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Patrick Bond, in a scintillating survey of developments in the southern African region, suggests the extent to which popular forces are indeed beginning to rally against the Washington Consensus and its regional counterpart, the local state elites' tired nostrum that "There is No Alternative" (TINA). (jbv)

vol 14 no 2

The Washington consensus: Winning or waning?
Patrick Bond


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Southern Africa Report

SAR, Vol 14 No 2, March 1999
Page 3
"Southern Africa"

THE WASHINGTON CONSENSUS:
WINNING OR WANING?

BY PATRICK BOND

Patrick Bond is in the School of Public and Development Management at the University of the Witwatersrand.

Might Southern Africa offer growing resistance to the "Washington Consensus" - and possibly even the "post-Washington Consensus" proposed by World Bank Chief Economist Joseph Stiglitz - at a time both the region's economy and traditional International Monetary Fund (IMF) models are in serious crisis?

No different than "neo-liberalism," "Thatcherism," or "structural adjustment," the term Washington Consensus signifies the inordinate power of persuasion achieved during the past two decades by the IMF and Bank, the White House, Treasury Department and Federal Reserve, and a host of nearby corporate-and bank-sponsored think-tanks which together promote national policies and global economic management favoured by Northern financiers.

Judging by recent indications, it may be asking too much for the ruling political parties in countries like Mozambique, Zimbabwe and South Africa to decisively rebel against neo-liberal orthodoxy - until further international financial deterioration changes global power relations, and until civil society ratchets up activism to higher levels. But that activism also must encompass a far greater strategic awareness of the danger of simple tinkering with neo-liberalism, even while there is great applause on the Left regarding the crash of the Washington Consensus.

If not the rulers, progressive opposition leaders in at least these three countries all seem anxious to push harder on the boundaries, notwithstanding very different configurations of social forces and levels of political consciousness. There is no predetermined trajectory. Nor do the three ruling parties' common traditions in allied nationalist liberation struggles during the 1970s and 1980s provide hints of future ideological shifts.

In Mozambique, efforts by the IMF and Bank to portray the Frelimo government as a successful supplicant, and to reward this with a bogus form of debt relief, were widely discredited in 1998. In Zimbabwe, recent government inroads into domestic financial prerogatives (price controls, slight tightening of exchange controls and the attempted imposition of a capital gains tax) give some indication of technical resistance, but the IMF in January 1999 demonstrated quite transparently its power over embattled, unpopular President Robert Mugabe. And in South Africa, a brief window of post-neo-liberal opportunity - opened in October 1998 largely by the SA Communist Party - was in danger of closing by early 1999, though not without civil society dissent.

What Mozambique is owed

With approximately US$5.6 billion in foreign debt by 1998, in the wake of at least US$20 billion in apartheid-generated damage (not counting a million lives), Mozambique found itself repaying more than US$110 million a year. Although this is a small fraction of what in fact should have been repaid (in a context in which the state budget was virtually entirely funded by foreign aid), it represented a huge drain on resources.

As a result, when in 1997 the World Bank and IMF responded to debt relief pressure (largely from the Jubilee 2000 movement and progressive NGOs) with its "Highly-Indebted Poor Countries" (HIPC) initiative, Mozambique was a logical place to begin. But notwithstanding a write-down of approximately US$1.4 billion in debt owed to the IMF and Bank, the actual repayment relief only amounted to US$10 million a year, leaving Mozambique to continue servicing the debt at US$100 million annually, representing more than 20% of its foreign exchange earnings.

Thus HIPC allowed merely a write-off of unserviceable debt - which no one ever expects Mozambique to repay - yet virtually no real relief. Worse, in return there were harsh conditions attached to the debt relief. Only last December did these begin to emerge as a matter for public debate, at an unprecedented foreign debt conference at the Assembleia da Republica, attended by 500 members of the parliament and civil society leaders.

In order to comply with HIPC, parliamentarians learned from London-based journalist Joe Hanlon, they soon have to pass legislation effectively quintupling patient fees for public health services over a five-year period. The demand was part of a report accompanying a March 1998 letter by World Bank president James Wolfensohn, agreed to by government leaders and major donors, but not previously disclosed to either the parliament or civil society. According to the letter, the terms of HIPC also include the privatisation of municipal water. Already, acknowledged the Bank report, water "tariffs have been increased sharply in real terms over the past 18 months and are to be increased even further prior to the signing of management contracts."

