The Multinational Monitor


B A N K I N G   O N   P O V E R T Y

Preserving Inequality

The World Bank in Zimbabwe

by Patrick Bond

Harare, Zimbabwe--In Zimbabwe, the beleaguered northeastern neighbor of South Africa, the result of the World Bank's new role as policeman for the big commercial banks is discouragingly clear. Zimbabwe's ruling ZANU party's fierce pride and Marxist- Leninist rhetoric notwithstanding, President Robert Mugabe and his conservative finance minister, Bernard Chidzero, are now at the mercy of the World Bank's money mandarins.

Numerous confidential World Bank staff loan reviews of Zimbabwe were leaked to the press shortly after World Bank President Barber Conable's November 1989 visit to Zimbabwe's capital of Harare. They illustrate the Bank's control over national planning and key economic sectors.

The World Bank's influence stems from its adoption in the last few years of many of the traditional functions of the International Monetary Fund (IMF). With the IMF facing hostility from many quarters and fast running out of money, the World Bank joined the Fund in making short-term, "structural adjustment" loans designed to address balance-of-payment problems. Though the Bank recently announced its intention to shift away from these loans, 25 percent of its loans are currently devoted to structural adjustment.

Not their own masters

Today, 10 years after Mugabe wrested power over what was then Rhodesia from Ian Smith, Zimbabwe's economy is still in the hands of several thousand whites, while most of the nine million blacks remain landless, unemployed and highly vulnerable to periodic droughts. The country's commercial banks, for example, make 97 percent of their loans to whites, the Financial Times recently reported. Effective prohibitions on land reform combined with greater integration with and dependence on a hostile world economy have distorted what was potentially a model developing country economy employing an import- substitution strategy and striving toward self-reliance. Even the broadly-based manufacturing sector, inherited intact from the sanctions era, has withered under the strain of Zimbabwe's dept repayment schedule.

Although a black middle class of high-ranking civil servants has emerged and luxury goods are abundant, much of the illusion of economic prosperity is due to stock market and real estate speculation. From the recent meteoric stock market rise-- valuation increased from US$ 150 million in 1984 to $800 million at present--just $50 million of the increase can be attributed to productive capital investment, the rest being mainly gambling by insurance companies.

Zimbabwe's political and economic landscape was molded by British and U.S. geopolitical strategists who organized the Lancaster House settlement (which brokered the end of the civil war and mandated a transfer of political power to the black majority) in London just over a decade ago. Western goals were to constrain ZANU's mild socialist urges, to prevent white flight (only half of 200,000 settlers left, and some have since returned) and to make Zimbabwe a responsible actor in world politics. Most importantly, argues Zimbabwe's leading political economist, Ibbo Mandaza, the 1980 settlement was to serve as a model for transition to pro-Western majority rule in South Africa.

Enter the World Bank and IMF. These lenders provided loans to Zimbabwe on the condition that the new country adhere to their orthodox economic prescriptions. As early as 1982, the IMF was pressuring Zimbabwe to cut wages and limit domestic demand.

According to a 1983 Bank report, "Zimbabwe's major short-run problem is controlling domestic demand so as to reduce inflation.... The Government is discussing with the IMF a stabilization program which stipulates a number of measures including: an exchange rate adjustment--as a result of the dialogue, the Government devalued the Zimbabwean dollar by 20 percent on December 9, 1982 in order to restore export competitiveness that had been eroded by large increases in labor costs and high domestic inflation; an adjustment in the basket of currencies on which the value of the Zimbabwean dollar is determined; a reduction in the budgetary deficit; limitations to wage and salary increases; and ceilings to short-term external debt and domestic credit."

Chidzero termed the IMF pressure "a psychological-political situation which we can't ignore;" he eventually agreed to the entire list. But the IMF later cut Zimbabwe off from the $385 million line of credit that followed, because the finance minister presented a 1984 budget driven into deficit by horrendous drought and the costs of South African destabilization efforts.

