"Mozambique" Sucess Story ?

"Existing social inequalities and regional asymmetry could endanger the
climate of peace, calm and social harmony that is the basic prerequisite
for balanced and self-sustaining socio-economic development," Prime
Minister Pascoal Mocumbi warned donors on 17 May 1997 at the Paris
Consultative Group meeting.

In an otherwise upbeat and self-congratulatory speech, it was a harsh
and undiplomatic warning that all is not well, and was as close as Dr.
Mocumbi could safely go toward criticizing the International Monetary
Fund’s (IMF) continued neo-liberal policies in Mozambique.

The meeting showed growing awareness that Mozambique may not be the
Bretton Woods success story that is so widely touted. Three
interconnected issues were on the table, explicitly or implicitly :

1. IMF stabilization has been squeezing Mozambique too hard, preventing
essential reconstruction and encouraging inefficiency and corruption.

2. Adjustment has benefited only the better off in Maputo ; the poor and
those outside the capital have lost out, as income gaps widen. Thus the
threats to peace cited by Mocumbi.

3. The Bretton Woods institutions work in the interests of
trans-national capital and against domestic capital.

Loosening the stranglehold
No public statements have been made, but published and internal
documents show that the IMF has responded to donor and World Bank
pressure and slightly loosened its grip on Mozambique. The IMF had
prohibited Mozambique from spending aid which was actually on offer to
rebuild schools, roads and health posts and to restart the economy ;
publicly the IMF denied this, but donors became increasingly outspoken
and even issued a public statement in 1995.

Aid spending is limited in two ways. One target Mozambique agreed to
with the IMF is "deficit before grants." In other words, deficit targets
must be met before grants can be made available. Since the government
cannot run an overall deficit, "deficit before grants" must be less than
total grants, and thus is effectively the amount of aid that the
government can spend. London-based experts on the IMF in Africa say that
the Fund is being much harder on Mozambique than on many other African
countries, such as Uganda, where the IMF does not use deficit before
grant as a cap on aid.

The second key is the requirement for an increase in "international
reserves" - in effect, dollars in the bank. These two are linked,
because donors have in recent years offered Mozambique more aid than the
IMF would allow it to spend, and the IMF has insisted that this extra
aid simply be kept in the bank as extra reserves. The increase in
foreign reserves is accounted for by cuts in spending on war repairs.
Even Jeffrey Sachs, the very conservative director of the Harvard
Institute for International Development, wrote that "there is no clear
need for a rapid and substantial build-up of foreign exchange reserves"
in Mozambique.

For more than two years, the donor community has been pushing for a more
expansionary policy, which would allow more money for investment and
concentrate less on simply curbing spending. The first public step was
the October 1995 statement by donors criticizing the IMF. In October
1996 the World Bank’s vice-president for Africa, Callisto Madavo, told a
Maputo press conference that the Bank would press this in negotiating
the annual joint IMF-World Bank "Mozambique Policy Framework Paper" (PFP).

The Bank stuck to its word, and when the PFP was issued on 8 May 1997,
it really did allow a substantial increase in spending. Deficit before
grant rises more than $90 million this year, with a increase of more
than $50 million in capital expenditure.

But, in effect, donors who claimed they wanted to give more to
Mozambique have been told to "put up or shut up," because foreign
reserves will still have to increase by more than $90 million - less
than last year, but still substantial - and this must be funded by donors.

The table below shows what has happened over the past three years, and
what the IMF demands are for the next two.

=========================

IMF controlled amounts ($ million)

Deficit Capital Total
before expen- foreign
grant diture reserves

Actual :

1994 434 358 127

1995 310 319 160

1996 268 298 290

Programme :

1997 360 353 371

1998 390 379 462

=========================

What the table shows is that the amount of aid the government could use
fell sharply between 1994 and 1996 - by $166 million per year in just
two years. This caused a fall in capital expenditure of $60 million per
year - which meant war damaged roads, schools and health posts in rural
areas were not repaired. The donors were still willing to give money, so
the IMF insisted it be put in the bank.