Frelimo's parliamentary deputies were angry about their leaders' capitulation to the HIPC deal, and warmly welcomed delegates from trade unions and the Mozambican Debt Group who reinforced the general demand for a total cancellation of the foreign debt. A special parliamentary commission to investigate the debt was then established.

The Bank's Maputo representative, Dr. James Coates, could only comment, grimly, that Mozambique's US$1.4 billion in debt relief was far more than other HIPC countries received, and Mozambique should probably not expect further relief. Rebutted Hanlon, "This is a political matter, which should be decided democratically, not by the high-paid Washington technocrats. When the technocrats needed $100 billion to bale out the international banks in East Asia, at the expense of taxpayers and the poor, they found it fast."

The previous month, the G-7 countries had announced a new $90 billion IMF fund to be used for emergency rescues of financiers exposed to large emerging markets that are considered "too big to fail" - unlike the world's poorest country, Mozambique, which remains out of sight, out of mind, to international economic managers. However, as a hopeful footnote, at a late December meeting with Anglican Church Archbishop Njongulu Ndungane, South African Finance Minister Trevor Manuel said that he had made provisions for writing off Mozambique debt to Pretoria, along the lines of a similar 1996 arrangement for Namibia.

Zimbabwe's zig-zags

Of a much higher profile is the mismanagement of Zimbabwe's economy and political system. The problems are often portrayed as deriving merely from the maniacal ravings and corrupt schemes of Mugabe and a few powerful cronies like Defense Minister Moven Mahachi. In addition, however, there remain even more formidable structural barriers to social progress and economic revival.

Zimbabwe suffers several maladies: confusing populist government rhetoric on race/class issues; a nominally "Marxist-Leninist" ruling party; white corporate domination of the industrial, agricultural, financial and services sectors; and an inability to break into global markets. Since independence in 1980, Mugabe condoned an ever-greater role for the private sector in Zimbabwe's development, in the process taking on vast quantities of international debt (whose repayment cost 35% of export earnings by 1987), culminating in the 1990 adoption of a structural adjustment programme that parroted the Washington Consensus.

The programme failed decisively, and not simply because of two bad droughts in 1992 and 1995. The overall structure of Zimbabwe's economy and society left it ill-suited for rapid liberalisation, extremely high real interest rates, a dramatic upsurge in inflation and large cuts in social welfare spending. For even while Mugabe often obfuscated matters - with rhetoric hostile to the Washington Consensus - his finance ministers (Bernard Chidzero, Ariston Chambati and Herbert Murewa) loyally followed a fiscally-conservative, deregulatory agenda from 1990 - 97.

As a direct result of funding cuts and cost-recovery policies, exacerbated by the AIDS pandemic, the brief 1980s rise in literacy and health indicators was dramatically reversed. In contrast, the stock market reached extraordinary peaks in mid1991 and mid1997, but these were followed by crashes of more than 50% within a few months along with massive hikes in interest rates. More steadily, manufacturing sector output shrunk by 40% from peak 1991 levels through 1995, and the standard of living of the average Zimbabwean worker fell even further.

Although there was finally GDP growth in 1996 - 97, it quickly expired when international financial markets and local investors battered Zimbabwe's currency beginning in November 1997, ultimately shrinking the value of a Z$ from US$0.09 to US$0.025 over the course of a year. Inflation was soon imported, leading in January and October 1998 to urban riots over maize and fuel price hikes, respectively.

Mugabe responds

Mugabe's reactions included a November 1998 claim - widely disbelieved - that he would return to "socialist" policies. Yet a few hints of reasserted Zimbabwean sovereignty came in the face of financial meltdown, such as a mid1998 price freeze on staple foods and several minor technical interventions to raise revenues, slow capital flight and deter share speculation.

For example, the 1990s liberalisation of a once-rigid exchange control system had created such enormous abuse that new regulations on currency sales had to be imposed. Yet two days after a 5% capital gains tax was introduced on the stock market, a stockbroker boycott forced a retraction. Indeed, the government was not, apparently, powerful enough to reimpose full (Malaysian-style) exchange controls - which had been widely expected in the event a January 1999 IMF loan fell through, given the perilous state of hard currency reserves.