Most of Zimbabwe's cabinet "hated the IMF," says one former official. So Mugabe authorized the treasury to repay the Fund completely and invited the World Bank to expand its activities. For the Bank, Zimbabwe was not completely unfamiliar turf.

The World Bank and Rhodesia

In 1956 the World Bank had largely funded the Kariba Dam on the Zambezi River (a few hundred miles below Victoria Falls), producing what was then the biggest artificial lake in the world. But the loan for the dam and power generation infrastructure--which amounted to $80 million (in 1956 dollars), the Bank's largest project up to that point--made inadequate provisions for the 56,000 Batonka tribespeople who were displaced from their traditional grounds on the shores of the Zambezi.

Based on numerous academic studies, World Bank critic Cheryl Payer concludes that the forced resettlement destroyed the Batonka's matrilineal land rights, cut their food supplies and access to fresh water and dramatically increased disease and death rates. The instigators of the Kariba Dam project--and its major beneficiaries--were the copper subsidiaries of the Anglo American Corporation (See Multinational Monitor, September 1988) and American Metal Cimax, Inc. Hundreds of workers were killed while constructing the dam.

The World Bank sent another US$ 60 million to what was then the racist colony of Southern Rhodesia. According to Payer, major agricultural loans were largely geared to forcing privatization of plots in the Communal Lands. This had the dual effect of avoiding the real moral issue--the equitable return of the people's land--and also breaking up the local culture which was resisting Rhodesian white capitalism. With his Unilateral Declaration of Independence, Ian Smith defaulted on those early World Bank loans, but the British repaid some of them.

The Bank's surprising new allies

The World Bank returned shortly after independence, initially funding imports--mainly raw materials and spare parts--for the manufacturing industry and railways. An initial goal was to limit the country's import-substitution policy and integrate Zimbabwe into the international capitalist economy. Chidzero's Finance Ministry has been instrumental in achieving this goal.

In 1982, Chidzero made clear to U.S. investors--including top officials of Citibank, Chemical Bank, Chase Manhattan, Manufacturers Hanover Trust and First Bank of Boston--how he felt about his Government's official policy of socialist transformation, saying "We talk about ideologies without doing much about it." (Citibank and Bank of Boston accepted invitations to open offices in Harare, but withdrew shortly afterwards because of hostility from the local banking industry, led by London-based giants Barclays and Standard Chartered.)

In a 1985 interview with Zimbabwe's main newspaper, the Herald, Chidzero expanded on his identification with IMF prescriptions. "We have no problem with the IMF over [cutting] food subsidies.... We are spending disproportionately more money on what we call social services. ... We have to try to balance the expenditure in the various sectors of the economy; we are trying to do so."

While Chidzero was agreeing with most of the IMF philosophy, Mugabe at least offered some resistance: "There is current pressure from the IMF to cut Government spending on education and defense but the Government has a way of overcoming this pressure."

But by the end of 1985, the head of the World Bank's Southern Africa division said publicly that he "found a wide degree of consensus between the Government and the World Bank on major economic policy issues, particularly the dangers inherent in the growing budget deficit." Even after the IMF cut Zimbabwe's line of credit in 1984, according to the Herald, "Chidzero stressed that while it had made things 'a bit uncomfortable,' the IMF suspension was only temporary, would not cripple the economy and Zimbabwe was in no danger of defaulting on its debt."

The World Bank agenda

The World Bank initially concentrated on project lending before turning its attention to national economic planning. Several staff reports on specific loan projects reveal the Bank's power. In taking out energy-related loans as early as 1981, for example, Zimbabwe's government was forced to agree not to reduce coal prices, and the Zimbabwe Electricity Supply Authority (ZESA) was required to implement an energy pricing policy recommended by a British accounting firm. The World Bank also has a say in who runs ZESA, and ZESA is not permitted to take out loans without Bank approval unless its earnings reach 150 percent of debt service.

