Debt and Structural Adjustment Programs SAPs

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Debt and Structural Adjustment Programs (SAPs)

• HServ-Epi 531
• 2007

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Origins of the Debt

• Increased oil prices (OPEC-1970s)
• Floating US currency
• Increased interest rates (7-22)
• Worldwide recession in 1980s
• Decreasing commodity prices (subsidies)
• Decreased US foreign assistance
• Waste, corruption, mismanagement
• Aggressive loans ?intentional

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Debt burden especially on Africa
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Funding Dictators

• Total loans made to oppressive regimes (low and
  middle-income countries) 500 billion
• Loans to South Africas apartheid regime (being
  repaid by current government) 22 billion
• Africas debt stock in 1970
• 11 billion
• Africas debt stock in 2002
• 295 billion

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Structural Adjustment ProgramsWashington
Consensus

• Austerity measures to Reschedule debt
• (IMF conditional)
• Reduce government expenditures (education,
  health)
• Improve terms for foreign investment (reduced
  taxes)
• Continue paying debt (often greater than health
  budgets)

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• Government is not the solution to our problems.
• Government is the problem.
• Ronald Reagan,
• Inaugural Address, 1981

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Structural Adjustment Programs

• Decrease government spending
• Lay off workers (mostly health and education)
• End food subsidies
• Reduce social expenditures
• Increase exports
• Devalue of currency
• Improve terms for foreign investment
• Reduce or freeze wages reduce worker power
• Privatize economy Free Market Rules
• Market regulation of prices (huge increases)
• Liberalization of import controls
• Elimination of protection for small businesses
• willingness to pay ethic for social services

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Structural Adjustment ProgramsWashington
Consensus (IMF, World Bank)

• Decrease government spending
• Lay off workers (mostly health and education)
• Cut government programs (education, health,
  agriculture)
• End subsidies for poor (food, transport, housing,
  water)
• Improve terms for foreign investment to increase
  exports
• Reduce taxation, currency controls on investors
• Devalue currency
• Reduce or freeze wages reduce worker power
• Privatize economy Free Market Rules
• Market regulation of prices (huge increases)
• willingness to pay ethic for social services
• Growth of private health care
• Reschedule debt over longer period (indefinite)

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Effects of SAPs-especially on poor

• Enormously increased food, transport prices
• Huge levels of unemployment
• Non-living wage for those who remain working
  (20-40/mo)
• User fees for health, education, and other
  services
• Reduction in education, health care quality
• Social unrest demonstrations, riots

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Effects of SAPs

• Urban poor
• Increased food, transport prices
• Unemployment
• Non-living wage
• Payment for social services
• Rural poor
• Decreased credit
• Increased prices
• Payment for social services
• Coping strategies
• Borrowing/selling assets
• Longer work hours
• Changing consumption patterns

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Conditions for debt relief by IMF, World Bank

• Cote D'Ivoire. Told in 1994 to liberalize the
  labour market, decontrol prices, and privatize
  state-controlled operations.
• Result
• Real wages fell,
• consumer prices went up
• unemployment went up
• Rural people negatively affected by taxes on
  coffee and cocoa exports. The incidence of
  poverty in 1995 was three times that of 1985, and
  had widened to affect more socioeconomic groups.
• User fees introduced in health care spending on
  health care and education shifted further away
  from service to the poor.

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Conditions for debt relief by IMF, World Bank
  Zambia. Told in 1991 and in later adjustment
agreements to shift from subsistence agriculture
to cash crop production, liberalize the domestic
financial market, privatize. Subsidies on maize
production and fertilizers eliminated, bank
credit slashed. Cuts in social expenditures. Resu
lt Increased prices (500 inflation in 1992).
Urban formal sector employment decreased by
one-fourth relative to the urban workforce.
Smallholder income and urban wages fell. Overall
standard of living fell. Malnutrition increased
among smallholders. Cuts in social expenditure
and introduction of user fees for basic health
care hurt the poor particularly hard. Quality of
education fell.
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Primary School enrollment and SAPs
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MDGs in Education
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SAPs and reduction in health budgets

• Health budgets half of 1980s levels
• Benin 9 - 4
• Mali 8 - 4
• Mozambique 11 - 3
• Increasing donor dependence
• Support of NGOs for health care

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SAPs weakened national health systems in Africa

• Ministry of Health (MOH) budgets were slashed,
  causing
• Inadequate workforce (numbers, salaries, morale)
• Poorly maintained and equipped health facilities
• Inadequate transport, communication
• Weak procurement and distribution of medicines
  and supplies
• Decreased quality of services

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Crisis in health care providers a major
bottleneck

