors such as world prices. The costs involved were partially concealed
for a time through a positive balance of trade (as in 1977, 1978 and
1979), but the latter was negative in 1980 and registered a deficit of 50
billion CFAF in 1981. This situation was exacerbated by the
maintenance of a high level of private transfers at 131.5 billion CFAF
(1980), 132.7 billion (1981), and 131.9 billion (1982).
Under the pressure of loan suppliers, public spending has been
systematically reduced. The rate of increase of public investment, which
had depended increasingly on foreign borrowing since 1977, declined
substantially as of 1979. In 1980 important changes were also made in
146 The International Debt Crisis

the country's policies concerning public and semi-public corporations.

In June 1980, of the thirty-six major state corporations, fifteen were
dissolved and eleven were changed into public-service corporations -
that is, public utilities governed by the regulations of the civil service.
As is almost always the case when such programmes are applied, the
IMF 1981-3 stabilisation policies in the Ivory Coast had as their
objective the curtailing of public investment and the reducing of the
growth rate of current expenditures in order to contain the public
accounts deficit and the balance ofpayments deficit. More specifically,
the 1981-3 programme sought to reduce by half the ratios of public and
external current accounts deficits by the following threefold objective:

- progressively reduce the public accounts deficit to 6.2 per cent of

GDP by 1983;
- progressively reduce the external current accounts deficit to 8.4 per
cent ofGDP;
- progressively stabilise foreign debt-service ratio to approximately
one-quarter of the value of exports of goods and services.

To achieve these goals several measures were imposed: notably a freeze

on public expenditures in real terms at the 1980 level was adopted which,
according to Kouadio, was tantamount to a 20 per cent reduction in real
government expenditures. 18
In fact the operational budget which concerns recurrent expenditure
(Budget general de fonctionnement) was reduced in real terms (in
constant CFAF value) as of 1979. Between 1979 and 1983 the public
investment budget was cut by more than half (in constant CFAF value),
with the far-reaching implications that these contractions entail in-
directly for the expansion of public employment, the wage fund, and
economic activity in general.
What effects does the squeeze on the state budget have for the capacity
of the ruling group to reproduce and enlarge its own basis? The
previously consistent policy of impeding the emergence of a local
industrial capitalist class which might riyal foreign interests was
modified to some extent during the 1970s through highly circumscribed
policies of Ivorisation and a pattern of local capital formation
dependent on the local state. The critical links which have existed
between the Ivorian state and the process oflocal capital formation may
be illustrated in three ways. First, by the links which exist between local
investors and state structures. Second, by the links which exist between
private investment and state participation: in at least one-third of the
 Adjustment Lending in the Ivory Coast 147

firms in which there were private Ivorian interests in the 1970s, there was
also state participation. Third, by the use of public funds, services,
equipment, by guaranteeing protected markets, access to credit,
influence, and so forth, as the necessary means (in view of the
monopolistic control by foreign interests) of setting up a process oflocal
'parallel' accumulation. The use of public funds in local private capital
formation partly explains the lack of centralised control over financial
decision-making, which had assumed critical proportions by the la te
1970s. The official estimate for 1980 of the debt for the operational
budget was 20 billion CFA francs; for the public investment budget, 50
billion CFAF; for the Caisse Autonome d' Amortissement, 20 billion;
for the Caisse de Stabilisation, 30 billion; and for public corporations,
approximately 100 billion (of which SODE SUCRE represented 64
billion), a total of 220 billion CF A francs.

(b) The conditions necessary for surpassing the limits of the past pattern
of accumulation

What has been labelled 'parallel accumulation', 'coulage' or corruption,

and so on, appears not so much as the sign of dysfunctions or errors of
past policies but, rather, reflects the specificity of the conditions of
accumulation in a post-colonial context; notably the narrowness of the
internal base oflocal accumulation, and the conditions for the retention
and reproduction of political power in the Ivorian context. From this
line of argument it follows that these tendencies cannot be 'reformed'
until productive activities have been fundamentally restructured.
As is weIl known, according to the chieflending organisations such as
the IMF and the World Bank, the central means by which structural
adjustment is to take place is through market forces and a drastic
reduction of state intervention:

1. a larger place for the private sector;

2. the liberalisation of prices and an end to subsidies;
3. a decrease of protection to obtain a better insertion into the
international market, and so on.

While there is surely room for reassessment of certain state policies, and
especially room for a historical analysis oftheir 'raison d'etre', one may
question the soundness of favouring the private sector and full freedom
of market forces.
If one keeps in mi nd the example of the Ivory Coast, increases in
148 The International Debt Crisis

production in the 1980s imply increases in productivity which are not to

be expected from price increases alone. They will necessarily entail
increasing intensification of techniques which in turn means technical
training, supervision, and so forth. While a certain degree of
intensification of agricultural production has resulted from the prog-
rammes of the former colonial private companies which have retained
responsibility for specific crops - for example in the case of cotton by the
Compagnie Franc;aise de Developpement des Textiles in West Africa 19 -
this has most often been undertaken without regard for the conse-
quences to other crops (most notably food crops) and especially the
more global socioeconomic implications of such policies. One may
therefore conclude that government programmes of agricultural im-
provement and intensification which are capable of taking into account
and balancing local interests, national considerations and external
constraints require planning that only the local state is in a position to
supply. It logically follows that to undertake such measures, state
budgets must be increased proportionately - a point which is hardly
compatible with the current tendency of drastic budgetary contractions.
It is one thing to recognise the role ofthe post-colonial state assuming
certain functions previously performed by merchant capital (the
updating of a highly protected foreign sector, the increasing subordin-
ation of the export sector to the needs of a non-competitive industrial
sector, the perpetuation of a particular pattern of surplus drain both
at horne and abroad, and so on). It is another to postulate the complete
withdrawal of the state, for many reasons it is not possible to develop
here, such as the inherited imbalances present in post-colonial society;
the complexity of rural productive systems; the conditions for the
intensification of agricultural production in the Ivorian context in the
1980s, and so forth.
More market forces, if they are to prevail, must surely be accom-
panied by a regulatory role of the state and the reinforcing of certain
social groups which have been marginalised by past historical and
political factors.
More fundamentally, overcoming the contradictions of the Ivorian
'model' will entail nothing less than abandoning the economic
mechanisms and forms of accumulation which in the past permitted the
economic ascension and access to power of the dominant ruling group,
and which have permitted this group to reproduce the ruling alliances on
which its power has depended. For overcoming the limitations of this
model entails, amongst other things, the adoption of a mode of
organisation of productive activity capable of increasing productivity
 Adjustment Lending in the lvory Coast 149

through the intensification of techniques in the agricu1tura1 sector and

the adoption of productive, as opposed to marketing, strategies in the
industrial sector. Without such an overhaul, the structural contradic-
tions which have given rise to indebtedness, non-competitive loca1
production, and inabi1ity to supp1y the loca1 market or to export, and so
on, will inevitably worsen. The pattern of revenue transfer on which the
Ivorian experience was based was recognised by the country's new
creditors before the drops in world prices made its limitations blatantly
obvious: 'The industrial sector, on the whole, is subsidised, and it is the
forest and agricultural sectors which supply the means to do SO.'20
In spite of this recognition - and as will be seen in more detail be10w-
far from representing a major overhaul, the adjustment policies put
forward by the principal international lending organisations have
entailed short-term attempts to overcome the present obstacles to
continued accumulation, without significant change in the extroverted
orientation to growth. They have entailed as weIl massive foreign
borrowing which has been forthcoming from essentially North
American sources, suggesting the displacement of traditional suppliers
of funds by the mid-1970s. This new phase of penetration by inter-
national capital would seem to require a particular pattern of the
development of productive forces, involving increases in productivity,
which in turn entails changes in the organisation of production.
Within this context one may understand the centrally important role
of the World Bank in financing development in the Ivory Coast,
particularly since 1975. In 1981 the $150 million loan for a programme
of structural adjustment brought the total ofWorld Bank funding to the
country to $906 million. According to the country's President, this sum
was to reach one billion dollars by 1983.21
Since 1981 the Ivory Coast has received from the World Bank a
Technical Assistance Loan and a second Structural Adjustment Loan
which, like the first, is linked to reforms in the management of public
finances, agriculture, industry and housing. A third Structural Adjust-
ment Loan of$250 million was confirmed in May 1986. Together these
three Structural Adjustment Loans represented over $650 million.
To these figures must be added the various IMF programmes. At the
end of the 1981-3 loan period, the country had received 446 million
SDR ofthe total 485.5 million SDR projected for the three-year period-
a tranche having been withheld because all the criteria of performance
had not been achieved. A one-year Stand-by Agreement was approved
in May 1984. It made available supplementary drawing rights to the
value of 82.75 million SDR. The latter came into effect on 3 August
150 The International Debt Crisis

1984. As already noted above, in the four-year period 1984 to 1987 the
three Ivorian Stand-by Arrangements rose to a total balance of
payments assistance of over 733 million SDR, ofwhich 695 million SDR
was disbursed. In addition, in 1981 the Ivory Coast obtained a loan
worth 114 million SDR as compensatory financing and drew upon an
ordinary credit tranche of 28.5 million SDR.
The place occupied by foreign borrowing in Ivorian finances has given
the country's creditors, whether they be the IMF or the World Bank,
very important leverage, for beyond the actual sums involved these
organisations lead and co-ordinate the interests and interventions of
other creditors. Moreover - and as will be seen - the IMF and the Bank
are in key positions to inftuence the orientation of development policies
very far beyond the usual supervisory role they play when funds are
approved.
As with all W orld Bank loans for deve10pment projects, the terms of
the agreements are accompanied by conditions which must be 'satisfac-
tory to the Bank' concerning the selection of consultants, their
qualifications and experience; the selection of contractors, the timing of
the implementation of programmes, and even the adoption of new
statistical instruments and methods of calculation. By the end of the
1970s, as the country's economic difficulties became all the more
apparent, the Bank stepped more fully into the arena of decision-
making. A central area of its recommendations, linked to structural
adjustment funding, concerned the exercise of tighter control over
certain very protected activities, notably concerning pricing and subsidy
policies as outlined by the 1981 study Prix, aides, subventions et taxes. In
this example one can see a direct challenge to certain functions formerly
assumed by the state in favour of private interests, dependent for their
perpetuation on the privileges and forms of accumulation inherited
from the colonial period.
Moreover, the Bank's intervention - not only in financing develop-
ment, but also in contributing to defining the objectives of development
- creates new areas of economic activity for private as opposed to public
capital, and openings for suppliers of foreign capitallinked more c10sely
to the Bank-IMF groups, where previously European and essentially
French interests had been dominant.
This new phase of capital penetration, if it is to take place, would seem
to require both changes in the mode of accumulation and finance and,
increasingly, changes in the organisation of production. To this end,
there is arecent interest on the part of lending organisations resulting
from their policies for associating nationals with the new objectives and
 Adjustment Lending in the Ivory eoast 151

projects which had previously been controlled alm ost exclusively by

foreigners. It is within this context that one can see the fuller significance
ofpolicies recommending the acceleration ofIvorisation, whether it be
the promotion of local capital formation, the training of nationals
according to the norms ofthe new suppliers ofloans and foreign capital,
and so on. Moreover, a proposed strategy for changes in the mode of
accumulation is made explicit in the 1981 IMF Report, which recom-
mends a process of 'financial deepening and the spread of the capital
market', notably through the creation of a domestic market in
government securities. lust as at the time of political decolonisation,
when a particular phase of capital penetration had as its counterpart an
internal process of differentiation with the emergence of a dominant
planter group closely linked to metropolitan markets and resources,
current attempts to restructure the process of accumulation call for the
consolidation of new local forces as economic partners and political
allies.
In terms of control of state power, it will be important to analyse the
impact of new foreign interventions - whether of international financial
organisations, public or private capital - on the constellation of forces
within the ruling alliances. More fundamentally, and underlying the
political process, is the emergence of new social relations and new
contradictions within the dominant local groups, and between them and
new categories ofproducers. To give one example: planning documents
concerning future cotton production call explicitly for the creation of
'agents cibles' or selected cultivators, target groups of young modern
producers, able to meet credit conditions and to hire labour. These new
cultivators will no doubt benefit from the intensification of cotton
production, but their own 'success' depends on the emergence of new
patterns of wage labour. Research on cotton extension programmes
suggests that if in the short term the emergence of such a group of
wealthier producers will serve to stabilise the new forms of production
and to keep down the cost of cotton to the local textile industry, the
conditions and techniques introduced to this end will entail the
accentuation of social differences and contradictions within the cotton-
growing areas. 22
More generally, the extension of capitalist relations of production and
new lines of differentiation, manifested in a new phase and type of
expansion ofthe domestic market and the accelerated formation of an at
least partially proletarianised urban and rural wage force, are the
conditions for the current phase of penetration of international capital
and the related process of local capital formation.
152 The International Debt Crisis

Moreover, within this process of accelerated social differentiation,

given the present emphasis of foreign lenders' adjustment policies on
'austerity', budget cuts and demand constraints, one cannot see how the
present policies could do otherwise than accelerate the impoverishment
of those social categories least able to defend themselves. To illustrate
this point one may look more closely at the existing results ofthe Ivorian
IMF programme from 1981 to 1983, and especially at the emphasis of
the subsequent measures taken.
With respect to public finance, after the first recovery programme had
run its full course there was a 3 per cent excess of the ratio of deficit to
GDP as compared with the target. 23 The current 1983 account deficit
exceeded the original target by more than 3 per cent. Increasing foreign
borrowing by the public sector contributed to a decline in the balance of
payments deficit within the programme target. However, rising debt-
service ratios suggest increasing deficits in the future. As noted above,
according to the study quoted the debt-service ratio increased from 24.5
per cent in 1980 to 36.1 per cent in 1983 instead of declining.
As for real GDP, according to the same source, instead of rising at
least in 1983 as anticipated, it declined 13 per cent. In view of these
disappointing results, a new set of austerity measures was adopted. The
targets for the 1984 programme included:

- A reduction of the public sector deficit to 3.6% of GDP from the

level of more than 9% observed in 1983 by freezing public
expenditure at the 1983 level and raising revenue through rate
increases for public services and some consumer goods: 25%
increase in the cost of electricity and water; 23% increase in the
consumer price ofrice. An "adjustment" in the price ofbread was
even contemplated; however, it had to be discarded following
"IMF riots" in North Africa.
- A reduction in the external current account deficit of7.2% ofGDP
from more than 14% in 1983;
- A strong rehabilitation program for the private sector. In agri-
culture, more incentives were to be provided through producer
price increases. In industry, severe liquidity problems encountered
by firms were to be lessened by a planned reduction in government
arrears and an increase in the competitiveness ofIvorian firms due
to a modification in the overall structure of incentives. The latter
policy is particularly worth stressing since, being a member of the
Franc Zone, the Ivory Coast cannot independently contemplate a
devaluation of the CF A franc. An alternative tool has been used
 Adjustment Lending in the Ivory eoast 153

centering on export subsidies financed by higher import duties and

tariff surcharges on imports previously subject to quantitative
restrietions .24

These measures, together with a New Investment Code implemented in

1984 and a new tax system, are amongst the most important aspects of
the more recent reforms in the industrial sector. The question is whether
these reforms will be able to stimulate industrial activities, which by the
late 1970s were dragging their feet. What kind of activities, and with
what social and economic impact?
While there is every reason to believe that the industrial reforms, and
notably the export subsidies, will succeed in encouraging the establish-
ment or development of large foreign firms in export-oriented activities
in the agro-business sector, their implications for the rest ofthe economy
are far from certain.

