World Bank, Aid Effectiveness Research, Development Research Group
(released March 27, 2001).*
[www.worldbank.org/research/aid/africa/release/aid.htm]
*: The individual country case studies are not reviewed here.
Welcome to a post-mortem of and a critical look at Structural Adjustment Programs (SAPs) in Africa together with a proposed new recipe to make them better, avoiding their (sometimes now judged clumsy) pitfalls.
The Report reviews aid and policy reform in ten African countries spanning from the eighties to the nineties. The countries are arbitrarily divided into four categories:
– Successful Reformers (Ghana and Uganda -and, interestingly, Vietnam added),
– Post-socialist Reformers (Ethiopia, Mali and Tanzania),
– Mixed Reformers (Ivory Coast, Kenya and Zambia), and
– Non-reformers (Zaire and Nigeria).
All of them received large amounts of aid and all of them had SAPs.
Overall, I see the Report as an apology for market-based reforms, because the authors truly believe them to be the best option. In doing the latter, the Report tacitly calls on Western donors and on the private foreign investors to rethink their strategies and to support countries that adopt WB-sponsored macroeconomic policies.
Without having any qualms about the brilliance of this Report, the first monumental problem I have with it is that it represents a typical cold economists’ account and analysis of an indeed complex matter.
The warm analysis of the social consequences and costs of these reforms is nowhere to be seen!! It is skipped as if it does not exist, as if it doesn’t count, as if it is unimportant. Passing-by, casual mentions of poverty reduction on pages 4, 31 and 34 add to mere mockery. This shortcoming seriously detracts from the Report’s ultimate moral authority.
The second problems I have with this Report relates to the authors’ definition of what constitutes “good policies”. In an astonishing leap of faith, they arrogantly tell us: “we know enough about development policies to make a fair assessment of the quality of policies across countries and over time…the notion that we are doing a reasonable job of measuring policy across countries is supported by the fact that our broad measure of policy predicts fairly well the GDP growth rates of the four categories of countries in our study”. Absence of high inflation, functioning foreign exchange and financial markets, openness to foreign trade, effective rule of law and delivery of key services, plus tax and sectoral policies that create good incentives for ‘accumulation’, and the public sector providing services complementary to private initiatives are given as key elements of “good policy”. (pp.2+3) For the Report’s analyses, this is then all blended into a 0-4 scale or index in a way that remains unexplained in the main text (trust us: ”we know enough about development…”).
In short, “good policy” here clearly fits (and serves) the ideological outlook of the World Bank. That, to me, detracts on the Report’s objectivity.
The Report (controversially) concludes that aid is not a primary determinant of policy, i.e. that variables under donor control do not consistently influence the success or failure of reform; that aid does not buy good reform. We are further told that policy is truly independent of aid and that the effect of aid will increase with the quality of policies. Aid, in the authors’ eyes, did play a significant and positive role in the ‘success’ of the two sustained reformers (Uganda and Ghana). (pp.4+6)
The Report then goes on to regret that donors tend to concentrate their assistance in countries with mediocre policies with the expectation that aid can spur policy reform. But we are told that policy formation is primarily driven by the domestic political economy where vested interests can (and do) perpetuate poor policies. Therefore, no relationship between formal democratic institutions and good economic policy could be found. Actually, large amounts of aid to countries with bad policies sustain those poor policies allowing the delay of reform, we read. Funds can (and do) actually sustain corrupt and incompetent governments. Attaching conditions to the aid (conditionality) has, in the Report’s view, not led to successful policy change. It has often been wasteful and even harmful. If countries perceive donors want to set policy, ministries become passive without disagreeing with the donors since this will only serve to delay the arrival of the much-needed resources.
Further, donors coordinate their work in a remarkably poor way and actually do not discriminated effectively among different countries: they tend to provide the same package of assistance everywhere and at all times; they also give less aid per capita to populous countries. All this is explained by the fact that aid in too many cases is a foreign policy tool rather than a tool for economic development. It is often dictated by colonial relationships and/or voting patterns in the United Nations and often ends up financing non-viable or even non-development schemes. Alternatively, aid provides governments with the breathing space they require to contain domestic opposition to market reforms, or it fills the shelves of supermarkets to provide a psychological impression of better things to come. Donors should definitely not provide aid before governments are serious about reform. (pp.5, 6,12,21,26,27+29)
In the early stages of serious reform, we learn that leaders and technocrats (self-servingly meaning those sympathetic to WB policy advice) actually welcome conditionality to ‘bind’ the process of change. Later, once the reform movement is well in place, conditionality becomes less useful and should be withdrawn, because it limits participation and it disguises the ownership of reforms. But the case studies show that, in a mistake, this has not happened and conditions have become tighter, more numerous and their acceptance more important for lending to be approved. (p.6,30+32) (In an oxymoron, on page 31, we read that to be useful, conditionality must reflect measures that the government wants to carry out…then why the conditionality?, I ask)
The composition of aid is important, we read.
