Working Class
June 2005
Editorial
DFID's Free-Market Policy Led To
Farmers' Suicide In AP
http://www.christianaid.org.uk/images/damage_done.pdf
http://www.christianaid.org.uk/images/damage_done.pdf
BLAMING the policies of the Department
for International Development (DFID) for farmers’ suicide in Andhra Pradesh, a
report by an international aid agency, Christian Aid has asked the United
Kingdom Government to delink its aid to developing countries from
conditionalities of market economy - liberalization and privatization.
Titled, “The Damage Done: Aid, Death
and Dogma” the report released in London
Andhra Pradesh emerged as the DFID’s
“flagship focus state”. While India
Dwelling deep into the sordid saga of
farmers’ suicides, the report argues that the new policies which encouraged a
shift from traditional crops to cash crops, trapped the farmers in the hands of
money lenders and market volatility. The farmers had to pay more and had to borrow
from money lenders who charged extortionate rates and pursued aggressive
recovery policies. Also the power reforms meant withdrawal of subsidized power
to farmers and the IS’s (Implementation Secretariat of DFID) order to close
down 14 out of 24 seed processing units of the AP State Seed Development
Corporation brought in private players. Report said, the quality of seeds
deteriorated. “ The immediate cause of these deaths is debt. This debt was
brought on by a number of factors, all of which, except for weather, can be
ascribed to liberalization” said the report.
(The Pioneer, 23-05-2005)
ARTICLE
PRIVATISER'S LOOT OF PUBLIC ASSET!
Dipankar Mukherjee
Working Class
June 2005
Editorial
THE UPA government has, at long last,
ordered an inquiry on the sale of Airport Centaur and Juhu Centaur hotels
following the CAG report N0.2 of 2005. The privatisers’ lobby terms this inquiry as an assault on
disinvestment and privatisation. This is a concerted attempt to gloss over the
facts to cover up the fraudulent deals carried out in the name of disinvestment
by Shourie and his Disinvestment Ministry during the NDA regime.
Para 4.0 of the minutes of 172nd Board
meeting of the Hotel Corporation of India held on 19.11.2001, where the sale
transaction of the hotel was approved, states the objective clearly: “… Managing Director informed the members
about the various transaction documents for the sale of business of various
units except Centaur Lakeview Hotel, Srinagar
Did it happen suddenly? At least the
Parliamentary Standing Committee on Transport & Tourism did not think so.
From its 65th report, laid in Parliament in March 2003, I quote para 14 of the
recommendation. “The Committee notes
that the financial strength in respect of AB Hotels Limited (Radisson) was only
taken into consideration for short listing M/s A L Batra. However, in the subsequent
process Batra Hospitality Private Limited (erstwhile Batra Nibgo India Private
Ltd) has been used as SPV. The list of companies of AL Batra Group, as given in
the details submitted, does not include
the name of M/s Batra Nibgo India Private Ltd name of which has been changed to
Batra Hospitality Private Ltd. While AB Hotels Ltd does have the relevant experience of running 5
star hotels and the financial strength of AB Hotels Ltd has only been taken
into consideration for short listing, use of BHPL as SPV(Special Purpose
Vehicle) raises serious questions regarding the intention of the buyer. BHPL
has been brought into the picture as SPV for acquiring the CHMA which appears
to be a pre-motivated objective to dispose of the same flouting the provisions/conditions
of sale, since the transfer of 100 per cent holding in BHPL will automatically
lead to the transfer of the property and not sale of the property. This would
not have been possible if AB Hotels Ltd had acquired CHMA. The Committee is of
the view that the above issue requires a detailed investigation.”
Shourie did not agree for the
investigation two years back. Why?. The Committee had said that the motive of resale was premotivated. Resale not
of the business, but the property. Would you call it as disinvestment as a
going concern or property deal where a speculator earned Rs 30 crores within
six months? Refusal of investigation two years back shows that Shourie and his
Ministry had implicit knowledge about the deal. This becomes explicit in the
second sale of Juhu Centaur. Confronted with the reported deal of Kerkar to
resell the Juhu Centaur with a premium of Rs 250 crore to some builders (nearly
150 percent gain), Shourie tells in an interview: “I have been hearing this for
four months. When we sold it, I assumed he would sell it. When someone buys a
property, he has a right to sell it 100 per cent.” (Outlook 23rd May 2005)
It means that the former Minister
himself knew it would be resold. Would the reformers/privatisers still call it
disinvestment of business or a property deal by a speculator? If the objective
of word “disinvestment” itself is totally diluted or perverted to a mere
property deal, is it not a prima facie case to investigate the reason behind
changing the objective of “disinvestment” as perceived by the market reformers
themselves? “I assumed he would sell it” holds good not only for Kerkar
but for Batra also. Is it not true that
an IOC oil pump in Airport Centaur was also given to Batra without the
knowledge of IOC and Ministry of Petroleum (Standing Committee report para
33)? A bonus to a trader-cum-speculator
in the name of disinvestment it is fine.
Similar bonus in terms of land and state guest house in the case of Kovalam
Hotel (ITDC) in Kerala may surprise “lay-people” (courtesy: Shourie), but for
the walk the talkers it is only the part of new adage “Everything is fair in love, war and DISINVESTMENT.”