I. Will those firms responding to the reforms be able to do so with less

recourse than in the past to foreign factors of production (inputs,
expatriates, foreign transfers for licences, royalties, technical
assistance, insurance, and so on)?
2. Will there be a policy put forward to encourage linkages to
domestic supplies?
3. In the Ivorian context, the development ofsmall and medium-sized
businesses under Ivorian control does not depend on purely
economic matters, and this issue does not seem to have been
addressed in these terms.
4. The role to be played by the Lebanese interests is still to be clarified.
5. Nothing much has been said or done about local savings and their
investment in local productive sectors, as opposed to the past
pattern ofinvestment primarily in real estate or transfers to foreign
banks.

In the longer run - and following the hypothesis that I vorian industry is
destined, as the Bank suggests, to export-oriented activities in agro-
business essentially (for the other areas mentioned, textiles and wood
products, do not show much promise so far) and industries based on
unskilled labour - the country will have to take measures to counteract
the following well-known side-effects:

1. A tendency towards deindustrialisation or shut-downs of those

industries which produced for the internal market, as a direct
consequence of opening up the economy.
154 The International Debt Crisis

2. A significant drop in the salary levels of unskilled labour to the

benefit of a few firms - often foreign firms undertaking initial,
limited first stages of transformation of the country's resources
without areal possibility of appropriating know-how and of
integrating various processes of transformation locally.
3. Great vulnerability vis-a-vis world demand, particularly in view of
the fact that export-oriented strategies are recommended simul-
taneously to numerous countries and the Ivory Coast is amongst
the last to try to enter this area.
4. Great vulnerability vis-a-vis the strategies of transnational firms
which control a great many of the outlets for the products
concerned and whose logic of operation is determined on aglobai
world-scale framework rather than that of the needs of a specific
country.

To conclude these brief remarks concerning the industrial sector, part of

the remedy rests in areas such as the following:

1. Maintaining and reinforcing a local industry which produces for

the domestic market and the articulation or linking of activities
destined for the internal market and export. This implies the
introduction of selective incentives and, more generally, adopting a
national industrial policy. The initial World Bank loan of $30
million for industrial restructuring and development was destined
precisely for this type of measure. It can be a beginning but must
develop into a medium- and longer-term national industrial
strategy - that is, there must be conscious policies to establish
linkages and cumulative effects, amongst other things, between the
large export-oriented firms and the local small and medium-sized
enterprises. The reinforcing of the domestic market depends,
however, on the structure of demand and income distribution. The
more incomes are concentrated and the more funds are transferred
abroad and luxury goods imported, the less williocal consumption
tend to increase.
2. If there is to be a reduction of salary scales which takes place in
such a way that the country remains competitive, it must also be
done in such a way as to avoid the impoverishment of unskilled
workers. In this respect it may be noted that Ivorian salary scales
were more skewed than in other areas. For example, in 1982 the
average salary differential in the industrial sector was 1:20 or even
1:30, while it was approximately 1:10 in industrialised countries.
 Adjustment Lending in the Ivory Coast 155

3. There is a need to maintain a margin ofmanoeuvre vis-a-vis foreign

investors, in such a manner as to preserve for the country aspace of
autonomy in the face of the changing international environment
and so as to be in a position to encourage firms to increase the
degree of transformation undertaken locally. To illustrate this
point and ongoing tendencies, one may cite one example. With its
purchase of Blohorn (1981 ), Unilever gained a monopoly over all
fat and oil production in the Ivory Coast.

As for the agricultural sector, numerous measures have been introduced

since 1981, notably in the restructuring of state enterprises in the rural
sector; in the progressive abolishing of certain subsidies for inputs; in the
increasing ofthe price of rice both for producers and for consumers; and
in the turning over to private interests of rice mills and the management
of Palmindustrie.
However, the central reforms for the rural sector were contained in
the third Structural Adjustment Loan, signed in May 1986. These
reforms inc1uded:

1. The redefining of the terms of exchange between the agriculture

and other sectors in a manner more favorable to agricultural
producers.
2. The increase in producer prices of coffee and cocoa in order to
attribute a larger part of surplus to producers so that they might
invest and improve their holdings.
3. The alignment of producer prices on world prices (except for coffee
and cocoa, and after negotiations not for cotton) by an automatic
system of price revision. This measure has already affected rubber
and palm-oil products.
4. The abolition of subsidies for inputs.
5. The improvement of agricultural extension work through the
generalised application of the 'Benor system' (training and visit
system).
6. The continuing of the policy to privatise production of parastatals
in the rural sector - notably SODESUCRE, which was in this
particular case refused by the Ivorian government, and with good
reason.

It is obviously too early to evaluate the impact ofthese proposals, not all
of which were accepted by the Ivorian government. However, several
points merit special attention:
156 The International Debt Crisis

1. The proposal to pass on to producers (with a certain possibility of

introducing some corrections) the fluctuations ofworld prices for
agricultural exports implies considerably increasing their
vulnerability. This is particularly true in view of the fact that
Ivorian producers do not at present have either organisations or
systems of information which, as in certain industrialised count-
ries, could give them a minimum offlexibility to lessen the effects of
the fluctuations in world prices.

2. On another issue, the question of regional disparities and unequal

wealth distribution, the relative system of prices continues to give a
net advantage to the remuneration of a day's work in the forest
area as opposed to the savannah, in spite of the substantial
increases in prices to producers of rice and cotton in the Ivory
Coast. Moreover, certain of the conditions under which the
intensification of cotton production is taking place would seem,
according to our research, to lead to greater social differentiation
between regions and the marginalisation of certain groups of
producers. 25 Research undertaken in the cotton-growing regions of
the Ivory Coast suggests that the nature ofthe changes introduced
- particularly in the absence of a solution to labour shortages - and
the reliance on market forces to increase cotton output have
contributed to the growing decline of food crops to the advantage
of cotton, and growing socioeconomic inequalities both within the
cotton-growing areas and between these areas and the rest of the
economy. Moreover, the conditions under wh ich cotton produc-
tion has been extented has significantly changed social relations.
For one thing, it has meant the marginalisation of certain small
producers no longer able to assume the hardening conditions, with
the resulting loss oftheir land as they become farm labour for other
cotton producers. It has also meant a net increase ofthe workload
for women in cotton production, thus reducing their time for other
crops or other activities which had given them a degree of
economic independence and consequently leading to a greater
subordination of women to men. These are only some of the
'non-quantifiable' but critically important 'costs' of present policy
reforms.

3. The passage to more intensive forms of agriculture is a long and

complex operation. The hypothesis ofpresent planners appears to
be that a better technico-economic environment (credit plus
 Adjustment Lending in the Ivory Coast 157

extension workers), price incentives (world prices for inputs) and

finally better prices for crops will contribute to the emergence of
'paysans pi/otes' or model farmers able to reinvest in their holdings,
intensify their production and increase the productivity ofland and
labour.

This hypothesis, however, neglects certain characteristics ofthe present

situation:

(i) While based explicitly on the emergence of wage labour and

consequently increasing social differentiation within the regions
affected, there are no measures or mechanisms fore seen to permit
a more equitable redistribution of revenue, counteracting grow-
ing inequalities.
(ii) Moreover, studies at the end ofthe 1970s on savings in the rural
areas suggest that very little is reinvested to improve or intensify
production.
(iii) The actual undertaking of investments required by
intensification presupposes that the question of land-holding be
solved, but this explosive problem has not yet found an adequate
solution.
(iv) Finally, most centrally and as noted above, is the question ofthe
role of the state. While there is surely room for a reassessment of
certain state policies and especially room for an analysis of their
'raison d'etre', one may question the soundness of favouring the
private sector and full freedom of market forces.

CONCLUSION

The 'success story' based on the prolonging and intensifying of

export-led growth promised to the Ivory Coast by internationallending
organisations in the 1980s has been based on two salient factors:

(i) considerable austerity ofpublic spending, the degree ofwhich is at

times mitigated by the second factor:
(ii) closer integration to world market forces and prices, whose brief
upward fluctuation may bring momentary relief masking temp-
orarily the severity of austerity measures and the deep underlying
structural contradictions which, because they are not addressed,
will more than likely not be resolved.
158 The International Debt Crisis

The question of austerity has been illustrated by the restrictive measures

implemented after the not altogether satisfactory results of the 1981- 3
stabilisation policies. Moreover, in 1985 there was an alignment of
salaries in the para-public sector on those of the civil service, which
provoked a reduction for 90 per cent of the 1600 employees of state
enterprises of between 20 and 60 per cent. At that time there was
(amongst other things) discussion of abolishing public support to
hospital patients, and a sizeable reduction in the number of bursaries
granted to students was implemented.
In 1985-6 there was an improvement in the country's export receipts
due to increases in world coffee prices, increases in the quantity of coffee
and cocoa produced, and finally the rescheduling of the Ivorian debt.
This reprieve gave the country more room for manoeuvre but in no way
changed its state of massive indebtedness. The brief period of reprieve
did permit:
(i) a slight increase in public investment;
(ii) a slight increase in salaries;
(iii) the recruitment of 1500 diploma-holders for the public service.
Before one had a chance to study the nature and impact of this new
increase in public spending the situation had reversed itself again,
illustrating weIl the process of 'linkage and vulnerability' analysed
earlier in this book by Kari Levitt. With an all too familiar swing, as of
September 1986 there was a significant decrease in coffee and cocoa
prices, on which the country still depended for 60 per cent of its export
receipts. In one year, coffee lost 40 per cent ofits value and cocoa 25 per
cent. This trend continued, and by March 1987 coffee prices reached
their all-time low over the last five years. It was in this context that the
country's President, Houphouet Boigny, announed on 25 May 1987 that
the Ivory Coast would cease all repayments of its debt service.
Combined with the depreciation of the dollar via-a-vis the CFA franc,
the situation became very difficult. Public spending had to be curtailed
once again, and hardest hit was the investment budget.
One important aspect ofthese constraints which is rarely addressed is
how the burden of austerity is shared, or how the 'conjoncture', as it is
called in Ivory Coast, affects the population.
It is not difficult to document how the burden of adjustment proposals
has been borne. Several indicators will illustrate this point:

(i) Adjustment measures precipitated a process of deflation which

between 1981 and 1985 brought about a 30 per cent decrease in
per capita consumption.
 Adjustment Lending in the Ivory Coast 159

(ii) Between 1980 and 1985 there had been a process ofimpoverish-
ment for certain groups in society, as revealed by iinportant
decreases in consumption. This was very true ofthe consumption
of meat and fish; cloth (a 25 per cent drop); beer (20 per cent);
bottled drinks (50 per cent) - over aperiod when the population
increased by more than 20 per cent.
(iii) A process of industrial shut-downs which between 1978 and 1984
for the building and public-works sector alone brought about the
lay-off of 40 000 workers.
(iv) Adefinite accentuation of internal social tensions in view of the
decrease of employment in the so-called 'modern' sector, where
the number employed was reduced between 1978 and 1984 from
243000 to 165000 - that is, by over one-third.

It can be expected that the above trends will have as their counterpart
the inevitable intensification of a tendency towards more authoritarian
and repressive state intervention.
The elements for a structural critique presented above do not provide
a blueprint for adjustment but rather suggest that alternative program-
mes should be tailored to the structural characteristics ofthe country in
question, and should deal with the specific social and economic
problems being faced at any particular time. 26
To give but two examples: the specific forms which the extension of
wage-labour relations will take and the new patterns of social different-
iation which will emerge in the Ivorian context under the impact of
adjustment policies are the results of a historical process, specific to that
country, on which empirical research has yet to be done. Similarly, the
moving constellation of forces within the doninant groups controlling
the state apparatus may be seen - in addition to multiple and complex
other forms of cleavages of a regional, ethnic nature, and so forth - as an
extension and a reflection of this same process of the restructuring of the
current phase of accumulation. More specifically, one might weIl expect
cleavages between those who seek to use state institutions to prolong the
forms of accumulation left by the colonial period as opposed to those
strengthened by new sources of foreign credit and capital, for whom
such practices merely seek to impede the process of expanded reproduc-
ti on on which their interests depend. These cleavages and alliances are
far from static. They are continually being redefined, depending on
issues, giving rise to policies which at times appear inconsistent and even
contradictory.
In the case of the Ivory Coast, what certain interpreters have seen
essentially as aperiod of transition of politicalleadership is in fact a far
160 The International Debt Crisis

deeper process involving the attempt to restructure the past phase of

accumulation, as a condition for overcoming the obstacles to the
continuation of this process. The current phase of attempted restructur-
ing, involving the extension of capitalist relations of production and new
lines of social differentiation, has inevitable and crucial repercussions at
the level of the state, which is the site of struggle amongst the complex
competing forces involved. During this process one cannot speak of the
hegemony of national as opposed to international capital or a fraction
of one of these, whether it be the dominant planter group or an emerging
fraction ofthe urban-based 'bourgeoisie d'a.fJaires' linked to a particular
set of foreign partners; for, as Gavin Kitching has pointed out, it is
precisely the question of hegemony which is one of the central issues at
stake. 27 The outcome ofthis unresolved historical process will depend at
least as much on the struggles between internal dominant groups - and
in particular, their struggles with other emerging classes in Ivorian
society - as on the strategies of dominant foreign interests which, far
from being monolithic, are themselves in competition with each other.
The above analysis, which has been concerned with certain social and
economic consequences of adjustment policies in the Ivory Coast based
on available preliminary results of such measures, suggests that the
perspective will involve deflation, impoverishment for certain sectors of
the population, possible industrial shut-downs and increasing internal
tensions without real certainty as yet as to where or how a new dynamic
economic process is to be set off and structural changes are to come
about.
Within this context one may conclude that if structural adjustment is
to take place:

1. There is a very distinct need to lessen external constraints by the

writing-off of debts, and a need for the creation of financial
mechanisms permitting greater transfers of resources for longer
periods and on softer terms.
2. What seems most urgent, moreover, is the need to recognise the
link between structural adjustment and the dangers of increasing
marginalisation of certain sectors of the population.
3. Also, the past experience of African countries over the last few
years shows that a programme of structural adjustment which is
not backed by a political programme which has wide support
amongst the population has every chanCe of failing.
4. Finally, one must therefore consider explicitly the socioeconomic
and political transformations which accompany the process of
 Adjustment Lending in the Ivory eoast 161

adjustment in order to be ab1e to determine which objectives are to

be retained as socially desirab1e and which are to be rejected as
undesirab1e.

