DEVELOPMENT, DEBT AND DEPENDENCY

DEVELOPMENT, DEBT AND DEPENDENCY

THE FOOD SHORTAGES, growing indebtedness and environmental degradation in sub-Sahara Africa present a compelling indictment of efforts to promote African development through the international finance system. As the people of the region are starving, multilateral lending institutions are forcing African governments to cut food subsidies, limit subsistence agriculture and slash support programs as conditions for receiving new loans. The loans themselves, however, are blamed by many development experts for much of the region's poverty. The World Bank and the International Monetary Fund (IMF), they say, have used sub-Sahara Africa's dependence on borrowed money to impose macroeconomic conditions that undermine both the region's ability to function independently of the western-dominated global market and its capacity to support its people without turning to others for help.

"The more governments look outward for financing for the development process, the more that assistance process defines the internal development process," says Doug Hellinger, co- director of the Development Group for Alternative Policies. "Where the donors put their emphasis ... that's the direction these countries go in."

Hellinger and others argue that emphasizing the export of cash crops--cocoa, sugar and coffee--over consumption-based agricultural policies often puts the needs of the international financial system ahead of those of the region. As for the expressed goal of development, high levels of borrowing have done little for sub-Sahara Africa.

"Moving people away from first producing for their own needs is a very dangerous process," says Hellinger. "You are orienting the whole economy toward foreign consumption [instead of] producing with one's own resources for one's own people."

The economic performance of sub-Sahara Africa over the past two decades has been disappointing. Virtually all indices of economic development registered stagnant, if not negative growth rates. Between 1979 and 1986, for example, only seven countries in the region achieved a per capita increase in agricultural production. Of the 41 countries classified by the United Nations General Assembly as "least developed"--the poorest of the poor-- no less than 27 are found in sub-Sahara Africa.

Yet, these figures say little about the sad realities of life in Africa. Income disparities have grown dramatically. In Kenya, for example, 10 percent of the population receives more than 45 percent of the country's annual income. And poverty continues to wrack the region, with 70 out of every 100 Africans either destitute or close to it with an annual per capita income ranging from $59 to $115.

The condition of the poor has deteriorated even further as governments across the continent have been forced to adopt harsh austerity measures required under IMF or World Bank "structural adjustment" programs. The fiscal constraints to which both of these institutions have subjected African countries have actually hindered further progress in agriculture, the area of greatest import to most Africans. Simultaneous efforts by countries throughout the region to increase agricultural exports have driven commodity prices down, reducing export earnings. This decline has exacerbated the foreign exchange crisis, causing a dramatic drop in capacity utilization in all sectors of the economy. Foreign exchange shortfalls, ironically, are often cited as the impetus of agricultural conversion from consumption- to export-oriented crops.

"The underlying reason for an emphasis on cash crop production is the foreign exchange shortage that [a] country typically faces," says one official. "The country needs that foreign exchange in order to import the machinery and the fertilizers and the kind of trucks and equipment that are needed to revive the agricultural sector."

The IMF has assumed an increasingly vocal and powerful role in determining what is best, from its perspective, for the nations of sub-Sahara Africa, and how these nations can, theoretically, prosper within a northern-dominated international economic order. The low conditionality loans (containing few or no demands for structural "reform") that comprised 80 percent of the region's business with the IMF in the first part of the 1970s were drastically reduced. By 1980, only 25 percent of IMF lending involved low conditionality clauses. This shift was accompanied by a proviso imposing IMF-endorsed structural adjustment programs prior to reaching financial arrangements with private creditors. This enlarged role has aroused a great deal of controversy. In the words of Tanzania's former president Julius Nyrere, the IMF has become "the International Ministry of Finance," with enormous leverage to dictate the national policies of African governments.

In order to promote repayment of its loans, the IMF requires borrowers to meet certain established macroeconomic goals for such indicators as the balance of payments and the inflation rate. The IMF, technically, allows nations to implement their own strategies to attain compliance, but critics contend that both the IMF and the World Bank approach structural adjustment from a strictly capitalist perspective.

"They are wedded to a pure market, private sector, export- oriented approach," says Hellinger, that "discards right off the bat other general development approaches." Typically, multilateral lending institutions promote a two-fold approach of cutting government spending and decreasing import consumption (thus freeing more money to pay the debt) and increasing exports to eliminate the balance of payments deficit. In the latter case, lowering taxes and the minimum wage is recommended in order to attract new foreign investment.