Yes, I am using the words of the
present Finance Minister, which are suave enough to satisfy Shourie &
Company. Two areas of discomfort which the Finance Minister referred in his
reply in Rajya Sabha on 18.8.2004 regarding Juhu Centaur are (a) repeated extension given to Kerkar in
spite of his inability to arrange money for the purchase and (b) the meeting
with bankers and bidder on Sunday (!) February 23, 2002.
Regarding repeated extension and
non-encashment of bank guarantee beyond the stipulated date of 22.12.2001
Shourie says, “The fact is we were left
with one bidder in the end. And he was having difficulty in raising the
money…when I ordered twice that his bank guarantee be encashed, the purpose was
not to cancel the deal but to pressure him.” (Outlook, 23.5.2005)
Are these new guidelines for
privatisation? That is (a) If a buyer
has difficulty in raising money, it is the solemn duty of government to remove
the difficulty and (b) If there is a condition in transaction to cancel the
deal and encash the bank guarantee, it is only on paper and it is a MINISTER’S
SWEET WILL not to cancel the deal but to put pressure in his own way(by
arranging money for him).
The question is who was being
pressurised on 23rd February? The bankers (to be precise those present were not even chairmen
of the banks, but officials in the rank of Asst GM, Dy GM, Addl.GM, GM only) or
the bidder i.e. Kerkar? Who will find out what happened in that meeting? But
the people of the country, including the employees (both officers &
workers) of both the hotels who are now on the road, would demand answer to
these and other questions immediately to find out the intention behind, this
case of monumental corruption causing loss to the exchequer, as quantified in
CAG report No.3 of 2004 (PSU) and CAG report No.2 of 2005 and adverse
observation of the Parliamentary Standing Committee in 2003. Is it not
corruption, or nepotism or both? Who were behind these front companies, which
were utilized to buy a business and then to sell the same as property with huge
premium? Being government property this has to be investigated by a government
agency. That is why a demand for a CBI probe after two CAG and one
parliamentary committee reports and recent admission of certain startling facts
by Shourie himself.
Above: American rice in a Ghanaian market. Poor countries such as Ghana have been systematically forced
by rich countries and international organisations to tear down their protective barriers, leading to a flood of
cheap imports and the collapse of local industries
Front cover: Padmavati Reddy,widowed at 25, with her two children Arun Kumar, nine, and daughter
Jyotsna, five. Their father Anji, facing huge debts, hanged himself from a drumstick tree in his field in the
village of Mallareddey Pelly, 70km outside Hyderabad, on 7 December 2004
Front cover photo: Christian Aid/RichardSmith
Contents
ChristianAid/Penny Tweedie
The damage done: Aid, death and dogma 1
A policy out of control: 25 years of pain 4
India: fields of despair 12
Ghana: democracy under attack 31
Jamaica: sex, drugs and unemployment 44
Recommendations 57
Endnotes 59
ISBN 0 904379 67 1The 2005 general election marked a watershed for
the development lobby in Britain. All the major
political parties for once treated the needs of the
world’spoorest people with the seriousness usually
reserved for floating voters.
Therewas even a dedicated ‘World Development
Day’ driving the campaign, when the parties
competed to display their pro-poor policies. As one
commentator said at the time, pushing international
development issues to the margins was ‘no longer
an option’.
For the Labour party, Tony Blair and Gordon Brown
promised a future government more committed
than any before to the nuts and bolts of tackling
poverty in the developing world – committing
themselves to a wish list of policies that
campaigners have been promoting for years.
The purpose of this report, while applauding such
aspirations, is to point out the scale of the mountain
that must be climbed if this rhetoric is to be turned
into a working reality. In the vital area of trade, it will
involve challenging an orthodoxy that stretches
back a quarter of a century – reversing the highly
damaging credo which insists developing countries
can only work their way out of poverty through
radical economic liberalisation.
This is not a dusty debate about economic theory.
This is about the lives and livelihoods of millions of
the world’spoorest people who have become
victims of a ruthless theory.
Research by Christian Aid has uncovered shocking
evidence of the damage that has already been
done. Women denied employment, turning to
prostitution or drug smuggling. Farmers forced out
of business, after their governments have been
bullied into denying them protection. Other poor
farmers forced into such levels of debt and
desperation that they commit suicide – by
the thousand.
For those wanting to change this dire situation the
task is clear – the overthrow of a 25-year
liberalisation myth that continues to underpin the
whole edifice of development policy. This unique
opportunity to ‘Make Poverty History’ must not
go begging.
First, the new British government must make its
commitment clear by enacting legislation to turn
warm words into hard law.
But no British government can deliver on these vital
matters alone – they must be pushed through
international bodies like the G8 and the European
1
The damage done
The damage done
Aid, death and dogma
‘Britain has been a whole-hearted supporter of free
trade… we remain an unashamed champion of
free trade.’
Tony Blair in a speech to the World Trade Organisation, 1998
‘We will end the practice of making aid conditional on
sensitive economic policy choices, such as trade
liberalisation and privatisation.’