NOTES

1. Y. Kouadio Yao, 'Socioeconomic Impact ofIMF Stabilization Programs:

The Case ofthe Ivory Coast', in Brazil and the Ivory Coast. The Impact of
International Lending, Investment and Aid, (eds). Werner Baer and John F.
Due (Greenwich, CT: Jai Press, 1987) p. 183.
2. Ibid.
3. John Loxley, 'Alternative Approaches to Stabilization in Africa', in Africa
and the International Monetary Fund, ed. Gerald K. Helleiner, papers
presented at a symposium held in Nairobi, Kenya, 13 -15 May 1985
(International Monetary Fund, 1986) p. 120. Concerning the conclusions
that African economies have a low capacity to adjust, Loxley cites Sidney
Deli, 'Stabilization: The Political Economy of Overkill', in John William-
son, (ed.), IMF Conditionality (Washington: Institute of International
Economics, 1983) pp. 17-45; and G.K. Helleiner, The IMFandAfrica in the
I980s (Princeton University, Essays in International Finance, No. 152, July
1983).
4. B. Campbell, 'The Fiscal Crisis ofthe State: The Case ofthe Ivory Coast', in
Henry Bernstein and B. Campbell (eds), Contradictions 01 Accumulation in
Africa: Studies in Economy and State (Beverly Hills, CA: Sage, 1985)
pp. 267-310.
5. The currency unit of the Ivory Coast is the CFA franc, which originally
meant Colonies fram;aises d' Afrique and which now (since 1973) means
Communaute financit!re africaine. A fixed parity exists between the CFA
franc and the French franc: one French franc = 50 CFA francs. The CFA
franc floats against the US dollar. In the early 1960s the rate fluctuated with
variations at approximately one US dollar = 250 CFA francs. Particularly
since 1981, fluctuations have been important:

1978 US $1 = 225 CFAF

1979 US $1 = 212 CFAF
1980 US $1 = 211 CFAF
1981 US $1 = 271 CFAF
1982 US $1 = 328 CFAF
1983 US $1 = 381 CFAF
1984 US $1 = 437 CFAF
1985* US $1 = 498 CFAF
* 1st trimester.
SOURCE IMF, International Financial Statistics.
162 The International Debt Crisis

6. E. Lee, 'Export-Led Rural Development: the Ivory Coast', Development and

Change, vol. 11, 1980, p. 639.
7. J.-M. Gastelluand S. Affou Yappi, 'Un mythe ädecomposer: la bourgeoisie
de planteurs', in Y.-A. Faure and J.-F. Medard, Etat et bourgeoisie en Cote
d'Ivoire (Paris: Karthala, 1982), p. 175 (quoted from J.-C. Berthelemy, 1977.
(14).
8. Ivory Coast, Ministry of the Plan, 'L'industrialisation des regions en Cöte
d'Ivoire', Direction generale du Developpement Regional, by P. Ferrault,
Y. Heyman, P. Thenevin and J. Zaslavsky, vol. I, (Abidjan, May 1980)
p. 171.
9. Ivory Coast, Compagnie Ivoirienne pour le Developpement des Textiles
(CIDT), Rapport annuel d'activites Campagne 1979 -1980 (Abidjan, 1981).
10. B. Camp bell, 'Neo-colonialism, Economic Dependence and Political
Change: A case study of cotton and textile production in the Ivo,ry Coast,
1960 to 1970', in Review of Afriean Politieal Eeonomy, no. 2, 1975.
11. Ibid.
12. Louis Gouffern, 'Les limites d'un modele', in Politique Afrieaine, Paris,
no. 6, May 1982, p. 26, Note 7.
13. Afriea Confidential (UK) (vol. 20, no. 16, 1 August 1979).
14. World Bank, World Development Report 1987 (New York: Oxford Univer-
sity Press for the World Bank, 1987) Table 16: 'Total External Debt', p. 232.
15. Ivory Co ast, Ministry ofthe Plan and Industry, 'Contribution ä I'atelier sur
I'utilisation des indicateurs socio-economiques dans la planification
nationale et regionale' (September 1981) p. 10.
16. Ivory Coast, Ministry ofthe Plan and Industry, Projet de Plan Quinquennal
de Developpement Eeonomique et Socia11981-1985, Tome 11, Planification
Sectorielle, vol. 2 (March 1981) pp. 26-7.
17. Ivory Coast, Ministry ofthe Economy, ofFinance and the Plan, Preparation
du Plan de Developpement Eeonomique, Social et Culturel, 1981-1985,
Fascieule IV: Edueation et Emploi (Abidjan, 1979: Direetion Generale de la
Planifieation, Direetion du Plan) p. 22.
18. Y. Kouadio, op. cit., p. 176.
19. This point is developed extensively in B. Campbell, 'Inside the Miracle.
Cotton Production in the Ivory Coast', in Jonathan Barker (ed.), The
PoiWes of Agrieulture in Tropieal Afriea: Transnational, National and Loeal
Perspeetives (Beverly HiIIs, CA: Sage, 1984) pp. 143-71.
20. The World Bank, quoted by Jacques Baulin, La politique interieure
d'Houphouet-Boigny (Paris: Editions Eurafor Press, 1982) p. 166.
21. Fraternite Matin, Abidjan, 29 April 1983.
22. B. Campbell'Inside the Miracle. Cotton Produetion in the Ivory Coast', op.
eit.
23. The following results are drawn from the analysis of Y. Kouadio, op. eit.,
p.176.
24. Ibid., p. 177.
25. B. Campbell, 'Inside the Miracle. Cotton Production in the Ivory Coast', op.
eit.
26. J. Loxley, op. eit., p. 14.
27. Gavin Kitching, 'Polities, Method and Evidence in the "Kenya Debate"', in
Bernstein and Campbell (eds), op. eit., pp. 115-51.
5 The Politics ofthe
Mexican Debt Crisis *
Judith Teichman

INTRODUCTION

By the end of 1982 Mexico faced its most severe economic recession
since the Great Depression. The country that by 1981 was the fourth
largest oil producer witnessed a fall in gross domestic product of .5 per
cent and an inflation rate of98.8 per cent in 1982. With a foreign debt of
almost 85 billion dollars, second only to that of Brazil, and its foreign
exchange reserves almost exhausted, Mexico signed an agreement with
the International Monetary Fund in November 1982 committing the
country to a strict austerity programme in return for a loan from that
organisation.
Superficial improvements in the Mexican economy between 1983 and
1984 belied basic structural problems. While Mexico's balance of
payments recovered in 1983-4, largely due to the forced suppression of
imports, living standards deteriorated rapidly as unemployment in-
creased and purchasing power declined. In 1984 alone the consumption
of basic foods fell by 20 per cent.' Between 1976 and 1984 consumer
purchasing power declined by 50 per cent. 2 Moreover, by 1985, as
economic growth resumed, Mexico's balance of payments again began
to deteriorate as imports picked up. The situation was further exacer-
bated by capital flight, declining non-oil exports and declines in tourism
and foreign investment. With the drop in petroleum prices and exports
in 1986, the Mexican economy was once more in crisis.
Economic factors, particularly international ones, have been held
largely responsible for the severity ofMexico's economic crisis. Indeed,
such events as the oil crisis of 1973 and the resultant availability of
recycled petroleum dollars on the international market, the increase in
interest rates and the fall of petroleum prices in 1981, were of critical
importance in explaining the rapid explosion ofMexico's foreign debt in
1981-2. There is no question that the continued fall in petroleum prices
set the stage for Mexico's second economic crisis in 1986.
At the same time, however, internal political factors - especially
before 1982 - interacted with international economic events to produce

163
164 The International Debt Crisis

a more severe crisis than would otherwise have occurred. This chapter
argues that the historical role of the Mexican state, the pattern of
capitalist development it had been pursuing, and the relation of the state
to the private sector severely circumscribed the manoeuvrability of the
state in its choice of policy by the early 1970s. A strategy of rapid
economic growth based upon petroleum exploitation and rising public
foreign debt (74 per cent ofthe total foreign debt in 1981) emerged as by
far the most attractive and the most politically feasible policy altern-
ative. Moreover, after 1976, and especially after 1979, the expansion of
the public foreign debt was an explicit policy of state managers3 who saw
their dilemma as primarily a political one of restoring business
confidence, strengthening popular support, and responding to a specific
set of state interests. These political considerations, responding to the
state's interest in ensuring the existing political order and maintaining its
power, predominated in the choice of economic policy, overriding
alternative choices which could have alleviated the deepening economic
crisis.
As Mexico's economic crisis deepened after 1982, rising political
unrest - from labour, peasants, university students, intellectuals, and
even from the usually quiescent middle class - has threatened the
legitimacy of the prevailing political order. Although Mexico's techno-
cratic elite has demonstrated a surprising degree of ftexibility in its
efforts to contain political discontent, the lubrication of Mexico's
patronage system, one ofthe most important bulwarks ofthe country's
political stability, was, after 1982, faced with the obstacle of declining
resources. As a consequence, we argue, the position ofMexico's political
leaders on the Mexican debt has been very much patterned by the threat
which the economic crisis has posed for the legitimacy of the regime and
the continuity of the political order. In short, from the mid-1970s to
1987, political considerations have predominated in the choice of the
policy positions taken by Mexico's rulers.
Our analysis begins by sketching the historical role of the Mexican
state and the development dilemma it faced by the late 1960s, when an
internal economic and political crisis coincided with an international
economic crisis.

THE POLITICAL HISTORICAL ROOTS: THE COINCIDENCE

OF EXTERNAL AND INTERNAL CRISES

The role of the Mexican state has been of paramount importance in the
evolution of Mexican capitalism. Reversing the earlier period's
 The Po/ities 0/ the Mexiean Debt Crisis 165

emphasis on peasant co-operatives [ejidos] and small-scale peasant

agriculture, the regimes of 1940-70 implemented an explicit strategy of
industrialisation.4 While agriculture declined its proportion of total
public expenditure, stimulus was given to commercial export agricul-
ture. The years 1958 to 1970- the period of'stabilising development', as
distinct from the 1940-57 inftationary period - were characterised by
price stability and by policies stimulating import-substitution in con-
sumer durables with the increasing importance of foreign capital.
Highly protective policies were the axle of economic expansion, with
heavy public-sector investment in infrastructure and industry.
It was under the tutelage of the state that the private sector arose and
expanded. A system of national credit institutions was created to
channel resources into basic industrial activities, infrastructure, and to
provide loans to the private sector. Other mechanisms promoting
industrial expansion included an unusually low rate of taxation on the
private sector and the maintenance of low prices for industrial inputs,
especially energy, supplied by the state.
Despite the state's very interventionist role and the growing impor-
tance of state investment, public debt to foreign sources did not become
a serious problem until after 1966. While it was particularly after the
mid-1950s that financial authorities introduced high rates of required
reserves in the banking system to finance part of public expenditure,
foreign indebtedness began to assume increasing importance. Since the
strategy of stabilising development ruled out the generation of inftation-
ary savings through the creation of new money, government officials
began to look for resources for development abroad. Hence President
Diaz Ordaz inherited in 1964 a foreign debt 150 per cent higher than the
one inherited by the previous administration six years earlier. This
increasing debt has been explicitly linked to Mexico's import-
substitution strategy - to the need to import capital goods, the financing
for which could not be obtained either from local borrowing or from
increased taxes. 5
In general, it can be said that during the 1950s and 1960s foreign
financing, which came mainly from official sources, developed modestly.
It was after 1966 that state intervention in the economy took on renewed
vigour and public spending and deficits increased dramatically, as did
loans from private foreign sources. It was the exhaustion of the 'easy'
import-substitution phase which set the stage for Mexico's receptivity to
foreign borrowing.
By the mid-1960s it was clear that the economic model in effect since
1940 had begun to stagnate. With the exception of 1955, the current
account had been in deficit since 1950. 6 As a result of the import-
166 The International Deht Crisis

substitution process of the 1958-70 period, the minimum amount of

imports required for the functioning of the productive apparatus was
growing. At the same time, exports were not expanding rapidly enough.
Agriculture was discouraged by a steady decline of public investment
and the maintenance oflow agricultural prices: it lost its proportion of
exports and could not keep pace with domestic demand. Mechanisation
of the countryside by a relatively small number of medium and big
capi talists resulted in the expulsion of rurallabour and migration to the
cities. However, given the increasingly capital-intensive nature of
industrial growth, the ci ti es were unable to provide sufficient employ-
ment. Meanwhile failure of the government to invest in the energy
sector, combined with the maintenance of low energy prices for the
benefit of industrialists, decapitalised that sector, rendering it ill-
prepared to face the world oil crisis of 1973.
Economic stagnation deepened the economic inequalities created by
the post-1940 economic model. Economic inequality had increased both
in absolute and relative terms since that date. 7 By 1970 it was estimated
that 45 per cent of the Mexican labour force was unemployed or
underemployed. 8 Political unrest in both urban and rural sectors
culminated in the student strike of 1968 and the government massacre of
an estimated 200 students and supporters at Tlatelolco. The widespread
nature of the unrest and the harshness of the government's response
reflected the seriousness of the threat to the regime's legitimacy.
It was with the regime ofPresident Luis Echeverria (1970-6) that the
government attempted to reorientate policy to its populist origins in
order to recapture that legitimacy. Expenditure was expanded in the
area of social welfare and other redistributive measures, such as the
expansion of the basic food-distribution system (CONASUPO), were
undertaken. An attempt was made to revive agriculture and to solve the
worsening balance ofpayments situation through stimulating manufac-
turing exports. But President Echeverria's attempt at 'shared
development' was met by unfavourable international circumstances. In
the early 1970s economic recession in the United States and consequent
tariff increases on imported goods thwarted Echeverria's hopes of
increasing Mexico's manufacturing exports. Price increases in a number
of crucial inputs, especially oil, combined with the peso devaluation of
1972-3, resulted in a serious drainage of foreign exchange. In short,
Mexico's internal economic crises, characterised by a need for growing
food and energy imports and very unequal distribution of income,
magnified the impact of international events.
Echeverria's redistributive and investment programmes raised govern-
 The Po/Wes 0/ the Mexiean Debt Crisis 167

