Appendix 1: Structural adjustment programme (SAP) - The experience of Zambia

[This appendix is added for those PWDs who take an interest in macro-level economic policy Issues, and who would like to look a little more closely on how the Structural Adjustment Programmes are affecting the economies of their countries.]

Zambia got into economic difficulties during the decade of the 1970s - largely on account of externally related factors, such as falling copper prices and the deteriorating terms of trade. The government concluded a two-year "stabilization programme" with the IMF in 1978. Instead of stabilising the economy, the situation worsened. Inflation accelerated even faster and this severely hit all fixed-income earners, especially wage workers.

In 1981 and again in 1983 Zambia concluded "extended fund facility" agreements with the IMF. However, because Zambia could not conform to the rigours of IMF's "eligibility criteria" only SDR 375 million were disbursed out of over SDR 1 billion that was negotiated. In 1986, in an attempt to meet with the IMF's conditionalities, government reduced the mealie meal subsidy and this led to food riots in the Copperbelt and the death of fifteen people by police action. On I May, 1987 government suspended the SAP.

For two years - from May 1987 to July 1989 - Zambia decided to go on its own - "growth from our resources" strategy. The New Economic Recovery Programme (NERP), as it was called, introduced major policy changes, including diversification, inflation control, rationing of foreign exchange, and reduction in import dependence. The economy improved remarkably. Agriculture grew at 21 percent and manufacturing at 15 percent, and the overall GDP growth rate was 6.7 percent against the planned target of 2.2 percent.

The Empire Strikes Back!

Over the last two decades the third world have been paying out an average of almost US$ 50 billion a year in NET TRANSFER OF FUNDS to the developed countries. In other words, it is not the North that is giving "aid" to the South; quite the opposite. The transfer of resources is from the South to the North. This figure must be augmented ten times if you put a "fair value" to the exports of third world raw materials to the North.

But then the creditors came knocking at the door. The IMF and the World Bank demanded payment of the accumulated debt of SDR 5.7 billion, plus SDR 1.2 billion in arrears and interest. 83 percent of total export of goods and services went simply to service these debts. In other words, for every dollar worth of all the copper and other things Zambia exported, only 17 cents came back to the people of Zambia and 83 cents went to foreign creditors. At the same time, all other donors - including those who claimed to be "friends" of Zambia - cut off aid to Zambia. They said they would bring in their capital only if Zambia returned to the IMF/WB.

Zambia was on its knees. In July 1989 Zambia abandoned NERP, and came back to IMF/WEB's Structural Adjustment Programme. In June 1990, the government, in order to meet IMF's conditionality, reduced maize meal subsidy. There were food riots for two weeks which spread from Lusaka to Kafue and Kabwe, and 26 civilians and a policeman died. On June 30, 1990, there was an attempted military coup. There was little the government could do to help the people. In the 1993 elections, people voted Kaunda's government out of power, and put in saddle an old trade unionist, Chiluba, hoping he would give people what Kaunda could not.

But Chiluba's hands are as much tied as Kaunda's. The World Bank, the IMF and the creditors have regained control over Zambia's economy. Under the new government, payment of arrears to the IMF were cleared by the 'Rights Approach" - whereby arrears are cleared only as long as Zambia successfully implements the SAP conditionalities on an annual basis. To enable this, government has "liberalised" trade, investment and dividend remittances. It has cut down on health and education. It has devalued the Kwacha in order to encourage exports, and to attract foreign capital. It is selling off state controlled enterprises (the collective assets of the people) to the "private sector," but since only the foreign private sector has the capital to buy these, the economy is in the hands of large foreign corporations more than ever before. The selling off of these assets has given a temporary relief to the economy by injecting more money into it. But it is temporary. Prices have started soaring again. Shortages are back again. Unemployment is increasing. The "Informal sector" of the economy now provides some 75 percent to 80 percent of the population. Back to the old days!