Labour Party manifesto, 2005Union. In 2005, by holding the chair of one and the
presidency of the other, Britain is in a unique
position to do both. But it must also use its
influence at the World Bank and the International
Monetary Fund (IMF) to bring about a radical
change of direction in those powerful bodies.
Rest assured – the opposition will be stiff. Paul
Wolfowitz, George W Bush’s former US deputy
defence secretary and the man credited with
masterminding the Iraq invasion, is now in charge of
the World Bank. A fully paid-up member of the
neoconservative club of liberalisation enthusiasts,
‘Wolfie’ got the job despite almost universal uproar
from anyone politically left of George W.
The IMF is already controlled by one of the high
priestesses of liberalisation. Anne Kruger has been
there since the late-1970s and is now its managing
director. People with less doctrinaire views have
come and gone, but Kruger has remained a
constant. In particular, she is associated with a set
of policies known as ‘structural adjustment’ that
emerged as the blueprint for development theory in
the 1980s and has caused multiple miseries in the
decades since.
This report argues that, despite much change in
language and some apparent changes in theory and
structures, this liberalising worldview still dictates
international development thinking. And with its
disciples controlling the policy levers this will
continue unless their view is robustly opposed.
For instance, the British government still bases
many of its aid decisions on whether or not the
recipient country has received positive economic
assessments from the World Bank and the IMF.
Those assessments remain, in turn, largely
determined by how far a country has liberalised its
economy. British government aid is channelled
through its Department for International
Development (DFID). But even recent statements
from DFID, which make many of the right noises,
say that it will continue to base its decisions on IMF
assessments. The devil, as the saying goes, is in
the detail.
Onprivatisation in developing countries, again DFID
has been saying the right things. ‘We will not make
our aid conditional on specific policy decisions by
partner governments, or attempt to impose policy
choices on them (including in sensitive areas such
as privatisation or trade liberalisation),’ said a policy
paper issued in March 2005.
The World Bank, however, shows no sign of
reassessing its privatising mantra. In an elegant
understatement, the Bank’s chief economist recently
accepted that therehad been some ‘irrational
exuberance’ in pushing the benefits of privatising
services in developing countries. But other
statements show that it still regards the public
ownership of services, most controversially water, as
being inherently inefficient – even when faced with
local opposition to privatisation from the very poor
people who have to pay for it. The problem, says the
World Bank, is one of regulation not ownership.
For DFID to deliver on its revisionist vision will
require a major shift. One favoured means of giving
aid has been by providing ‘advisers’ to
developing-country governments to help them
make reforms. This has involved spending millions
of pounds on employing British accountants and
other ‘experts’ to carry out this work on DFID’s
behalf. And where do many of these consultants
have their ideological home? In the economics of
liberalisation – most blatantly in the case of the
unashamedly right-wing Adam Smith Institute.
If Tony Blair or Gordon Brown require any
convincing of the need for real and urgent change
across all these areas, they need only consult the
case studies contained in this report.
In India we highlight the plight of thousands of poor
farmers in the state of Andhra Pradesh who have
2
The damage donebeen driven to suicide by crippling debt. This debt,
we argue, is largely a result of doctrinaire
liberalisation policies pursued aggressively by both
the national and state governments, under the
tutelage of the World Bank and the IMF. We also
reveal the extent to which these policies have been
actively supported by DFID, not least through its
deployment of liberalising consultants. The British
government bears its own heavy responsibility in
this situation and must take urgent action to prevent
any further damage.
In Ghanawe reveal the machinations surrounding
an attempt by the national government to protect
some of its farmers from unfair foreign competition.
The IMF brought highly effective pressure to bear
on the country’s government to overturn
protectionist policy which had been passed into law
by parliament. This, we say, is no less than a
subversion of Ghana’s democracy – and part of a
pattern which has also seen water and petrol prices
fall victim to externally imposed liberalising policies.
In all cases, the people who suffer most are
Ghana’spoorest.
In Jamaica we show how a continuing round of
liberalising policies – pursued internally and
imposed by the economic decisions of rich-country
governments – have had a damaging impact on the
employment prospects of women. Left with few
choices, more and more have turned to prostitution
and drug smuggling to make a living and feed their
families. The issue of drugs, and the violence that
accompanies it, has also had serious implications
for Britain.
The next six months are crucial for the world’s
poor people. Thereis an unprecedentedmomentum
for change, both in the UK and globally, and the
British government has a unique opportunity to lead
that movement.
On the interconnected issues of aid, debt and trade,
there is a chance to rewrite the agenda and to
fashion a fairer world. It is an opportunity that will
not come again in this generation.
As a first move, however, the government must
enact legislation to make good its manifesto
commitments, as well as those to its Africa
Commission. Both are a long way from existing
policies. Changes must be made immediately so
that Britain can use its own actions as a lever for
change from others.
In pursuit of this aim, Christian Aid calls upon the
new British government to:
• amend the 2002 International Development Act
to bar UK aid from being tied to the policies of
liberalisation or privatisation
• make public all its discussions with the World
Bank and the IMF so that progress can be
monitored
• state clearly that poor countries have the
right to raise tariffs to protect their
infant industries.