ment expenditure substantially. Public expenditure as a percentage of

GOP went from 24.6 per cent in 1970 to 37.9 per cent in 1976.9 In the
light ofthe inability to carry out tax reform and in the face ofincreasing
import needs and prices combined with declining export revenues, a
greater burden was placed on foreign debt. There is no question that this
'solution' was encouraged by the availability of loans on easy terms
during that period. Hence, while Echeverria inherited a foreign debt of
almost 4 billion dollars, he increased it to 20 billion. 1O By 1976 total
extern al debt was equivalent to a quarter of GOPY It has been
suggested that a 'true turning point' occurred in 1973 when the net flow
of the public foreign debt, which had averaged slightly more than 200
million dollars per year through the previous two decades, increased to
more than 1.6 billion in 1973 alone and from then on kept growing. 12
The situation was made worse by President Echeverria's deteriorating
relations with the private sector, precipitated by a number of his
measures including the expansion of state-owned enterprises, wage
increases and social welfare spending. The conflict was reflected from
1975 in a decline in private investment and the strong outward flight of
capital. Echeverria's announcement in his last days of office of the
redistribution of 405 000 hectares of land in Ourango and Sinaloa
marked a new low point in business-state relations and precipitated the
further flight of capital. The economic crisis culminated in the govern-
ment petitioning the International Monetary Fund for resources to
cover its deficit. In 1976 Mexico reached a politically unpopular
agreement with that organisation committing itself, among other things,
to wage restrietions and to a reduction of the public sector's external
debt.
The weakening of the Mexican state in the face of a powerful private
sector had, by 1970, seriously circumscribed its options. Faced with
opposition from this sector, the state was unable to take measures - such
as a tax reform and increases in the prices of state-produced industrial
inputs - to alleviate its fiscal crisis. Yet increasing social and political
unrest and the necessity of restoring legitimacy through social expend-
iture and state-led growth required increasing government expenditure.
When Echeverria attempted to correct the economic distortions created
by the previous economic model, he ran headlong into the world
economic crisis ofthe early 1970s. He took what was politically the most
attractive way out: increasing the foreign debt. Faced with an economic
and a political crisis by 1976, the political elite frantically sought a
solution to its dilemma which would allow the restoration of business
confidence, the resumption of economic growth and an escape from the
168 The International Debt Crisis

politically unpopu1ar IMF agreement. The solution hit upon by 1976

was rapid petroleum exploitation and exportation. 13 The enthusiasm for
this strategy rose with the international price of crude, but its very
nature, along with the vested interests it created, played an important
role in the increase in the Mexican foreign debt which occurred between
1976 and 1982 and in the ultimate deepening of the crisis. These
developments will be the focus of the next section.

1976-82: STATE INTERESTS ANO THE GROWTH OF THE

MEXICAN FOREIGN OEBT

The fact of Mexico's petroleum wealth made that country an extremely

attractive candidate for foreign loans. At the same time the administra-
tion moved quickly to demonstrate Mexico's creditworthiness to
international creditors, contracting with the firm of Oe Grolyer and
McNaughton to - in the words of Jorge Oiaz Serrano, Oirector-General
of Mexico's wholly government-owned petroleum corporation,
PEMEX (Petr61eos Mexicanos) - 'satisfy the financial and banking
circles' as to Mexico's claimed petroleum reserves. 14 Immediately
following the confirmation of Mexico's petroleum reserves, generous
foreign loans were rapidly forthcoming. According to Jesus Silva
Herzog, then Subsecretary of Finance:
We have not yet had to seek out those in New York, London or
Zurich who are willing to lend us money, since the money seeks us out,
and at times it has been difficult to choose the best offer. 15
Because of its petroleum wealth, Mexico was able to abandon the
unpopular 1975 IMF agreement partly during 1979. Oue to oil
discoveries and consequent foreign borrowing, IMF loans were paid off
in advance. Henceforth an expansionary government expenditure
programme was vigorously pursued.
While the Mexican foreign debt increased between 1976 and 1982,
growth was particularly rapid between 1979 and 1981. Ouring those
years Mexico's external debt grew by more than 32 billion dollars, 23
billion in 1981 alone. Moreover, it has been shown that the effect of
external shocks averaged less than 30 per cent of this atypical
indebtedness. 16 Many observers point to the importance of so-called
'internal shocks', such as the continued expansion of government
expenditure even after petroleum prices fell on the international market
in 1981. 17 Foreign debt allowed the state to continue to expand its
 The PolWes of the Mexiean Debt Crisis 169

activities, instead of readjusting investment and expenditure goals. The

public-sector deficit as a percentage of GDP went from 7.4 per cent in
1980 to 14.7 per cent in 1981, to 17.9 per cent in 1982. 18 Also of critical
importance was the flight of private domestic capital. One analysis has
suggested that this was the most important internal shock, accounting
for, on average, slightly less than one-half of the internal debt-inducing
effects between 1979 and 1981. 19
Internal shocks responded to what most analysts have referred to as
'errors' in government policy: a too-rapid pursuit of the petroleum
export strategy, a failure to take adequate measures inhibiting imports,
the maintenance of an over-valued peso, an uncontrolled expansion in
government expenditure and a failure w follow policies which would
have maintained the confidence ofthe private sector or would otherwise
have prevented the outflow of capital. But these internal shocks and the
government policies which engendered them were largely the product of
choices made by the state in its aim of maintaining - if not expanding -
its political power. These policy choices are better seen not as errors but
as policies pursued for political reasons. They reflected interests and
conflicts within the state which were deepened, if not created, by the
petroleum strategy itself, and they reflected the state's struggle to
maintain the confidence of the popular sector.
The economic and political situation inherited from the past adminis-
tration made rapid petroleum exploitation and exportation the only
politically feasible - although admittedly risky - option in the eyes of
most state managers. Indeed, for its most enthusiastic proponents,
petroleum emerged as the panacea for all Mexico's economic ills.
According to Jorge Diaz Serrano, then Director-General of PEMEX
(Petr61eos Mexicanos), petroleum would create 'a new, permanently
prosperous country'. 20
The strategy of rapid growth based on petroleum and debt was
supported by the President and his advisers, in the short term, because it
seemed capable of solving most, if not all, of Mexico's pressing
economic and political problems. Ifthe strategy did not restore business
confidence completely, it certainly did much to improve business-state
relations. Mexico's most powerful industrial-financial groups became
elose allies of the state's petroleum debt strategy, expanding into areas
tied to the petroleum industry such as petrochemicals and, as par-
ticipants in international syndicates, making funds available to the state
sector. L6pez Portillo, inheriting seriously strained relations between
the public and the private sector, worked hard to restore business
confidence. Ten days after taking office, the administration established
170 The International Debt Crisis

an 'alliance for production' with the private sector, signing ten

agreements with the business community by which they agreed to invest
to create 800 000 jobs in return for streamlining administrative proce-
dures, and financial and fiscal support. Generous subsidies and tax
advantages benefited especially the big financial-industrial groups.21
In addition, state managers were confident that the strategy would
stimulate rapid growth and create jobs, both of which would bolster the
ftagging legitimacy of the regime. It would also strengthen the fiscal
position of the state through increased taxes and make it possible to
abandon the unpopular 1976 IMF programme. Indeed, increased public
spending was an integral part of the President's strategy to avoid
popular unrest and to restore the regime's legitimacy, which had been so
seriously damaged by events in the late 1960s. A healthy rate of public
investment and expenditure also corresponded to the demands of a
powerful faction of the political bureaucracy (the so-called Cambridge
Group) which, after 1978, had the ear of the President. This group saw a
balanced and healthy state investment programme as an integral part of
a high-growth development strategy wh ich would be governed by state
planning and would include controls on imports and capital ftows.
Hence Diaz Serrano easily won the President's favour for his rapid
petroleum development programme and the agreement - if not
enthusiastic support - of the Economic Cabinet. In 1976 PEMEX
unveiled an ambitious 15.5 billion dollar six-year programme to
accelerate petroleum exploration and development. The plan called for
more than doubling crude oil production to 2.2 million barrels per day in
1982 and nearly doubling natural gas production. The original plan
called for three stages: the first using petroleum dollars to overcome the
economic crisis, the second aperiod of consolidation, the third aperiod
of accelerated economic growth. However, in practice the consolidation
stage was bypassed and the regime remained committed to a policy of
rapid petroleum exploitation. The objective was clearly the assurance of
high economic growth rates through the rapid exploitation of pet-
roleum. 22 Assuming that the income from petroleum would continue to
increase and that foreign loans would remain readily available, the state
was to be the motor force of economic expansion.
Such a programme of rapid growth necessarily entailed increasing
debt. In particular, the development ofthe offshore reserves involved the
importation of expensive foreign equipment and technology. Indeed, a
sharp increase in debt was accepted, at least in the short term, as one of
the costs ofthe strategy chosen. As President Lopez Portillo explained in
1980: 'for now, the extraction ofpetroleum requires more money than it
 The Po/ities of the Mexiean Debt Crisis 171

produces and these investments affect the country's debt position and
contribute to inflation. 023
The presence of an abundance of petroleum for export was a stimulus
to borrowing by the private sector, since its assumption was that because
of this wealth, the exchange rate would remain stable. There were other
aspects of government policy which stimulated foreign borrowing and
suggest that foreign debt was very much a central axle of the
government's strategy. The maintenance ofhigh interest rates as weil as
the practice of 'back-to-back' loans stimulated private foreign borrow-
ing. 24 Changes in the banking legislation in 1974 and 1978 propelled
Mexican banks into international banking, where they participated in
syndicates which channelled loans towards the Mexican public sector,
especially towards PEMEX. 25
But while all top policy-makers appear to have agreed that petroleum
should be used to overcome Mexico's economic and political crisis,
increasing numbers began to express reservations about the continued
pursuit of the rapid petroleum development programme after 1978. 26
Finance officials began to warn the presidency that spending and
borrowing must be cut back. Criticism of the rapidity with wh ich the
petroleum reserves were being developed and the trade liberalisation
which allowed a sharp rise in imported inputs was heard, especially from
the Secretary of Natural Resources and Industrial Development after
1979. Members of the President's Office of Advisers cautioned against
continued rapid expansion based on petroleum. Sharp opposition also
came from outside the government: from leftist political parties,
intellectuals centred in the National University and the Colegio de
Mexico, and particularly from leftist political dissident and writer
Heberto Castillo and the weekly magazine Proeeso, which charged that
rapid petroleum development and increasing foreign debt constituted
the road to economic ruin and imperialist control.
The inability ofvoices ofmoderation within the political bureaucracy
to modify the petroleum/debt strategy was related to the nature of state
interests and to changes in the power structure ofthe state genera ted by
the petroleum programme itself. As this programme gained momentum,
power shifted within the political bureaucracy in the direction of
PEMEX and its Director-General, Jorge Diaz Serrano. Hence
PEMEX's project of rapid petroleum development, and the heavy
borrowing and importation which it stimulated prevailed. PEMEX's
growing power stemmed from a number of interrelated factors. The
growing importance of petroleum in the Mexican economy - by 1979 it
accounted for 44 per cent of the value of exports, up from 18 per cent in
172 The International Debt Crisis

1976 - gave the petroleum sector important clout in the formulation of

economic policy. In addition, the President's close personal friendship
with Diaz Serrano gave the Director-General direct access to the
President over and above members ofthe Cabinet, who were in theory of
higher rank.
But the power of PEMEX and its Director also stemmed from the
apparent 'success' of the expansionist-petroleum-debt strategy. In
Mexico, the success of a secretary or other senior government official is
defined first in terms of the extent to which his organisation fulfils the
goals which have been attributed to it and secondly the extent to which
the fulfilment of these aims enhances the power and prestige of the
presidency. On both these counts Diaz Serrano was extremely successful.
Petroleum production of2.25 million barrels per day, the goal for 1982,
had been achieved two years early, in 1980. Rapid economic growth
enhanced the President's popular support, while his power within the
political bureaucracy and vis-a-vis the private sector was extended as a
result ofthe increased patronage he was able to distribu~e. Federal taxes
paid by PEMEX went from 5 per cent of the total taxes collected by the
federal government in 1976 to 24 per cent by 1981. 27 State enterprises
and Cabinet Secretaries pressured for, and were successful in obtaining,
ever larger budgets during this period. Beginning in 1979, and especially
after 1981, PEMEX was used as a financial instrument of the state to
obtain loans for other state entities. When PEMEX's drive for
expansion was stopped in March 1980 with the announcement by the
President that the official petroleum production ceiling would be
honoured, heavy commitment to long-term investments in the pet-
roleum sector had already been made.
The presidential succession struggle also played an important role in
increasing government expenditure and debt after 1980, as presidential
contenders acceded to the pressures of their clienteles for increased
expenditure. 28 For Secretary of Budget and Planning Miguel de la
Madrid, the successful aspirant, looking after clients involved agreeing
to the budget requests emanating from all parts of government.
Government officials were also able to obtain increases in expenditure
by taking their request directly to the President. This occurred with
increasing frequency in the last few ye,ars of the presidential term and
helps to account for the large budget overruns.
With the decline in petroleum prices on the international market in
June 1981, the President decided not to break the economy and opted for
increasing indebtedness in order to continue the rhythm of government
spending and economic expansion. Policies conducive to unemployment
 The Po/ities 0/ the Mexiean Debt Crisis 173

were to be avoided, he declared, while his government would follow a

strategy of'responsible indebtedness' .29 The President's desire to remain
'popular' , to retain the country's confidence in his rule until the end of
his presidential term, and thereby to 'leave things in order' for the
incoming president caused the government to resort to short-term loans
to maintain the rhythm of expenditure and expansion after 1981.
Despite the economic growth achieved by 1980, it was by no means
certain that the petroleum-debt strategy had brought areturn to the
political tranquillity which President Lopez Portillo so desperately
sought. While the privileged sectors of Mexican society had benefited
from the strategy, many others were losing out because of it. The most
vociferous opposition came from leftist parties and dissidents, who
articulated the growing discontent of disadvantaged groups. Opposition
came from peasants, particularly those from petroleum-producing
areas, who feIt they had not been properly compensated for exprop-
riated or damaged land, and from the governors and traditional elites of
the petroleum-producing states undergoing social and economic dis-
location due to petroleum production. Although a truce of sorts was
reached between peasants in the petroleum zones and PEMEX,30 the
same cannot be said of peasants agitating for land redistribution in other
parts of the country. As peasant land invasions increased with the
deepening agricultural crisis, so did government repression, as force was
used on numerous occasions to dislodge peasants from occupied land.
Reports of the arrest and torture of peasant leaders appeared increas-
ingly in the press after 1980.
Leftist criticism ofthe various aspects ofthe government's economic
strategy began to hit hard at the regime's revolutionary mythology and
its legitimacy. The amendment to the Constitution overriding peasant
and communal rights and allowing the expropriation of land for
petroleum exploration, the dispute surrounding the sale of gas to the
United States, and the contamination caused by the Ixtoc 1 explosion,
blamed on the incompetence ofPEMEX and its multinational allies, all
threatened the nationalistic and revolutionary credentials ofthe regime.
Agitation from independent unions was on the rise - from the nuclear
workers, the bus drivers and the university workers. The doctors, the
telephone workers, and the textile workers also went on strike. In
addition, abstention in local and state elections suggested increasing
political alienation and was of concern to authorities.
The regime's expansionary programme had benefited those groups
tied to the petroleum industry, and only marginally the masses of the
population. Jobs were created mainly in construction and public works,
174 The International Debt Crisis