As economic grievances and more evidence of political unaccountability mounted, trade union leaders Morgan Tsvangirai and Gibson Sibanda called several successful national stayaways beginning in December 1997. Mugabe's increases in general sales and pension taxes to fund a large pension pay-out for liberation war veterans were vociferously resisted, and government backed down slightly.

Simultaneously, an October 1997 threat to redistribute 1,400 large commercial farms (mainly owned by whites) scared agricultural markets and allowed Mugabe extensive populist opportunities to attack worried foreign donors (especially the Brits). But land-starved peasants gained only passing hope -unrealistic, considering Mugabe's past practice of rewarding farms to political and military elites - and land invasions of several large farms were quickly repelled by authorities. And, in another unpopular move, Mugabe sent several thousand troops to defend the besieged Laurent Kabila in the Democratic Republic of Congo in mid1998 - according to rumour, in order to protect the investments of well-connected Zimbabwean firms (dozens of body bags soon returned).

The IMF visits Zimbabwe

In January 1999, power relations were finally unveiled when an IMF team arrived and undid several policies. Instead of redistributing commercial farms by paying current owners (over a long period of time) for only the buildings and infrastructure, the government would now have to also pay for the land, and all (market-related) compensation would be up-front. The IMF team also told Mugabe to lift price controls by June 1999 (which could unleash new riots). In exchange, Zimbabwe received US$53 million, and this in turn released another US$800 million from other lenders.

The IMF team also, however, did a service to the progressive cause by raising eyebrows about an extremely shady privatisation deal (a Malaysian firm bought Zimbabwe's major electricity-generation complex on the basis of a suspiciously soft low-interest loan), and by demanding to know who was financing the Congo war (Mahachi claimed the money came from Kabila's government and Angola).

The IMF visit thus generated confusion amongst the state-owned press and key black business leaders, who together initially slammed the visitors for "changing the goalposts" on conditionality, but who later welcomed the loan on grounds that economic confidence was now - even if artificially and temporarily - restored. Mugabe, who had invoked strident anti-IMF rhetoric at a major December 1998 World Council of Churches meeting in Harare, again zig-zagged back towards some degree of international financial "credibility."

But if on the surface it appeared that Mugabe's reversal at the IMF negotiations represented yet another cunning example of discarded principles so as to rake in sufficient funds to keep his regime going a bit longer, there was, nevertheless, a sense of desperation in the wind. The week before, rumours had circulated in the SA military about a coup attempt from within Mahachi's army, which when printed by Zimbabwe Standard editor Mark Chavunduka and reporter Ray Choto in mid-January led to not only hysterical denials, but to their illegal detention and torture by military police (in violation of a court order), and then to the detention of publisher Clive Wilson. The overkill suppression of the journalists convinced much of society that the three had stumbled onto the truth.

Challenges from civil society

Thus if Mugabe continues to play this apparently-suicidal endgame, the budding mass-popular opposition - still based largely in civil society - will no doubt contemplate a run for the presidency in 2000, potentially under Tsvangirai's lead. The popular-front character of a grouping now known as the National Constitutional Assembly - which with church, NGO, human rights and some liberal business support has set up something akin to Zambia's late 1980s Movement for Multiparty Democracy - does leave space for expanding not just political freedoms in a potentially rewritten constitution, but also socio-economic rights.

Yet the Zambian example - and Frederick Chiluba's metamorphosis from trade union democrat to neo-liberal authoritarian - is a worrying precedent. Extremely heavy pressure on Tsvangirai suggests he may adopt what seem to be, at first blush, relatively easy corporatist politics that would bring together big government, big business and big labour. In his own words a couple of years ago, such a "social contract would involve the three parties reaching a consensus where workers agree to restrain wage demands on the one hand and employers agree to control price increases for commodities, invest surpluses to create more jobs and train workers on the other. For Government, you would expect them to cut spending."

But other pressures are also emerging. In late February 1999, the ZCTU will host a "working-class summit" to help establish a more thorough-going programme of action with the civil society allies for the coming year. Indeed, the future trajectory is unpredictable, a matter for struggles that are still to define Zimbabwe's immediate future. But because it was from 1990s South Africa that Tsvangirai borrowed the counterintuitive "tripartite" rhetoric - in marked contrast to his previous organic radicalism - and because SA unions' disappointment with the outcome of such corporatism is no secret, it is to the current erratic struggle over the ANC's Growth, Employment and Redistribution Programme (GEAR) that we can turn next.