The first opportunity for the new government to
show its credentials comes with the meeting of G8
leaders in Scotland at the beginning of July. The
prime minister will be in the chair. Ranged against
him will be a formidable array of interests,
particularly from the US, whose tactics on past
experience will be to do nothing or to try to
block reform.
Now is the time to tackle these interests and to
force a fundamental change in the relations
between the world’s richest countries and those
struggling to develop.
The PM will undoubtedly have a fight on his hands.
The poor people of the world must hope that he has
the stomach for it.
3
The damage doneA consensus is born
For a quarter of a century, development policy has
been driven by the twin motors of liberalisation
and privatisation.
Whether it has been the lowering of trade barriers,
deregulation of markets or the selling off of state
assets, a freebooting, free-market, neoliberal
agenda has been at the forefront of economic and
developmental change throughout the world.
Neoliberalism was born in the 1970s, when the
‘golden age’ of post-war growth and social
progress in industrialised countries came to an end
amid worldwide mass unemployment, stagnating
growth and high inflation.
Aclutch of neoconservative academics, like Milton
Friedman and Alfred Sherman, blamed these crises
on the post-war consensus that governments
should play a central role in regulating both national
and international economic systems. They
presented a new economic model built on the idea
that the world could be liberated from the era of ‘Big
Government’ and protective trade barriers that had
been in force since the end of the second world war.
Global corporations and international financial
markets, which stood to profit greatly from this
ideological charge against the state, threw their full
weight behind the new ideas. They sought to extend
their own domains via the dismantling of market
restrictions in a wide range of industries and services.
By the beginning of the 1980s, these ideas had also
found favour in the corridors of the White House,
and with the recently elected president, Ronald
Reagan. Across the Atlantic, UK Prime Minister
Margaret Thatcher was equally enthusiastic. This
neoconservative alliance meant the two nations
were soon able to spread the wordwithin the World
Bank and the International Monetary Fund (IMF),
the two international financial institutions (IFIs) that
funded development in poorer countries.
With the Soviet Union experiencing the increasing
economic difficulties that would eventually lead to its
collapse in the 1990s, the ideological backing for
central planning and an interventionist role for the
state faded away, leaving neoliberalism to dominate.
It all coalesced into the ‘Washington Consensus’ –
the belief that only markets free of interference from
trade rules or special interests could lift the world
out of a recession and deliver the holy grail of
growth. In this way,rich nations could lead the
poorer ones out of poverty in a mutual exchange of
goods and services where everyone found their
‘comparative advantage’. It was a model of a
mutually beneficial world in which everyone reaped
the reward of doing, making and selling what they
did best.
4
The damage done
A policy out of control:
25 years of pain
1
‘One factor, more than any other, has crippled national
economies, increased power and inequality and made
millions of people hungry. It is a set of policies called
structural adjustment that has been forced on
developing countries for more than 20 years by the
World Bank, the IMF and western aid agencies.’
The Structural Adjustment Participatory Review International Network 20041The changes that would be required from old,
command-style economies would be enormous.
But, in time, the rewards could be great. Short-term
transitional pain could be offset against long-term
prosperity gain. The World Bank economist Branko
Milanovic described the liberalisation promise in the
following terms:
‘The mainstream view… is that globalisation is a
benign force... Its proponents regard globalisation
as a deus ex machina for many of the problems,
such as poverty, illiteracy or inequality, which beset
the developing world. The only thing a country has
to do is to open up its borders, reduce tariff rates,
[and] attract foreign capital, and in a few
generations, if not less, the poor will become rich,
the illiterate will learn how to read and inequality will
vanish as poor countries catch up with the rich.’2
Liberalisation in the developing world started in
earnest in 1980, when the World Bank began its
policy of ‘adjustment lending’ – that is, loans with
strings. From that moment, the Bank and the IMF
cracked the whip, making surethey got exactly what
they wanted from countries, particularly developing
nations, in return for their money.
With ‘adjustment lending’ came the stark choice:
transform your economy or therewill be no more
foreign aid. It was a threat the poorest countries
found hard to resist. At this time they were acutely
vulnerable to pressure due to oil price hikes, a
collapse in the price of commodities on the
international markets and the drying up of
international aid and alternative sources from which
they could borrow. Combined, these blows meant
borrowing from the IMF and the World Bank were
the only lifelines available.
Now known as ‘conditionality’, adjustment lending
mechanisms were pursued in various forms by the
IMF, the World Bank and several donor
governments, including the UK through its
Department for International Development (DFID).
This was so effective that two-thirds of countries,
representing half the world’s population, lost firm
control over their own economic policy.3
In exchange for this much-needed hard cash,
governments were forced to agree to a shopping list
of economic policies that would transform their
countries into free-trading platforms.
Conditionality grew rapidly. In 1980 Kenya was one
of the first developing countries to receive a loan
under the new terms. Between then and 1998, the
IMF and World Bank made no less than 958
adjustment loans.
The policies demanded by the IMF and World
Bank were strikingly uniform, even when countries
had verydifferent economies. So much so that
Kenneth Kaunda, the former president of Zambia,
once remarked: ‘The IMF does not care whether
you are suffering economic malaria, bilharzia or
broken legs. They will always give you quinine.’
