The scene in Prague put Zambia’s Minister of Finance Katele Kalumba in a quandary. Inside the congress hall he was part of September’s annual meeting of the International Monetary Fund (IMF) and the World Bank; outside, protesters were laying siege to the building.
“I was not sure whether I should be inside with my fellow finance ministers or outside with the demonstrators,” Kalumba said recently. There may be poorer countries than Zambia, but not many. Landlocked and susceptible to floods and droughts, it is trapped in a cycle of economic underdevelopment.
Corruption, too, is a contributor. Eight percent of the population lives in extreme poverty and one-in-five people are HIV positive. Zambia’s borrowings mean that 25%of the country’s annual budget of $800-million goes to repay foreign creditors rather than being spent on schools, clinics and roads. Its plight is summed up in one statistic: the country needs to spend $25 for each person annually on healthcare; it is actually spending less than $3.
“If Zambia was a company it would have been closed down a long time ago,” says Venkatesh Seshamani, an economics professor at the University of Zambia. “This is a bankrupt nation.” It is hard to disagree. In 25 years living standards have dropped by 30%. Evidence of economic failure is everywhere. Lusaka is awash with street children and those struggling to make a few kwachas in the informal economy; villagers have to walk two days down rutted tracks to get to market to buy seed.
In Kayola, 40km from the nearest paved road, Barnabas Michelo, a village elder, says: “Life is tougher than it was 10 years ago. We never used to pay user fees in the clinics and hospitals. Now we have to dip into our empty pockets. We don’t feel we are independent; we feel we are still in the days of colonisation.” People have to beg medical fees from other poor people, he says. “By the time they have raised the money many of them have died.”
The Kayola farmers point to their shoes, made of tyre inner tubes. “Our children sleep on the ground. They have no blankets, only old fertiliser sacks to cover them. We feel near hopelessness. If it were possible we would tear the souls from our bodies.” Help, of a sort, is coming. Zambia is one of the 22 countries granted debt relief under the Heavily Indebted Poor Country initiative (HIPC) — an IMF and World Bank scheme under which the poorest states get financial help provided the money is spent on an agreed programme to combat poverty.
Until the World Bank and IMF acted late last year, it looked as though Zambia might have to pay more after receiving debt relief than it paid before. The reason was that it had made no debt repayments for five years, and these arrears were due in 2001. The solution has been to front-load Zambia’s debt relief — that is, concentrate a lot of the relief in the near term. In four years the payments will start to rise again. In the meantime it will be paying $168-million a year to its creditors out of its $800-million budget.
There are two arguments against a more generous approach: the level of corruption would mean that the money would be squandered and a big write-off of debt could encourage countries such as Zambia to borrow more, safe in the knowledge that eventually their debts would be forgiven. Kalumba admits that corruption has been a problem in Zambia, but believes that things are getting better. In part this is due to the greater involvement of civil society in drafting plans for spending the money made available by debt relief on reducing poverty.
The Catholic aid agency Cafod maintains that the Lusaka government can no longer ignore calls to clean up its act. Nor does Kalumba expect something for nothing; setting positive conditions is a good thing, he believes. “You just can’t drop the money here and walk away. I have no problems with the bank and the fund working with Zambia to make improvements in the way it runs its economy.”
The real question is whether Zambia can run its economy better, because while debt relief is a necessary condition for faster growth, it is insufficient in itself. Much will depend on the policies pursued as part of the anti-poverty strategy. Here there is a gap between what Zambia thinks it needs and what the IMF thinks it needs.
Ken Myers, the IMF’s representative in Zambia, says the critical objective is to stabilise the economy. This is to be done by reducing inflation, building up foreign exchange reserves to allow the central bank to operate normally, and using fiscal policies to try to get substantial real growth in the economy. “We are trying to reverse the trend of the past three decades.”
Zambia has abolished foreign exchange controls, liberalised its trade and privatised large chunks of the economy, including the copper mines in the north. Now it is waiting for its IMF payback. Government ministers, officials and representatives of civil society believe that a softer approach is needed during the transition from a government-led economy to one where the private sector plays the dominant role.
Grayson Koyi, of the Civil Service Union of Zambia, says: “We want a shift in focus from the preoccupation with inflation and financial indicators to a greater emphasis on human development. The World Bank-IMF model is not the only model. It’s just a way of thinking. Structural adjustment has failed.” Seshamani agrees.
“Structural adjustment has been a disaster in Zambia. Not because of the policies but because of the way it was implemented. The pace and the sequencing were wrong. Stabilisation and liberalisation taking place simultaneously has been disastrous. The manufacturing sector has collapsed.”
Kalumba says that liberalisation and privatisation have too often been seen as ends in themselves, and that debt is hindering the effort to improve economic growth from 1% a year to the 7% needed to make a real dent in poverty. “Debt is like a cancer that lives off its host. Eventually the cancer kills. Zambia’s debt is not sustainable.”
Britain’s International Development Secretary, Clare Short, believes that the poverty-reduction strategies are a new departure, not just warmed-over structural adjustment programmes. In countries that have embraced change, such as Uganda and Mozambique, the results are encouraging.
Kalumba is optimistic that Zambia can do the same, but he adds: “My ultimate objective is complete debt cancellation. HIPC is an intermediate step.”