but outside the sectors linked to the petroleum industry, the economic
situation ofthe popular c1asses, especially the rural poor, most probably
worsened. With the crisis in the agricultural sector rural- urban
migration continued unabated, and the numbers of unemployed
increased. Minimum real wages fell by an accumulated index of 12 per
cent between 1977 and 1980, before increasing a little in 1981. 31
Hence there were compelling political reasons for not taking measures
- such as a sharp cut back in government expenditure - which would
further aggravate social and political unrest, but the devastating impact
of the policy choice made in 1981 not to break the economy and to
continue borrowing became c1ear in 1982, when 49 per cent ofMexico's
loans became due for repayment. The President and his most persuasive
advisers apparently believed that the drop in petroleum prices was
short-term and that the regime could ride out the storm of this
momentary setback through foreign borrowing. A serious cutback in
spending in the last year of a presidential term would reflect negatively
upon the incoming president. Furthermore, the President's own per-
sonal predisposition, aside from these intense political pressures, was in
the direction of an expansion of government expenditure. The political
unrest of the late 1960s, and especially the events of 1968, had
apparently persuaded President Lopez Portillo that one of the major
tasks of this administration should be the assurance of legitimacy. The
instrument by which this objective was to be achieved was government
spending.
There was also considerable pressure from the business community to
make foreign exchange available for imported inputs. While business
generally prospered during the Lopez Portillo presidential term, this
period was characterised by tension between the regime and the private
sector over various aspects of government policy. The attitude of the
private sector was important in deepening the crisis as its loss of
confidence produced an important outflow of capital, inducing further
debt.
Despite the regime's generosity, the private sector - and especially the
big financial and industrial groups which grew in strength as a result of
government policy - remained critical of the regime. Constant criticism
of state intervention in the economy and opposition to the expansion
and growing strength of state-owned enterprises were prevalent through-
out the period. The private sector was highly suspicious of what it
regarded as L6pez Portillo's populist tendencies, reflected in the
expansion of state expenditure and in a wide variety of price controls on
goods ofpopular consumption. The business sector was also concerned
 The Po/Wes of the Mexiean Debt Crisis 175

about inflation, and overvaluation of the peso which hurt their export
aspirations. It demanded measures to stimulate the exportation of
manufactured goods and for this reason urged devaluation ofthe peso-
a measure which was firmly resisted by the President, who feit that its
impact on national pride would undermine the support for his regime
from the popular elasses. The deeline in the export prices of petroleum
and the dismissal of the Director-General of PEMEX, a elose ally of the
private sector, combined with the fear of devaluation, turned suspicion
to panic and precipitated a massive outflow of capital.

ECONOMIC CRISIS, POLITICAL UNREST AND THE

PROBLEM OF LEGITIMACY, 1982-7

But if the private sector was unhappy with the direction of economic
policy, the regime was also growing increasingly unpopular with the
general population who would bear the brunt of the 1982 IMF-imposed
austerity programme. Even before that date the government was faced
with the political reality of deelining popular support. Consequently, in
spite oflarge-scale electoral fraud, the opposition made notable gains in
the 1982 federal elections. In those elections the opposition PAN Party
(National Action Party) won an unprecedented 14.08 per cent of the
popular vote. Opposition was particularly strident from independent
unions such as those representing the nuclear workers and the university
workers. Unrest continued to mount in the rural sector, especially in the
petroleum zones where violent confrontations between farmers and
state and federal government officials became common.
In the face of economic crisis, the continued efficacy of Mexico's
traditional methods of legitimacy maintenance came under serious
stress. The image ofthe Institutionalised Revolutionary Party's (PRI's)
revolutionary and nationalist commitment was badly tarnished by the
necessity of instituting an IMF-imposed austerity programme. Indeed,
the pending 1982 IMF agreement immediately became the focus of
political unrest, with trade unions and opposition parties demonstrating
against the IMF while the official labour union threatened a general
strike if its demands for a 50 per cent wage increase were not met. 32
Meanwhile, as Mexican officials were negotiating with the IMF, the
government publiely denied that such an agreement was even being
discussed. 33
Faced with mounting political unrest, Mexico's rulers sought
desperately for any measures which would shore up the flagging
176 The International Debt Crisis

legitimacy ofthe regime. In September 1982, unable to manage Mexico's

deepening economic crisis, President Lopez Portillo announced the
nationalisation of the private banking sector. Although those
economists involved in this decision were no doubt convinced that it
ought to be taken for economic reasons, the President took it largely for
political ones. The assessment that the decision would garner much-
needed po pul ar support, at least in the short term, appears to have been
correct. With the decision to nationalise the banks, the government's
leftist opponents - opposition parties and independent labour unions -
rallied around the regime. The private sector, on the other hand, sent
capital out of the country in ever larger amounts, while agreement with
the IMF became more difficult.
The infusion ofpopularity orought by this decision did not, however,
last long. The remainder of 1982 witnessed strikes and demonstrations
against the government. The November 1982 agreement reached with
the IMF was a bitter pill indeed. It called for a drastic reduction in the
level of government expenditure: from 8.5 per cent of GDP in 1983, to
5.5 per cent in 1984, to 3.5 per cent by 1985. The agreement also called
for the liberalisation ofthe economy (the reduction/elimination oftariffs
and other forms of protection), the elimination of new state investment
and employment plans, and increases in the prices of goods and services
in the public sector.
The economic team headed by incoming President Miguel de la
Madrid, wh ich took office in December 1982, began with a firm
commitment to the implementation of the IMF programme, generally
sharing the IMF's conviction that Mexico's expansionary spending
policies had been largely responsible for the level of debt and the ensuing
economic crisis. However, in the face of rising political unrest, Mexico's
technocratic elite would soon be forced to abandon this commitment.
President de la Madrid not only faced intense opposition from outside
the official party-state apparatus but, unlike his predecessor, now faced
stiff resistance from the officiallabour movement. Early in 1983 Fidel
Velazquez, leader of the officiallabour wing, took the unprecedented
move of stating publicly that the labour movement would no longer
support the government 'unconditionally' as it had in the past. 34 Then, in
June-July 1983, the CTM (Mexican Workers' Confederation) and
various independent unions went on strike when the second deadline set
by the official labour organisation for an emergency wage increase
expired. J5 Demonstrations also occurred over other aspects of IMF
policy, such as those against the government's lifting of the subsidy on
tortillas and flour.
 The Po/ities 0/ the Mexiean Debt Crisis 177

Rural unrest, often violent, intensified. Land invasions accelerated

and were harshly dealt with by the authorities. Peasant organisations
such as the Co-ordinadora Nacional Plan de Ayala (CNPA) and the
Central Independiente de Obreros Y Campesinos (CIOAC) protested
against growing government repression and the government's policy
bias favouring big capitalist agriculture. In April 1984 50 000 farm
workers converged on Mexico City demanding a 150 per cent rise in crop
price guarantees and land redistribution. Unrest in the petroleum zones
continued as peasants blocked fields in Tabasco and Chiapas and were
met with government repression.
Middle-class groups also were far from happy with the government's
handling of the economic crisis. The middle class had been intensely
alienated by Lopez Portillo's expropriation oftheir legal dollar accounts
in 1982 and this displeasure was reftected in part, in the massive capital
ftight wh ich occurred in that year. The middle class continued to be
unhappy with the deterioration oftheir living standards throughout the
administration of Miguel de la Madrid.
As Mexico's economic situation worsened in 1985, and plunged into
another crisis in 1986, political unrest mounted. Under these circum-
stances, the CTM and leader Velazquez vigorously opposed any further
restrictions on wages and demanded wage increases to compensate for
deteriorating living standards. As Velazquez raised the question of a
'new strategy' concerning labour's place in the PRI coalition, labour
strife accelerated. Strikes occurred in Volkswagen and Renault, with
perhaps the strongest labour challenge to the de la Madrid administra-
tion occurring with the wildcat electrical workers' strike. 36
The letter of intent which paved the way for the restructuring of
Mexico's debt, signed with the IMF on 25 March 1985, produced strong
opposition. Labour leader Velazquez declared his antagonism to the
stipulation that wages be in accordance with productivity. Both
opposition and pro-government labour organisations declared their
antagonism to the IMF programme. A wide range of groups, from
labour organisations to church leaders, were by this time calling for a
debt moratorium. In October 1985 the Mexican bishops called for a
moratorium on the debt, describing this move as 'the only option to get
out of the long crisis confronting the country'.37 The depth of the
growing alienation from the de la Madrid administration was demon-
strated in May 1986 when de la Madrid was booed at the opening
ceremony of the World Cup in Mexico City. This event undermined
political confidence furt her and resulted in a run on the peso. 38 By
September 1985 it was clear that Mexico was unable to fulfil its 25
178 The International Debt Crisis

March Letter of Intent, and by October the IMF had suspended

disbursements of a $6.3 billion Extended Fund Facility due to Mexico's
failure to fulfil the performance criteria required for the loan. Due to the
fall in oil prices in 1986 Mexico at first listed its loan requirements at $10
billion, later reducing this figure to $4 billion. The mounting political
unrest made negotiations with the IMF difficult.
By June 1986 rumours of a possible debt moratorium again began to
be heard and this time, unlike 1982, such utterances now came from
highly placed government officials. In that month the Finance Minister,
Jesus Silva Herzog, stated that Mexico was considering the suspension
of debt-service payments. President de la Madrid would say only that
Mexico was considering 'its options'.
Mexico's political leaders had by now been pushed to take an
increasingly radical stance on the question ofthe debt. In the summer of
1986 Mexico made the following demands for the debt which it had
acquired in 1982. It requested that interest rates be the lower LIBOR
rate, that commissions and surcharges be eliminated and that the
servicing of the debt be tied to the prices of petroleum and interest rates.
It also requested that IMF restrictions on the level of government
expenditure be softened and that the Mexican economy be allowed to
grow in 1987. Mexico took the position that any new financial accord
must not be based on fresh credits but on the radical restructuring of
interest payments to creditors. 39 Although opposition groups found the
resulting July 1986 agreement reached with the IMF far from adequate,
it was alandmark agreement in so far as it allowed an economic growth
rate of3-4 per cent for 1987 and promised additional funds should the
price of petroleum fall below $9.00 a barrel, thereby recognising the
importance of external shocks in the increase of the Mexican debt.
Indeed, the de la Madrid administration's enthusiastic commitment
to a strict austerity plan as recommended by the IMF had begun to wane
by late 1984. While the contractionary programme was aided by the
normal decline in government expenditure and investment which occurs
during the first year of any presidency, by 1984 the administration was
resisting the IMF recommendations that subsidies be cut on basic
goods. This undoubtedly contributed to the public-sector deficit of 7.1
per cent in that year, as opposed to the targeted goal of 5.5 per cent. As
the price of petroleum fell throughout 1985 and 1986, the government
found it impossible to fulfil IMF dictates.
But the July 1986 rescheduling agreement engendered a great deal of
domestic political opposition, and unrest continued. In late October
thousands of workers, students and professionals demonstrated in the
 The Po/ities 0/ the Mexiean Debt Crisis 179

streets, demanding a moratorium. Opposition deputies ofboth the right

and the left accused the government of 'mortgaging' the economy and
subordinating domestic policies to external dictates. Public demonstra-
tions against the agreement included the pro-government labour
movement. 40 Demonstrators demanded, among other things, greater
government attention to deteriorating living standards and measures to
halt lay-offs and the closure of factories.
The climax of this growing popular unrest and the most serious threat
to the government's legitimacy so far came with the student strike of
29 January 1987. The reforms proposed by the government for the
state-run National Autonomous University of Mexico (UNAM)
included an attempt to reduce the number of students and improve
performance by establishing entrance examinations in the university-
affiliated high-school system and by raising fees. These proposals were
opposed by a group of students who organised themselves into the
Student University Council (CEU) wh ich led street demonstrations and
other forms of protest, calling for a repeal of the new measures.
Although undoubtedly motivated by adesire to reduce UNAM's
burgeoning budget, the administration was also concerned about
academic standards and the tendency of employers to prefer the
graduates of other universities. Despite the threat posed to the regime -
the UNAM conflict engendered perhaps the largest march Mexico has
seen since 1968 when an estimated 200 000 demonstrators marched
through the centre of Mexico City - the government reacted with
surprising restraint, and a compromise of sorts was worked out in which
a university congress would be formed to examine the proposed
changes, supposedly taking into account the interests of both students
and government.
Mounting electoral defeats were another barometer of the threat the
economic crisis posed to the regime's legitimacy. In 1983, benefiting
from de la Madrid's decision to allow relatively fraudulent free elections,
the PAN Party made important gains, winning seventeen municipalities
in five states, including two state capitals. As a consequence ofthe 1983
gains made by the opposition, the 1985 elections represented areversal
of this more democratic approach. In the face of opposition charges of
massive electoral fraud, the PRI claimed alandslide victory in the 7 July
1985 elections. It claimed to have won 292 of 300 electoral seats and all
seven governorships. The PRI also claimed victory in municipal
elections held in several states between 20 October and 1 December
1985. These rigged elections produced mounting political violence. 41 In
the northern states of Sonora and Nuevo Leon the PRI resorted to
180 The International Debt Crisis