The UK government has been an enthusiastic
backer of this approach. Back in 1998, Tony Blair
was a self-declared ‘unashamed’ advocate of using
free trade to persuade the developing world to
adopt the joys of unfettered free market economics.
‘Britain has been a whole-hearted supporter of free
trade,’ he told the World Trade Organisation, ‘…we
remain an unashamed champion of free trade.’
Many of the indebted poorer countries saw this as
damaging, but therewas little choice. In reality,
‘championing free trade’ was just a nicer way of
forcing the developing world to swallow
free-market medicine.
Liberalisation and its handmaiden of conditionality
did not, in fact, herald a new dawn of prosperity and
growth in Africa – quite the reverse. The disaster
was such that the whole experiment is now seen in
many quarters as an embarrassing anachronism
5
The damage donethat should be kicked into the long grass for ever.
To understand why this is the case, it is important to
see just how complete – and harmful – the takeover
of global economics by the Washington Consensus
and its advocates has been.
Structural adjustment – the curious case of
the medicine killing the patients
In line with the prevailing neoliberal orthodoxy of the
1980s, structural adjustment programmes (SAPs)
demanded economic policies which made exportled growth a priority. Allied to this was a privatising
and liberalising agenda designed to oil the wheels
of market efficiency.
What this generally meant in practice was that
countries went through currency devaluation;
removed import/export and price restrictions;
freed up the inflow and outflow of foreign capital;
deregulated finances so that banks determined
interest rates and loans; reduced restrictions to
the hiring and firing of workers; privatised
government enterprises; balanced budgets;
and removed subsidies.
It was, after all, the era when the wrecking ball of
‘Reagonomics’ and ‘Thatcherism’ was being aimed
at societies in the US and UK, as the respective
governments sought to balance their budgets and
eliminate state subsidies.
As part of their structural adjustment, developing
countries were encouraged to prioritise the
production and export of primary agricultural
commodities to earn foreign exchange – ‘cash
crops’ – over production for their own populations’
consumption.4
Subsistence crops that had been grown in many
parts of the developing world had to be eased out in
favour of cash crops such as rubber, cotton or
coffee. Traditional foodstuffs might have been
successful in feeding people but they did not earn
the country any money in the export markets.
These policies soon proved to have a disruptive and
damaging effect on poor farmers thrown onto the
mercy of international markets.
In some countries the impact was immediate and
catastrophic. Prices in Mozambique rose 200 per
cent across the board in the first year of structural
adjustment.5
In Madagascar, the price of rice, the
country’s staple food, doubled in the first year of the
adjustment programme.6
The World Bank itself
estimated that the value of wages in Africa fell by a
quarter between 1980 and 1989.
Broader assessments are no more encouraging. A
review of structural adjustment programmes
involving the World Bank and civil society
organisations in Africa, Asia and Latin America was
set up in April 2002. The Structural Adjustment
Participatory Review International Network (SAPRIN)
report provides a dizzying look into the economic
and social abyss into which poorer countries were
plunged as a result of these adjustments.
‘One factor, more than any other, has crippled
national economies, increased power and inequality
and made millions of people hungry. It is a set of
policies called structural adjustment that has been
forced on developing countries for more than 20
years by the World Bank, the IMF and western aid
agencies,’ said SAPRIN.7
It concluded that, for poor countries in the
mid-1980s, trade liberalisation resulted in an
increase in trade and current-account deficits,
causing higher levels of foreign debt. Declining
terms of trade exacerbated the situation, meaning
that more foreign exchange was required to
purchase the same amount of imports. In many
countries the benefits of export growth went to
transnational corporations to the detriment of
domestic producers.
6
The damage done
The damage done : Aid, death and dogm
http://www.christianaid.org.uk/images/damage_done.pdfAbove: American rice in a Ghanaian market. Poor countries such as Ghana have been systematically forced
by rich countries and international organisations to tear down their protective barriers, leading to a flood of
cheap imports and the collapse of local industries
Front cover: Padmavati Reddy,widowed at 25, with her two children Arun Kumar, nine, and daughter
Jyotsna, five. Their father Anji, facing huge debts, hanged himself from a drumstick tree in his field in the
village of Mallareddey Pelly, 70km outside Hyderabad, on 7 December 2004
Front cover photo: Christian Aid/RichardSmith
Contents
ChristianAid/Penny Tweedie
The damage done: Aid, death and dogma 1
A policy out of control: 25 years of pain 4
India: fields of despair 12
Ghana: democracy under attack 31
Jamaica: sex, drugs and unemployment 44
Recommendations 57
Endnotes 59
ISBN 0 904379 67 1The 2005 general election marked a watershed for
the development lobby in Britain. All the major
political parties for once treated the needs of the
world’spoorest people with the seriousness usually
reserved for floating voters.
Therewas even a dedicated ‘World Development
Day’ driving the campaign, when the parties
competed to display their pro-poor policies. As one
commentator said at the time, pushing international
development issues to the margins was ‘no longer
an option’.
For the Labour party, Tony Blair and Gordon Brown
promised a future government more committed
than any before to the nuts and bolts of tackling
poverty in the developing world – committing
themselves to a wish list of policies that
campaigners have been promoting for years.