"What [the IMF and the World Bank] say is that they are trying to introduce market systems . . .," says Patrick Bond, a member of the Coordinating Committee of the Debt Crisis Network and a Visiting Scholar at the Washington, D.C . Institute for Policy Studies. "The problem is that a lot of these countries employ pre-capitalist formations--peasants, cooperative structures and African rural life--which are not a market economy at all and which will get crushed if market discipline is imposed on them."

The IMF believes that private enterprise is the best way to create wealth and must be given optimal conditions in which to do its work if society as a whole is to benefit. Others, however, challenge this theory, asserting that it benefits only a few local elites and disguises a massive transfer of African wealth to multinational corporations. Says Bond: "With the failure [of African nations] to repay their loans, and to start a real development process, what we've seen is an effort, in the words of one Chase Manhattan banker, to 'search the world for collateral.' And the best way to get collateral is to move in and take over things that already exist and are already productive. What [IMF-imposed measures] have done for the global economy is let banks and companies come in and actually buy, through the so-called debt-equity swaps, a country's productive resources."

Between 1980 and 1986, 22 sub-Saharan countries obtained 55 Paris Club agreements. "Paris Club" refers to the ad-hoc gathering of Western creditor governments that since 1956 has arranged the renegotiation of debt. Such restructuring agreements, as a rule, are not granted unless the debtor nation has first adopted an IMF-sanctioned stabilization program. At the end of 1987, about 30 African countries were undertaking economic adjustment programs or were expected to resume them with the World Bank, the IMF, or the two institutions jointly. Although some of these countries have improved their short-term trade and balance of payments positions, few have gained in any of the areas that measure real, sustainable development. Instead, most have slid backward amid growing inequality, deindustrialization and poverty. According to a recent World Bank report, per capita income for the poorest 29 African countries in 1986 was 20 percent lower than in 1970. In such countries as Chad, Nigeria and Tanzania, the drop since 1980 alone was roughly 30 percent, as steep a fall as in the United States during the "Great Depression."

The idea that commercial bank loans are needed to finance export-oriented investment so that African countries can generate foreign exchange to finance economic development is fallacious and misleading. A primary, if largely unstated, motive of both public and private creditors in promoting exports is merely to ensure that debtor nations generate enough external revenue to keep current on their debt obligations. And, since the IMF advises not only one, but dozens of developing countries to do the same thing at the same time, commodity prices are forced down, aggravating the balance of payments difficulties. Moreover, African nations are at a distinct disadvantage in the international market.

"You're competing against highly sophisticated international companies," says Hellinger. "It isn't just quota and tariff barriers. It's quality standards, packaging, administrative blockages. It's very, very difficult to compete in that type of environment. And, of course, we're not dealing here with equals at all."

In some cases, the emphasis on exports has come about at the expense of food production for local consumption. The region now spends about $18 billion annually on food imports, a figure greater than that spent on fuel imports. This dependence on food imports is sowing the seeds of future famines. The drought in the United States is likely to exacerbate the problem. Price increases as a result of reduced U.S. production will aggravate balance of payments problems and deplete much-needed foreign exchange. And U.S. officials have privately warned international aid agencies that they should not expect donations of food from the United States this year.

The Myth of Independence
While both western and Third World leaders regularly invoke the concepts of interdependence, mutual interest and solidarity, the condition of the poor in the Third World continues to deteriorate.

Africa's underdevelopment and indebtedness both are historical phenomena. After the partition of Africa in 1884, the colonial powers (Britain, Germany, France and Belgium) turned the continent into a site for the production of raw materials by exploiting cheap African labor. The raw materials were very important for the industrial revolution of Europe. At the same time, Africa became the dumping ground for European industrial products.

When African countries attained political independence, or rather "flag independence," they found themselves trapped in the existing capitalist world economic order. Instead of disengagement from an exploitative system, many African countries embarked on development strategies based on that system, combining export promotion of primary products and import-substitution industries largely dependent on western markets with financial and technological inputs. While serving the interests of local elites and western multinationals in the short-term, this approach widened social and regional inequalities and bankrupted many African economies. This mal- development is a prime source of Africa's indebtedness.

The Myth of Free Trade
Despite major turbulence in the world economy, Africa is once again being advised by western governments and financial institutions to export its way out of debt by actively participating in international trade. The prescriptions offered are based on a positive scenario of growth in world trade, stabilization of commodity prices and the absence of protectionist barriers in western markets. The reality is, however, different. Free trade has primarily served those who have the leverage to impose their free will on their weaker partners. And export efforts have been far from successful. The never-ending decline in commodity prices still constitutes a major obstacle to any attempt by African countries to increase their export revenues. It is estimated that real commodity prices in 1981-1985 averaged 7 percent below the level of 1980 and 16 percent below the average for 1960-1980. In 1986 alone, export earnings dropped by 40 percent while the cost of imports rose by 20 percent. This cut Africa's export earnings from $65 billion in 1985 to $46 billion in 1986. The fall in commodity prices was accompanied by an increase in protectionism in the industrial countries, making access to these markets more difficult. An export-led development strategy has failed to bring about progress in Africa because the anticipated gains from trade have not materialized.