• Inadequate professional training Inadequate
  positions
• Brain drain of doctors and nurses
• External to USA, Europe, Japan, other richer
  countries
• Internal to better paying jobs in-country (part
  of full time)

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Global Distribution of Health Workers in Selected
Countries
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World nurse, doctor distribution
16 million nurses in the world 2.2 million nurses
in the US
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Dealing with the consequences of the debt

• Adjustment with a human face
• Bamako Initiative
• 1990s reform
• Enhanced Structural Adjustment Facility HIPC

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Adjustment with a human face (UNICEF)

• policies to protect the well-being of the most
  vulnerable during structural readjustment, IN
  THE SHORT TERM (poverty alleviation program)
• - Child survival programs
• UNICEF STUDY in 1995
• 6 of 10 countries -negative nutrition changes
  and/or IMR
• increased numbers of people under poverty line
  all preceeded by decreases in GDP/capita

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BAMAKO INITIATIVE 1987 (UNICEF and WHO)

• Women and Childrens's health
• Funding and management of esssential drugs
• at the community level  
• Mandate drug charges to recover expenditures
  first years proceeds as seed capital second and
  successive years as replenishment CHCs -
  community health committees planned for 75 of
  pop
• 180m for start-up costs for basic equip short
  term provision of basic drugs support costs
  (supervision, training, social mobilization)
• Implication UNICEF aligned with World Bank
  Charging, transferring costs to community H
  Care responsive to DEMAND, not NEED
  Depoliticized health

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1990s "reform"

• Continued debt repayment
• Continued price/wage problems
• Sporadic growth with increasing disparity
• Intense pressure on IMF, World Bank
• Enhanced Structural Adjustment Facility (ESAF)
• for (heavily indebted poor countries) HIPCs
• 3 of 33 countries in sub-Saharan Africa
• Little change in debt service     Africa trade
  bill     Asia-global recession of 1998

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Africa Debt flow 1986
Annual debt payments since the mid-1980s
European Banks
US Banks
15 Billion
African Governments
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Impact of SAPs - immunization coverage
SAPs
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Debt Burden (2005)

• Total external debt of low-income
  countries 523 billion
• Total debt service being paid every day by
  low-income countries 100 million
• Africas total external debt 300 billion
• For every 1 received in grant aid, low income
  countries pay 2.30 in debt service
• Many African countries spend more on debt than
  either health or education (e.g., Cameroon,
  Ethiopia, Gambia, Guinea, Madagascar, Malawi,
  Mauritania, Senegal, Uganda and Zambia all spent
  more on debt than health in 2002

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HIPC Initiative(Heavily Indebted Poor Countries)

• Set up in 1996 to reduce poor countries' debts.
• Reformed in 1999, after pressure from campaigners
• Takes too long (18 countries p 10 yrs)
• Only 38 countries eligible (28 joined)
• Does not include all debts (IMF, WB, not private
  or bilateral)
• Designed to reduce debt to sustainable levels
• Conditionalities (SAPs) cuts in health and
  education enforces trade liberalisation or
  privatisation of basic services. -designed to
  protect the assets and interests of creditors
  rather than promote growth, poverty-reduction or
  stability

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Debt Relief HIPC 2005

• Countries which have received debt cancellation
  through HIPC -18
• Total debt cancellation through HIPC between
  1996 - 2005 30 billion
• Debt cancellation granted in one day to Iraq by
  the Paris Club 31 billion (Nov. 04)
• Number of qualified teachers which Zambia was
  unable to employ because of a public sector wage
  freeze imposed by the IMF in 2004 as a condition
  of receiving HIPC debt relief 9,000

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Countries in HIPC

• Completed - Benin, Bolivia, Burkina Faso,
  Ethiopia, Ghana, Guyana, Honduras, Madagascar,
  Mali, Mauritania, Mozambique, Nicaragua, Niger,
  Rwanda, Senegal, Tanzania, Uganda and Zambia
• Reached first stage (decision point) - Burundi,
  Cameroon, Chad, Democratic Republic of Congo,
  Gambia, Guinea, Guinea Bissau, Malawi, Sao Tome
  Principe and Sierra Leone
• Eligible to enter HIPC - Central African
  Republic, Cote D'Ivoire, Comoros, Congo and Togo.
  A further five are unlikely to reach this stage
  Lao (has said it does not want to enter HIPC),
  Liberia, Myanmar, Somalia, Sudan.

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Nigeria debt

• Most of Nigeria's debt - penalties and compound
  interest on loans to former military dictators
  during the 1970s and 1980s.
• 1985 owed 8 billion
• 2004 owed 31 billion
• despite paying back 16 B and having had almost no
  new loans.
• Nigeria's debt ballooned by around 23 billion
  dollars because of arrears, fines and compound
  interest.