The purpose of this report, while applauding such
aspirations, is to point out the scale of the mountain
that must be climbed if this rhetoric is to be turned
into a working reality. In the vital area of trade, it will
involve challenging an orthodoxy that stretches
back a quarter of a century – reversing the highly
damaging credo which insists developing countries
can only work their way out of poverty through
radical economic liberalisation.
This is not a dusty debate about economic theory.
This is about the lives and livelihoods of millions of
the world’spoorest people who have become
victims of a ruthless theory.
Research by Christian Aid has uncovered shocking
evidence of the damage that has already been
done. Women denied employment, turning to
prostitution or drug smuggling. Farmers forced out
of business, after their governments have been
bullied into denying them protection. Other poor
farmers forced into such levels of debt and
desperation that they commit suicide – by
the thousand.
For those wanting to change this dire situation the
task is clear – the overthrow of a 25-year
liberalisation myth that continues to underpin the
whole edifice of development policy. This unique
opportunity to ‘Make Poverty History’ must not
go begging.
First, the new British government must make its
commitment clear by enacting legislation to turn
warm words into hard law.
But no British government can deliver on these vital
matters alone – they must be pushed through
international bodies like the G8 and the European
1
The damage done
The damage done
Aid, death and dogma
‘Britain has been a whole-hearted supporter of free
trade… we remain an unashamed champion of
free trade.’
Tony Blair in a speech to the World Trade Organisation, 1998
‘We will end the practice of making aid conditional on
sensitive economic policy choices, such as trade
liberalisation and privatisation.’
Labour Party manifesto, 2005Union. In 2005, by holding the chair of one and the
presidency of the other, Britain is in a unique
position to do both. But it must also use its
influence at the World Bank and the International
Monetary Fund (IMF) to bring about a radical
change of direction in those powerful bodies.
Rest assured – the opposition will be stiff. Paul
Wolfowitz, George W Bush’s former US deputy
defence secretary and the man credited with
masterminding the Iraq invasion, is now in charge of
the World Bank. A fully paid-up member of the
neoconservative club of liberalisation enthusiasts,
‘Wolfie’ got the job despite almost universal uproar
from anyone politically left of George W.
The IMF is already controlled by one of the high
priestesses of liberalisation. Anne Kruger has been
there since the late-1970s and is now its managing
director. People with less doctrinaire views have
come and gone, but Kruger has remained a
constant. In particular, she is associated with a set
of policies known as ‘structural adjustment’ that
emerged as the blueprint for development theory in
the 1980s and has caused multiple miseries in the
decades since.
This report argues that, despite much change in
language and some apparent changes in theory and
structures, this liberalising worldview still dictates
international development thinking. And with its
disciples controlling the policy levers this will
continue unless their view is robustly opposed.
For instance, the British government still bases
many of its aid decisions on whether or not the
recipient country has received positive economic
assessments from the World Bank and the IMF.
Those assessments remain, in turn, largely
determined by how far a country has liberalised its
economy. British government aid is channelled
through its Department for International
Development (DFID). But even recent statements
from DFID, which make many of the right noises,
say that it will continue to base its decisions on IMF
assessments. The devil, as the saying goes, is in
the detail.
Onprivatisation in developing countries, again DFID
has been saying the right things. ‘We will not make
our aid conditional on specific policy decisions by
partner governments, or attempt to impose policy
choices on them (including in sensitive areas such
as privatisation or trade liberalisation),’ said a policy
paper issued in March 2005.
The World Bank, however, shows no sign of
reassessing its privatising mantra. In an elegant
understatement, the Bank’s chief economist recently
accepted that therehad been some ‘irrational
exuberance’ in pushing the benefits of privatising
services in developing countries. But other
statements show that it still regards the public
ownership of services, most controversially water, as
being inherently inefficient – even when faced with
local opposition to privatisation from the very poor
people who have to pay for it. The problem, says the
World Bank, is one of regulation not ownership.
For DFID to deliver on its revisionist vision will
require a major shift. One favoured means of giving
aid has been by providing ‘advisers’ to
developing-country governments to help them
make reforms. This has involved spending millions
of pounds on employing British accountants and
other ‘experts’ to carry out this work on DFID’s
behalf. And where do many of these consultants
have their ideological home? In the economics of
liberalisation – most blatantly in the case of the
unashamedly right-wing Adam Smith Institute.
If Tony Blair or Gordon Brown require any
convincing of the need for real and urgent change
across all these areas, they need only consult the
case studies contained in this report.
In India we highlight the plight of thousands of poor
farmers in the state of Andhra Pradesh who have
2
The damage donebeen driven to suicide by crippling debt. This debt,
we argue, is largely a result of doctrinaire
liberalisation policies pursued aggressively by both
the national and state governments, under the
tutelage of the World Bank and the IMF. We also
reveal the extent to which these policies have been
actively supported by DFID, not least through its
deployment of liberalising consultants. The British
government bears its own heavy responsibility in
this situation and must take urgent action to prevent
any further damage.
In Ghanawe reveal the machinations surrounding
an attempt by the national government to protect
some of its farmers from unfair foreign competition.
