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Carolyn Bassett reviews Joseph Hanlon's book, Peace Without Profit: How the IMF Blocks Rebuilding in Mozambique. "The central argument of Hanlon's book is that the policies of the International Monetary Fund in Mozambique are the main factor hampering reconstruction and development. The broad outlines of the argument will be familiar: IMF `stabilization' programmes assume that balance of payments deficits are caused by inflation, and so controlling inflation is the over-riding goal. Since inflation, in turn, is caused by too much money chasing too few goods, even a war-torn society such as Mozambique must reduce inflation, by reducing government spending, by raising interest rates, by raising taxes." (jbv)

vol 12 no 2

Review: Stealing the peace dividend
review by Carolyn Bassett


Printable Version
 
Southern Africa Report

SAR, Vol 12 No 2, February 1997
Page 30
"Reviews"

STEALING THE PEACE DIVIDEND

A REVIEW BY CAROLYN BASSETT

Carolyn Bassett, a member of the SAR editorial collective, is doing research on the IMF and the World Bank.

Peace Without Profit: How the IMF Blocks Rebuilding in Mozambique}, by Joseph Hanlon (James Currey, Oxford and Heinemann, Portsmouth, New Hampshire 1996) 176 pages.

"Reconciliation succeeded to a level that seemed unimaginable at the height of the fighting. Mozambicans do not want to return to war.

"But if peace has stopped the bloodshed, it has not brought the economic prosperity that Mozambicans expected. For peasants, urban workers, and the tens of thousands trying to make ends meet in the informal economy, life has not improved, and they do not understand why. Peasants can grow maize and feed themselves, but who will buy their surplus maize and sell them oil? Why are the roads not open? Why are schools still closed? Why are wages and industrial production falling? Nor has the shrinking economy been able to absorb most of the 93,000 demobilized soldiers. Their only skill is killing; will they return to the gun as the only way to earn a living?" (p. 147)

The central argument of Hanlon's book is that the policies of the International Monetary Fund in Mozambique are the main factor hampering reconstruction and development. The broad outlines of the argument will be familiar: IMF "stabilization" programmes assume that balance of payments deficits are caused by inflation, and so controlling inflation is the over-riding goal. Since inflation, in turn, is caused by too much money chasing too few goods, even a war-torn society such as Mozambique must reduce inflation, by reducing government spending, by raising interest rates, by raising taxes.

The result, on the city streets and in the countryside of Mozambique, is not stability, but rather enduring poverty, corruption, and crime. Yet since inflation remains at 40%, each year new deflationary measures are introduced into the conditions the Mozambique government must accept in order to continue its IMF loan. The result, and particularly the high interest rates on commercial lending (approximately 45%), Hanlon argues, is in essence bad capitalism.

Bad capitalism

Hanlon invokes a range of unlikely supporters of this key argument: Antonio Galamba, managing director of the largest private bank in Mozambique, Banco Standard Totta de Mocambique, Lisa Audet, assistant vice president of the Equator Bank (part of the Hongkong and Shanghai Banking Corporation, seventh largest in the world), neo-liberal Harvard economist Jeffrey Sachs, and a consortium of aid donors to Mozambique, including resident representatives of the UN, EC, and the US ambassador, who took the unprecedented step of criticizing the IMF's focus in 1995. All argue that rapid growth, rather than deflation, is what Mozambique needs right now. The well respected Mozambican consultancy group Austral identified lack of credit as the worst problem faced by local business, contradicting a World Bank study which did not mention credit at all.

Evolving class relations and the emerging economic structure closely reflect credit access patterns. Large traders, who usually demand only short-term credit, have retained their access, while informal sector traders lack even the minuscule amounts that would allow them to expand. In rural areas, selling agricultural products is difficult because rural traders lack credit, and few rural shops have re-opened, so peasants have little incentive to market surplus maize. Urban industries find the interest rate prohibitive for the long-term and risky investment which developing or rehabilitating productive facilities would entail. Thus IMF policies actually support and promote corruption and A "trader" economy (rather than a productive one), as well as increased polarization between rich and poor and extreme poverty at the bottom.

Hanlon also shows how IMF "stabilization" policies are limiting the support other aid donors can provide. At IMF insistence, untied aid to the government in support of general expenditures (which, of course, are directed by the structural adjustment program) has been almost halved in percentage terms since 1994, and Hanlon describes the myriad of mechanisms donors use to develop projects outside of IMF scrutiny - repackaging general support as projects, for example, or working directly with provincial authorities, who this far are not subject to IMF scrutiny. These processes, Hanlon, argues, are expensive and wasteful.

IMF millenarianism

This work will be much less controversial than Mozambique: Who Calls the Shots of 6 years ago. Although Hanlon has not abandoned other familiar targets like bilateral and multi-lateral aid donors, and NGOs, operating at cross-purposes with the Mozambican state and each other, and powerful and corrupt Mozambican `goats' who enrich themselves on the immiseration of the majority, his main goal is to force the IMF to renounce its obsession with wringing inflation out of the Mozambican economy, an obsession, Hanlon claims, which has taken on the character of religious dogma. He recommends that sympathizers with Mozambique's plight pressure the IMF governing structures to change their focus or leave altogether, using the arguments that present IMF policies are failing on their own terms and may force Mozambique back to war.

Much of Hanlon's analysis will not appear new to readers; it has appeared elsewhere in his own work and the works of others. However, the new research he brings forward detailing the IMF's policies and the programmes of other donors is valuable and extremely interesting for students of Mozambique (even those who accept little of his "line"). Insider information on the machinations of the World Bank and the IMF always make for scintillating reading, and their latest escapades in Mozambique would be the material of an old-fashioned farce, if they were not so tragic in their outcomes.

The book is structured into three sections. The first describes and analyses Mozambique's economy today, focussing in particular on the role of donors and the (national) state. In addition to sections on the Bretton Woods organizations, credit and recolonization, there are detailed discussions of the debate over cashew policy, road rehabilitation, and agricultural exports, all critical elements of the reconstruction process where the World Bank has had a hand (or a fist).

The second puts forward some rather treadworn alternative economic development ideas, including Hanlon's preferred economic programme of peasant-based development. Hanlon's alternative, while promising, does not receive the same attention to domestic social forces, the international economic environment, donors (surely likely to be an ongoing influence in Mozambique's immediate future), or even the emerging nature of the state that his trenchant critique of the IMF received. Thus the section remains rather underdeveloped, undoubtedly because Hanlon sees changes in the IMF's policies as the first and most critical step to addressing Mozambique's economic crisis. At the end of the final section, which looks to Mozambique's future, a more developed series of recommendations appears, and indeed forcing the IMF to change its line is the first priority. "Nothing is possible without a change in IMF policy," he argues.

The much touted "peace dividend," illusory everywhere since the end of the Cold War, certainly has been absent in Mozambique. Hanlon's goal in Peace Without Profit is to bring Mozambique at least one step closer to realizing such a "dividend" by exposing the ill-conceived policies of the IMF. Seen in these terms, the book is a welcome addition to the burgeoning debate on the nature of post-war Mozambique and current development prospects. The language is engaging and Hanlon makes economic concepts easy to understand. And witnessing Hanlon chastise that paragon of monetarism and neo-liberalism, the IMF, for being bad capitalists is well worth the admission price. But as SAR readers will know, the debate about Mozambique's future, even on the left, is enormously complex, and some of Hanlon's easy answers may be more limited in their impact, not to mention more difficult to carry through, than he suggests.

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Printable Version

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