flagrant ballot-stuffing, tampering with electoral registers and employ-

ing violent intimidation against its chief riyal, the PAN.
The elections which took place in 1986 also resulted in opposition
charges of massive electoral fraud. In addition to the gubernatorial
contest in Chihuahua (the PAN's strongest state) the PRI also claimed
to have won all fourteen congressional districts which were up for
election, along with every one of Chihuahua's sixty-seven municipal
councils. In Chihuahua the manipulation was so blatant that even the
local church took the unprecedented action of accusing the PRI of
massive electoral fraud. 42 PAN supporters, who claimed victories in the
contests, held demonstrations throughout the state, refused to pay
taxes, and blocked roads and bridges. Opposition parties announeed
that they would denounee the elections in Chihuahua before the
Inter-American Human Rights Commission. 43 Despite de la Madrid's
call for 'moral renovation' and his stated desire for clean elections,
electoral manipulation was onee again common practiee by 1985. But
while the sporadic use of state repression to put down unrest was onee
again on the rise, the government had shown remarkable restraint in
dealing with the student strike.
As a result of the increasing use of electoral manipulation, itself a
product of the political unrest engendered by the economic crisis,
demands for democratisation began to emerge both from within the PRI
and from outside opposition groups. In the summer of 1986 the
Democratic Tendency (Movimiento de Renovacion Democratica)
emerged within Mexico's dominant PRI Party. This group has called for
areturn to what it claims are traditional populist PRI policies: more
open democratic procedures; opposition to such policies as the decision
to join GATI, the relaxation of the restrictions on foreign investment,
and subservience to the policies of the IMF in such areas as the public
budget and privatisation. The issue of electoral fraud produced a
growing movement for democratisation outside the party-state
apparatus as weil, bringing together a broad cross-section of opposition
parties and organisations. Five parties and twenty-one organisations,
from both the left and the right, agreed to join together in an anti-PRI
campaign for a democratic political system. .
The growing political alienation of a population faeed with economic
crisis is often thought to be exacerbated by the technocratic nature of a
leadership insensitive to political issues. A number of reeent studies of
Mexico's top politicalleadership (the President, Cabinet Secretaries and
close advisers) have demonstrated a sharp decline in the number oftop
political leaders with political experience and the predominanee of
bureaucrats or technocrats. 44 Mexico's poIitical bureaucrats, particular-
 The Po/Wes 0/ the Mexiean Debt Crisis 181

ly that faction which took over with the de la Madrid administration,

stood for a technocratic, efficient and pro-capitalist state and opposed
what they viewed as the patronage-ridden, corrupt state favoured by the
politicos. For the bureaucratic/technocratic team which took over in
1982, government spending for patronage had been an important
ingredient in the massive budget overruns which occurred in 1981 and
1982, contributing to the 1982 crisis.
But while exclusion of politicos began in earlier administrations, it
was particularly marked after 1982. The de la Madrid administration
stood out for the homogeneity of the political bureaucrats who
comprised it. All but one ofthose holding economic portfolios had spent
their careers within the finance sector of the public bureaucracy, and
most had graduate degrees in economics. However, the monetarist
policy preferences of many of these technocrats was so on eroded in the
face of the necessity of maintaining the legitimacy of the prevailing
political order. With the 1986 crisis, the debate within the political
bureaucracy over how much austerity Mexico could bear broke out into
the open. By this time, Budget and Planning Secretary Salinas de
Gortari was giving top priority to economic growth, taking the position
that essential programmes and development projects should not be
touched. On 17 June 1986 those technocrats (largely within the Ministry
of Finance and the Central Bank) supporting further restrictions on
government expenditure were dealt a final blow with the dismissal of
Finance Secretary Jesus Silva Herzog. 4S
In short, the political realities of ruling Mexico during an economic
crisis were forcing the country's technocratic elite into greater prag-
matism. Pressed from below, the conservative technocratic team of de la
Madrid was forced into resistance to the IMF. It was also shifting gears
in the political realm, showing itself to be far more political than
technocratic in the management of dissent. The old formula of
co-optation if possible and repression if necessary was still very much in
practice. While electoral manipulation was an accepted instrument of
political control, de la Madrid replaced the head of the PRI in 1987,
ensuring aseries of new party appointments from the ranks of the
politicos and disaffected technocrats, thereby bringing potential opposi-
tion leaders back into the fold. 46

SUMMARY AND CONCLUSIONS

By the late 1960s Mexico's political elite was faced with serious threats to
the legitimacy of its rule. Since international circumstances made the
182 The International Debt Crisis

expansion of export markets impossible and since business interests

were ab1e to veto reforms aimed at alleviating the fiscal crisis ofthe state,
such as tax reform, foreign borrowing became the only feasible way to
maintain the rate of economic growth. This situation made Mexico an
extremely receptive candidate for foreign loans as they became readily
available after 1973.
Once Mexico's petroleum reserves had been confirmed, the increase in
the price of petroleum on the international market made a strategy of
rapid petroleum development and increasing foreign debt irresistible.
The nature of that strategy and the vested interests it generated gave a
further impulse to its acceleration, but increasing debt was also used to
expand other state activities. Increasing debt was a conscious choice of
state managers which responded to the political requirements of
lnaintaining legitimacy and of lubricating the patronage system. While
the strategy pursued by the government benefited the private sector,
tension remained. To satisfy the private sector more fully would have
entailed taking measures which would have seriously harmed the
legitimacy of the regime such as the abolition of price controls, the
privatisation of state-owned firms, and devaluation. The regime's
inability to maintain business confidence in the face of the decline in
petroleum prices was important in inducing further debt. From the early
1970s it is clear that international and internal political factors
interacted, pushing Mexico inexorably towards greater foreign debt.
State action became severely circumscribed in the face of the increasing
power of the private sector, and its need to maintain legitimacy.
Considerable research has demonstrated the authoritarian nature of
the policy-making process in Mexico and the important role of tangible
rewards (patronage) in holding that system together. A steady rate of
capitalist growth until the late 1960s made it possible for the state to
maintain its patronage system efficiently. From 1976 to 1982, petroleum
revenue and the loans petroleum development brought with it made
possible the co-optation of powerful particularistic interests inside and
outside the state. The financial crisis faced by Mexico since 1982, and the
ensuing pressure to cut back government spending, have undoubtedly
weakened this clientelistic patronage system and, therefore, one of the
most important sources ofMexico's political stability. Whereas political
repression is a feasible option for less powerful groups, patronage, as a
co-optative mechanism, is especially important for powerful private-
sector and bureaucratic groups, many of whom were created by the
petroleum-debt strategy itself.
Despite such difficulties, Mexico's technocratic elite has shown itself
 The Polities 0/ the Mexiean Debt Crisis 183

to be surprisingly resilient in the face of rising political unrest. Although

they shared an agreement on fundamentals with the IMF, Mexico's
rulers appear to be acutely aware ofthe politicallimits ofausterity. Even
before 1986, pressed from below, Mexico's political bureaucratic elite
was resisting an economic programme which was seriously undermining
its right to rule. The overriding goal of Mexico's political rulers is
maintenance of the political order. As a consequence, despite its claimed
commitment to a patronage-free, efficient capitalist state, Mexico's
political elite has not been reluctant to resort to the traditional
mechanisms of co-optation and repression. Serious problems of politi-
cal unrest nevertheless remain. Given Mexico's very difficult economic
situation, the problem of political order may rest not so much in the
failure of the technocratic elite to use traditional methods of political
control, such as patronage, as in the availability of such mechanisms in a
situation of declining resources.

NOTES

*Financial support from the Social Sciences and Humanities Research Council
of Canada is gratefully acknowledged.
1. Economic Intelligence Unit, Quarter/y Eeonomie Review 0/ Mexieo (no. 3,
1984) p. 12.
2. Ibid.
3. State managers (used interchangeably with the term 'political bureaucracy'
or 'technocrats', reftecting their recruitment through the public bureau-
cracy) include the President and his personal advisory team (the Office of
Advisers ofthe President), the Economic Cabinet (the Secretaries ofNatural
Resources and Industrial Development, Finance, Budget and Planning,
Labour, and the Director of the Central Bank), the Director-General of
PEMEX, (Petr6leos Mexicanos) the wholly govemment-owned petroleum
corporation, and their respective 'equipos' or closest advisers.
4. The following presidents ruled Mexico during the period: Manuel Avila
Camacho (1940-6); Miguel Aleman (1946-52); Adolfo Ruiz Cortines
(1952-8); Adolfo L6pez Mateos (1958-64); Gustavo Diaz Ordaz
(1964-70).
5. E.V.K. Fitzgerald, 'Tbe State and Capital Accumulation in Mexico', Latin
Ameriean Studies, vol. 10, no. I (November 1978) p. 278.
6. B. Griffiths, Mexiean Monetary Poliey and Eeonomie Deve/opment (New
York: Praeger, 1972) p. 33.
7. Roger Hansen has suggested that by the end of the period the degree of
inequality in Mexico was one ofthe greatest in Latin America: The Po/ities
0/Mexiean Deve/opment (Baitimore: lohns Hopkins University Press, 1980)
184 The International Debt Crisis

p. 72. See also Ifigenia M. de Navarrete, 'Income Distribution in Mexico', in

Enrique Perez Lopez et al. (eds), M exico 's Recent Economic Growth (Austin:
University ofTexas, 1967); Carlos Te1Io, La Politica Economica en Mexico,
1970-76 (Mexico DF: Siglo XXI, 1980) p. 17; and Luis Angeles, Crisis y
Coyuntura de la Economia Mexicana (Mexico DF: Editorial el Caballito,
1979) p. 11.
8. Carlos Tello, La Politica Economica en Mhico, 1970-1976, p. 76.
9. Pascal Garcia-Alba and Jaime Serra-Puche, Financial Aspects 0/ Macro-
Economic Management in Mexico (Tokyo: Institute of Deve10ping
Economies, No. 36, 1984) p. 24.
10. Maria deI Rosario Green, 'Mexico's Economic Dependence', in Susan
Kaufman Purcell (ed.), Mexico- United States Relations (New York:
Praeger, 1981) p. 106.
11. E.V.K. Fitzgerald, 'The State and Capital Accumulation in Mexico', p. 280.
12. Leopoldo Solis and Ernesto Zedillo, 'The Foreign Debt of Mexico', in
Gordon W. Smith and John T. Cuddington (eds), International Debt and
Developing Countries (Washington, DC: The World Bank, 1985) p. 258.
13. For an in-depth discussion ofthe decision to export petroleum, see Judith A.
Teichman, Policymaking in Mexico, From Boom to Crisis (Boston, MA:
Allen & Unwin, 1988).
14. Proceso, no. 286 (26 April 1977) p. 13.
15. Razones, no. 76 (29 November-12 December 1982) p. 15.
16. Leopoldo Solis and Ernesto Zedillo, 'The Foreign Debt ofMexico', p. 269.
17. See, for example, Maria Elena Cardero and Jose Manue1 Quijano,
'Expansion y Estrangulamiento Financiera, 1978-1982', Economia Mexi-
cana, no. 4 (1982) and Pascal Garcia-Alba and Jaime Serra-Puche, Financial
Aspects 0/ Macro-Economic Management in Mexico.
18. Leopoldo Solis and Ernesto Zedillo, 'The Foreign Debt of Mexico', Table
10.7, p. 271.
19. Ibid., Table 10.5, p. 268.
20. In a speech before the Chamber of Deputies in 1977: Proceso, no. 286 (26
April 1982) p. 13.
21. The six largest Mexican banks (four private, two state), each having elose
links with the biggest industrial enterprises, formed industrial-financial
conglomerates which received the lion's share of government subsidies,
10ans, and tax exemptions during the period. See Maria Elena Cardero and
Jose Manue1 Quijano, 'Expansion y Estrangulamiento Financiera,
1978-1982', p. 190.
22. The Energy Plan called for a growth rate of 8 per cent, while the Industrial
Plan called for agrowth rate of9.5 per cent in 1981 and 10.2 per cent in 1982.
The Global Plan stayed with the 8 per cent figure.
23. Proceso, no. 189 (16 June 1980) p. 32.
24. In practice, from 1977, Mexican financial institutions were encouraged to
borrow dollars from a foreign banking institution, deposit those dollars in
the Central Bank and lend to local firms in pesos. In this way, Mexican
financial institutions made commissions as intermediaries but remained free
from the risk of changes in the exchange rate, having deposited the dollars in
the Central Bank and received pesos in return. Jose Manuel Quijano,
Mhico: Estado y Banca Privada (Mexico DF: Centro de Investigacion Y
Docenia Economica A.C., 2nd edn, 1982).
 The Po/ities 0/ the Mexiean Debt Crisis 185

25. On this see Carlos Tello, La Naeionalizadon de la Banea en Mexieo (Mexieo

DF: Siglo XXI, 1984), p. 22; and Jose Manuel Quijano, Mexieo: Estado y
Banea Privada, Table 2. Between 1974 and 1978, private Mexiean banking
had a presence in approximately one-third of total resources taken by
Mexieo from the Euromarket, (ibid., Tables 3 and 4).
26. The intra-politieal elite struggle over the petroleum debt strategy is dealt
with in Judith A. Teiehman, Polieymaking in Mexieo, From Boom to Crisis.
27. Ibid., p. 152.
28. For a discussion of the role of the succession struggle in the explosion of
govemment expenditure, see ibid.
29. 'Responsible indebtedness' was to entail eontinued foreign borrowing but
with the objeetive ofreducing the govemment's expenditure by 4 per cent. In
fact, there were massive budget overruns in 1981.
30. On this see Maria Guadalupe Velazquez Guzman, 'Afeetaeiones Petroleras
en Tabasco, EI Movimiento dei Pacto Ribereno', in Revista Mexieana de
Sodologia, ano XLIX, vol. XLIV, no. I, January-March 1982.
31. Gabriel Szekely, La Economia Politiea deI PetrOleo en Mexieo 1976-1982
(Mexico DF: EI Colegio de Mexico, 1983) p. 134.
32. A strike was averted when agreement was reaehed on a 30 per cent increase.
33. In 1982 the Director of Extemal Finance for the Secretary of Finanee and
Public Credit denied emphatieally that talks with the IMF were under way
and stated publicly that an IMF programme would not be necessary:
Razones, no. 68,9-22 August 1983, p. 5.
34 Latin Ameriea Regional Report, Mexieo and Central Ameriea (19 August
1983) p. 5.
35. Latin Ameriea Weekly Report (17 June 1983) p. 1. The govemment took a
tough line and raised the minimum wage by only 15.6 per cent, as opposed to
the 50 per cent increase demanded: Eeonomic Intelligence Unit, Quarterty
Economic Review 0/ Mexico (no. 3, 1983) p. 11.
36. Latin Ameriea Regional Report, Mexieo and Central Ameriea (26 March
1987) p.3. Fidel Veläzquez was publicly critical of the govemment's
decision to declare the strike illegal.
37. Latin Ameriean Weekly Report (18 October 1985) p. 4.
38. Economic Intelligence Unit, Country Report, Mexieo (1986, no. 3) p. 5.
39. Proeeso, no. 520 (20 Oetober 1986) p. 23.
40. Latin Ameriea Regional Report, Mexieo and Central Ameriea (6 November
1986) p. 10.
41. On I January 1985, for example, violence broke out in the streets ofSan Luis
Potosi as the new PRI mayor tried to take over at city hall. There was also
violence in Guanajuato as opposition party supporters protested against the
new PRI mayor: Latin Ameriean Weekly Report (16 January, 1986) p. 5.
42. Latin Ameriean Weekly Report (7 August 1986) p. 4.
43. See Proeeso, no. 518 (29 September 1986) p. 24.
44. Raymond Vemon was the first to note the rise of the political bureauerat
(Vernon called him a 'technico') and the charaeteristies which set him apart
from the politico: The Dilemma 0/ Mexieo 's Development (Cambridge, MA:
Harvard University Press, 1963). More recent studies include Roderic A.
Camp, Mexieo 's Leaders (Alberquerque: University of Arizona Press, 1980)
and Peter Smith, Labyrinths 0/ Power (Princeton, NJ: Princeton University
Press, 1979).
186 The International Debt Crisis