"[The IMF and World Bank] say that the way development takes place is through the promotion of international trade," Hellinger says, "despite evidence to the contrary. The real crime is that these countries got in a debt situation in good part because they followed the development model that made them highly dependent on foreign markets and foreign inputs, and highly vulnerable to changes in prices."

The decline in export receipts meant reduced capacity utilization in all production sectors, particularly those sectors that depend on imported materials. Attempts by African governments to borrow their way out of the stagnation have simply led to more indebtedness.

Enter the IMF!
The IMF has played a major role in Africa since the 1974 OPEC oil embargo. The IMF established the Oil Facility Fund that year to assist those African countries with huge balance of payment deficits as a result of oil imports.

While the economic impact of a growing dependence on imported food is well known, the political consequences are much more threatening to future development prospects. A country that cannot feed itself is in dire straits, even to the point of being blackmailed by external actors. The IMF, for example, imposed privatization on the Mozambique economy, giving many of the country's resources to Lonrho, a British firm run by multimillionaire Tiny Roland. Dependence also opens up an invasion of multinationals in agribusiness and other areas. As a consequence, a large number of African governments have been pressured to open their books to the IMF, dismantle their state- owned institutions and devalue their currencies. "To a large degree the problem [the IMF and World Bank] see in Africa is one of subsidized food coming out of a state apparatus in the central cities, and they try to wean these states from this structure," says Bond. "The government of Zambia, though, was weaned so much that riots erupted," he adds, ultimately forcing the country to drop out of the IMF in 1987.

With regard to foreign investment and private financial flow, Africa has benefited very little despite the rhetoric of renewed western commitment to the continent. Despite the fact that the majority of African counties developed new investment codes to attract foreign capital, there is little private sector investment in Africa. (Nigeria, Kenya, Zimbabwe and South Africa are exceptions.)

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Fantu Cheru is a Professor of Development Studies in the School of International Service at The American University and a consultant to the United Nations Development Program.

CORPORATE AGRIBUSINESS:

Seeking Colonial Status for U.S. Farmers

By A.V. Krebs

TODAY, IN THE U.S. and abroad, a struggle is taking place to determine who is going to control the production and delivery of our food, now and in the future. No longer do those who desire to control the world's supply of food see it as a sustainer of life; they have come to view it instead as a form of currency, a tool of international politics, an instrument of power--a weapon! In choosing to ignore the fact that the primary purpose of food is to feed a hungry world, food producers have provoked a myriad of serious social, economic, political and moral questions. Sartaj Aziz, a deputy director of the World Food Council, summed up all those questions when he asked at a 1976 international food conference in Ames, lowa: "Are we going to treat the world as a market, or as a community?"

Producing and distributing food has rapidly become a global problem as increasing numbers of people and private organizations recognize the need to help other nations, both developed and underdeveloped, achieve sustainable, self- sufficient, equitable agricultural programs.

But, due to recent U.S. food policy decisions that have had disastrous multinational economic and political consequences, U.S. farmers and consumers are beginning to show an acute awareness of the role that export trade is having on both the foreign and domestic scene.

Today, each U.S. farmer, backed by corporate agribusiness, feeds 116 other people, 30 of them living overseas. One in three harvested acres in the U.S. is shipped out of the country, including 54 percent of our wheat, 47 percent of our cotton, 40 percent of our soybeans, 49 percent of our rice and 26 percent of our corn.

Since 1970, domestic agricultural exports have increased by 425 percent. Meanwhile, net farm income has been steadily declining since 1953. Farmers' dependence on exports has doubled in just the past decade. In 1970, for example, the value of farm exports amounted to 14 percent of farmers' cash receipts from farming; by 1980 it was 30 percent.

American farmers have benefitted little if any from such trade. (See chart, page 20 - omitted here.)

In fact, the U.S. has achieved its so-called and much-heralded "comparative advantage" in agricultural trade basically through the sale of cheap farm commodities.

Bert Henningston, Jr., testifying for the National Farmers Organization before a House Agricultural Subcommittee in 1981, pointed out that "we've reduced the U.S. farm sector to a colonial status within the economy through the steady reduction of price support levels and the resulting steep decline in farm income."