The IMF brought highly effective pressure to bear
on the country’s government to overturn
protectionist policy which had been passed into law
by parliament. This, we say, is no less than a
subversion of Ghana’s democracy – and part of a
pattern which has also seen water and petrol prices
fall victim to externally imposed liberalising policies.
In all cases, the people who suffer most are
Ghana’spoorest.
In Jamaica we show how a continuing round of
liberalising policies – pursued internally and
imposed by the economic decisions of rich-country
governments – have had a damaging impact on the
employment prospects of women. Left with few
choices, more and more have turned to prostitution
and drug smuggling to make a living and feed their
families. The issue of drugs, and the violence that
accompanies it, has also had serious implications
for Britain.
The next six months are crucial for the world’s
poor people. Thereis an unprecedentedmomentum
for change, both in the UK and globally, and the
British government has a unique opportunity to lead
that movement.
On the interconnected issues of aid, debt and trade,
there is a chance to rewrite the agenda and to
fashion a fairer world. It is an opportunity that will
not come again in this generation.
As a first move, however, the government must
enact legislation to make good its manifesto
commitments, as well as those to its Africa
Commission. Both are a long way from existing
policies. Changes must be made immediately so
that Britain can use its own actions as a lever for
change from others.
In pursuit of this aim, Christian Aid calls upon the
new British government to:
• amend the 2002 International Development Act
to bar UK aid from being tied to the policies of
liberalisation or privatisation
• make public all its discussions with the World
Bank and the IMF so that progress can be
monitored
• state clearly that poor countries have the
right to raise tariffs to protect their
infant industries.
The first opportunity for the new government to
show its credentials comes with the meeting of G8
leaders in Scotland at the beginning of July. The
prime minister will be in the chair. Ranged against
him will be a formidable array of interests,
particularly from the US, whose tactics on past
experience will be to do nothing or to try to
block reform.
Now is the time to tackle these interests and to
force a fundamental change in the relations
between the world’s richest countries and those
struggling to develop.
The PM will undoubtedly have a fight on his hands.
The poor people of the world must hope that he has
the stomach for it.
3
The damage doneA consensus is born
For a quarter of a century, development policy has
been driven by the twin motors of liberalisation
and privatisation.
Whether it has been the lowering of trade barriers,
deregulation of markets or the selling off of state
assets, a freebooting, free-market, neoliberal
agenda has been at the forefront of economic and
developmental change throughout the world.
Neoliberalism was born in the 1970s, when the
‘golden age’ of post-war growth and social
progress in industrialised countries came to an end
amid worldwide mass unemployment, stagnating
growth and high inflation.
Aclutch of neoconservative academics, like Milton
Friedman and Alfred Sherman, blamed these crises
on the post-war consensus that governments
should play a central role in regulating both national
and international economic systems. They
presented a new economic model built on the idea
that the world could be liberated from the era of ‘Big
Government’ and protective trade barriers that had
been in force since the end of the second world war.
Global corporations and international financial
markets, which stood to profit greatly from this
ideological charge against the state, threw their full
weight behind the new ideas. They sought to extend
their own domains via the dismantling of market
restrictions in a wide range of industries and services.
By the beginning of the 1980s, these ideas had also
found favour in the corridors of the White House,
and with the recently elected president, Ronald
Reagan. Across the Atlantic, UK Prime Minister
Margaret Thatcher was equally enthusiastic. This
neoconservative alliance meant the two nations
were soon able to spread the wordwithin the World
Bank and the International Monetary Fund (IMF),
the two international financial institutions (IFIs) that
funded development in poorer countries.
With the Soviet Union experiencing the increasing
economic difficulties that would eventually lead to its
collapse in the 1990s, the ideological backing for
central planning and an interventionist role for the
state faded away, leaving neoliberalism to dominate.
It all coalesced into the ‘Washington Consensus’ –
the belief that only markets free of interference from
trade rules or special interests could lift the world
out of a recession and deliver the holy grail of
growth. In this way,rich nations could lead the
poorer ones out of poverty in a mutual exchange of
goods and services where everyone found their
‘comparative advantage’. It was a model of a
mutually beneficial world in which everyone reaped
the reward of doing, making and selling what they
did best.
4
The damage done
A policy out of control:
25 years of pain
1
‘One factor, more than any other, has crippled national
economies, increased power and inequality and made
millions of people hungry. It is a set of policies called
structural adjustment that has been forced on
developing countries for more than 20 years by the
World Bank, the IMF and western aid agencies.’
The Structural Adjustment Participatory Review International Network 20041The changes that would be required from old,
command-style economies would be enormous.
But, in time, the rewards could be great. Short-term
transitional pain could be offset against long-term
prosperity gain. The World Bank economist Branko
Milanovic described the liberalisation promise in the
following terms:
‘The mainstream view… is that globalisation is a
benign force... Its proponents regard globalisation
as a deus ex machina for many of the problems,
such as poverty, illiteracy or inequality, which beset
the developing world. The only thing a country has
to do is to open up its borders, reduce tariff rates,
[and] attract foreign capital, and in a few
generations, if not less, the poor will become rich,
the illiterate will learn how to read and inequality will
vanish as poor countries catch up with the rich.’2
Liberalisation in the developing world started in
earnest in 1980, when the World Bank began its
policy of ‘adjustment lending’ – that is, loans with
strings. From that moment, the Bank and the IMF
cracked the whip, making surethey got exactly what
they wanted from countries, particularly developing
nations, in return for their money.