45. The pressures created by the presidential succession struggle were probably
an important factor in the resistance to austerity, as they were in 1981- 2.
Salinas de Gortari, as a contender for the PRI candidacy and as Secretary in
charge ofthe spending ministry (Budget and Planning), had avested interest
in lubricating the patronage system through government spending. He was
successful in his presidential aspirations, being named presidential PRI
candidate in autumn 1987. In 1986 the public deficit reached 18 per cent of
GDP.
46. In 1986 Adolfo Lugo Verduzco was sacked as the head of the PRI and
replaced by Jorge de la Vega.
Index
Abbey, J.L.S., 48n.l, 23
Abdel Gadir Ali, A., 22, 61, 88n.2, 90
Abdelkarim, A., 90
accumulation, 130-3 p., 138,
144-51,159-60
ADF (African Debt Fund), 78
adjustment, 3, 26, 34,45,93,100-27,
130, 147, 149, 150, 158-61
Mou Yappi, S., 162n.7
Africa
Sub-SaharanAfrica,2,15-25,
32-5,85-9,104
NorthAfrica,84,152
Horn of Africa, 88-9
see also individual countries
AFSED (Arab Fund for Social and
Economic Development), 78, 79
agriculture
cash crops, 58-9, 93-4, 98, 133
credit, 115-16, 165-6, 173-4, 177
production, 19: Ivory Coast,
134-5,144,148-9,152,
155-7; Senegal, 93-9,101-5,
109-18,125-6; Sudan,
52-61,69-73,75
exports, 35; Ivory Coast, 130-6,
153,156; Mexico, 165; Sudan,
52-66,69, 73, 75
see also individual crops, food,
peasants, production
aid, 20, 23, 35
agencies, 20
bilateral aid, 29, 33, 67, 78, 85-6
concessional aid, 29 - 30
aid fatigue, 23
multilateral, 29-30, 33, 67, 78
Sudan,64,68, 72, 78-9,82,84
Senegal, 105-6
see also donors, lenders
Alegrett, Ambassador S., 39, 48n.5,
50n.48
alternative economic strategy, 79-80,
88,159
Angeles, L., 184
Arab Gulf countries, 52, 54, 57, 84,
187
86,88
see also individual countries
Argentina, 24-5, 28, 35, 39, 42-3, 48
Asia, 16,20,24,31
see also individual countries
assets, foreign, 27, 42 - 5; see also
capital fiight
austerity measures
IvoryCoast, 139, 152, 157-8
Mexico, 163, 175, 178, 181, 183
Senegal, 107-8, 121-2, 126-7
Sudan, 72,86
Avramovic, 0., 49n.33
Awad Hashim, M., 61, 62, 90
bail-out, 64-9, 78-80
Bacha, E.L., 49n.46, 500.47
Baker Group, 33
balance of payments
Latin America, 40
Mexico, 163, 165
Senegal, 101, 121, 124
Sudan, 51-2, 54, 59-61,63-84,87
Bangladesh, 19; see also Asia
banks, 28-35, 38
central, 59, 181, 184
Latin America, 16,36-7,39,41-5
Mexico, 171, 176, 184-5
Senegal, 97, 10 1
Sub-Saharan Africa, 16
Sudan, 74-5
United States, 27
Barnett, T., 90
Baulin, J., 162n.20
Belassa, B., 50n.50
borrowing
'Major Borrowers', 36
see also banks, credit, debt,
lending, loans
Brazil, 17 -18,24,28, 31, 35, 37 -40,
42,48,126,163
breadbasket plan, 54, 57, 59
Bretton Woods System, 25-6, 31
Brown, R., 88nn, 7, 17,90
BTP sector, 97
188
Calleo, D., 49n.25
Camp David Accord, 85
Campbell, B., 16In.4, 162nn 10,11,
19,22,25
capital, 35, 45,144-6,150-1,160
international capital market, 25- 7,
29-31
internationalisation of, 37, 45
capital ftight, 34,41,42,45,110, 153,
163,167,169,174-7
see also reverse resource ftow
capital ftows, 16,26-7,32-3
capital-intensive projects, 54, 57,111,
166
see also development projects
capitalism, 160, 164, 167, 177, 183
Cardero, M.E., 184nn 17,21
Carey, R.F., 49n.31
Caribbean, 16
see also individual countries
Casswell, N., 128n.l0
CCCE (Caisse Centrale de
Cooperation Economique), 93,
104-6,121-2
cereals
Sudan, 52-3, 58-9,83
Senegal, 111-13, 117-18, 125
Chad,89
Chile, 17-18,24-5,28,31-2,35,43,
48,126-7
China, 18-19,20,46
Clausen, A.W., 15
Climate, 95, 110, 112-13, 124
see also drought
Cline, W.R., 38, 49n.43
cocoa, 134-7, 140, 145, 155,158
coffee, 134-7, 140, 145, 155, 158
colonial aspects
IvoryCoast, 130-3,144,147,148,
159
Senegal,93,94,120
Columbia, 39
commercialsector, 131, 133-4, 139,
140
commodities, 23, 25, 83-4, 101
see also individual commodities
Communist Party, 85, 88-9
conditionality, 21, 22, 26, 34,41,45,
61,62, 105, 150
Index
consumption, 94, 97, 98,101,154,
158-9,163,165
co-operatives, 111, 165
see also peasants
cotton
IvoryCoast, 137-8, 151, 156
Sudan, 52, 57-9, 65, 69, 73-5, 83
see also textiles
CPSP (Caisse de Perequation et de
Soutien des Prix), 102, 109, 112,
113
credit
domestic,21,85,101-2
foreign, 17 -18
internationalisation of, 37
official, 25,31,105,109
private, 24-5, 31, 32
see also debt, loan, finance
credit controls, 21, 45, 72, 76
creditors, 34, 39, 51,67, 168; see also
lending, capital
cross-default clause, 28-9
CSSPPA (Caisse de Stabilisation et de
Soutien des Prix des Produits
Agricoles), 133-6
Consultative Group
definition, 88
Sudan, 64,68, 70, 71, 78,84
CTM (Mexican Workers'
Confederation), 176-7
cuts in public expenditure, 72, 76,
140,146,152,158,176
see also austerity measures
debt
external debt, 1,3-4,16,24-6,
28-9, 30-5; Ivory Coast,
141-4,147, 149-50, 158, 160;
Latin America, 16,24-35,
39-45; Mexico, 163-83;
Senegal,100-I,106,107-8;
Sudan, 51,65-7, 75, 77-81,
86-7 see also investment
long-term, 27, 30, 31,142-3
private, 27, 29-35, 39-45,164,167
publicdebt, 27, 29-35,42-4, 64,
75, 106
short-term, 27, 30, 32
written-off,87,116
 Index
see also rescheduling
debt moratorium, 177 - 8
debt relief, 38, 67, 72, 83
debtors' cartel, 43-4
debt-servicing, 16, 18
IvoryCoast, 129, 142-4, 146, 152
Mexico, 178
Latin America, 30-2, 34-5, 39-41
Senegal, 10 I, 107, 108
Sudan, 54-5,64,66-8,77-8,
81-2,87
defaulting, 29, 41, 43-4, 65, 68, 82,
87, 158
deficits, budgetary
IvoryCoast, 129,147,152,153
Mexico, 165, 169, 178
Senegal, 10 I
Sudan, 59-60, 72, 75-89
United States, 27
deflation, 106-8, 119, 121, 127, 139,
158, 160
deindustrialisation, ll8, 120, 126, 153
demand restraint, 21, 40,101,107,
110,118,130,139,152
democratisation, 87,180
demographie pressures, 95, 108, 124,
159
deregulation, 29, 32
devaluation, 21, 22, 39, 41, 61, 65, 69,
72,74,83,152,166,175
developing countries, 26, 27, 29-35,
92-3
see also individual countries, Third
World
development
domestically-oriented, 15, 17-19,
24
export-oriented, 15, 17, 18, 23,
36-9,45, 125-7, 153-4, 157
projects, 54, 57, 72, 78, 140, 150,
181
in Third World, 16, 18-20,23-4,
39-40,45-6,51-89124-7,
150
see also growth, economic
developement policies
Diaz-Alejandro, 39,43-5, 50nn. 53,
56,57
Diaz Ordaz, President, 165
189
disinvestment, 94
distribution ofrevenues, 99, 106,
108-11,113,120,123,154,
156-7
dollar, US, 25, 29, 30, 32, 34, 36, 73,
158, 177
'internal dollarisation', 37
donors, 51, 64, 67-83
international donor community,
52,64,69,78,81,82,86-7
see also lenders, aid
Donovan, D.J., 92-3, 127
drought, 15,81,86,95, 101, 108, 109
Echeverria, President, 166-7
economiccrisis, 3-4,15-47,51-89,
98-9, 130-I, 144-61, 163, 164,
167,175-83
economic development policies, 17,
20,23-4,54-88, lll-20
economic performance, 21, 22,
51-89,97-9,106-7,110,163
economic reform, 33, 100, 105, ll2,
115,121-2,130,153,156,182
Egypt, 57, 85, 86
see also Sub-Saharan Africa
elections, Mexico, 175, 179 - 80
EI Salvador, 16,22
ERP (Economic Recovery
Programme), 51, 69-72
Ethiopia, 85, 89
see also Africa
Eurocurrency market, 27 - 9
see also of(shore banking
Europe, 24, 33, 35-6, 79,150
exchange, foreign, 20, 23, 26, 32, 52,
54,57,67-8,72,74-5,85,166,
171,174
exchange controls, 29
exchange markets, 73 - 5
exchange rates, 25, 60 -I, 72 - 80, 83,
88, 101, 104, 105
expatriates, 20, 69, 74, ll9-20, 140
experts, foreign, 20, 22, 69, 97
export credits, 32
export ratios, 16, 19,28,54,57,66,
69,74-5,81
export surpluses, 34-5, 39,41
exports, 2, 15, 22, 24, 35, 52
190
IvoryCoast,130-2,134-6,139,
145, 148-9, 158
Latin America, 17, 41
Mexico, 163,165-7,169,171-2
Senegal, 94-5, 97, 98,113-14,
124-5
Sub-Saharan Africa, 17, 20, 23
Sudan, 52-66, 69, 73, 75, 81
exports, growth in, 24, 69, 81-2, 97
extended fund facility, (EFF), 4Off,
62,65,71,74-6,100,104,178
famine, see drought
Fanos, S., 62, 87, 90
Farelli, J.M., 50n.54
Feinberg, R.E., 50n.47
Felix, D., 41-2, 49n.45, 50n.49
fertilisers, 95, 97, 98,101,110,116,
127
finance, external, 22, 29-35, 59-60,
97,99,101,123,126,127
see also investment, lending
fiscal performance, 55, 59-60,66
fiscal policies, 26,30-5,69,73, 101
fisheries, 98, 127
Fitzgerald, E.V.K., 183n.5, 184n.l1
Fitzgibbon, L., 88, 89n.l9
floating interest rates, 24- 5,28,30-1
food
aid, 15, 17, 20
production, 18, 19,20,23, 148,
156-7; see also agriculture
shortages, 79,81
surpluses, 35
Foxley, A., 50n.55
franc zone, 99,129,152
France,89,94,99,105-6, 140, 150
free market, 24, 74-5,112,114-15,
118, 123, 124-6, 147, 148, 157
freeze
aid, 79, 80-1, 86
expenditure, 146, 152
wages, 76, 102, 123
Frenkel, R., 50n.54
Furtado, c., 37-8, 49nn. 39,44
Garcia-Alba, P., 184nn. 9, 17
Gastellu, J.M., 162n.7
GDP
Index
percapita, 16, 17, 18-19,47,66,
77, 153
growth in, 19,54-5,66,76,97,98,
101-3,107,131
debt/GDP ratio, 16, 18,65-6,
75-7,81,146, 152, 167, 169
geopolitical aspects, 3, 12,24,33,52,
84-7,88-9
foreigncontrol, 133-4, 138, 140,
147, 153, 160
see also experts, expatriates,
lenders, multinationals,
transnationals
Gezira scheme, 58, 65, 69, 78
Ghana, 20, 23
gold standard, 25-6
Gouffern, L., 162n.l2
Greenfield, R., 88nn. 1,16,90
Griffiths, B., 183n.6
growth, 38, 47,127
debt-led, 33, 34, 164
export-led, 39
IvoryCoast, 142, 149, 157
Mexico, 163, 145, 168 - 73, 178,
181, 182
Senegal, 94, 97-9,103,105,107,
118,121,123
Sudan, 54,69, 76
seealsoGDP
Gurdon, c., 88n.ll, 90
Guzmim, M.G.V., 185n.30
Haberler, Prof., 38, 49n.42
Haiti, 16,22
Hansen, R., 183-4n.7
Havnevik, K.J., 13, 14
Hong Kong, 17; see also Asia
IDA,30
IBRD,69,70
IMF (International Monetary Fund),
26,30,33-4
Ivory Coast, 129-30, 139, 146-7,
149-50
Latin America, 39-48
Mexico, 163, 167-70, 175-8,
180-1, 183
Senegal, 92, 93,100-2,105,107,
121-7
 Index
Sub-Saharan Africa, 15,20-2,37
Sudan, 51- 89
imports
food, 15, 19,23, 112, 166
Europe, 36
IvoryCoast, 138-9, 153
LatinAmerica, 17,35
Mexico, 163, 165, 166-7, 169, 171
Senegal, 119, 122
Sub-Saharan Africa, 17, 22
Sudan, 56, 66,74,81-2,87
import-substituting policies, 17, 18,
22,24,39,40-1,54,69,118-20,
126, 133-4, 136-40, 165-6
incentives,69, 105, 111, 112, 116-18,
120, 121, 123-6, 152, 154, 157
income, 15, 17,24,94,96-9, 102, 108,
109-10,115,118-20,121-3
India, 17-18, 19, 46; see also Asia
Indonesia, 18
industrial sector, 18, 19,24
'Ivory Coast, 130-2, 133-4,
135-40,149,152-4,159-60
Mexico, 165, 166
Senegal, 97, 119-20, 126-7
industrialised countries, 26, 33, 34,
35,38,41,97
see also individual countries
inflation, 26,31,59,75,76-7,98,163,
165,171,175
informal sector, 17, 123
