The IMF: Dr. Death?

A case study of how the global banker's shock therapy helps economies but hammers the poor

April 17, 2000
Web posted at: 12:35 p.m. EDT (1635 GMT)

The anti-globalization movement serves up plenty of hot rhetoric but also some disturbing truths. Street protesters have it exactly right, for example, when they argue that the economic policies imposed on developing nations by the International Monetary Fund and World Bank have hammered the poor. Using loans and the threat of default as levers, the IMF has pushed more than 90 countries to accept its brand of free-market shock therapy: lowering trade barriers, raising interest rates, devaluating currencies, privatizing state-owned industries, eliminating subsidies and cutting health, education and welfare spending. These "structural-adjustment programs"--a chilly bureaucratic euphemism if ever there was one--attract foreign investment and stimulate the business climate (and the local elites). But the programs also drive up the cost of living, rip holes in already tattered safety nets and help kill small farms and businesses. After Haiti lifted its trade barriers under IMF pressure in 1986, for instance, an imported mountain of cheap American rice--subsidized by the U.S. government--buried the island's rice industry.

The IMF and World Bank admit the problem while insisting that their policies will boost living standards over the long term. But people in the Global South have lost patience with such talk. In Bolivia this month, rioting broke out because the government and a multinational consortium planned to raise fees for drinking water. Eight people were killed. It was a reminder that the globalization protests in Washington aren't simply the product of a Web-connected U.S. counterculture but of an anger that's building around the world--the defining North-South issue of our time.

Consider a country that the IMF and World Bank regard as a success: Tanzania, the vast East African nation that is among the poorest places in the world. Best known to Americans for Mount Kilimanjaro and the Serengeti Plain, it has been stable and relatively peaceful since it gained independence in 1961. For two decades, it steered a course of self-reliant socialism--a one-party government controlled the economy, taxed mightily and spent lavishly; its literacy rate was among the highest in Africa. But by the mid-1980s, Tanzania's economy was flat-lining, with hyperinflation, huge budget and trade deficits, and massive dependence on foreign aid. Today, after 15 years of IMF-imposed structural adjustment, administered most effectively since 1995 under President Benjamin Mkapa, Tanzania has "made great progress in getting its macroeconomic situation in order," says James Adams, the World Bank director for the country. Inflation has fallen below 7%, and the GDP is growing 4% a year; European sedans glide through the streets of the capital, Dar es Salaam, and imported goods fill the shops. Mining and cash-crop exports are up. R.J. Reynolds refurbished an old cigarette factory. The country established a stock exchange. "There's no question that opening up trade has transformed Tanzania," Adams says.

It would all be rosy were it not for the 15 million to 18 million people--more than half the population--living in dire poverty, with 12.5 million of them unable to afford the most basic needs. These men and women, almost all subsistence or small-plot cash-crop farmers, have been structurally adjusted half to death. Though Adams points to progress--51% of Tanzanians now survive on $1 a day or less, down from 65% in the mid-1980s--his statistic makes Tanzanian analysts laugh bitterly, because it misses the fact that everything in a farmer's life costs more today. Currency devaluation and the elimination of agricultural subsidies doubled and quadrupled fertilizer prices, according to a study by the Evangelical Lutheran Church. Farmers couldn't borrow, because short-term interest rates in rural areas hit 100%. Yields fell, but thanks to global oversupply and greedy middlemen, farmers were often paid less for what they could grow. Famine remains a persistent threat for 40% of the country.

With Tanzania's debt from IMF, World Bank and other loans now at $6.4 billion, the government has been spending 40% of its annual revenue on interest payments--more than it spends on health and education combined. Even the poorest families are subjected to "cost sharing"--paying fees for basic health care and even elementary school. In response, 70% of the people consult faith healers (this in a country with an HIV epidemic), and school enrollment has fallen from 93% in 1993 to 66% today. "The data are very clear," says I.F. Shao, director of the Institute of Development Studies at the University of Dar es Salaam. "A small number of people are doing very well indeed, but the vast majority are suffering more than ever. There are wonderful things in the shops now, but who can buy them?" Adams agrees that "we need to get the income gains into the rural areas," but defends the reforms. "The transition could have been made more gently, but it had to happen. The old system was unsustainable. But now, finally, we're at the starting gate--Tanzania is ready to build on its progress." The World Bank and IMF announced a $2 billion debt-forgiveness package for Tanzania last week, but Mkapa moved quickly to make sure his people didn't get their hopes up. He announced that the benefits of debt relief won't be felt until late 2001 and added, "We have to continue tightening the belt."