"The grain trade figures prominently among the agricultural export expansionists who embrace free trade theory as a tool to promote cheap raw commodities policy. Representatives from multinational grain companies have been instrumental in lobbying Congress to reduce price supports for U.S. grain to the lowest levels in the world. Although the grain companies claimed that price supports had to be reduced in order to expand exports, in truth they wanted access to a low-priced pool of grain which would enable them to seek a competitive advantage for themselves," Henningston testified.

In 1921 some 36 firms accounted for 85 percent of the U.S.'s wheat exports; by the end of the 1970s just six companies-- Cargill, Continental Grain, Louis Dreyfus, Bunge, Andre & Co. and Mitsui/Cook--exported 96 percent of all U.S. wheat, 95 percent of its corn, 90 percent of its oats and 80 percent of its sorghum. They were also handling 90 percent of the Common Market's trade in wheat and corn, 90 percent of Canada's barley exports, 80 percent of Argentina's wheat exports, and 90 percent of Australia's sorghum exports.

The U.S. exports nearly 30 percent of the food grown by its farmers. U.S. grain exports account for 76 percent of world agricultural trade, the grain trade's elite great power in controlling world food supplies.

The leaders in the grain trade are two U.S.-based giants: Cargill Corp., the nation's largest private corporation, and Continental grain, the nation's third largest private corporation. Each controls about 25 percent of the market. Bunge follows with approximately 15 percent, and Louis Dreyfus Corp. is fourth with another 10 percent.

Former Rep. James Weaver, D-Ore., a one-time member of the House Agricultural Committee, once described this increasing concentration within the grain trade in rather vivid language:

These companies are giants. They control not only the buying and the selling of grain but the shipment of it, the storage of it and everything else. It's obscene. I have railed against them again and again. I think food is the most--hell, whoever controls the food supply has really got the people by the scrotum. And yet we allow six corporations to do this in secret. It's mind boggling!

And Montana journalist Mike Dennison adds, "It's hard to imagine a national debate on energy or oil without frequent mention of such corporate giants as Gulf or Exxon. Yet that is what has occurred in the debate on the nation's 'farm crisis,' with names like Cargill, Continental and Bunge seldom mentioned and scarcely recognized as having a critical stake in and likely influence over U.S. agriculture policy."

It has been argued in the past that artificially high domestic farm prices, supported by government subsidies, may provoke competing nations to increase their farm output and eventually displace American agricultural exports.

If U.S. prices can be brought down, the argument continues, these competing nations will have to abandon their farm-export subsidies and the world will again beat a path to the U.S. fields and orchards for its products, thereby assuring this nation's farmers of renewed prosperity.

A 1986 World Bank study, however, concluded that if the United States, Western Europe and Japan were to stop subsidizing agricultural exports, they would not only save their own taxpayers and consumers $104.1 billion a year, but would at the same time allow developing countries to earn up to $18.3 billion to help pay off their debts. "So why do countries not tear down their agricultural policies?" the report asked. "The reason, of course, is that the interest groups, whose support the policies aim to capture, would lose."

Considerations, therefore, concerning the future of U.S. agricultural trade require a careful study of the trade-offs between higher prices and total sales abroad.

A Chase Econometric study on the "Impact of U.S. Wheat Prices on Exports" found that price was a factor in only 10 percent of U.S. export sales. Currency exchange rates, interest rates, credit conditions, bilateral agreements and existing political conditions each were more important factors.

Other studies have also shown that no matter how low the U.S. price is set for a commodity, other nations will be forced to lower their prices to meet the new level. Export competitors like Argentina and Brazil must export every bushel possible, no matter how low the price, to get desperately needed foreign currency to meet their debt obligations or pay for needed imports. In short, fair prices for U.S. farmers would have very little impact on most of our foreign sales.

As Dennis Steadman, Chase Econometrics agricultural division vice president, warns, "the name of the game is subtraction, not market share. You have to look at what the world needs. Then subtract what other producers can supply and figure how much is left for the U.S."

The international monetary system, and grain traders, plays a hidden role in agricultural trade. From 1979 to 1985 the U.S. dollar rose 51 percent in real value while real net farm income fell 51 percent, exports dropped by 28 percent and farm subsidies went from $4 billion to $25.6 billion a year. As the value of the dollar rose, the price of U.S. commodities in the world market fell.

For example, in 1984, while Federal Reserve policies were forcing the dollar up 15 percent to an index of 125 in world markets, U.S. commodity prices were dropping dramatically, with corn down 19 percent, alfalfa off 13 percent, and soybeans down 19 percent, in contrast to 1979 when the dollar was at a historic low index of 83 in world markets and real farm income and exports were at a near record high.