The permitted increase in capital expenditure was matched by an
unexpected increase in current spending which will be used to increase
civil service salaries. IMF spending curbs had forced the salaries of
more than half of all civil servants to below the poverty line, and this
was widely seen as a motor behind corruption. Low paid staff took bribes
and stole time and equipment in order to feed their families -
corruption through need - but then they could not denounce their
superiors who were corrupt through greed. This was recognized by
Planning and Finance Minister Tomaz Salomao when he warned donors in
Paris that the elimination of corruption is dependent on "an increase in
salaries to levels which give dignity to the civil servant and meet
their cost of living." Now this will be permitted.

Only in Maputo
Easing the IMF stranglehold which threatened to suffocate Mozambique
only tackles part of the problem. Mocumbi pointed to the danger of class
and regional differences, both of which are widening. In an unrestricted
free market, resources normally flow to the richest people and the most
developed areas. The overwhelming emphasis on the market has
concentrated development in Maputo, at the expense of the north and
rural areas in general. All of the biggest proposed or agreed projects -
including an iron and steel plant, a huge aluminium smelter,
Mozambique’s largest tourist development, an export processing zone, and
a new toll road - are concentrated in the tiny World Bank-promoted
"Maputo corridor" which links Maputo to South Africa.

Expensive restaurants continue to open in Maputo and survive on Maputo’s
new rich rather than tourists, although there is also a boom in tourist
facilities with several new hotels under construction or just open.

Visiting IMF and World Bank staff who only frequent Maputo’s cement city
do, indeed, see a vision of growth, expansion and prosperity. In
parallel there is a growth of informal markets and street trading, as
Maputo’s poor struggle to eke out a living, and a growth of violent
crime - but this is seen only through the car window by those who talk
of Mozambique’s success story.

Keeping domestic capital down
The concentration of investment in Maputo is not accidental. The iron,
steel and aluminium plants would more sensibly be sited in Beira.
Putting them in Maputo means that foreign managers can drive (using the
new toll road) or fly in from South Africa for the day - or stay for the
weekend in the new beachfront resorts. It seems that foreign investors
are prepared to spend substantial amounts of extra money, for example
for an extra 1000 km of power line for the aluminium plant, in order to
make it easy to pop back to Jo’burg.

And all of the emphasis of the Bretton Woods institutions (BWIs) has
been to ensure the entry of foreign capital and the development of
Johannesburg as a sub-metropole. World Bank bidding procedures make it
very difficult for Mozambican firms to bid - they cannot get credit (due
to IMF credit ceilings), they cannot hire requisite skilled staff
(because the international agencies pay more), and the BWIs prevent
Mozambique from giving any support to domestic industry. So it is
foreign contractors who win the tenders for the toll road and for World
Bank funded road rehabilitation. An Indian company won the contract for
school text books, when local firms could have done a better job.

Privatization has also been rushed through at record speed to ensure
that the biggest state companies go to trans-national corporations :
cement to the Portuguese, beer to South Africa, etc.

The IMF recognizes the growing backlash against privatization, with its
loss of jobs and reduction of local control. In its 9 June 1997 report
on Mozambique’s request for an Enhanced Structural Adjustment Facility
(i.e. an IMF loan), the Fund sets as one of its "structural performance
criteria" that "the momentum of privatization is not lost in the face of
political opposition." In other words, democracy cannot extend to
privatization.

When the cashew processing industry was unexpectedly bought by domestic
trading capital instead of foreign firms, the World Bank within months
published a previously secret report calling for the cashew processing
industry to be closed down. It was a stark warning to domestic business
not to get above its station. Since then, all major privatizations have
involved Mozambicans only as junior partners of foreign firms.

Naturally, the Maputo corridor is dominated by South African firms,
acting on their own or as agents for TNCs.

The domestic business sector hardly has clean hands ; it has been
involved in drug and currency dealing and profiteering. Nevertheless, it
has won growing national support, particularly from the press and from
trade unions which would rather deal with domestic business interests.

One factor which has put domestic business, and particularly small
business, at a disadvantage is the lack of capital. The IMF imposed
particularly harsh credit limits, which meant banks could give so few
loans that the simply gave the easiest ones - to Maputo traders. There
were no loans for rural trade, and few loans for the productive sector
(which needed longer term loans and not just 90-day trade credit). This
led to a major marketing crisis last year, when peasants produced a
bumper crop and no one bought it.