Post-election, "post-GEAR" realignment in SA?

The residual progressive forces of the Democratic Movement, and new organisations bubbling up from the base, remain South Africa's saving grace. Given that the president, deputy president and virtually all ministers embraced the Washington Consensus during the mid1990s, an interesting but confused debate emerged within the ANC Alliance in 1998 about the implications of its disintegration.

Thus what stands out in South African progressive politics is the continued critical capacity of a few high-quality unions, community-based organisations, women's and youth groups, Non-Governmental Organisations, think-tanks, networks of CBOs and NGOs, progressive churches, political groups and independent leftists. At grassroots level, alienation has intensified and a high level of non-participation in the 1999 election is anticipated. The 1994-96 surge of shopfloor, student and community wildcat protests has subsided, however unrest continues to break out in black townships that have been subjected to high increases in service charges and power/water cutoffs.

In contrast to those suffering more as a result of Washington Consensus policies, much of the South African elite, white and black, appears increasingly corrupt, opportunistic, greedy and liable to move abroad with as much capital as possible (and now, headquarters, in the cases of Anglo American, South African Breweries, Liberty Life and even the Old Mutual insurance giant).

It is not as if these policies are delivering the goods. Not only did the stock market crash by 40% between April and September 1998, the currency dropped 30% over a few weeks in between. As a result Reserve Bank Governor Chris Stals raised interest rates by 6% (to their highest real level in modern South African history). Throughout, formal employment shrunk quickly.

There have been various fightbacks from progressives since 1994, many of which targeted neo-liberal policy advice that ministers received from World Bank advisors. Most importantly, the mid1996 Growth, Employment and Redistribution policy (GEAR) was denounced from the outset and had lost all credibility when all targets (except inflation) were soon missed. Perhaps most striking was the Finance Ministry's projection that from 1996 - 98, 650,000 jobs would be created, when in reality about 300,000 were lost. Aside from ongoing Alliance debates, GEAR was repeatedly questioned by unions, women's groups, left political parties, churches and NGOs (including a major 1998 99 SA Non-Governmental Organisation Coalition alternative economics commission, itself hotly contested from within by several conservative NGO leaders displaying residual ANC loyalty).

Development policy: The Washington way?

World Bank staff, working with conservative local bureaucrats and consultants, also designed other micro-development policies. In the cases of low-cost housing, land redistribution and small business promotion, neo-liberal policies were reliant upon commercial bank lending, the availability of which was far short of what Ministers Joe Slovo (and his replacement Sankie Mthembi-Mahanyele), Derek Hanekom and Alec Erwin gambled on. All three cases represent embarrassing development failures.

Development policy typical of the Washington Consensus era is also dominant in other critical areas. The first and decisive draft of the municipal infrastructure framework was written by World Bank staff, and will leave low-income urban residents in segregated slums. Thus instead of racial borders, planners are now dividing the cities along class lines, according to whether or not there is pit latrine sanitation, low-voltage electricity lines (inadequate to power a stove), and insufficient, means-tested consumption subsidies. Others from the World Bank mission in Pretoria have, since 1994, advocated a dramatically lower child maintenance grant, promoted "food-for-work" (not pay) in public works projects, and suggested the Department of Health conform to US-style "managed care" (insurance company-controlled) commodification of basic health services.

Suddenly, in the midst of growing Democratic Movement concern about World Bank bias in the ANC government, the figure of Joseph Stiglitz emerged in 1998. His January 1998 speech in Helsinki - subtitled "Moving Toward the Post-Washington Consensus" - represented a dramatic desertion from orthodoxy. Underlying Stiglitz's insights is a recognition that, in a context of individual economic decision-making, "informational asymmetries" cause market imperfections, particularly in financial markets.

This new line of argument excited some commentary in the South African press. By October 1998, ANC parliamentary whip Max Sisulu (the party's main Keynesian) was heard pushing the Stiglitz line so hard at an ANC executive meeting that Trevor Manuel pleaded with the gathering not to try to validate "a new high priest of economics." (Sisulu was soon "redeployed" from political leadership to head the state-owned arms manufacturer Denel.) In short, Stiglitz' critique from within appeared, at first blush, extremely helpful in undermining confidence in existing policies.