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Nigeria Debt Relief July 2005 by the Paris
Club, a creditor cartel of 19 rich countries

• cancellation of 17 billion US
• dependent on Nigeria paying off arrears of about
  6 billion, and 'buying back' around 8 billion
  of the debt
• pay off arrears will come from the fund set up
  to channel oil profits towards reducing poverty
  in Nigeria.
• dependent on the IMF putting in place a 'Policy
  Support Instrument'

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Debt Relief G8 Summit Sept 2005

• cancelled 100 percent of the World Bank and IMF
  debt for 18 poor countries
• agreed to write off as much as 57.5 billion in
  debt to some of the world's poorest countries
• No change to SAPs, only WB, IMF debt
• NB The 18 countries which currently qualify for
  relief are Benin, Bolivia, Burkina Faso,
  Ethiopia, Ghana, Guyana, Honduras, Madagascar,
  Mali, Mauritania, Mozambique, Nicaragua, Niger,
  Rwanda, Senegal, Tanzania, Uganda and Zambia

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Concerns with G8 Debt Cancellation

• Still needs IMF, World Bank discussions over next
  several months
• requires the 18 countries to go through one final
  test of compliance with IMF and World Bank
  conditions including so-called sound policies.
• eligible countries will not cease making debt
  service payments until July 2006
• This will prevent the Zambian government, for
  example, from providing additional AIDS drugs
  this year to almost 100,000 infected people, an
  initiative the government announced in July

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Vulture funds

• financial organization that specializes in buying
  securities in distressed environments
• Some have successfully bought what appeared to be
  canceled debts of poor countries
• e.g., Zambia Donegal Intl bought 30m Romanian
  debt during cold war for 3m, awarded 15.5m

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Debt Cancellation Works

• In Benin, 54 of the money saved through debt
  relief has been spent on health, including on
  rural primary health care and HIV programmes.
• In Tanzania, debt relief enabled the government
  to abolish primary school fees, leading to a 66
  increase in attendance.
• After Mozambique was granted debt relief, it was
  able to offer all children free immunisation.
  Nurses salaries doubled.
• In Uganda, debt relief led to abolishing school
  fees (1997) and 2.2 million people gaining access
  to water

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Odious Debt

• Odious debt is an established legal principle.
• Odious debt is unfair debt resulting from
  illegitimate loans.
• loans to an illegitimate or dictatorial
  government that used the money to oppress the
  people or for personal purposes.
• If borrowed money was used in ways contrary to
  the peoples interest, with the knowledge of the
  creditors, the creditors may be said to have
  committed a hostile act against the people. They
  cannot legitimately expect repayment of such
  debts.

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• From Jubilee Campaign
• The use of debt to perpetuate the power and
  dominance of international financial over the
  countries of the South has had far more damaging
  effects than just the loss of financial resources
  to debt service.
• The total amount of de-capitalization though
  unequal trade and profit repatriation of
  multinationals is far greater than debt service,
  even bigger than the external capital infusion
  through lending and aid.
• We cannot even begin to adequately measure the
  profound social, economic, environmental and even
  political impact of the policies and structures
  imposed and implemented in the South through
  various debt-related mechanisms.

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Free trade and Labor

• Many corporations have codes of conduct to hold
  their suppliers accountable for labour standards,
  but their own ruthless buying strategies often
  make it impossible for these standards to be met,
  especially with outsourcing
• Wal-Mart, Target, Tesco, El Corte Ingles-Induyco
• Corporate buying teams have massive power to
  pressure their suppliers to deliver
  'just-in-time' orders at lower prices.
• buying teams vs ethical conduct teams

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Practices of retailing empires

• Huge retailing 'empires' are undermining the very
  labour standards they claim to uphold Corporate
  buying teams have massive power to pressure their
  suppliers to deliver 'just-in-time' orders at
  lower prices.
• companies are using their power at the top of
  global supply chains to squeeze their suppliers
  to deliver.
• pressure is dumped immediately onto women workers
  in the form of ever-longer hours at faster work
  rates, often in poor conditions and with no job
  security.

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Worker conditions

• Fewer than half the women in Bangladesh garment
  factories have a contract and most get no
  maternity or health coverage.
• In China, young women face 150 hours of overtime
  each month and 90 have no access to social
  insurance
• states must also begin to guarantee workers'
  right to join trade unions and to bargain
  collectively, and to better enforce labor laws
• IMF, World Bank encourage the 'flexibilization'
  of labor
• countries are pitted in competition to provide
  the most flexible workforce