infrastructure, 54, 69-70, 85,165
interest-capping,42
interest rates, 28, 31, 32, 33-4
Latin America, 16,41
Ivory Coast, 129
Mexico, 163, 171, 178
Senegal, 72
International Bank Credit, 27
investment
domestic: Ivory Coast, 132, 145-7,
153, 157 -8; Latin America,
39,41; Mexico, 165-7, 170;
Senegal, 121; Sudan, 54,69,87
foreign, 21, 22, 24, 30, 32; Ivory
Coast, 138, 140, 145, 150-1,
153, 154, 159; Latin America,
42; Mexico, 163, 165; Senegal,
105; Sudan, 69; United States,
191
27
non-productive, 97-8, 99,110
irrigation schemes, 52, 58, 69, 78, 111,
112; see also Gezira
Islamic reforms, 69, 80, 84, 85, 86
Ivory Coast, 18, 126, 129-61
Jansen, K., 90
Japan, 24, 36; see also Asia
Jamaica, 16,22
Jonglei canal, 85
Kaddafi, President, 86
Kenya, 20; see also Africa
Keynesians, 33
Khalid, M., 90
Khan, H.S., 60, 63, 90
Killick, T., 63; 88nn 6, 8, 90
Kitching, G., 162n.27
Kouadio, Y., 146, 161n.l; 162nn 18,
23
Krueger, A., 61, 62, 90
Lai, D., 48n.24
land distribution, 157, 167, 173, 177
Latin America, 2,15-18,22,24-5,
28,30-5,35-47
see also individual countries
Larosiere, J. de, 128n.3
LDCs (less-developed countries),
92-~
Labanon. 153; see also Africa
Lee, E., 1,)2n.6
lending
evaluation of programmes, 3,
60-4,72-6,92-127, 129-61
involuntary, 32, 41
lenders, 18,27,79,99
leverage by, 22, 34,150
official agencies, 16,99-106, 112,
116,121-2,130,139-40,
150-2,157
see also individual countries, banks
Lesotho, 20; see also Africa
L'Heriteau, M.-F., 13, 14
liberalisation oftrade, 18,21,32,45,
63,69,72,73,171,176
LIBOR (London Inter Bank Offered
Rate), 28, 178
192
see also floating interest rates
Libya, 85, 86, 89; see also
Sub-Saharan Africa
liquidisation of reserves, 34
liquidity,38
loans
foreign, 27, 28, 30-5, 54, 64, 68, 78,
97, 149-50, 163, 165, 168,
171-4,182
soft, 30, 167
sovereign, 28, 31, 38
syndicated, 28
low-income countries, 26; see also
individual countries
Loxley,J., 13, 48nn 17, 18, 19, 127n.2,
161n.3, 162n.26
Marques, M.S.B., 49n.46, 50
macroeconomic performance, 66,
92-3; see also balance of
payments, etc.
Madrid, President Miguel de la, 172,
176-81
Malawi, 20; see also Africa
Mali, 115, 126; see also Sub-Saharan
Africa
manufacturing
exports, 35, 36,45
output, 15,92-3,94,139,166
markets
domestic, 18,20,118-19,126,131,
139-40,149,151,153-4
integration into world markets,
21-3,31,37,123,157
interbank, 29
market forces, see free market
marketing, 137, 149
marketing agency, 104-5, 109-15,
122, 126, 128
martiallaw, military action, 69, 80
Mexico, 17,25,31-2,35,40,42-3,
48,163-83
migration, 95, 124, 166, 174
modern sector, 109, 120, BI, 140,
144,159
monetarism, 32, 40, 45,130,181
see also free market
money supply, 59 - 60, 72, 77, 10 1- 2
monopolies, 119
Index
Morocco, 126; see also Sub-Saharan
Africa
multinationals, 21
Mustafa, M., 61-2, 90
Nashashibi, K., 60, 90
nationalisation ofbanks, 43, 176
Navarrete,I.M. de, 184
neocolonial model, 19-25
neoliberalism, 24, 32
NICs (newly-industrialised
countries), 24, 32
Niger, 18; see also Sub-Saharan
Africa
Nimeiry, President, 51, 60, 69, 78, 80,
81,84-6
Nimeiry regime, 51-81, 82, 84-5,
86,88
post-Nimeiry, see Sadig Al Mahdi
non-industrialised countries, 26
North-South Institute, 21
NTBs (Non TariffBarriers), 35, 36
Nureldin Hussein, M., 61, 88n.2, 91
ODA (official development
assistance),82-3
ODF (official development finance),
32
OECD,52,88
offshore banking, 27, 29
oil, 26, 74, 80, 85, 92, 101
Mexico, 163-5, 168-75, 177, 178,
182
price shock (1973-4), 18, 54, 57,
99, 163, 165
price shock (1980), 98, 105
oligopolies, 119
ONCAD, 114, 116, 128
OPEC, 28
Pacific Rim countries, 17, 18
see also individual countries
PAN (National Action Party, 175,
179-80
'parallel accumulation', 147
'parallel commercialisation', 115, 118
parastatals, 58, 155
Paris Club, 64, 65, 67 - 8, 77 - 8, 81,
84,88
 Index
patronage, 164, 181, 182-3
Payer, c., 91
peanuts, 58, 93-9,101,104-5,108,
111-17,122,125-6
peasant farmers, farming
Ivory Coast, 157
Mexico, 164-6, 173, 177
Senegal, 93, 95, 98-9, 103, 110,
113-18,125-6
PEMEX (Petr6leos Mexicanos),
168-73,175,183
people, the; populism, 44-5,167,
173-5
see also political aspects, peasant
farmers, SPLM, unrest
Peru, 17,41,48, 126-7; see also Latin
America
petrodollars, 28, 54, 97, 99, 163
Philippines, the, 126-7
planter dass, 130, 133, 151
Polak, J., 91
political aspects
ofdebtcrises,2, 12,23,25-47,106,
130,147,159-61,163-83
dominant groups, 130, 132-3, 142,
144,146,148,151,159,160
elites,44, 164, 181
instability/stability, 16,39,71-2,
80,106,145
legitimacy, 45, 164, 166-7, 170,
174,175-82
opposition,left-wing, 171, 173,
175-7, 179-81
see also unrest, geopoliticalaspects
Portillo, President, L., 169-77
poverty and impoverishment, 19,20,
106,110,117,124,152,154,159,
160,174
Prebisch, R., 38, 49nAI
PRI (Institutionalised Revolutionary
Party), 175, 177, 179-81, 185,
186
prices, 21, 22, 26
of commodities, 23, 26, 32, 35, 36,
95
Ivory Coast, 131, 134-7, 140, 145,
152,155-8
Mexico, 165, 166, 174, 176
Senegal, 95, 98,101,103-4,108,
193
109, 112-17, 123
Sudan,69,73,80,83,87
private sector, 20, 33, 45
in Latin America, 42-3
in Ivory Coast, 147, 148, 150-3,
157 .
in Mexico, 164, 167, 169-71,
174-5,176,182
in Senegal, 94, 97-8,103,112-14,
120, 124
privatisation
and IMF, 21-2, 155
ofpublic debt, 29-35
production, 99, 103, 106, 110-12,
118-19,131,148-9,160
see also individual commodities
profitability, 139-40
protectionism, 35-6
and Ivory Coast, 134, 137 -8, 150
and Mexico, 165
and Senegal, 119-20, 125
and United States, 33, 35,41,166
public sector
and IMF, 20, 21, 22
and Ivory Coast, 140, 146, 152, 158
andMexico, 165, 169-71, 173
and Senegal, 101, 103, 109, 120,
122, 125
and Sudan, 70, 76
Purcell, S.K., 184
Quijano, J.M., 184nn 17, 21; 185nn
24,25
Reagan administration, 24, 30, 79, 80
real-estate, 42, 102, 109, 153
recession, 17, 18,32,38, 106-7, 163
see also economic crisis
redistribution of resources, 34, 157,
167
repatriation offoreign assets, 34, 42
rescheduling of debts, 29
in Ivory Coast, 142, 158
in Mexico, 178
in Senegal, 121
in Sudan, 52, 64, 65, 67-8, 77, 81,
84,87
research and development, 11-12,
116
194 Index
reserves, 25-6, 165
resistance to reform, 114, 122-3, 126,
171,173
resource flows, 16, 57, 63, 94
restrietive policies, 69, 70, 102, 103,
118
see also austerity
revenues
state, 134- 5
transfers, 128, 134, 138, 140, 145,
149, 160; see also reverse
resource ftow
reverse resource flow, 33, 82-3,134,
138, 140, 145
rice,94, 101, 104, 108, 112, 117, 152,
155,156
Roett, R., 42, 50n.51
Romania, 88
Rosario Green, M. dei, 184n.l0
rural development eorporations,
111-13,116,117
Sadig AI Mahdi, President, 51, 81- 7
SAL, see struetural adjustment loans
Saudi Arabia, 78; see also Afriea
savings, domestie, 18,77,97,101,
103,104,153
Schumpeter, J., 23
SDR, Special Drawing Right, 26, 40,
67, 100, 129, 149-50
semi-industrialised eountries, 25, 32
Senegal,92-127
Serrano, Diaz, President, 169, 170-2
Serra-Puehe,J., 184nn9, 17
serviee sector, 131
Shaaeldin, E., 57, 59,60,61,62,
88n.17, 90, 91
Singapore, 17; see also Asia
'shared development', 166-7
shoeks
external,25, 168-9, 178; see also
oil, vulnerability
internal, 168, 169
SMIG (Salaire Minimum Industriel
Garanti), 97,103, 126, 128
soeioeconomie aspects, 2, 129, 148,
151-3, 156-7, 158-61
social pressures, 99; see also
demographie pressures
social struetures, 23, 24, 130, 151,
159,177
social welfare, 166, 167
soH degradation, 95, 111,116,118
SODEVA (Soeiete de developpement
agrieole), 112, 113, 128
SONAR (Souete Nationale
d' Approvisionnement du Monde
Rural), 112, 113
Solis, L., 184nn 12, 16, 18, 19
South Korea, 17, 24, 46, 126; see also
Asia
SPLM (Sudan People's Liberation
Movement),81
stabilisation polieies, 51-89, 129,
146, 159, 165
stand-by arrangements (IMF), 40,
92-3,61-8,74-84, 100, 105,
129,149-50
state, the
enterprises, 97,106,130,155,157,
159-60
intervention, 22, 125-6, 132, 133,
140,142, 144-8, 151, 157,
159-60,164-75,182
repression, 166, 173, 180
see also publie sector
state ofemergeney, 87
Strange, S., 49n.25
strikes, 80, 86, 166, 173, 175-9
struetural adjustment facility, 84,
92-127
struetural adjustment loans (SALs),
20,22,41,105,106,149,155
subsidies, 21, 22, 23
IvoryCoast, 131, 134, 137, 152, 155
Mexieo, 170, 176
Senegal, 113, 116, 124-5
Sudan, 65, 83-4
Sudan, 51-89
sugar,35,83,93,101,108
supply-side measures, 61, 69
surplus drain, 144, 148, 155
Switzerland, 88
Szekely, G., 185n.31
Taiwan, 17; see also Asia
Tanzania, 62; see also Afriea
taxation, 72, 76, 85,101-2, 108-9,
 Index
120, 122
taxhavens, 29, 153, 167, 170, 171
see also offshore banking
technocrats, 164, 176, 180-3; see also
experts
technology, 18,97,127,170
Teichman, J .A., 184n.13, 185nn 26,
27,28
Tello, c., 184n.8, 185n.25
textiles, 36, 136-9, 151, 153, 159
Thatcher administration, 24
Third W orld, 1-13
see also developing countries,
industrialised countries,
low-income countries,
less-developed countries,
newly-industrialised countries,
non-industrialised countries
Thirlwall, A.P., 61, 91
trade, 36, 131; see also markets,
exports
adverse terms of, 17,20,23,35,
54-7, 124, 134-6
deficits, 26-7, 145
surpluses, 34, 35,41
transnationals, 34, 45, 154
Triffin, R., 25-6, 41, 49n.26
Turkey, 22
Umbadda, S., 57, 59, 60, 61, 62, 91
UNDP, 69,70
unemployment, 17,36,106,145,159,
163,165,172-3
Unilever, 155
unrest, 126
IvoryCoast, 152, 159
Mexico, 164- 7, 170, 173 - 5,
177-8,180,183
Senegal,96, 127
Sudan, 65, 69, 71, 80, 81, 84-5, 86,
87
Uni ted States, 22, 24, 41,52,69,
77-81,85-7,149,167,173
military expenditure, 26, 27
195
monetary policy, 25-7, 30-4
as net debtor, 26, 33
protectionist policies, 35-6, 41
see also dollar, Reagan
administration, West, the
USSR,88-9
Van Arkadie, B., 62, 91 86,
Velazquez, F4Jel, 176- 7, 185
Venezuela, 25, 28, 31, 42-3
Vernon, R., 185n.44
vulnerability
of developing countries, 25-47
ofIvory Coast, 154, 158
ofSudan, 85,86
wages and salaries, 21
IvoryCoast, 154, 157, 158, 159
Mexico, 167, 174, 176
Senegal, 101, 104, 119, 127
Sudan, 76
Waterbury, J., 128n.1O
West, the, 24, 85, 86, 87, 88-9, 97,
168
see also Europe, United States
Williamson, J., 50n.50
women, 156
World Bank, 1,2,30,33,45,47-8
Ivory Coast, 130, 138, 147, 149, 154
Latin America, 22
Senegal, 93, 100, 102-4, 105, 107,
111, 118, 121-7
Sub-Saharan Africa, 15, 20, 22
Sudan, 57,67,69, 70, 71, 78, 79,
85-8
World Bank reports, 20, 23,35-6,42,
48,49
Yugoslavia,88
Zaire, 18; see also Africa
'Zakat',85
Zambia, 20; see also Africa
Zedillo, E., 184nn 12, 16, 18, 19