An allied problem was that many small Mozambican business people had
their factories, shops, farms and lorries destroyed in the war. In some
cases they still owed loans on that equipment. No money was available to
get started after the war. In a few areas, particularly tourism, tiny
South African business people were able to move in because they could
get loans in South Africa. Again, Bretton Woods policy put Mozambican
capital at a disadvantage.

Small business in rural areas face two other problems. One is that five
years after the end of the war, many destroyed rural roads and bridges
have not been repaired. This is due to World Bank policy on road repair
which puts the stress on main roads used by foreign businesses which are
being upgraded and rebuilt to high standards by foreign contractors ;
this is linked to the IMF cap on spending, which means that if main
roads are rebuilt, minor rural roads cannot be.

The final problem is the Bretton Woods obsessive opposition to
agricultural marketing boards, introduced throughout the region in the
colonial era and abolished now. They were wholesale (and sometimes
retail) buyers of food crops such as maize, and also maintained large
stockpiles ; now, it is the peasants and traders who are expected to
maintain any supplies, but with the shortage of credit traders will not
buy maize if they cannot sell it on. In many areas there was no commerce
at all last season, because traders could not work profitably with no
credit and no marketing board.

It is also important to remark that with an El Niño triggered drought
forecast for 1997/98, there are no food reserves in Mozambique because
the Bretton Woods institutions consider it poor practice to keep
reserves, as was common in the past. Instead, they argue it makes more
economic sense to buy on the world market in poor years. This is a bias
toward the big international grain traders and against local business.
But with IMF spending caps, it also means that Mozambique will again
have to take money away from schools and health posts to import maize.

Slight easing for rural business
Prime Minister Mocumbi summarized all of these problems in his May Paris
speech when he noted that "the national private business class, which is
still nascent and lacking in financial resources, has to an extent been
penalized by the restrictive policies that help to slow down inflation,
particularly in the decapitalized rural areas."

Under heavy donor pressure, the IMF has backed off on its most dogmatic
free market policies. Previously it had argued that the market was the
only "efficient" way to allocate credit. This year the IMF allowed
Mozambique to set up three special funds which will direct money to
disadvantaged parts of the domestic private sector.

* One special fund will allow the government to use receipts from
privatization (which the IMF had previously said had to remain in the
bank and could not be used) combined with donor and NGO funds to create
an Economic Rehabilitation Fund (FARE) to provide credit for small rural
enterprises.

* The second fund will be used to pay off debts incurred by private
firms for assets destroyed during the war. These debts make it
impossible for many small traders to take new loans.

* The third fund will assist the rural commercial network.

"Grievances about the economy"
Although Mozambique is touted by the Bretton Woods institutions as one
of its few African "success" stories, the easing off - limited though it
may be - by the IMF, reflects pressure from donors and those more
perceptive of the international agencies who realize that success cannot
be measured by sitting beside the pool at the Hotel Polana in Maputo.

A larger question remains, however. Are such minor changes of direction
really likely to be enough to blunt the relevance of the kind of stark
warnings about current policies that are rife in Mozambique ? Consider
one of the most recent of such warnings, from the Refugee Studies
Programme in Oxford : that body’s careful and insightful study of "The
Reintegration of Ex-combatants in Mozambique" - written by Chris Dolan
and Jessica Schafer and issued in June of this year - points to "a lack
of visible reconstruction efforts in many areas." It also warns that
"rural areas are thus trapped in a vicious circle : lack of roads leads
to lack of market opportunities which leads to lack of cash and in turn
inability to buy consumer goods, resulting in reluctance on the part of
the rural population to produce agricultural surplus and thus economic
stagnation."

" `Democracy’ did bring elections but it brought no great change in the
standard of living of the majority. Disappointment on this account is
now strongly expressed in all quarters," conclude Dolan and Schafer.
This means, among other things, that demobilized soldiers who have
returned to the countryside, often with their guns, are increasingly
dissatisfied. "It is not encouraging to hear the high level of
frustration and latent violence just below the surface ... [T]he
widespread persistence of grievances about the economy does not bode
well for the future."
www.africafiles.org

Joseph Hanlon is a writer on southern Africa and the author of "Peace Without Profit : How the IMF Blocks Rebuilding in Mozambique."
(Heinemann, 1996)