A warning may be in order, however, echoing that of Manuel. According to London School of Oriental and African Studies economist Ben Fine, Stiglitz's post-Washington Consensus shares some of the same fundamental flaws as its predecessor: "It can deal with the regulation of the financial system, for example, its efficiency, and the protection of shareholders, without once mentioning the economic and political power structures embodied in a financial system."

Indeed the current disjuncture between the status quo oriented Clinton - Rubin - Camdessus - Greenspan - Fischer - Summers bloc and reformers centred around Stiglitz may boil down, ultimately, to an elite fight between hostile brothers. As Fine concludes, "The social content of [Stiglitz's] theory - based on the methodological individualism of neoclassical economics - seems incapable of explaining the presence of social structures and institutions, let alone classes and the state, whose existence is glaringly obvious."

As if to remind South Africa of even more obvious radical doctrine, a surprising document was released, also in October 1998, by the ANC-SACP-Cosatu Alliance: "The Current Global Economic Crisis" (published in the African Communist, First Quarter 1999). Authors Jeremy Cronin, Joel Netshitenzhe and Mavivha Shilowa insist that "The present crisis is, in fact, a global capitalist crisis, rooted in a classical crisis of over-accumulation and declining profitability."

But the radical tone, unprecedented in recent years and truly extraordinary as official ANC-Alliance sentiment, belied the managerial, decidedly non-transformative character of the strategic vision that followed, calling for quite pedestrian economic reforms: "the need for fiscal discipline" (a GEAR shibboleth); a surprisingly conservative approach to funding old-guard bureaucrats' pensions (reducing available monies for social programmes); "a more nuanced understanding of the key challenges in terms of Tax policy"; more flexibility when lowering protective import tariffs; "less rigidity on inflation, and less anxiety about defending the value of the rand - and therefore the prospect of easing pressure on interest rates."

In the end, the document's concrete proposals come to rest squarely within the existing framework of GEAR. Thus while the penultimate paragraph begins, "At the ANC's NEC of last weekend, the notion of an Alliance `post-GEAR' consensus was mentioned in passing," the document is quick to deny the merits of "engag(ing) polemically with each other along these lines" - and so in the process vanquishes more progressive critiques.

Resistance from civil society

Yet key segments of South African civil society, at least, activity continue to offer hope for a post-post-Washington Consensus. Advocates of economic justice are found more and more frequently in networks and loose coalitions such as the Campaign Against Neo-Liberalism in South Africa and the Jubilee 2000 debt cancellation initiative. The latter, chaired by Molefe Tsele and with patrons including Archbishop Ndungane and poet Dennis Brutus, has had phenomenal success in recent months publicising the US$20 billion in apartheid-era foreign debt inherited by the ANC in 1994. Some government officials - especially Manuel and his lead bureaucrat, Maria Ramos - wish the issue would evaporate, and have gone to great lengths to delegitimize the Jubilee effort.

But what this example, plus a recent denunciation of Stiglitz by SA NGOs unimpressed by his back-tracking from the Helsinki speech during a January meeting in Johannesburg, and all the other contestations of South African neo-liberalism represent, is the potential for a realignment of politics once the 1999 election is behind us. Forces in civil society, perhaps joined by some maverick Communist Party activists, could well advance several of the socio-economic "wedge issues" to the point at which a new Mbeki administration would be forced against the wall, pressured to choose between losing a large constituency or trying a completely different approach to policy-making.

At a time when Southern African ruling political parties are too frightened to even take a Stiglitzian position - or if they do so occasionally as has Mugabe, it is in the most erratic and counterproductive manner - progressive forces in civil society (and perhaps, like Mozambique, in parliaments) will have to unite and, quite probably, cross borders to make coherent demands of their leaderships. Central to such demands will be a strengthening of regional and nation-state sovereignty in the face of a crisis-ridden globalization, and far more seriousness around regional economic integration, glued through solidarity against the institutions of the Washington Consensus.

Such demands won't be successful for the immediate future, to be sure. But they offer the only common-sense card that many of the region's social forces now have to play.

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