The Bank has also forced changes in Zimbabwe's credit policy for new businesses, through its $10 million loan to the Small Enterprise Development Corporation (SEDCO). A 1985 report boasted, "Following a Bank suggestion that SEDCO systematize and consolidate its interest rates on the basis of specific categories of borrowers, SEDCO agreed at the negotiations to charge 18 percent on loans to projects in urban areas and 16 percent to projects in rural/communal areas." Prior to that, the average SEDCO loan had an interest rate of 14.3 percent. Acceding to Bank demands, SEDCO also de-emphasized lending to cooperatives and agreed "not [to] modify its policy statement without prior consultation with the Bank."

Opposed to any traces of socialism, the World Bank in an April 1989 memo also demanded an end to the government's support of agricultural cooperatives, stating "the cooperatives need to adjust and rationalize their operations to meet any fair competition and Agricultural Service Cooperatives should operate on commercial principles."

In exchange for a $36.9 million loan to the Agricultural Finance Corporation (AFC) in 1989, the Bank demanded and won veto power over the selection of the AFC's deputy general manager, a renewed government emphasis on cotton export production and a guarantee that the AFC impose very tough repayment conditions on its many small farmer borrowers, who, through no fault of their own, had pushed the AFC loan payment delinquency rate from 19 percent in 1986 to 48 percent in 1989. The demand for stringent repayment conditions and Bank stipulations that the loan delinquency rate must be decreased to 15 percent by 1991 come despite the Bank's admission that the AFC's loan delinquency problems are largely related to a breakdown of its computer system and lack of field representatives outside of Harare.

New rhetoric

When World Bank President Barber Conable made a special trip to Harare last November, he declared Zimbabwe "poised for a potential economic take-off." Just prior to Conable's visit, a bus crash left 78 Zimbabweans dead. Like other such incidents, the disaster resulted from bad quality tires. That problem, it is widely acknowledged, directly results from the foreign exchange squeeze induced by the debt crisis. With the public bus service in shambles, residents of Chitungwiza � Harare's Sowetostyle satellite township � have been counting on the government's promise of a new light railway line to transport people into the city. Conable refused funding for the project, and many observers believe the rail line has been shelved as a result.

While Conable avoided unpleasant issues like the transport crisis, Zimbabweans were treated to new World Bank rhetoric about "productive investment" and the need to support "the dynamic informal sector."

But the Bank's main concern is with promoting reliance on market forces and encouraging the state to give up its role in the regulation of the economy, as excerpts from its "Private Investment and Government Policy" report, circulated to policy-makers in early 1989, reveal:

A reduction in the share of financial resources going to the public sector will be essential [through] a gradual reduction in prescribed asset requirements [for financial institutions], encouragement of the use of the stock exchange, and greater interest rate flexibility.... Current plans to continue to unwind [the] price freeze are fully supported. Similarly a shift away from the system of administered wage setting is desirable. Relaxation of job security regulations will reduce the risks associated with investment. However, too much should not be expected in terms of new investment inflows in view of the global pattern of new foreign investment.

The Bank's prescriptions will exacerbate the problems of the Zimbabwean economy. Its free market approach to investment will continue to stifle, not unleash, production while promoting financial speculation. The Bank's cash crop export bias is good for agribusiness but bad for entrepreneurial peasants. And the World Bank's demand for higher SEDCO interest rates makes it even more difficult for the informal sector to flourish financially.

Rather than new rhetoric, Zimbabwe needs a resolution of its old problem: the inequitable distribution of land. But the redistribution of land, much of which is still controlled by 4,500 white farmers, contravenes the prevailing capitalist shibboleths of private enterprise and export-led growth. Zimbabweans now seem resigned to the fact that the World Bank and IMF will never allow the country to develop independent of those market principles.

Patrick Bond is a Visiting Research Associate in the Department of Political and Administrative Studies at the University of Zimbabwe.

Table of Contents