Today, in the final part of my Discourse on the IMF and third world nations, we will be looking at the case study of a nation hurt and helped by the IMF – Zambia.
Case Study: Zambia
The issue of indebtedness and its dire consequences can be seen vividly in any of the highly indebted poor nations around the world. Each nation has its own unique story filled with similar marco issues and eerily similar
linkages. In 1990, Zambia took on an IMF program for debt repayment that would later lead to the death of 26 Zambian citizens and an attempt at usurping the power of President Kenneth Kuanda. The program required Zambia to end food subsidies for families and allow for the market to take over pricing foodstuffs throughout the country. Prices dramatically rose, causing riots, violence, and eventual death.
linkages. In 1990, Zambia took on an IMF program for debt repayment that would later lead to the death of 26 Zambian citizens and an attempt at usurping the power of President Kenneth Kuanda. The program required Zambia to end food subsidies for families and allow for the market to take over pricing foodstuffs throughout the country. Prices dramatically rose, causing riots, violence, and eventual death.As of the end of 2007, Zambia’s external debt was priced at $2.596 billion, which has likely increased with the recent economic hardships throughout the world that have hit nearly every nation. How did Zambia get to such high levels of external debt? Much like other third world nations, it began in the 1970s. Zambia was actually one of the most economically developed African nations before the 1970s.During this decade, however, Zambia was hit hard by an increase in the price of oil and a decrease in the price of exports, which caused the country to have a relative decrease in overall income. This decline in overall income, coupled with loans that were seeing increasing inflation rates, began what would begun a long, sustained relationship with the IMF for Zambia to attempt reduce its debt burden. The country, similar to other HIPCs, still has a significant amount of external debt that it faces even after years of IMF involvement.
In the late 1980s, the IMF began to introduce more significantly its SAPs to indebted nations seeking financial help. From the beginning of the SAP era till the HIPC Initiative that the IMF has introduced as of late, the country was required to privatize many markets, liberalize trade and remove protective barriers, make cuts on various subsidies, and freeze wages to its public sector. For example, according to Bradshaw and Huang, Zambia, in December 1986, saw “maize prices increase 120% following an IMF mandate that also ended food subsidies (which were later restored).”
One of Zambia’s main industries hit during the 1990s, due to SAPs, was the textile industry. Trade liberalization adjustments Zambia took on caused the nation to lower tariffs it had on textiles to help protect its own industry. As Lishala Situmbeko and Jack Jones Zulu write in their article, Zambia: Condemned to Debt, “the lowering of tariffs on textile products, and particularly the removal of all tariffs on used clothes, led to large increases in imports of cheap, second-hand clothing…Zambian textile industry could not compete with these imports…there were more than 140 textile manufacturing firms in 1991, but this had fallen to just eight by 2002.” 
Zambia’s textile industry is nearly an afterthought today. While cheaper clothing could be good for the country, if the imports cripple what industry the nation has available, then the liberalization actually causes a loss of jobs and revenue for the nation and its citizens. Many other industries, as well, have seen a negative impact from the IMF’s liberalization. The World Bank commented that the removal of food subsidies, which caused the 1990 riots, had caused “‘stagnation and regression instead of helping Zambia’s agricultural sector.’” The United Nations Conference on Trade and Development also concluded that farmers were worse off after the shock of the loss of subsidies had worn, and market prices had been established. Yet, even with some successes, external debt still remains very high for Zambia.From 1976 to 2000, Zambia actually saw negative growth in real GDP per capita from $1,455 per person to $892, and the latest figures, as of 2007 had the country returning to around $1,400. Other macroeconomic indicators, such as, the trade deficit grew worse from the 1970s to 2000 as well as unemployment.
Zambia was a qualifier for the HIPC program, and by 2005, the nation had undertaken the appropriate steps to receive debt relief measures. The country adopted and created a number of policies in order to meet the IMF and World Bank standards. According to the World Bank, Zambia had “promote(d) growth and diversification in production and exports, to improve delivery of social services, and to foster appropriate policies for fighting HIV/AIDS, while addressing gender inequality and protecting the environment." The country was able to enhance its HIV/AIDS awareness and prevention programs, worked harder to implement more basic healthcare for the poor and build a plan to battle malaria, increased compensation for teachers in rural areas, and developed plans for better public expenditure management.
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Since the creation of the HIPC program and its support of programs that extend past liberalism and are more in line with the Millennium Goals in 1999, Zambia has seen GDP growth. The nation has had an average growth rate of their GDP by 4.6% per year. The country has seen recovery in some sectors and better government management of revenues,according to the World Bank. In 2005, thus, Zambia was able to qualify for the new debt relief program under the HIPC Debt Initiative. According to the World Bank and IMF, debt relief will surpass $3.9 billion over time, which was a figured released in 2005. According to the CIA, this debt relief has reached over $6 billion in actuality. The debt relief is a multitude of donations from the International Development Association, removal of some payments to the IMF, and a combination of other creditors. The HIPC program has had some obvious better results, but the nation is still under significant external debt issues and suffers from high inflation rates.The current president of Zambia, President Kuanda, supports the program. His support shows the increase in
the HIPC’s ability to actually help these nations, since the IMF has been at the end of severe criticism from most third world leaders. Kuanda has supported the policies that the nation took on as part of the program and has brought about a lot of these changes that allowed for Zambia to qualify for the HIPC program in 2005.
the HIPC’s ability to actually help these nations, since the IMF has been at the end of severe criticism from most third world leaders. Kuanda has supported the policies that the nation took on as part of the program and has brought about a lot of these changes that allowed for Zambia to qualify for the HIPC program in 2005.Zambia represents what is currently happening in most indebted nations. The HIPC has definitely become the new program that the IMF and World Bank are using to help with relieving debt and getting money to these nations. The idea of SAPs are still inherent in the new plan, but the difference is that change now must come from the nation before they can apply for loans. In the past, nations did not have to make any changes prior to receiving the money and were forced into “command and control” methods that the IMF decided. Now, the benchmarks are set, and the nations determine, with the help of consultation, how to get there. Improvements among many of the HIPC countries has been seen, but the problem of debts is still very significant. In the case of Zambia, nearly $3 billion of debt still exist in an economy that has a GDP of only $14 billion. The country’s economy still is facing a significant amount of its debt to GDP, and it has very little way to counter that debt besides the use of the IMF and World Bank still. The problems of the loans and debt still exist and create many ethical issues.
Good Investing,
David Ristau