With ‘adjustment lending’ came the stark choice:
transform your economy or therewill be no more
foreign aid. It was a threat the poorest countries
found hard to resist. At this time they were acutely
vulnerable to pressure due to oil price hikes, a
collapse in the price of commodities on the
international markets and the drying up of
international aid and alternative sources from which
they could borrow. Combined, these blows meant
borrowing from the IMF and the World Bank were
the only lifelines available.
Now known as ‘conditionality’, adjustment lending
mechanisms were pursued in various forms by the
IMF, the World Bank and several donor
governments, including the UK through its
Department for International Development (DFID).
This was so effective that two-thirds of countries,
representing half the world’s population, lost firm
control over their own economic policy.3
In exchange for this much-needed hard cash,
governments were forced to agree to a shopping list
of economic policies that would transform their
countries into free-trading platforms.
Conditionality grew rapidly. In 1980 Kenya was one
of the first developing countries to receive a loan
under the new terms. Between then and 1998, the
IMF and World Bank made no less than 958
adjustment loans.
The policies demanded by the IMF and World
Bank were strikingly uniform, even when countries
had verydifferent economies. So much so that
Kenneth Kaunda, the former president of Zambia,
once remarked: ‘The IMF does not care whether
you are suffering economic malaria, bilharzia or
broken legs. They will always give you quinine.’
The UK government has been an enthusiastic
backer of this approach. Back in 1998, Tony Blair
was a self-declared ‘unashamed’ advocate of using
free trade to persuade the developing world to
adopt the joys of unfettered free market economics.
‘Britain has been a whole-hearted supporter of free
trade,’ he told the World Trade Organisation, ‘…we
remain an unashamed champion of free trade.’
Many of the indebted poorer countries saw this as
damaging, but therewas little choice. In reality,
‘championing free trade’ was just a nicer way of
forcing the developing world to swallow
free-market medicine.
Liberalisation and its handmaiden of conditionality
did not, in fact, herald a new dawn of prosperity and
growth in Africa – quite the reverse. The disaster
was such that the whole experiment is now seen in
many quarters as an embarrassing anachronism
5
The damage donethat should be kicked into the long grass for ever.
To understand why this is the case, it is important to
see just how complete – and harmful – the takeover
of global economics by the Washington Consensus
and its advocates has been.
Structural adjustment – the curious case of
the medicine killing the patients
In line with the prevailing neoliberal orthodoxy of the
1980s, structural adjustment programmes (SAPs)
demanded economic policies which made exportled growth a priority. Allied to this was a privatising
and liberalising agenda designed to oil the wheels
of market efficiency.
What this generally meant in practice was that
countries went through currency devaluation;
removed import/export and price restrictions;
freed up the inflow and outflow of foreign capital;
deregulated finances so that banks determined
interest rates and loans; reduced restrictions to
the hiring and firing of workers; privatised
government enterprises; balanced budgets;
and removed subsidies.
It was, after all, the era when the wrecking ball of
‘Reagonomics’ and ‘Thatcherism’ was being aimed
at societies in the US and UK, as the respective
governments sought to balance their budgets and
eliminate state subsidies.
As part of their structural adjustment, developing
countries were encouraged to prioritise the
production and export of primary agricultural
commodities to earn foreign exchange – ‘cash
crops’ – over production for their own populations’
consumption.4
Subsistence crops that had been grown in many
parts of the developing world had to be eased out in
favour of cash crops such as rubber, cotton or
coffee. Traditional foodstuffs might have been
successful in feeding people but they did not earn
the country any money in the export markets.
These policies soon proved to have a disruptive and
damaging effect on poor farmers thrown onto the
mercy of international markets.
In some countries the impact was immediate and
catastrophic. Prices in Mozambique rose 200 per
cent across the board in the first year of structural
adjustment.5
In Madagascar, the price of rice, the
country’s staple food, doubled in the first year of the
adjustment programme.6
The World Bank itself
estimated that the value of wages in Africa fell by a
quarter between 1980 and 1989.
Broader assessments are no more encouraging. A
review of structural adjustment programmes
involving the World Bank and civil society
organisations in Africa, Asia and Latin America was
set up in April 2002. The Structural Adjustment
Participatory Review International Network (SAPRIN)
report provides a dizzying look into the economic
and social abyss into which poorer countries were
plunged as a result of these adjustments.
‘One factor, more than any other, has crippled
national economies, increased power and inequality
and made millions of people hungry. It is a set of
policies called structural adjustment that has been
forced on developing countries for more than 20
years by the World Bank, the IMF and western aid
agencies,’ said SAPRIN.7
It concluded that, for poor countries in the
mid-1980s, trade liberalisation resulted in an
increase in trade and current-account deficits,
causing higher levels of foreign debt. Declining
terms of trade exacerbated the situation, meaning
that more foreign exchange was required to
purchase the same amount of imports. In many
countries the benefits of export growth went to
transnational corporations to the detriment of
domestic producers.
6
The damage done
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