Many farmers believed, as Warren Brookes of the Heritage Features Syndicate wrote in 1985, that until the Federal Reserve was willing to allow the dollar to drift back gradually to a realistic level the only thing that was standing between thousands of farm families and bankruptcy was some type of government subsidy program. Yet, "the basic problem is that the Fed's first commitment is to its larger member-banks--most of whom have bad loans outstanding in Third World countries. A strong dollar has made it easier for these countries to compete against our farmers in the world market--and thus to pay off the interest on these loans. Thus the big banks' interests are opposite those of the American farmer," Brookes wrote.

From such an analysis it can well be argued that the $25.6 billion in subsidies the Reagan administration ostensibly paid to farmers in FY 1986 was in fact another federal dole to an already voracious banking establishment.

A Congressional Joint Economic Committee (JEC) study, released in May, 1986 confirms this conclusion. U.S. policies toward Latin American debtor nations, the study argued, have seriously hurt American farmers and manufacturers without doing much to resolve the debt crisis itself.

The chief beneficiaries of those policies were the large multinational banks and bank shareholders, for they continued to receive interest payments from nearly all the debtor nations. In turn, those payments were contributing in large measure to the record increase in profits and bank stock prices realized by the banks in the mid-1980s. As the JEC study noted:

"The Reagan Administration's management of the debt crisis has, in effect, rewarded the institutions that played a major role in precipitating the crisis and penalized those sectors of the U.S. economy that played no role in causing the debt crisis."

In 1985, for example, as dozens of farm-state banks failed, profits of the nine major U.S. "money center" banks increased by 56 percent. The stock value of these top nine banks from 1982 through 1986 also went up 57 percent, while total U.S. farm assets dropped by 20 percent.

The JEC report goes on to show that not only did the debtor nations sharply cut their purchases from the U.S. during this period, they also stepped up production of many of their own products to earn the dollars they needed to service their debt. That, in turn, drove down prices worldwide for farm products and other natural resources.

Brazil, Mexico and Argentina, for example, in the past several years have cut their imports by 20 percent to 30 percent in real terms, while increasing their exports by 45 percent to 65 percent. It is the U.S. farmer who has born the brunt of this shift in trade policy. From 1981 to 1985, farming exports to Latin America alone dropped 35 percent--20 percent of the total U.S. agricultural export decline in those years. The impact was five times more damaging to U.S. farmers than the 1980 Soviet grain embargo.

Puzzling to many is the fact that although the value of the dollar appeared to drop by 32 percent in the mid-1980s, the U.S. saw little improvement in its overseas trading ventures. But, as Washington Post financial columnist Hobart Rowen notes, "the dollar, in fact hasn't gone down that much, across the board. it actually has gone up against the currencies of some of our big trading partners and been little changed compared with others."

He explains that the Federal Reserve index, which is the source for the 32 percent figure, was designed many years ago and hasn't been revised since 1978. Consequently, it includes only the 10 major industrial nations in Europe, Canada and Japan and excludes the other major U.S. trading partners, notably the newly industrialized countries (NICs), including South Korea, Taiwan, Singapore and Hong Kong. Overall, the Fed index now covers less than 60 percent of the nation's global trade volume.

"To put it another way," Rowen declares, "the Fed index continues to over-emphasize our trading relationships with Europe at a time when there is a re-orientation of American trade and financial interests toward the Pacific rim countries." U.S. trade with NICs went from $11 billion in 1975 to an estimated $65 billion in 1986.

Given recent U.S. monetary policies, many of which have been initiated by our banking institutions in concert with the federal government, it should come as no surprise that the Reagan administration has been using the nation's large trade deficit and a huge federal deficit as an economic club to force Congress to enact a wide range of deep cuts into programs that not only have perpetuated America's agricultural crisis, but also assuredly assisted corporate agribusiness in accelerating its concentration of power in the U.S. agricultural economy.

For, at a time when U.S. farmers were already losing as much as 50 cents on each bushel of corn exported, the Reagan administration was diligently working to get that price down by another 50 cents on the assumption that it would boost U.S. exports. Yet, most Americans still fail to realize that when such price cuts are called for it is the farmer who is being asked to give up one dollar per bushel, solely to increase the export business of a mere handful of large private grain traders. It is these traders that export our grain, not our farmers. And it is these corporations that are increasing their grip on the world's food supply.

A. V. Krebs is a long-time agricultural policy consultant and the former editor and publisher of Agribusiness Tiller. He was formerly co-director of the Agribusiness Accountability Project. He is currently writing a book titled The Corporate Reapers: Eradicating the Family Farm System in America.