In the pre-reform period, Technical Assistance (TA) and Policy Dialogue are most supportive.
During rapid reform Financing and Conditional Loans are most important.
At a later stage of reform, sustained Finance remains crucial. (p.6)
Rapid reform leading to “good policy” occurs when all of the important macroeconomic reforms have been completed, we are told. (Note the total absence of any mention of the social realm). Then, countries are said to need to move into “second generation reforms”; and which are these?…. privatization , civil service reform, judicial reform, and budget reforms. (p.23)
One cannot avoid but asking: and what about structural reforms leading to poverty alleviation, greater equity and the provision of services for the poor…?
The Report repeatedly speaks about “poor policy” periods, always assuming those to mean periods when World Bank-prescribed policies were not (yet) followed. Confirming the political nature of aid, it goes on to say that governments were estranged from the West during their “poor policy” periods.
In the Report’s context, policy dialogue -eufemistically called “low-key assistance” or “dialogue with foreign experts”- seems to be associated with the license Bretton Woods IFIs and donors took to put high pressure (‘leverage’, the Report says) on governments to adopt macroeconomic reforms, i.e. replacing state controls by market mechanisms, the latter gratuituously assumed to be superior. “When governments are sufficiently desperate… the promise of support induces them to come to agreement relatively quickly on far reaching reform programs”. (p.24,26+35) …so much for the conclusion above that aid is not a primary determinant of policy.
The Report self-servingly claims that policy dialogue with the IMF and WB played a critical role in the early years of “good policy” reform involving small groups of dedicated technocrats and politicians and that TA (absorbing up to 13-18% of all financial aid!) was later most helpful in pushing the early reform agendas. It then recognizes that TA was sometimes ineffective , because it was supply-driven from the donors side. (pp.15,16,20+35).
With hindsight I ask myself, is that what you call ‘buying yourself a reform package’?
In procuring technical assistance, the report warns us that many of the consultants “parachute in” giving mediocre advice even as countries complain they need freedom to buy expertise as they see fit. TA, it is confessed further on, is designed to provide ammunition to reformist technocrats; in that sense, policy choices are driven by donor funding rather than the domestically formulated policies: a nice contradiction here again with what is said earlier. (pp.20+21)
Historically, there does not seem to be a systematic relationship between structural adjustment programs and the extent to which African countries reformed, we read. It seems countries embraced serious reform only after they exhausted all other options, and the last option for most often meant adopting IMF SAP packages.
Most interestingly, reforms tended to occur following a crisis. (“Necessary but unpopular decisions had to be made quick before opposition to the reforms could be mobilized”). This highlights the role of leadership, technocrats, ideology, and institutions during such crises and, in order to lead to a “good” reform process, TA has to have done its job. (pp.6, 7,8 +12)
From the case studies, it is clear that countries often slide back following rapid reform. Examples of reasons given for this slippage include wage increases that had to be given to civil servants and political opposition.
To me, these seem quite genuine reactions to growing misery brought about by acute macroeconomic reforms. Donors react to slippage with cut backs particularly when they perceive ‘inability’ of the government to privatize. (p.9)
Any reform program has losers, we are further told. Because of that, we need objective decision-makers to minimize negative impacts. ‘Disinterested’ economists then have an edge, because they can ‘sell’ the program both to winners and potential losers.(pp.10+11)
I find it hard to accept that there is genuine disinterest here. Good reformers do need consultative processes;.period; even in the absence of formal democratic structures.
I further find it objectionable that the Report trivializes the role of external economic shocks and pressures in bringing about and perpetuating economic hardship in African countries. In a put-down way, it is said that President Nyerere “believed” that to be the case. (p.11)
Negating the negative effect of these external factors on national economies is borderline part of a dishonest analysis, I contend.
The Report concludes that donors have three basic instruments that they can use to encourage the adoption of “good economic policies” in developing countries: money, conditionality and technical assistance/policy dialogue.
It contends each of these made positive contributions in the 10 case studies. But donors used these instruments fairly indiscriminately and later, in the 1990s, did not provide appropriate debt relief. Using the wrong instrument at the wrong time proved wasteful and retarded reform. This, in concluding we are told, calls for “a better calibration of aid and reform”.
Giving aid to countries with “poor “ policies will not stimulate reform, will maintain the status-quo and will not be reflected in poverty reduction (!).
Finally, donors need to be more selective of the recipient countries they choose and the instruments they use and when. They should operate “on a small scale” with governments with poor economic policies, perhaps providing support to groups outside of government. Conversely, they should maintain high levels of finance in countries with sustained “good policies”.
Money can help improve policies, but the key is to disburse it when actual policy improvements have already been achieved.
Surprisingly, and despite all the suffering they have caused, the Report regrets the fact that SAP loans became discredited as instruments; “they could have been useful”….if what is said in this Report would have been heeded…. (pp.33,34+35)
I find that I always learn from reading documents I do not agree with 100%. In this and other cases, I think it will be the same for you.
Claudio Schuftan, Saigon
schuftan@gmail.com